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) and information technology infrastructure services. Our staffing services consist of workforce solutions that include providing contingent workers, personnel recruitment services, and managed staffing services programs supporting primarily light industrial, professional administration, technical, information technology and engineering positions. Our technology outsourcing services provide pre- and post- production development support, testing, and customer support to companies in the mobile, gaming, and technology devices industries. Our managed service programs consist of managing the procurement and on-boarding of contingent workers from multiple providers. Our information technology infrastructure services provide server, storage, network and desktop IT hardware maintenance, data center and network monitoring and operations. Our complementary businesses offer customized talent, technology and consulting 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. 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 100 locations worldwide, with approximately 86% of our revenues generated in the United States where we have employees in all 50 states. Our principal non-U.S. markets include Canada, Europe and several Asia Pacific locations. Our global footprint enables us to deliver consistent quality to our large strategic customers that require an established international presence.
During fiscal 2016, we evaluated our reportable segment structure based on our new management organization and the changes implemented in connection with our new business strategies, including the initiatives to exit non-strategic and non-core operations.
As a result of this assessment, we now report our activities in three reportable segments and an “Other” category:
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North American Staffing
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Technology Outsourcing Services and Solutions; and
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All other business activities that do not meet the criteria to be reportable segments are aggregated with corporate services in the Corporate and Other category. Our new 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 profitable revenue growth and segment operating income as the primary financial measures. We believe 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. There has been no change in our total consolidated financial condition or results of operations previously reported as a result of the change in our reportable segments.
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 and fees related to restatement, investigations and remediation that were completed during fiscal 2014. 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 Financial Accounting Standards Board Accounting Standards Codification Topic 280, “Segment Reporting,” (“FASB ASC Topic 280”). See Note 20, “Segment Disclosures” for further information.
Description of the Reportable Segments and Corporate and Other Category
North American and International Staffing Segments
Our two staffing services segments provide workforce management expertise through locations in North America, Europe and several Asia Pacific locations. We deliver a broad spectrum of contingent staffing, direct placement, recruitment process outsourcing (RPO), 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, administrative, call center, accounting and finance.
Our contingent staffing services are provided for varying periods of time to companies and other organizations (including government agencies) ranging from smaller retail accounts that may require ten or fewer contingent workers at a time to large strategic accounts that require as many as several thousand contingent workers at a time. Our large strategic accounts typically enter into longer term procurement 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 or national customers, while our retail customers 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. We provide traditional staffing services for which we are paid on a time and materials basis and provide contingent staff that 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 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. 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, 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.
Technology Outsourcing Services and Solutions Segment
Our Technology Outsourcing Services and Solutions segment provides quality assurance, business intelligence and analytics and customer service support for companies in a variety of industries. Our global, integrated pre- and post-production services and call center solutions deliver end-to-end value for a range of consumer-facing technology companies, whose products include hardware, software, games, mobile products, and wearable devices.
We partner with companies of all sizes to get better products to market faster and deliver exceptional support for every stage of the product lifecycle. Our scalable services are customized to the way our clients work and provide the flexibility and expertise to improve operational agility, efficiency, and productivity.
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Quality Assurance - Our services assist in ensuring our customers’ product performs as designed. These services extend to game, hardware, software, consumer product and mobile product and service offerings.
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Business Intelligence and Analytics - We assist our customers in making informed business decisions through implementing quality assurance methodologies, which when combined with visibility of our customers’ data allows us to reduce inefficiencies and optimize our customers’ business.
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Customer Care - We specialize in serving as an extension and collaborating with our customers, from help desk inquiries to advanced technical support, while maintaining the consumer relationships our customers have developed.
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Software Development - We assist our customers in architecture assessments, solution design, and development of their custom web, mobile applications and enterprise solutions.
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Corporate and Other Category
Our Corporate and Other category consists of our North American managed service programs (“MSP”) business, information technology infrastructure services business, corporate services, telecommunication infrastructure and security services business, remote hire services business in India, staffing business in Uruguay as well as our Uruguayan telephone directory publishing and printing business. We sold our telephone directory publishing and printing business during the third quarter of fiscal 2015 and we sold substantially all of the assets of our telecommunication infrastructure and security services business during the fourth quarter of fiscal 2015. During the first quarter of fiscal 2016, we sold our staffing business in Uruguay.
Our MSP business 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. We 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, we offer and provide payroll service solutions 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.
Our information technology infrastructure business provides IT hardware maintenance services on major brands of server, storage, network and desktop products to Fortune 1000 companies. Other services provided include remote monitoring for corporate data centers and networks, and planning, migration and support services for clients seeking to migrate to a cloud environment. We deliver our services across the United States and in major business centers globally and sell these services directly to corporate customers and through value-added resellers, partners and other resellers. Our target markets include financial services, telecommunications and aerospace. This business has been classified as held for sale.
Our corporate services provide entity-wide general and administrative functions that support all of our segments.
Our remote hire services in India provides skilled manpower resources, infrastructure, and management for various practice areas including software development, engineering, web design, technical support, call center operations, sales and marketing, customer service, research, and back-office accounting and administration.
Our telecommunication infrastructure and security services business was an integrator of enterprise, location and metropolitan security, voice and data systems for Fortune 500 companies, critical infrastructure and telecommunications companies and government entities across the United States. We sold substantially all of the assets of this business during the fourth quarter of fiscal 2015.
Our telephone directory publishing and printing business published directories in Uruguay including telephone directories, directories for publishers in other countries, and commercial books, magazines, periodicals and advertising material. This business was sold during the third quarter of fiscal 2015.
Business Strategy
Fiscal 2016 was a year where we continued to advance our strategic plan aimed to get our business to return to profitable growth. As we implement our strategic plan, we continue to focus on three key elements: enhancing our balance sheet, improving our cost structure and margins, and achieving top-line growth.
Enhancing our Balance Sheet
The first key element of our strategic plan is to enhance our balance sheet.
During fiscal 2016 and 2015, we sold our staffing business in Uruguay, our Computer Systems segment, the telephone directory publishing and printing business in Uruguay, and we exited our telecommunication infrastructure and security services government solutions business. Each of these businesses had significantly different risk and return profiles than our core staffing services. Although these transactions netted nominal proceeds, the operations of these businesses were either break-even or generating operating losses. These divestitures also enabled the Company’s management to focus resources on opportunities within our core staffing services where we believe we are better positioned to add value to the Company. Also as part of this strategic plan, we intend to sell our information technology infrastructure business (“Maintech”).
During this past year, we have strengthened Volt’s balance sheet and over the past several years we have improved our liquidity position, in large part through the divestiture of several non-core legacy assets, the successful monetization of non-strategic company-owned real estate and the reduction and refinancing of outstanding debt. In January 2017, we amended and extended our Financing Program, which maintained the capacity at $160.0 million, while extending the term through January of 2018.
Improving our Cost Structure and Margins
The second key element of our strategic plan is to improve our cost structure and margins. We remain committed to delivering superior client service at a reasonable cost. We believe that building upon our established brands and reinforcing our strong customer relationships will position Volt to grow profitability and increase shareholder value. We are focused on increasing profitability through initiatives to increase revenues and improve margins, reduce operating expenses, provide superior delivery and expand profitable service offerings. We are pursuing these initiatives along with promoting a culture of disciplined execution to further expand our operating income. Key elements of our business strategy include:
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increase our market share in our key customers and target market sectors;
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provide superior delivery that will ultimately drive higher revenues at improved margins;
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focus on core business offerings and on market sectors where we are profitable or that have long-term growth potential, and reduce or eliminate non-core, non-strategic business;
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increase the percentage of our revenue represented by higher-margin business;
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exit or reduce business levels in sectors or with customers where profitability or business terms are unfavorable;
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consolidate financial and other administrative and support functions, implement process standardization, and use productivity metrics to drive more cost-effective performance; and
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invest in new and efficient systems, sales and marketing infrastructure.
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Our goal is to reduce complexity and identify and remove manual and redundant processes, while simplifying the organization, all with a focus on aligning our support infrastructure with the requirements of the business. We believe that the results of the above actions will ultimately drive higher revenues at improved margins.
We will continue to evaluate our individual businesses and service offerings as we seek to manage the balance between profitability and top-line growth. These assessments are being conducted in the context of our broader portfolio and our targeted risk and return profile. Businesses or service offerings that do not meet our investment parameters will be discontinued or divested. We believe that these actions will continue to improve our results as well as the consistency of our returns across our portfolio of businesses.
As part of our overall initiative to improve our cost structure and margins which we believe will ultimately drive efficiencies and profitability, we further reduced our headcount within both corporate services and our business units. Due to these actions and the implementation of other initiatives focused on creating efficiencies, we have significantly improved our cost structure during fiscal 2016. The improved cost structure and savings we have achieved have been partially offset in our results by the important investment in key new hires we made during the year to fortify our team. We have overcome significant cost headwinds and added numerous strong, talented people to our executive leadership, sales & marketing and IT teams.
We also believe our business with both existing and new clients has been impacted by out-of-date infrastructure and systems. In an effort to reduce our operating costs, increase our speed to market and increase operating efficiencies, we are nearing the deployment of a new information technology system which encompasses our front and back office financial suite and IT tools that are critical to our success and offer more functionality at a lower cost to the Company. This upgrade will mitigate potential operating risks from outdated software, reduce costs and improve operating efficiencies and it will support our front-end recruitment and placement capabilities as well as increase efficiencies in our back-office financial suite. Ultimately, these upgrades should improve our time to market and competitiveness in sales delivery, which will support and enhance our future growth.
Achieving Top-Line Growth
The third key element of our strategic plan is to achieve top-line growth. We believe that the actions we took in fiscal 2016 and will take in fiscal 2017 will ultimately drive higher revenues. In fiscal 2017, we intend to improve top-line growth by expanding our business with existing customers and winning new profitable business.
During fiscal 2016, we made progress in bending the revenue curve to drive top-line growth. Our continued strengths are our strong brand, our established capabilities in sourcing a high quality contingent workforce, our longstanding relationships with our customers, and our talented team. Our focus continues to be increasing our revenue in more profitable verticals and expanding our share of customer engagements, as well as ongoing improvements in the delivery of our staffing services.
We also placed emphasis and will continue to emphasize on building end-to-end customer relationships by further enhancing our understanding of their needs and striving to anticipate and deliver the highest level of value-added service to our customers.
We are focused on developing a team that has both strong and deep experience and the leadership skills that are required to drive future growth of the business, which will be achieved by developing new workforce capabilities and a committed, diverse executive team.
We expect to see benefits from our newly restructured and realigned sales and client facing organization. This includes the fortification of our sales team during the second half of fiscal 2016 with the addition of a significant amount of new talent at all levels. We have also completed the redesign of all our domestic compensation plans and compensation structure within our sales organization to reduce complexities and incentivize profitable growth. In regards to our compensation structure, compared to prior years, significantly more employees now have more of their compensation at risk and tied specifically to our revenue and operating income budget objectives. While this required a significant effort on behalf of our management and leadership teams, we feel these actions were necessary in driving a pay-for-performance culture at Volt and aligning our incentive structure with company-wide strategy and metrics.
We believe the above factors will drive our top line growth and result in increased profitability.
Capital Allocation
In addition to our planned improvements in technology, 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 and the cash flow resulting from the completion of our liquidity initiatives. 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:
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Maintaining appropriate levels of working capital
. Our business requires a certain level of cash resources to efficiently execute operations. Consistent with similar companies in our industry and operational capabilities, we estimate this amount to be 1.5 to 2.0 times our weekly cash distributions on a global basis and must accommodate seasonality and cyclical trends;
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Reinvesting in our business.
We continue to execute on our company-wide initiative of disciplined reinvestment in our business including new information technology systems which will support our front-end recruitment and placement capabilities as well as increase efficiencies in our back-office financial suite. We are also investing in our sales and recruiting process and resources, which is critical to drive profitable revenue growth;
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Deleveraging our balance sheet.
By lowering our debt level, we will strengthen our balance sheet, reduce interest costs and reduce risk going forward;
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Returning capital to shareholders.
Part of our strategy is to return capital to our shareholders when circumstances permit in connection with share buybacks through our existing share buyback program; and
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Acquiring value-added businesses.
Potentially in the longer-term, identifying, and when circumstances permit, acquiring companies which would be accretive to our operating income and that could leverage Volt's scale, infrastructure and capabilities. Strategic acquisitions could potentially strengthen Volt in certain industry verticals or in specific geographic locations.
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Customers
The Company serves multinational, national and local customers, providing staffing services (traditional time and materials-based as well as project-based), managed service programs, technology outsourcing services, information technology infrastructure services (and telecommunication infrastructure and operations services and telephone directory publishing and printing in Uruguay through the latter part of fiscal 2015). The Company had no single customer that accounted for more than 10% of consolidated net revenue in fiscal 2016, 2015 or 2014. Our top 10 customers represented approximately 27%, 30% and 30% of fiscal 2016, 2015 and 2014 revenue, 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 2016, the International Staffing segment's revenue included one customer which accounted for approximately 11% of the total revenue of that segment and the Technology Outsourcing Services and Solutions segment's revenue included two customers which accounted for approximately 28% and 24%, respectively, of the total revenue of that segment.
In fiscal 2015, the Technology Outsourcing Services and Solutions segment's revenue included two customers which accounted for approximately 34% and 29%, respectively, of the total revenue of that segment.
In fiscal 2014, the Technology Outsourcing Services and Solutions segment's revenue included two customers which accounted for approximately 46% and 24%, respectively, of the total revenue of that segment.
For fiscal 2016, 2015 and 2014, 86%, 85% and 87% of our revenue, respectively, were from customers in the United States.
Competition
The markets in which Volt provides staffing services are highly competitive. As there are few significant barriers to entry, new entrants frequently appear, resulting in considerable market fragmentation. There are over 100 competitors in our industry with annual revenues over $300 million, some of whom are larger than us and have greater resources than we do. These large competitors collectively represent less than half of all staffing services revenues, and there are many smaller companies competing in varying degrees at local levels. Our direct staffing competitors include Adecco, Allegis, CDI Corp., Hudson Global, Inc., Insperity, Inc., Kelly Services, Inc., Manpower Group, Randstad, Recruit, Robert Half, Inc., Tempstaff and TrueBlue, Inc.
In addition, we compete with 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.
Our IT infrastructure business competes with large system integration firms as well as software and hardware providers that are increasingly offering services to support their products. Many of our competitors are able to offer a wide range of global services and some of our competitors benefit from greater brand recognition than we have.
Intellectual Property
VOLT is the principal registered trademark for our brand in the United States. ARCTERN, A VOLT INFORMATION SCIENCES COMPANY, MAINTECH, PARTNER WITH US. COMPETE WITH ANYBODY, TEAM WITH US. COMPETE WITH ANYBODY., REMOTEHIRE and VOLTSOURCE are other registered trademarks in the United States. The Company also owns and uses common law trademarks and service marks.
We also own copyrights and license technology from many providers. We rely on a combination of intellectual property rights in the United States and abroad to protect our brand and proprietary information.
Seasonality
Our staffing services revenue and operating income are typically lowest in our first fiscal quarter due to the holiday season and are affected by customer facility closures during the holidays (in some cases for up to two weeks), and closures caused by severe weather conditions. The demand for our staffing services typically increases during our third and fourth fiscal quarters when customers increase the use of our administrative and industrial labor during the summer vacation period. The first couple of months of the calendar year typically have the lowest margins as employer payroll tax contributions restart each year in January. Margins typically increase in subsequent fiscal quarters as annual payroll tax contribution maximums are met, particularly for higher salaried employees.
Employees
As of October 30, 2016, Volt employed approximately 25,800 people, including approximately 23,400 who were on contingent staffing assignments. The workers on contingent staffing assignments are on our payroll for the length of their assignment.
We are focused on developing a team that has both strong and deep experience and the leadership skills that are required to support our growth. Our strategy is to be a leader in the markets we serve, which we will achieve by developing new workforce capabilities and a committed, diverse world-class management team.
We believe that our relations with our employees are satisfactory. While claims and legal actions related to staffing matters arise on a routine basis, we believe they are inherent in maintaining a large contingent workforce.
Regulation
Some states in the United States and certain foreign countries license and regulate contingent staffing service firms and employment agencies. Compliance with applicable present federal, state and local environmental laws and regulations has not had, and we believe that compliance with those laws and regulations in the future will not have, a material effect on our competitive position, financial condition, results of operations or cash flows.
Access to Our Information
We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the SEC. These and other SEC reports filed by us are available to the public free of charge at the SEC’s website at www.sec.gov and in the Investors section on our website at www.volt.com, as soon as reasonably practicable after filing with the SEC. You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.
Copies of our Code of Conduct and Ethics and other significant corporate documents (our Corporate Governance Guidelines, Nominating/Governance Committee Charter, Audit Committee Charter, Human Resources and Compensation Committee Charter, Financial Code of Ethics, Whistleblower Policy, Foreign Corrupt Practices Act Policy, Equal Opportunity Employer, 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., 1133 Avenue of the Americas, New York, NY 10036, Attention: Shareholder Relations, or by calling us at (212) 704-2400.
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 the following risks along with the other information contained in this report. The following risks could materially and adversely affect our business and, as a result, our financial condition, results of operations, and the market price of our common stock. Other risks and uncertainties not known to us or that we currently do not recognize as material could also materially adversely affect our business and, as a result, our financial condition, results of operations, cash flows, and the market price of our common stock.
The contingent staffing industry is very competitive with few significant barriers to entry
The markets for Volt’s staffing services are highly competitive. There are few barriers to entry, so new entrants frequently appear resulting in considerable market fragmentation. We have over 100 competitors with annual revenues over $300 million, some of whom are larger than us and have greater resources than we do. These competitors 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. 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 publicly held corporations such as Volt, and have redirected substantial amounts of their staffing business to those companies. We also face the risk that certain of our current and prospective customers may decide to provide similar services internally.
In our business segments, we have experienced competition and pressure on price, margins and markups for renewals of customers’ contracts. There can be no assurance that we will be able to continue to compete in our business segments without impacting revenue or margins. Additionally, our ongoing efforts to manage costs in relation to our business volumes may not be successful, and the timing of these efforts and associated earnings charges may adversely affect our business.
Our business is adversely affected by weak economic and other business conditions
During periods of elevated unemployment levels demand for contingent and permanent personnel decreases, which adversely impacts our staffing services. During slower economic activity, many of our customers reduce their use of contingent workers before undertaking layoffs of their own employees, resulting in decreased demand for contingent workers. Decreased demand and higher unemployment levels result in lower levels of pay rate increases and increased pressure on our markup of staffing service rates and direct margins and higher unemployment insurance costs. Since employees are also reluctant to risk changing employers, there are fewer openings available resulting in reduced activity in permanent placements. In recent years, many of our customers have significantly reduced their workforce, including their use of contingent labor.
Our credit facility contains financial covenants that may limit our ability to take certain actions
We remain dependent upon others for our financing needs and our current credit facility 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 declare all outstanding borrowings, accrued interest and fees due and payable or significantly increase the cost of the facility. Under such circumstances, there could be no assurance that we would have sufficient liquidity to repay or refinance the indebtedness at favorable rates or at all. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates. As of October 2016, we were in compliance with all of the covenant requirements.
Our recent amendment to our credit facility contains certain financial covenants, including a minimum Earnings Before Interest and Taxes (“EBIT”) and liquidity covenant tests. Sources from certain liquidity events expected to be realized by the Company may be key factors in meeting our covenant obligations.
The inability to renew our credit facility could negatively affect our operations and limit our liquidity
We rely on financing for future working capital, capital expenditures and other corporate purposes. The structure of our financing requires us to renew our arrangements periodically. There can be no assurance that refinancing will be available to us or that we will be able to negotiate replacement financing at reasonable costs or on reasonable terms. The volatility in credit and capital markets may create additional risks to our business in the future. Turmoil in the credit markets or a contraction in the availability of credit may make it more difficult for us to meet our working capital requirements and could have a material adverse effect on our business, results of operations and financial position.
Improper disclosure of sensitive or confidential employee or customer data, including personal data, could result in liability and harm our reputation
Our business involves the use, storage and transfer of certain information about our full-time and contingent employees, customers and other individuals. This information contains sensitive or confidential employee and customer data, including personally identifiable information. Cyber attacks or other data breaches, as well as risks associated with compliance with applicable data privacy laws, could have an adverse effect on our systems, services, reputation and financial results. Additionally, our employees may have access or exposure to customer data and systems. The misuse of information could result in legal liability. 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. Such disclosure could harm our reputation and subject us to liability under our contracts and data privacy laws in various countries and jurisdictions, resulting in increased costs or loss of revenue. 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.
The possession and use of personal information and data in conducting our business subjects us to legislative and regulatory burdens. We may be required to incur significant expenses to secure our systems and comply with mandatory privacy and security standards and protocols imposed by laws, regulations, industry standards or contractual obligations.
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. In addition, we may face claims related to violations of wage and hour regulations, discrimination, harassment, negligence or misconduct by our employees, and claims relating to the misclassification of independent contractors, among other types of claims.
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. Such actions may be the result of 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 increases in the scope of such indemnification agreements. We also may 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 as a result of these risks.
Costs related to litigation, legal proceedings and investigations could adversely impact our financial condition
We may be involved in pending and threatened legal proceedings and investigations by government and regulatory agencies from time to time, the outcomes of which are inherently uncertain and difficult to predict. It is uncertain at what point any such matters may affect us, and there can be no assurance that our financial resources or insurance policies are sufficient to cover the cost of any or all of such claims. Therefore, there can be no assurance that such matters would not have an adverse effect on our financial condition, results of operations or cash flows.
Our information technology projects may not yield their intended results
We currently have internal information technology projects in process, including improvements to applicant onboarding and tracking systems and ERP systems. Although the technology is intended to increase productivity and operating efficiencies, these projects may not yield their intended results. Any delays in completing, or an inability to successfully implement these technology initiatives or an inability to achieve the anticipated efficiencies could adversely affect our operations, liquidity and financial condition.
The loss of major customers could adversely impact our business
We experience revenue concentration with large customers within certain operating segments. Although we have no customer that represents over 10% of our consolidated revenue, there are customers that exceed 10% of revenues within certain segments. The deterioration of the financial condition or business prospects of these customers or multiple customers in a similar industry, or a change in their strategy around the use of our services, could have a material adverse effect on our business, financial condition and results of operations.
Additionally, any reductions, delays or cancellation of contracts with any of our key customers or the loss of one or more key customers could materially reduce our revenue and operating income. There is no assurance that our current customers will continue to do business with us or that contracts with existing customers will continue at current or historical levels.
Failure to maintain adequate financial and management processes and internal controls could lead to errors in our financial reporting
The accuracy of our financial reporting is dependent on the effectiveness of our internal controls. If our management is unable to certify the effectiveness of our internal controls or if our independent registered public accounting firm cannot render an opinion on the effectiveness of our internal controls over financial reporting, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis. We may also not be able to accurately forecast our future results including available cash, which could negatively impact our available working capital for operations. These circumstances could lead to a significant decrease in the trading price of our shares, or the delisting of our shares from the NYSE MKT, which would harm our shareholders.
New and 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:
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create new or additional regulations that mandate additional requirements or prohibit or restrict the types of services that we currently provide;
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|
•
|
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, especially in our staffing services;
|
|
|
•
|
require us to obtain additional licenses; or
|
|
|
•
|
increase taxes (especially payroll and other employment-related taxes) or enact new or different taxes payable by the providers or users of services such as those offered by us, thereby increasing our costs, some of which we may not be able to pass on to customers or that could cause customers to reduce their use of our services especially in our staffing services, which could adversely impact our results of operations or cash flows.
|
In some of our foreign markets, new and proposed regulatory activity may impose additional requirements and costs, which could have an adverse effect on our contingent staffing business.
Our operational results could be negatively impacted by currency fluctuations and other global business risks
Our global operations subject us to risks relating to our international business activities, including global economic conditions, fluctuations in currency exchange rates and numerous legal and regulatory requirements placed upon the Company’s international clients. Variation in the economic condition or unemployment levels in any of the foreign countries in which the Company does business may severely reduce the demand for the Company’s services.
Our business is exposed to fluctuation in exchange rates. Our operations outside the United States are reported in the applicable local currencies and then translated into U.S. dollars at the applicable currency exchange rates for inclusion in our Consolidated Financial Statements. Exchange rates for currencies of these countries may fluctuate in relation to the U.S. dollar and these fluctuations may have an adverse or favorable effect on our operating results when translating foreign currencies into U.S. dollars.
In addition, the Company faces risks in complying with various foreign laws and technical standards and unpredictable changes in foreign regulations, including U.S. legal requirements, governing U.S. companies operating in foreign countries, legal and cultural differences in the conduct of business, potential adverse tax consequences, difficulty in staffing and managing international operations.
The United Kingdom’s (“U.K.”) referendum to exit from the European Union (“E.U.”) will continue to have uncertain effects and could adversely impact our business, results of operations and financial condition
On June 23, 2016, the U.K. voted to exit from the E.U. (commonly referred to as “Brexit”). The terms of Brexit and the resulting U.K./E.U. relationship are uncertain for companies doing business both in the U.K. and the overall global economy. The U.K. vote has impacted global markets, including various currencies, and resulted in a sharp decline in the value of the British Pound as compared to the U.S. dollar and other major currencies. The fluctuation of currency exchange rates may expose us to gains and losses on non U.S. currency transactions. Volatility in the securities markets and in currency exchange rates may continue as the U.K. negotiates its exit from the E.U. While we have not experienced any material financial impact from Brexit on our business to date, we cannot predict its future implications. Any impact from Brexit on our business and operations over the long term will depend, in part, on the outcome of tariff, tax treaties, trade, regulatory, and other negotiations the U.K. conducts.
Fluctuations in interest rates and turmoil in the financial markets could increase our cost of borrowing and impede access to or increase the cost of financing our operations
While we have access to global credit markets, credit markets may experience significant disruption or deterioration, which could make future financing difficult or more expensive to secure. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board, which recently increased rates and may continue to do so. Increases in interest rates would likely increase our borrowing costs over time and could negatively impact our results of operations.
If a financial institution that is party to our credit facility were to declare bankruptcy or become insolvent, they may be unable to perform under their agreement with us. This could leave us with reduced borrowing capacity, which could have an adverse impact on our business, financial condition and results of operations.
Many of our contracts provide no minimum purchase requirements, are cancellable during the term, or both
In our staffing services business most contracts are not sole source, and many of our contracts, even those with multi-year terms, provide no assurance of any minimum amount of revenue. Under many of these contracts we still must compete for each individual placement or project. In addition, many of our long-term contracts contain cancellation provisions under which the customer can cancel the contract at any time or on relatively short notice, even if we are not in default under the contract. Therefore, these contracts do not provide the assurances that typical long-term contracts often provide and are inherently uncertain with respect to the amount of revenue and earnings we may recognize. Consequently, in all our business segments, if customers do not utilize our services under existing contracts or do not renew existing contracts, our results of operations or cash flows could be adversely affected.
New business initiatives may have an adverse effect on our business
As part of our business strategy, we have implemented new initiatives to exit our non-core and unprofitable businesses. This includes actions to optimize our organizational structure, technology and delivery of services and to reduce the cost of operating our business. As our business continues to experience significant changes related to the implementation of our business strategy, we risk the loss of critical internal personnel necessary to execute on this strategy. If these initiatives are ineffective or insufficient, we may be unable to effectively implement our business strategy and there can be no assurance that we will achieve our objectives.
Our results of operations and ability to grow may be negatively affected if we are not able to keep pace with rapid changes in technology
The Company’s success depends on our ability to keep pace with rapid technological changes in the development and implementation of our services and solutions. We must innovate and evolve our services and products to satisfy customer requirements and to remain competitive. There can be no assurance that in the future we will be able to foresee changes needed to identify, develop and commercialize innovative and competitive services and products in a timely and cost-effective manner to achieve customer acceptance in markets characterized by rapidly changing technology and frequent new product and service introductions.
We rely extensively on our information technology systems which are vulnerable to damage and interruption
We rely on information technology networks and systems, including the Internet, 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. These information technology systems may be susceptible to damage, disruptions or shutdowns due
to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. Our sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results, if our information technology systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner.
We are dependent upon the quality of our personnel
Our operations are dependent upon our ability to attract and retain skilled personnel, for temporary assignments for customers of our staffing services, projects at clients of our information technology infrastructure services as well as in the areas of implementation and upgrading of internal 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 more costly to hire such personnel in the face of competition from our competitors.
In addition, variations in the unemployment rate and higher wages sought by contingent workers in certain technical fields that continue to experience labor shortages could affect our ability to meet our customers’ demands in these fields and adversely affect our results of operations.
Our operations are also dependent on the continued efforts of our senior management and the performance and productivity of our managers and in-house field personnel. Our ability to attract and retain business is significantly affected by the quality of services rendered. The loss of high quality personnel and members of management with significant experience in our industry without replacement by personnel with similar quality and experience may cause a significant disruption to our business. Moreover, the loss of key managers and field personnel could jeopardize existing customer relationships which may be based upon long-standing relationships with those managers and field personnel.
Our ability to retain acceptable insurance coverage limits at commercially reasonable cost and terms may adversely impact our financial results
We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future, that adequate replacement policies will be available on acceptable terms, if at all, and at commercially reasonable cost, or that the companies from which we have obtained insurance will be able to pay claims we make under such policies.
Our insurance policies for various exposures including, but not limited to, general liability, automobile liability, workers’ compensation and employer’s liability, directors’ and officers’ insurance, professional liability, employment practices, loss to real and personal property, business interruption, fiduciary and other management liability, are limited and the losses that we may face may be not be covered, may be subject to high deductibles or may exceed the limits purchased.
Unexpected changes in workers' compensation and other insurance plans may negatively impact our financial condition
Liability for workers’ compensation, general and automobile liability is insured under a retrospective experience-rated insurance program for losses exceeding specified deductible levels and the Company is self-insured for losses below 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, in 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.
Health care reform could increase the costs of the Company
The Patient Protection and Affordable Care Act (“the Act”) among other regulations, subjects us to potential penalties unless we offer our employees minimum essential health care coverage that is affordable and provides minimum value. In order to comply with the employer mandate provision of the Act, we offer health care coverage to all employees eligible for coverage under the Act. Designating employees as eligible is complex, and is subject to challenge by employees and the Internal Revenue Service. A determination that we failed to offer the required health coverage to eligible employees could result in penalties that may harm our business. We cannot be certain that compliant insurance coverage will remain available to us on reasonable terms. It is anticipated that there will be changes to the Act in the near term, but we cannot predict what those changes will be or when they will take effect, and we could face additional risks arising from such changes or changed interpretations of our obligations under the Act. There can be no assurance that we will be able to recover all related costs through increased pricing to our customers or that they will be recovered in the period in which costs are incurred, and the net financial impact on our results of operations could be significant.
Decline in our operating results could lead to impairment charges relating to our goodwill and long-lived assets
We regularly monitor our goodwill and long-lived assets for impairment indicators. In conducting our goodwill impairment testing, we compare the fair value of each of our reporting units with goodwill to the related net book value. The Company performs its annual impairment review of goodwill in its second fiscal quarter and when a triggering event occurs between annual impairment tests. In conducting our impairment analysis of long-lived assets, we compare the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. Changes in economic or operating conditions impacting our estimates and assumptions could result in the impairment of our goodwill or long-lived assets. In the event that we determine that our goodwill or long-lived assets are impaired, we may be required to record a significant non-cash charge to earnings that could adversely affect our results of operations.
Our stock price could be volatile and, as a result, investors may not be able to resell their shares at or above the price they paid for them
Our stock price has in the past, and could in the future, fluctuate as a result of a variety of factors, including:
|
|
•
|
our failure to meet the expectations of the investment community or our estimates of our future results of operations;
|
|
|
•
|
industry trends and the business success of our customers;
|
|
|
•
|
loss of one or more key customers;
|
|
|
•
|
strategic moves by our competitors, such as product or service announcements or acquisitions;
|
|
|
•
|
regulatory developments;
|
|
|
•
|
general economic conditions;
|
|
|
•
|
other domestic and international macroeconomic factors unrelated to our performance; and
|
|
|
•
|
any of the other previously noted risk factors.
|
The stock market has experienced, and is likely to in the future experience, volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may also adversely affect the market price of our common stock.
Certain shareholders, whose interests may differ from those of other shareholders, own a significant percentage of our common stock and are able to exercise significant influence over Volt
Ownership of a significant amount of our outstanding common stock was 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 these shareholders might be able to control the composition of our Board of Directors and other matters requiring shareholder approval and could continue to have significant influence over our affairs. The interests of our substantial shareholders may not align with those of our other shareholders.
Furthermore, the provisions of the New York Business Corporation Law, to which we are subject, require the affirmative vote of the holders of two-thirds of all of our outstanding shares entitled to vote to adopt a plan of merger or consolidation between us and another entity and to approve any sale, lease, exchange or other disposition of all or substantially all of our assets not made in our usual and regular course of business. Accordingly, our substantial shareholders, acting together, could prevent the approval of such transactions even if such transactions are in the best interests of our other shareholders.
Our business could be negatively affected as a result of a potential proxy contest for the election of directors at our annual meeting or other shareholder activism
In fiscal 2014 and 2015, the Company was subjected to a threatened proxy contest, which resulted in the negotiation of significant changes to the Board of Directors and substantial costs were incurred.
A future proxy contest would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and the Board of Directors. The potential of a proxy contest or other shareholder activism could interfere with our ability to execute our strategic plan, give rise to perceived uncertainties as to our future direction, adversely affect our relationships with key business partners, result in the loss of potential business opportunities or make it more difficult to attract and retain qualified personnel, any of which could materially and adversely affect our business and operating results.
The market price of our common stock could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties related to stockholder activism.
New York State law and our Articles of Incorporation and By-laws contain provisions that could make a takeover of 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. These provisions of our articles of incorporation and by-laws include:
|
|
•
|
requiring advance notice for shareholder proposals and director nominees;
|
|
|
•
|
permitting removal of directors only for cause; and
|
|
|
•
|
providing that vacancies on the Board of Directors will be filled for the unexpired term by a majority vote of the remaining directors then in office.
|
In addition to the voting power of our substantial shareholders discussed above, our Board of Directors could choose not to negotiate with a potential acquirer that it did not believe was in our strategic best interests. If an acquirer is discouraged from offering to acquire Volt or prevented from successfully completing an acquisition by these or other measures, our shareholders could lose the opportunity to sell their shares at a more favorable price.
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|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
None.
ITEM 2.
PROPERTIES
Our corporate headquarters is located in approximately 15,000 square feet located at 1133 Avenue of the Americas, New York, New York. A summary of our principal owned and leased properties (those exceeding 20,000 square feet) that are currently in use is set forth below:
North America
|
|
|
|
|
|
|
|
|
|
Location
|
|
Business Segment/Purpose
|
|
Own/Lease
|
|
Lease Expiration
|
|
Approximate
Square Feet
|
Orange County, California
|
|
North American Staffing
Technology Outsourcing Services and Solutions Corporate & Other
|
|
Lease
|
|
2031
|
|
200,000
|
San Antonio, Texas
|
|
Technology Outsourcing Services and Solutions
|
|
Lease
|
|
2019
|
|
71,000
|
Redmond, Washington
|
|
North America Staffing
Technology Outsourcing Services and Solutions
Corporate & Other
|
|
Lease
|
|
2020
|
|
66,000
|
Montreal, Quebec
|
|
Technology Outsourcing Services and Solutions
|
|
Lease
|
|
2020
|
|
35,000
|
Wallington, New Jersey
|
|
Corporate & Other
|
|
Lease
|
|
2018
|
|
32,000
|
We lease space in approximately 100 other facilities worldwide, 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 2017 until 2031.
At times we lease space to others in the buildings that we occupy if we do not require the space for our own business. We believe that our facilities are adequate for our presently anticipated uses, and we are not dependent upon any individual leased premises.
For additional information pertaining to lease commitments, see our Note 18(a) on Commitments and Contingencies in our Consolidated Financial Statements.
|
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
From time to time, the Company is subject to claims in legal proceedings arising in the ordinary course of its business, including payroll-related and various employment-related matters. All litigation currently pending against the Company relates to matters that have arisen in the ordinary course of business and the Company believes that such matters will not have a material adverse effect on its consolidated financial condition, results of operations or cash flows.
|
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not applicable.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
October 30, 2016
|
|
November 1, 2015
|
|
November 2, 2014
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net loss
|
$
|
(14,570
|
)
|
|
$
|
(24,620
|
)
|
|
$
|
(18,988
|
)
|
Loss from discontinued operations, net of income taxes
|
—
|
|
|
(4,834
|
)
|
|
(15,601
|
)
|
Loss from continuing operations
|
(14,570
|
)
|
|
(19,786
|
)
|
|
(3,387
|
)
|
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
5,969
|
|
|
6,811
|
|
|
9,323
|
|
Provisions (release) of doubtful accounts and sales allowances
|
(154
|
)
|
|
532
|
|
|
(132
|
)
|
Unrealized foreign currency exchange (gain) loss
|
1,318
|
|
|
(582
|
)
|
|
(408
|
)
|
Impairment charges
|
364
|
|
|
6,626
|
|
|
—
|
|
Loss (gain) on dispositions of property, equipment and software
|
(2,901
|
)
|
|
(428
|
)
|
|
55
|
|
Deferred income tax provision (benefit)
|
(541
|
)
|
|
972
|
|
|
2,288
|
|
Share-based compensation expense
|
1,828
|
|
|
2,906
|
|
|
1,198
|
|
Accretion of convertible note discount
|
(102
|
)
|
|
(439
|
)
|
|
—
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
Trade accounts receivable
|
5,024
|
|
|
29,864
|
|
|
33,287
|
|
Restricted cash
|
(169
|
)
|
|
6,279
|
|
|
(886
|
)
|
Prepaid insurance and other assets
|
(881
|
)
|
|
23,814
|
|
|
8,358
|
|
Net assets held for sale
|
3,584
|
|
|
1,396
|
|
|
1,333
|
|
Accounts payable
|
(6,727
|
)
|
|
(13,048
|
)
|
|
607
|
|
Accrued expenses and other liabilities
|
2,081
|
|
|
(2,731
|
)
|
|
(14,597
|
)
|
Income taxes
|
(1,734
|
)
|
|
1,138
|
|
|
(2,617
|
)
|
Net cash provided by (used in) operating activities
|
(7,611
|
)
|
|
43,324
|
|
|
34,422
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Sales of investments
|
1,415
|
|
|
1,304
|
|
|
1,407
|
|
Purchases of investments
|
(387
|
)
|
|
(645
|
)
|
|
(507
|
)
|
Purchase of minority interest
|
(1,446
|
)
|
|
—
|
|
|
—
|
|
Proceeds from sales of property, equipment and software
|
36,808
|
|
|
465
|
|
|
3,086
|
|
Purchases of property, equipment, and software
|
(17,550
|
)
|
|
(8,552
|
)
|
|
(5,267
|
)
|
Net cash provided by (used in) investing activities
|
18,840
|
|
|
(7,428
|
)
|
|
(1,281
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Decrease in cash restricted as collateral for borrowings
|
—
|
|
|
10,436
|
|
|
21,349
|
|
Repayment of borrowings
|
(22,150
|
)
|
|
(58,506
|
)
|
|
(68,637
|
)
|
Draw-down on borrowings
|
19,200
|
|
|
30,000
|
|
|
30,000
|
|
Repayment of long-term debt
|
(7,295
|
)
|
|
(832
|
)
|
|
(839
|
)
|
Debt issuance costs
|
(1,093
|
)
|
|
(1,426
|
)
|
|
(233
|
)
|
Proceeds from exercise of stock options
|
74
|
|
|
531
|
|
|
—
|
|
Purchases of common stock under repurchase program
|
—
|
|
|
(4,262
|
)
|
|
—
|
|
Withholding tax payment on vesting of restricted stock awards
|
(122
|
)
|
|
—
|
|
|
—
|
|
Net cash used in financing activities
|
(11,386
|
)
|
|
(24,059
|
)
|
|
(18,360
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
(3,645
|
)
|
|
(924
|
)
|
|
(386
|
)
|
CASH FLOWS FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
Cash flow from operating activities
|
—
|
|
|
(3,237
|
)
|
|
(16,735
|
)
|
Cash flow from investing activities
|
—
|
|
|
(4,000
|
)
|
|
(778
|
)
|
Net cash used in discontinued operations
|
—
|
|
|
(7,237
|
)
|
|
(17,513
|
)
|
Net increase (decrease) in cash and cash equivalents
|
(3,802
|
)
|
|
3,676
|
|
|
(3,118
|
)
|
Cash and cash equivalents, beginning of year
|
10,188
|
|
|
6,723
|
|
|
8,855
|
|
Change in cash from discontinued operations
|
—
|
|
|
(211
|
)
|
|
986
|
|
Cash and cash equivalents, end of year
|
$
|
6,386
|
|
|
$
|
10,188
|
|
|
$
|
6,723
|
|
Cash paid during the year:
|
|
|
|
|
|
Interest
|
$
|
3,305
|
|
|
$
|
3,196
|
|
|
$
|
3,539
|
|
Income taxes
|
$
|
4,316
|
|
|
$
|
3,315
|
|
|
$
|
4,948
|
|
Supplemental disclosure of non-cash investing activity:
|
|
|
|
|
|
Note receivable in exchange for Computer Systems segment net assets sold
|
$
|
—
|
|
|
$
|
8,363
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
NOTE 1: Summary of Business and Significant Accounting Policies
Volt Information Sciences, Inc., (the “Company,” “Volt,” “we,” “our,” or “us”) is a global provider of staffing services (traditional time and material-based as well as project-based) and information technology infrastructure services. Our staffing services consist of workforce solutions that include providing contingent workers, personnel recruitment services, and managed service programs supporting primarily professional administration, technical, information technology, light-industrial and engineering positions. Our managed service programs consist of managing the procurement and on-boarding of contingent workers from multiple providers. Our technology outsourcing services provide pre- and post- production development support, testing, and customer support to companies in the mobile, gaming, and technology devices industries. In addition, we provide information technology infrastructure services which provides server, storage, network and desktop IT hardware maintenance, data center and network monitoring and operations. Our complementary businesses offer customized talent, technology and consulting 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 is traded on the NYSE MKT under the symbol “VISI”.
The Company’s fiscal year ends on the Sunday nearest October 31st. The fiscal years 2016, 2015 and 2014 consisted of 52 weeks.
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. The Company accounts for investments over which it has significant influence but not a controlling financial interest using the equity method of accounting.
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, business combinations, stock 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.
Revenue is generally recognized when persuasive evidence of an arrangement exists, products have been delivered or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured. For arrangements within the scope of the multiple-deliverable guidance, a deliverable constitutes a separate unit of accounting when it has stand-alone value and there are no customer-negotiated refunds or return rights for the delivered elements. For multiple-element arrangements, composed only of hardware products and related services or only services, we allocate revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”) if applicable, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. Total transaction revenue is allocated to the multiple elements based on each element’s relative selling price compared to the total selling price.
Services are sometimes provided despite a customer arrangement not yet being finalized. In these cases revenue is deferred until arrangements are finalized or in some cases until cash is received. The cumulative revenue deferred for each arrangement is recognized in the period the revenue recognition criteria are met. The following revenue recognition policies define the manner in which the Company accounts for specific transaction types:
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
Staffing Services
Revenue is primarily derived from supplying contingent staff to the Company’s customers or providing other services on a time and material basis. Contingent staff primarily consist of contingent workers working under a contract for a fixed period of time or on a specific customer project. Revenue is also derived from permanent placement services, which is generally recognized after placements are made and when the fees are not contingent upon any future event. Our technology outsourcing services provide pre- and post- production development support, testing, and customer support to companies in the mobile, gaming, and technology devices industries.
Reimbursable costs, including those related to travel and out-of-pocket expenses, are also included in Net revenue, and equivalent amounts of reimbursable costs are included in Cost of services.
Under certain of the Company’s service arrangements, contingent staff are provided to customers through contracts involving other vendors or contractors. When the Company is the principal in the transaction and therefore the primary obligor for the contingent staff, we record the gross amount of the revenue and expense from the service arrangement. When the Company acts only as an agent for the customer and is not the primary obligor for the contingent staff, we record revenue net of vendor or contractor costs.
The Company is generally the primary obligor when responsible for the fulfillment of services under the contract, even if the contingent workers are neither employees of the Company nor directly contracted by the Company. Usually in these situations the contractual relationship with the vendors and contractors is exclusively with the Company and the Company bears customer credit risk and generally has latitude in establishing vendor pricing and has discretion in vendor or contractor selection.
The Company is generally not the primary obligor when we provide comprehensive administration of multiple vendors for customers that operate significant contingent workforces, referred to as managed service programs. The Company is considered an agent in these transactions if it does not have responsibility for the fulfillment of the services by the vendors or contractors (referred to as associate vendors). In such arrangements the Company is typically designated by its customers to be a facilitator of consolidated associate vendor billing and a processor of the payments to be made to the associate vendors on behalf of the customer. Usually in these situations the contractual relationship is between the customers, the associate vendors and the Company, with the associate vendors being the primary obligor and assuming the customer credit risk and the Company generally earning negotiated fixed mark-ups and not having discretion in supplier selection.
Information Technology Infrastructure Services
Revenue from hardware maintenance, computer and network operations infrastructure services under fixed-price contracts and stand-alone post-contract support (“PCS”) is generally recognized ratably over the contract period, provided that all other revenue recognition criteria are met, and the cost associated with these contracts is recognized as incurred. For time and material contracts, the Company recognizes revenue and costs as services are rendered, provided that all other revenue recognition criteria are met.
Telecommunication Infrastructure and Security Services
Revenue from performing engineering and construction services is recognized either on the completed contract method for those contracts that are of a short-term nature, or on the percentage-of-completion method, measuring progress using the cost-to-cost method, provided that all other revenue recognition criteria are met. Known or anticipated losses on contracts are provided for in the period they become evident. Claims and change orders that are in the process of being negotiated with customers for additional work or changes in the scope of work are included in the estimated contract value when it is deemed probable that the claim or change order will result in additional contract revenue and such amount can be reliably estimated.
Cost of services within staffing services consists primarily of contingent worker payroll, related employment taxes and benefits, and the cost of facilities used by contingent workers in fulfilling assignments and projects for staffing services customers, including reimbursable costs. Indirect cost of staffing services is included in Selling, administrative and other operating costs in the Consolidated Statements of Operations. The Cost of services differ from the cost included within Selling, administrative and other operating costs in that they arise specifically and directly from the actions of providing staffing services to customers.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
Cost of information technology infrastructure services and telecommunication infrastructure and security services consists of the direct and indirect cost of providing non-staffing services, which include payroll and related employment taxes, benefits, materials, and equipment costs.
Gross margin is calculated as revenue less direct costs for staffing services and revenue less direct and indirect costs for non-staffing services.
Selling, Administrative and Other Operating Costs
Selling, administrative and other operating costs primarily relate to the Company’s selling and administrative efforts as well as the indirect costs associated with providing staffing services.
Restatement, Investigations and Remediation
The Company previously restated its Consolidated Financial Statements for the fiscal year ended November 2, 2008, with the restated financial statements issued during fiscal 2013. The costs incurred were comprised of financial and legal consulting, audit and related costs of the restatement, related investigations and completion of delayed filings during fiscal 2014 required under SEC regulations.
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(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. For the Company, such other changes include foreign currency translation and mark-to-market adjustments related to available-for-sale securities.
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(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.
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(h)
|
Short-Term Investments and Related Deferred Compensation, Net
|
The Company has a nonqualified deferred compensation and supplemental savings plan that permits eligible employees to defer a portion of their compensation. The employee compensation deferral is invested in short-term investments corresponding to the employees’ investment selections, primarily mutual funds, which are held in a trust and are reported at current market prices. The liability associated with the nonqualified deferred compensation and supplemental savings plan consists of participant deferrals and earnings thereon, and is reflected as a current liability within Accrued compensation in an amount equal to the fair value of the underlying short-term investments held in the plan. Changes in asset values result in offsetting changes in the liability as the employees realize the rewards and bear the risks of their investment selections.
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(i)
|
Property, Equipment and Software, Net
|
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 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:
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Buildings
|
25 to 32 years
|
Machinery and Equipment
|
3 to 15 years
|
Leasehold improvements
|
Shorter of length of lease or life of the asset
|
Software
|
3 to 7 years
|
Property, equipment and software are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or it is no longer probable that software development will be completed. If circumstances require a long-lived asset or asset group be reviewed for possible impairment, the Company first compares
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
undiscounted cash flows expected to be generated by each asset or asset group to its carrying value. If the carrying value of the 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.
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. The Company applies the method of assessing goodwill for possible impairment permitted by Accounting Standards Update (“ASU”) No. 2011-08,
Intangibles – Goodwill and Other.
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 two-step approach. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill utilizing an enterprise-value based premise approach. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.
If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, 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 implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined by using various valuation techniques including income (discounted cash flow), market and/or consideration of recent and similar purchase acquisition transactions.
The Company performs its annual impairment review of goodwill in its second fiscal quarter and when a triggering event occurs between annual impairment tests.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using current tax laws and rates in effect for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized within income in the period that includes the enactment date. The Company must then assess the likelihood that its deferred tax assets will be realized. If the Company does not believe that it is more likely than not that its deferred tax assets will be realized, a valuation allowance is established. When a valuation allowance is increased or decreased, a corresponding tax expense or benefit is recorded.
Accounting for income taxes involves uncertainty and judgment in how to interpret and apply tax laws and regulations within the Company’s annual tax filings. Such uncertainties may result in tax positions that may be challenged and overturned by a tax authority in the future, which would result in additional tax liability, interest charges and possible penalties. Interest and penalties are classified as a component of income tax expense.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. Changes in recognition or measurement are reflected in the period in which the change in estimate occurs.
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(l)
|
Share-Based Compensation
|
The Company recognizes share-based compensation as a cost in the financial statements. Equity awards are measured at the grant date fair value of the award. The Company determines grant date fair value of stock option awards using the Black-Scholes option-pricing model and a Monte Carlo simulation. The fair value of restricted stock awards are determined using the closing price of the Company’s common stock on the grant date. Expense is recognized over the requisite service period based on the number of options or shares expected to ultimately vest. Forfeitures are estimated at the date of grant and revised when
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
actual or expected forfeiture activity differs materially from original estimates. If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate any remaining unearned stock-based compensation cost or incur incremental cost.
Excess tax benefits of awards that are recognized in equity related to stock option exercises are reflected as financing cash inflows in the Consolidated Statement of Cash Flows.
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at average exchange rates during the year which approximate the rates in effect at the transaction dates. The resulting translation adjustments are directly recorded to a separate component of Accumulated other comprehensive Income (Loss). Gains and losses arising from intercompany foreign currency transactions that are of a long-term nature are reported in the same manner as translation adjustments. Gains and losses arising from intercompany foreign currency transactions that are not of a long-term nature and certain transactions of the Company’s subsidiaries which are denominated in currencies other than the subsidiaries’ functional currency are recognized as incurred in Foreign exchange gain (loss), net in the Consolidated Statements of Operations.
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(n)
|
Fair Value Measurement
|
In accordance with Accounting Standards Codification (“ASC”) 820,
Fair Value Measurements
, 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: the allocation of purchase price consideration to tangible and identifiable intangible assets; impairment testing for goodwill and long-lived assets; share-based compensation arrangements and financial instruments. The carrying amounts of the Company’s financial instruments, which include cash, cash equivalents, restricted cash, accounts receivable, accounts payable, and short-term borrowings under the Company’s credit facilities, approximated their fair values, due to the short-term nature of these instruments, and the fair value of the long-term debt is based on the interest rates the Company believes it could obtain for borrowings with similar terms.
The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.
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(o)
|
Legal and Other Contingencies
|
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.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
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(p)
|
Concentrations of Credit Risk
|
Cash and cash equivalents are maintained with several financial institutions and deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and the Company mitigates its credit risk by spreading its deposits across multiple financial institutions and monitoring their respective risk profiles.
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(q)
|
Restructuring and Severance Charges
|
The Company accounts for restructuring activities in accordance with ASC 420,
Exit or Disposal Cost Obligations.
Under the guidance, for the cost of restructuring activities that do not constitute a discontinued operation, the liability for the current fair value of expected future costs associated with such restructuring activity is recognized in the period in which the liability is incurred. The costs of restructuring activities taken pursuant to a management approved restructuring plan are segregated.
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(r)
|
Earnings (Loss) Per Share
|
Basic earnings per share are calculated by dividing net earnings by the weighted-average number of common shares outstanding during the period. The diluted earnings per share computation includes the effect, if any, of shares that would be issuable upon the exercise of outstanding stock options and unvested restricted stock shares, reduced by the number of shares which are assumed to be purchased by the Company from the resulting proceeds at the average market price during the year, when such amounts are dilutive to the earnings per share calculation.
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.
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(t)
|
Assets and Liabilities Held for Sale
|
The Company classifies long-lived assets (disposal group) to be sold as held for sale in accordance with ASU 2014-08,
Presentation Of Financial Statements (Topic 205) And Property, Plant, And Equipment (Topic 360): Reporting Discontinued Operations And Disclosures Of Disposals Of Components Of An Entity
(“ASU 2014-08”), in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the asset (disposal group); the asset (disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (disposal group); an active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group) have been initiated; the sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within
one year
, except if events or circumstances beyond our control extend the period of time required to sell the asset (disposal group) beyond one year; the asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
A long-lived asset (disposal group) that is classified as held for sale is initially measured at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset (disposal group) until the date of sale.
The fair value of a long-lived asset (disposal group) less any costs to sell is assessed each reporting period it remains classified as held for sale and any subsequent changes are reported as an adjustment to the carrying value of the asset (disposal group), as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale. Upon determining that a long-lived asset (disposal group) meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group for all periods presented, if material, in the line items Assets held for sale and Liabilities held for sale, respectively, in the Consolidated Balance Sheets.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
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|
(u)
|
Discontinued Operations
|
The results of operations of a component or a group of components of the Company that either has been disposed of or is classified as held for sale is reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results. For any transaction expected to be structured as a sale of shares of an entity and not a sale of assets, the Company classifies the deferred taxes as part of Assets or Liabilities held for sale.
Certain reclassifications have been made to the prior year financial statements in order to conform to the current year’s presentation.
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(w)
|
New Accounting Pronouncements
|
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
New Accounting Standards Not Yet Adopted by the Company
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230)
-
Classification of Certain Cash Receipts and Cash Payments: A Consensus of the FASB Emerging Issues Task Force
. The amendments provide guidance on eight specific cash flow classification issues: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, corporate and bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is in the process of assessing the impact that the adoption of this ASU will have on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. This ASU provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. For public business entities that are SEC filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of assessing the impact that the adoption of this ASU will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. This ASU simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is in the process of assessing the impact that the adoption of this ASU will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. 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 update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. Early adoption is permitted. ASU 2016-02 is effective for us in our first quarter of fiscal 2020 on a modified retrospective basis. We have preliminarily evaluated the impact of our pending adoption of ASU 2016-02 on our
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
consolidated financial statements, and we currently expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon our adoption of ASU 2016-02, which will increase our total assets and total liabilities that we report relative to such amounts prior to adoption.
In April 2015, the FASB issued ASU No. 2015-03
, Simplifying the Presentation of Debt Issuance Costs.
The ASU requires that debt issuance costs related to a recognized liability be presented on the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. In August 2015, the FASB issued ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
. ASU 2015-15 clarifies the guidance in ASU 2015-03 regarding presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. The SEC Staff announced they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. These ASUs are effective for reporting periods beginning after December 15, 2015, including interim reporting periods within those fiscal years.
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
This update provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This ASU is effective for the annual period ending after December 15, 2016, with early adoption permitted.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This standard is effective for fiscal years and interim reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.
The amendments in this update deferred the effective date for implementation of ASU 2014-09 by one year and is now effective for annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016 including interim reporting periods within that period. Topic 606 is effective for the Company in the first quarter of fiscal 2019. After our preliminary assessment, we do not anticipate that the new guidance will have a material impact on our revenue recognition policies, practices or systems. As we continue to evaluate the impacts of our pending adoption of Topic 606 in the first half of fiscal 2017, our preliminary assessments are subject to change.
From March through December 2016, the FASB issued ASU No. 2016-08,
Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross versus Net),
ASU No. 2016-10,
Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing,
ASU No. 2016-11,
Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815):
Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting,
ASU No. 2016-12,
Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients
and ASU No. 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.
These amendments are intended to improve and clarify the implementation guidance of Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements of ASU No. 2014-09 and ASU No. 2015-14.
Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
Recently Adopted Accounting Standards
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
. The amendments in this update simplify the presentation of deferred income taxes and require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position.
T
he Company has early adopted ASU 2015-17
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
prospectively beginning in the first quarter of fiscal 2016. Other than the revised balance sheet presentation of deferred taxes from current to non-current, the adoption of this ASU did not have a material impact to our consolidated financial statements.
NOTE 2: Discontinued Operations
On December 1, 2014, the Company completed the sale of its Computer Systems segment to NewNet Communication Technologies, LLC (“NewNet”), a Skyview Capital, LLC, portfolio company. The Company met all of the criteria to classify that segment's assets and liabilities as held for sale in the fourth quarter of fiscal 2014. The results of the Computer Systems segment are presented as discontinued operations and excluded from continuing operations and from segment results for all periods presented.
The proceeds of the transaction were a
$10.0 million
note bearing interest at one half percent (
0.5
percent) per year due in
four years
and convertible into a capital interest of up to
20%
in NewNet. The Company may convert the note at any time and is entitled to receive early repayment in the event of certain events such as a change in control of NewNet. The proceeds were in exchange for the ownership of Volt Delta Resources, LLC and its operating subsidiaries, which comprised the Company's Computer Systems segment, and payment of
$4.0 million
by the Company during the first
45 days
following the transaction. An additional payment will be made between the parties based on the comparison of the actual transaction date working capital amount to an expected working capital amount of
$6.0 million
(the contractually agreed upon working capital). The note was valued at
$8.4 million
on the transaction date which approximated fair value. At October 30, 2016, the note is carried at net realizable value and the unamortized discount was
$1.1 million
. The Company and NewNet are actively negotiating the final working capital adjustment amount, along with certain minor indemnity claims. NewNet has taken exception with several components of the calculation. The Company believes its position on these items is consistent with the definitions outlined in the sale agreement. The Company does not believe the settlement of these differences will have a material impact on its financial statements or income from continuing operations.
Given the Company’s current turnaround circumstances, the Company may consider monetizing the note prior to maturity in either a secondary market or an early extinguishment, if NewNet agrees, at some value less than the face amount and may offset a settlement on the working capital adjustment and indemnity claims against the Note. Accordingly, the Company has ceased accreting interest on the note until the dispute is resolved. The Company believes that any settlement of the note would not be materially different than its current carrying value.
For the year ended November 1, 2015, the Company recognized a loss on disposal of
$1.5 million
. The total related costs associated with this transaction were
$2.2 million
comprised of
$0.9 million
in severance costs,
$0.9 million
of professional fees and
$0.4 million
of lease obligation costs. These costs are recorded in Discontinued operations in the Consolidated Statements of Operations and as of October 30, 2016 have been paid.
The following table reconciles the major line items in the Company’s Consolidated Statements of Operations for discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
November 1, 2015
|
|
|
November 2, 2014
|
|
Loss from discontinued operations
|
|
|
|
Net revenue
|
$
|
4,708
|
|
|
$
|
59,369
|
|
Cost of services
|
5,730
|
|
|
54,358
|
|
Selling, administrative and other operating costs
|
1,388
|
|
|
19,290
|
|
Other (income) expense, net
|
731
|
|
|
1,533
|
|
Loss from discontinued operations
|
(3,141
|
)
|
|
(15,812
|
)
|
Loss on disposal of discontinued operations
|
(1,502
|
)
|
|
—
|
|
Loss from discontinued operations before income taxes
|
(4,643
|
)
|
|
(15,812
|
)
|
Income tax provision (benefit)
|
191
|
|
|
(211
|
)
|
Loss from discontinued operations that is presented in the Consolidated Statements of Operations
|
$
|
(4,834
|
)
|
|
$
|
(15,601
|
)
|
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
NOTE 3: Assets and Liabilities Held for Sale
In October 2015, the Company's Board of Directors approved a plan to sell the Company’s information technology infrastructure services business (“Maintech”) and staffing services business in Uruguay (“Lakyfor, S.A.”).
Maintech met all of the criteria to classify its assets and liabilities as held for sale in the fourth quarter of fiscal year 2015. The potential disposal of Maintech does not represent a strategic shift that will have a major effect on the Company’s operations and financial results and is, therefore, not classified as discontinued operations in accordance with ASU 2014-08. As part of the required evaluation under the held for sale guidance, the Company determined that the approximate fair value less costs to sell the operations exceeded the carrying value of the net assets and no impairment charge was recorded. The timeline to complete a transaction has extended beyond the fourth quarter of fiscal 2016, with a sale expected in the second quarter of fiscal 2017.
Lakyfor, S.A. met all of the criteria to classify its assets and liabilities as held for sale during the fourth quarter of fiscal year 2015. The disposal of Lakyfor, S.A. did not represent a strategic shift that will have a major effect on the Company’s operations and financial results and is, therefore, not classified as discontinued operations in accordance with ASU 2014-08. As part of the required evaluation under the held for sale guidance, the Company determined that the approximate fair value less costs to sell the operations was significantly lower than the carrying value of the net assets and an impairment charge of
$0.7 million
was recorded. The sale occurred in the first quarter of fiscal 2016 for nominal proceeds and the Company recognized a loss on disposal of
$0.1 million
from the sale transaction.
The following table reconciles the major classes of assets and liabilities classified as held for sale as part of continuing operations in our Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
October 30, 2016
|
|
|
November 1, 2015
|
|
Assets included as part of continuing operations
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
1,537
|
|
Trade accounts receivable, net
|
13,553
|
|
|
15,671
|
|
Recoverable income taxes
|
15
|
|
|
165
|
|
Prepaid insurance and other assets
|
3,339
|
|
|
4,886
|
|
Property, equipment and software, net
|
178
|
|
|
189
|
|
Purchased intangible assets
|
495
|
|
|
495
|
|
Total major classes of assets as part of continuing operations - Maintech and Lakyfor, S.A.
(1)
|
$
|
17,580
|
|
|
$
|
22,943
|
|
|
|
|
|
Liabilities included as part of continuing operations
|
|
|
|
Accrued compensation
|
$
|
2,432
|
|
|
$
|
3,509
|
|
Accounts payable
|
921
|
|
|
1,387
|
|
Accrued taxes other than income taxes
|
833
|
|
|
1,165
|
|
Accrued insurance and other
|
1,574
|
|
|
1,284
|
|
Total major classes of liabilities as part of continuing operations - Maintech and Lakyfor, S.A.
(1)
|
$
|
5,760
|
|
|
$
|
7,345
|
|
(1)
The Balance Sheet as of October 30, 2016 only includes Maintech.
NOTE 4: Restricted Cash and Short-Term Investments
Restricted cash primarily includes amounts related to requirements under certain contracts with managed service program customers for whom the Company manages the customers’ contingent staffing requirements, including processing of associate vendor billings into single, combined customer billings and distribution of payments to associate vendors on behalf of customers, as well as minimum cash deposits required to be maintained as collateral. Distribution of payments to associate vendors are generally made shortly after receipt of payment from customers, with undistributed amounts included in restricted cash and accounts payable between receipt and distribution of these amounts. Changes in restricted cash collateral are classified as an operating activity, as this cash is directly related to the operations of this business. At October 30, 2016 and November 1,
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
2015 restricted cash included
$8.4 million
and
$9.3 million
, respectively, restricted for payment to associate vendors and
$1.9 million
and
$0.9 million
, respectively, restricted for other collaterized accounts.
At October 30, 2016 and November 1, 2015, short-term investments were
$3.6 million
and
$4.8 million
, respectively. These short-term investments consisted primarily of the fair value of deferred compensation investments corresponding to employees’ selections, primarily in mutual funds, based on quoted prices in active markets.
NOTE 5: Fair Value of Financial Instruments
The following table presents assets and liabilities measured at fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
October 30,
2016
|
|
November 1,
2015
|
|
Fair Value
Hierarchy
|
Short-term investments
|
$
|
3,601
|
|
|
$
|
4,799
|
|
|
Level 1
|
Total financial assets
|
$
|
3,601
|
|
|
$
|
4,799
|
|
|
|
Deferred compensation plan liabilities
|
$
|
3,601
|
|
|
$
|
4,683
|
|
|
Level 1
|
Total financial liabilities
|
$
|
3,601
|
|
|
$
|
4,683
|
|
|
|
Short-term investments also include available for sale securities of
$0.1 million
at November 1, 2015.
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.
The Company had a term loan with borrowings at a fixed interest rate, and the interest expense related to this borrowing was not affected by changes in interest rates in the near term. The fair value of the term loan was calculated by applying the appropriate fiscal year-end interest rates to present streams of loan payments.
The following table presents the term loan measured at fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2015
|
|
|
|
Carrying Amount
|
|
Estimated Fair Value
|
|
Fair Value Hierarchy
|
Long-term debt, including current portion
|
$
|
7,295
|
|
|
$
|
7,968
|
|
|
Level 2
|
There have been no changes in the methodology used to fair value the financial instruments as well as
no
transfers between levels during the fiscal years ended October 30, 2016 and November 1, 2015.
NOTE 6: Trade Accounts Receivable
Trade accounts receivable includes both billed and unbilled amounts due from customers. Billed trade receivables generally do not bear interest and are recorded at the amount invoiced less amounts for which revenue has been deferred because customer arrangements are not finalized. Unbilled receivables represent accrued revenue earned and recognized on contracts for which billings have not yet been presented to the customer. At October 30, 2016 and November 1, 2015 trade accounts receivable included unbilled receivables of
$17.8 million
and
$14.5 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. The Company also maintains a sales allowance for specific customers related to volume discounts and billing disputes. The amount of the sales allowance is determined based on discount estimates and historical credits issued and additions to the sales allowance are recorded as a reduction to net revenue. Account balances are written off against the allowances when the Company believes it is probable the amount will not be received.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
For the years ended October 30, 2016 and November 1, 2015, the activity in the allowance accounts were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning of year
|
|
Provision / (Release)
|
|
Deductions
|
|
Balance at end
of year
|
Year Ended October 30, 2016:
|
|
|
|
|
|
|
|
Sales allowance
|
$
|
482
|
|
|
$
|
(269
|
)
|
|
$
|
—
|
|
|
$
|
213
|
|
Allowance for doubtful accounts
|
478
|
|
|
115
|
|
|
(5
|
)
|
|
588
|
|
Total
|
$
|
960
|
|
|
$
|
(154
|
)
|
|
$
|
(5
|
)
|
|
$
|
801
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning of year
|
|
Provision / (Release)
|
|
Deductions
|
|
Balance at end
of year
|
Year Ended November 1, 2015:
|
|
|
|
|
|
|
|
Sales allowance
|
$
|
318
|
|
|
$
|
164
|
|
|
$
|
—
|
|
|
$
|
482
|
|
Allowance for doubtful accounts
|
547
|
|
|
368
|
|
|
(437
|
)
|
|
478
|
|
Total
|
$
|
865
|
|
|
$
|
532
|
|
|
$
|
(437
|
)
|
|
$
|
960
|
|
NOTE 7: Property, Equipment and Software
Property, equipment and software consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
October 30,
2016
|
|
November 1,
2015
|
Land and buildings
|
$
|
395
|
|
|
$
|
22,475
|
|
Machinery and equipment
|
40,288
|
|
|
39,890
|
|
Leasehold improvements
|
9,520
|
|
|
8,843
|
|
Less: Accumulated depreciation and amortization
|
(42,503
|
)
|
|
(58,821
|
)
|
Property and equipment
|
7,700
|
|
|
12,387
|
|
Software
|
90,871
|
|
|
77,578
|
|
Less: Accumulated amortization
|
(68,438
|
)
|
|
(65,870
|
)
|
Property, equipment, and software, net
|
$
|
30,133
|
|
|
$
|
24,095
|
|
Depreciation and amortization expense totaled
$6.0 million
,
$6.8 million
and
$9.2 million
for the fiscal years ended 2016, 2015 and 2014, 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
Impairment of Net Assets
During fiscal 2015, in conjunction with the initiative to exit certain non-core operations, the telephone directory publishing and printing business in Uruguay met the criteria to be classified as held for sale. As part of the required evaluation under the held for sale guidance, the Company determined that the approximate fair value less costs to sell the operations was significantly lower than the carrying value of the net assets. Consequently, the net assets of the business of
$2.8 million
were fully impaired and were recorded as an impairment charge. On July 31, 2015, the Company completed the sale of our telephone directory publishing and printing business in Uruguay to affiliates of FCR Media Group.
As previously disclosed in Footnote 3, an impairment charge of
$0.7 million
in fiscal 2015 was recognized as a result of the required evaluation under the held for sale guidance related to the staffing reporting unit in Uruguay (“Lakyfor, S.A.”).
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
Impairment of Property, Equipment and Software
In an effort to reduce operating costs, the Company evaluated the efficiency of its current business delivery model, supply chain and back office support functions in light of existing and ongoing business requirements. The implementation of additional technology tools is expected to provide operating leverage and efficiencies. As a result of a system-wide upgrade to its operational and financial systems, the Company identified previously purchased software modules that will no longer be used and incurred an impairment charge of
$0.4 million
during the fourth quarter of fiscal 2016.
During the third quarter of fiscal 2015, it was determined that
$1.9 million
of previously capitalized internally developed software within the North American Staffing segment was impaired as it was no longer expected to provide future value in light of the anticipated technology upgrade. The remaining book value of this asset was
$0.7 million
as of November 1, 2015 and is expected to be utilized from existing and future technology projects.
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. During the second quarter, it was determined that no adjustment to the carrying value of goodwill was required. There were no events or changes in circumstances since the annual goodwill impairment assessment that caused the Company to perform an interim impairment assessment.
Impairment charges in fiscal 2015 resulted from our goodwill related to our staffing reporting unit in Uruguay.
The following represents the change in the carrying amount of goodwill during each fiscal year (in thousands):
|
|
|
|
|
|
|
|
|
|
International Staffing
|
|
October 30, 2016
|
|
November 1, 2015
|
Aggregate goodwill acquired
|
$
|
10,483
|
|
|
$
|
10,483
|
|
Accumulated impairment losses
|
(3,733
|
)
|
|
(3,733
|
)
|
Foreign currency translation adjustment
|
(1,667
|
)
|
|
(315
|
)
|
Goodwill, net of impairment losses
|
$
|
5,083
|
|
|
$
|
6,435
|
|
NOTE 9: Restructuring and Severance Charges
In fiscal 2016, the Company implemented a cost reduction plan and incurred restructuring and severance charges of
$5.8 million
, primarily resulting from a reduction in workforce, facility consolidation and lease termination costs.
In fiscal 2015 and 2014 the Company had, from time to time, undertaken operational restructuring and other cost reduction actions to streamline processes and manage costs throughout various departments within the Company. For the years ended November 1, 2015 and November 2, 2014, restructuring charges were
$3.6 million
and
$2.5 million
, respectively, related primarily to severance payments to executive management in fiscal 2015 and reductions in workforce in fiscal 2015 and 2014.
The following table presents the restructuring and severance costs for the twelve months ended October 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 30, 2016
|
|
Total
|
North American Staffing
|
International Staffing
|
Technology Outsourcing Services and Solutions
|
Corporate & Other
|
Severance and benefit costs
|
$
|
5,373
|
|
$
|
995
|
|
$
|
445
|
|
$
|
327
|
|
$
|
3,606
|
|
Other
|
379
|
|
122
|
|
257
|
|
—
|
|
—
|
|
Total
|
$
|
5,752
|
|
$
|
1,117
|
|
$
|
702
|
|
$
|
327
|
|
$
|
3,606
|
|
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
Accrued restructuring and severance costs are included in Accrued compensation and Accrued insurance and other in the Consolidated Balance Sheets. Activity for the fiscal year ended October 30, 2016 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
Balance at November 1, 2015
|
|
$
|
—
|
|
Charged to expense
|
|
5,752
|
|
Cash payments
|
|
(4,099
|
)
|
Balance at October 30, 2016
|
|
$
|
1,653
|
|
The remaining balance as of October 30, 2016 of
$1.7 million
, primarily related to Corporate & Other, is expected to be paid through the second quarter of fiscal 2018.
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 is insured under a paid loss deductible experience-rated insurance program for losses exceeding specified retention levels and the Company is financially responsible for losses below the specified deductible limits. Under the insurance program, any losses incurred above the policy deductible limit are absorbed by the insurer and not the Company.
The Company makes payments based upon an estimate of the ultimate underlying exposure, such as the amount and type of labor utilized. The amounts are subsequently adjusted based on actual claims experience. The experience modification process includes establishing loss development factors, based on the Company’s historical claims experience as well as industry experience, and applying those factors to current claims information to derive an estimate of the Company’s ultimate claims liability. Adjustments to final paid amounts are determined as of a future date, and depending on the policy year, up to
three
or
four
years after the end of the respective policy year, using actual claims paid and incurred. Under the insurance program, any losses incurred above the policy deductible limit arising from claims associated with an insurance policy are absorbed by the insurer and not the Company.
In October 2015, the Company converted
three
of the
four
open policy years to a paid loss retro program secured by a letter of credit against the Company's Financing Program of
$25.1 million
and has increased to
$28.9 million
as of October 30, 2016. Under this program, the Company will make payments based on actual claims paid instead of pre-funding an estimate of the ultimate loss exposure. The change from an incurred loss program to a paid loss program returned cash collateral of approximately
$22.0 million
to the Company for the converted policy years, which was treated as a source of net cash provided by operating activities.
The Company recognizes expense and establishes accruals for amounts estimated to be incurred up to the policy deductible, both reported and not yet reported, policy premiums and related legal and other 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 paid amounts are determined as of a future date, between three or four years after the end of the respective policy year or the ultimate life of the claim. Expense recognized by the Company under its casualty insurance program amounted to
$11.8 million
,
$14.4 million
and
$15.0 million
in fiscal 2016, 2015 and 2014, 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.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
The liability for the self-insured medical benefits is limited on a per claimant basis through the purchase of stop-loss insurance. The Company’s retained liability for the self-insured medical benefits is determined utilizing actuarial estimates of expected claims based on statistical analysis of historical data. Amounts contributed by employees and additional amounts necessary to fund the self-insured program administered by the third party were transferred to a 501(c)(9) employee welfare benefit trust. The Company terminated the employee welfare benefit trust during October 2016. The Company records the expense associated with the expected losses, net of employee contributions, in Cost of services or Selling, administrative and other operating costs, depending on the employee’s role. Expense recognized by the Company under its self-insured medical benefit programs amounted to
$11.4 million
,
$8.5 million
and
$12.0 million
in fiscal 2016, 2015 and 2014, respectively.
NOTE 11: Income Taxes
Income (loss) from continuing operations before income taxes is derived from (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
October 30,
2016
|
|
November 1,
2015
|
|
November 2,
2014
|
U.S. Domestic
|
$
|
(20,643
|
)
|
|
$
|
(63,205
|
)
|
|
$
|
(2,148
|
)
|
International
|
8,248
|
|
|
48,065
|
|
|
3,987
|
|
Total
|
$
|
(12,395
|
)
|
|
$
|
(15,140
|
)
|
|
$
|
1,839
|
|
Income tax expense (benefit) by taxing jurisdiction consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
October 30,
2016
|
|
November 1,
2015
|
|
November 2,
2014
|
Current:
|
|
|
|
|
|
U.S. Federal
|
$
|
86
|
|
|
$
|
90
|
|
|
$
|
(36
|
)
|
U.S. State and local
|
186
|
|
|
(1,616
|
)
|
|
978
|
|
International
|
2,444
|
|
|
5,200
|
|
|
1,996
|
|
Total current
|
$
|
2,716
|
|
|
$
|
3,674
|
|
|
$
|
2,938
|
|
Deferred:
|
|
|
|
|
|
U.S. Federal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. State and local
|
(190
|
)
|
|
634
|
|
|
225
|
|
International
|
(351
|
)
|
|
338
|
|
|
2,063
|
|
Total deferred
|
(541
|
)
|
|
972
|
|
|
2,288
|
|
Income tax expense
|
$
|
2,175
|
|
|
$
|
4,646
|
|
|
$
|
5,226
|
|
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
The difference between the income tax provision on income (loss) and the amount computed at the U.S. federal statutory rate is due to (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
October 30,
2016
|
|
November 1,
2015
|
|
November 2,
2014
|
U.S. Federal statutory rate
|
$
|
(4,338
|
)
|
|
$
|
(5,299
|
)
|
|
$
|
643
|
|
U.S. State income tax, net of U.S. Federal tax benefits
|
513
|
|
|
(1,435
|
)
|
|
530
|
|
International permanent differences
|
(110
|
)
|
|
(4,293
|
)
|
|
(489
|
)
|
International tax rate differentials
|
(1,291
|
)
|
|
(7,046
|
)
|
|
345
|
|
U.S. tax on international income
|
3,136
|
|
|
(1,118
|
)
|
|
1,787
|
|
General business credits
|
(4,287
|
)
|
|
(3,839
|
)
|
|
(5,642
|
)
|
Meals and entertainment
|
209
|
|
|
531
|
|
|
770
|
|
Other, net
|
(160
|
)
|
|
942
|
|
|
(294
|
)
|
Change in valuation allowance for dispositions
|
—
|
|
|
(4,237
|
)
|
|
—
|
|
Change in valuation allowance for deferred tax assets
|
8,503
|
|
|
30,440
|
|
|
7,576
|
|
Total
|
$
|
2,175
|
|
|
$
|
4,646
|
|
|
$
|
5,226
|
|
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and also include operating loss carryforwards. The significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
October 30,
2016
|
|
November 1,
2015
|
Deferred tax assets:
|
|
|
|
Net operating loss carryforwards
|
$
|
62,670
|
|
|
$
|
58,909
|
|
Capital loss carryforwards
|
21,131
|
|
|
31,411
|
|
U.S. federal tax credit carryforwards
|
47,866
|
|
|
41,271
|
|
Purchased intangible assets
|
—
|
|
|
(49
|
)
|
Deferred income
|
10,714
|
|
|
—
|
|
Compensation accruals
|
6,170
|
|
|
5,653
|
|
Other, net
|
7,813
|
|
|
6,413
|
|
Total deferred tax assets
|
156,364
|
|
|
143,608
|
|
Less valuation allowance
|
(144,863
|
)
|
|
(136,323
|
)
|
Deferred tax assets, net
|
11,501
|
|
|
7,285
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Unremitted earnings from foreign subsidiaries
|
3,356
|
|
|
4,046
|
|
Software development costs
|
5,226
|
|
|
2,794
|
|
Accelerated tax depreciation and amortization
|
—
|
|
|
741
|
|
Other, net
|
3,914
|
|
|
1,225
|
|
Total deferred tax liabilities
|
12,496
|
|
|
8,806
|
|
Net deferred tax asset (liability)
|
$
|
(995
|
)
|
|
$
|
(1,521
|
)
|
|
|
|
|
Balance sheet classification
|
|
|
|
Current assets
|
$
|
—
|
|
|
$
|
837
|
|
Non-current assets
|
2,142
|
|
|
1,107
|
|
Current liabilities
|
—
|
|
|
(240
|
)
|
Non-current liabilities
|
(3,137
|
)
|
|
(3,225
|
)
|
Net deferred tax asset (liability)
|
$
|
(995
|
)
|
|
$
|
(1,521
|
)
|
In November 2015, the FASB issued Accounting Standards Update ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
. The amendments in this update simplify the presentation of deferred income taxes and require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position.
T
he Company has early adopted ASU 2015-17 prospectively beginning in the first quarter of fiscal 2016. Other than the revised balance sheet presentation of deferred taxes from current to non-current, the adoption of this ASU did not have a material impact to our consolidated financial statements. At November 1, 2015, current deferred tax assets are included in Other current assets, non-current deferred tax assets are included in Other assets, excluding current portion and current deferred tax liabilities are included in Accrued insurance and other in the Consolidated Balance Sheets. At October 30, 2016, all liabilities were classified as non-current.
At October 30, 2016, the Company has available unused U.S. federal net operating loss (“NOL”) carryforwards of
$145.1 million
, U.S. state NOL carryforwards of
$184.6 million
, international NOL carryforwards of
$11.0 million
and capital loss carryforwards of
$55.4 million
. As of October 30, 2016, the U.S. federal NOL carryforwards will expire at various dates between 2031 and 2036, the U.S. state NOL carryforwards expire at various dates between 2020 and 2036, the international NOL carryforwards expire at various dates beginning in 2017 (with some indefinite) and capital loss carryforwards expire in 2021. At October 30, 2016, 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.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
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 2016, 2015, and 2014 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
$144.9 million
and
$136.3 million
for fiscal 2016 and fiscal 2015, 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, primarily related to international locations, are more likely than not to be realized based upon consideration of all positive and negative evidence, including scheduled reversal of deferred tax liabilities and tax planning strategies determined on a jurisdiction by jurisdiction basis.
The Company recognizes income tax benefits for tax positions determined more likely than not to be sustained upon examination based on the technical merits of the positions. The following table sets forth the change in the accrual for uncertain tax positions, excluding interest and penalties (in thousands):
|
|
|
|
|
|
|
|
|
|
October 30,
2016
|
|
November 1,
2015
|
Balance, beginning of year
|
$
|
5,215
|
|
|
$
|
7,329
|
|
Decrease related to current year tax provisions
|
52
|
|
|
(411
|
)
|
Settlements
|
—
|
|
|
(879
|
)
|
Lapse of statute of limitations
|
(30
|
)
|
|
(824
|
)
|
Total
|
$
|
5,237
|
|
|
$
|
5,215
|
|
Of the total unrecognized tax benefits at October 30, 2016 and November 1, 2015, approximately
$2.5 million
and
$1.1 million
, respectively, would affect the Company’s effective income tax rate, if and when recognized in future years. The amount accrued for related potential interest and penalties at October 30, 2016 and November 1, 2015 was
$1.5 million
and
$1.3 million
, respectively. The Company does not currently anticipate that its existing reserves related to uncertain tax positions as of October 30, 2016 will significantly increase or decrease in subsequent periods; however, various events could cause the Company’s current expectations to change in the future.
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 2004. The Company is currently under examination by the IRS for U.S. Federal amended income tax returns for fiscal
2004
–
2010
. The Company is currently under examination by the Canada Revenue Authority for tax years
2008
–
2010
and 2013 – 2014. These audits are not expected to result in a material impact on the Company’s financial statements.
The following describes the open tax years, by major tax jurisdiction, as of October 30, 2016:
|
|
|
United States - Federal
|
2004-present
|
United States - State
|
2004-present
|
Canada
|
2008-present
|
United Kingdom
|
2011-present
|
NOTE 12: Real Estate Transactions
Orange, CA
In March 2016, Volt Orangeca Real Estate Corp., an indirect wholly-owned subsidiary of the Company, completed the sale of real property comprised of land and buildings with office space of approximately
191,000
square feet in Orange, California for a purchase price of
$35.9 million
. The Company entered concurrently into a Purchase and Sale Agreement (the “PSA”) and a Lease Agreement (the “Lease”) with Glassell Grand Avenue Partners, LLC (the “Buyer”), a limited liability company formed by Hines, a real estate investment and management firm, and funds managed by Oaktree Capital Management L.P., an
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
investment management firm. The Buyer assigned the PSA and the Lease to Glassell Acquisitions Partners LLC, an affiliate, prior to the closing.
The transaction was accounted for as a sale-leaseback transaction and as an operating lease. The initial lease term is
15
years plus renewal options for
two
terms of
five
years each based on the greater of fair market value at the time of the renewal or the base annual rent payable during the last month of the then-current term immediately preceding the extended period. The annual base rent will be
$2.9 million
for the first year of the initial term and increase on each adjustment date by
3.0%
of the then-current annual base rent. A security deposit of
$2.1 million
is required for the first year of the lease term which is secured by a letter of credit under the Company's existing Financing Program with PNC Bank National Association (“PNC”) and will subsequently be reduced if certain conditions are met. Accordingly, the gain on sale of
$29.4 million
will be deferred and recognized in proportion to the related gross rental charges to expense over the lease term. For fiscal 2016, the amortization was
$1.3 million
.
San Diego, CA
In March 2016, Volt Opportunity Road Realty Corp., an indirect wholly-owned subsidiary of the Company, completed the sale with a private commercial real estate investor of real property comprised of land and building with office space of approximately
19,000
square feet in San Diego, California for a purchase price of
$2.2 million
. The Company recognized a gain of
$1.7 million
from the transaction during the second quarter of fiscal 2016.
NOTE 13: Debt
In January 2016, the Company amended its
$150.0 million
Financing Program with PNC to (1) extend the termination date to January 31, 2017; (2) eliminate the interest coverage ratio and modify the liquidity level requirement; (3) reduce the minimum funding threshold, as defined, from
60%
to
40%
; and (4) revise pricing from a LIBOR based rate plus
1.75%
per the prior agreement, to a LIBOR based rate plus
1.90%
on outstanding borrowings, and to increase the facility fee from
0.65%
to
0.70%
. The Financing Program is secured by receivables from certain Staffing Services businesses in the United States, Europe and Canada that are sold to a wholly-owned, consolidated, bankruptcy remote subsidiary. The bankruptcy remote subsidiary's sole business consists of the purchase of the receivables and subsequent granting of a security interest to PNC under the program, and its assets are available first to satisfy obligations to PNC and are not available to pay creditors of the Company's other legal entities. Borrowing capacity under the Financing Program is directly impacted by the level of accounts receivable. At October 30, 2016, the accounts receivable borrowing base was
$160.5 million
.
The Financing Program provides for a minimum liquidity covenant which is measured weekly and is calculated as the sum of cash in banks and undrawn amounts under the program. The liquidity covenant level was set at
$20.0 million
at the origination of the Financing Program in July 2015. Under three subsequent amendments to the program from January 2016 to July 2016, the minimum liquidity level was increased to a maximum of
$50.0 million
based on specific liquidity events. In September 2016, the Company amended the Financing Program to increase the facility limit from
$150.0 million
to
$160.0 million
under the expandable accordion feature in the program. The Company entered into this amendment to utilize the additional borrowing base provided by the current and potential growth in eligible accounts receivable balances. Under the amendment to the program dated October 28, 2016, the required minimum liquidity level is
$35.0 million
through the earlier of: 1) the date of the sale of the Company's subsidiary, Maintech Incorporated, at which time the minimum liquidity level increases to
$40.0 million
and 2) the expiration of the Financing Program on January 31, 2017. In addition, this amendment adds a negative covenant prohibiting share buybacks or dividends by the Company through January 31, 2017.
In addition to customary representations, warranties and affirmative and negative covenants, the program is subject to termination under standard events of default including change of control, failure to pay principal or interest, breach of the liquidity covenant, triggering of portfolio ratio limits, or other material adverse events as defined. At October 30, 2016, the Company was in compliance with all debt covenant requirements.
The Financing Program has a feature under which the facility limit can be increased up to
$250.0 million
subject to credit approval from PNC. Borrowings are priced based upon a fixed program rate plus the daily adjusted one-month LIBOR index, as defined. The program also contains a revolving credit provision under which proceeds can be drawn for a definitive tranche period of 30, 60, 90 or 180 days priced at the adjusted LIBOR index rate in effect for that period. In addition to United States dollars, drawings can be denominated in Canadian dollars, subject to a Canadian dollar
$30.0 million
limit, and British Pounds Sterling, subject to a
£20.0 million
limit. The program also includes a letter of credit sublimit of
$50.0 million
and minimum borrowing requirements. As of October 30, 2016, there were no foreign currency denominated borrowings, and the letter of
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
credit participation was
$31.0 million
inclusive of
$28.9 million
for the Company's casualty insurance program and
$2.1 million
for the security deposit required under the Orange facility lease agreement.
At October 30, 2016 and November 1, 2015, the Company had outstanding borrowings under this program of
$95.0 million
and
$100.0 million
, respectively, and bore a weighted average annual interest rate of
2.3%
and
1.8%
in fiscal 2016 and 2015, respectively, which is inclusive of certain facility fees. At October 30, 2016, there was
$34.0 million
additional availability under this program, exclusive of the potential availability under the aforementioned accordion feature.
In February 2016, the Company's information technology infrastructure business, as borrower, entered into a
$10.0 million
364
-day secured revolving credit agreement with Bank of America, N.A. The credit agreement provides for revolving loans as well as a
$0.1 million
sub-line for letters of credit and is subject to borrowing base and availability restrictions and requirements. The credit agreement is secured by assets of the borrower, including accounts receivable, and the Company has guaranteed the obligations of the borrower under the agreement not to exceed
$3.0 million
. The credit agreement contains certain customary representations and warranties, events of default and affirmative and negative covenants, including a minimum interest requirement based on
$2.0 million
drawn. At October 30, 2016, the amount outstanding was
$2.1 million
with
$3.3 million
of additional availability. When a Maintech sale occurs, the then outstanding balance is required to be satisfied.
The borrower may optionally terminate the credit agreement and repay the borrowings prior to the expiration date, without premium or penalty at any time by the delivery of a notice to that effect as provided under the credit agreement. It is anticipated that the credit agreement will be terminated before a sale of the borrower. Borrowings will be used for working capital and general corporate purposes. Interest under the credit agreement is one month LIBOR plus
2.75%
on drawn amounts and a fixed rate of
0.375%
on undrawn amounts.
Term Loan
At November 1, 2015, the Company had
$7.3 million
outstanding under a
twenty
-year fully amortizing loan that would have matured on October 1, 2021, secured by a deed of trust on certain land and buildings, which bore interest at
8.2%
per annum and required principal and interest payments of
$0.4 million
per quarter.
In February 2016, Volt Orangeca Real Estate Corp., an indirect wholly-owned subsidiary of the Company, entered into a PSA for the sale of real property comprised of land and buildings with office space of approximately
191,000
square feet in Orange, California (the “Property”) for a purchase price of
$35.9 million
. The transaction closed in March 2016 with terms consistent with the PSA and the term loan on the Property was repaid. At November 1, 2015, the Company had
$7.3 million
of a long-term term loan on this Property, of which
$1.0 million
was current at the period end date.
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
October 30,
2016
|
November 1,
2015
|
Financing program
|
$
|
97,050
|
|
$
|
100,000
|
|
8.2% term loan
|
—
|
|
7,295
|
|
Total debt
|
97,050
|
|
107,295
|
|
Less: amounts due within one year
|
2,050
|
|
982
|
|
Total long-term debt
|
$
|
95,000
|
|
$
|
106,313
|
|
NOTE 14: 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 2016, 2015 or 2014. The holders of common stock have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. There is no preferred stock outstanding.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
(b)
Treasury Stock
On January 14, 2015, the Board of Directors approved a new 36-month share repurchase program of up to
1,500,000
shares of the Company's common stock to begin on January 19, 2015, replacing a prior program. Such repurchases will be made through open market or private transactions. Share repurchases under the program will be subject to specified parameters and certain price and volume restraints and any repurchased shares will be held in treasury. The exact number and timing of share repurchases will depend upon market conditions and other factors.
In fiscal 2015, the Company repurchased
340,800
shares of common stock at an average purchase price of
$12.50
per share for an aggregate amount of
$4.3 million
. As of November 1, 2015, the Company had
1,159,200
shares available for repurchase.
(c) Comprehensive Income (Loss)
The accumulated balances for each classification of other comprehensive income (loss) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
gains/(losses)
|
|
Unrealized
gains/(losses)
on securities
|
|
Accumulated other
comprehensive
income (loss)
|
November 2, 2014
|
$
|
(6,365
|
)
|
|
$
|
(35
|
)
|
|
$
|
(6,400
|
)
|
Other comprehensive income (loss) before reclassifications
|
(4,787
|
)
|
|
12
|
|
|
(4,775
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
3,181
|
|
|
—
|
|
|
3,181
|
|
Current period other comprehensive income (loss)
|
(1,606
|
)
|
|
12
|
|
|
(1,594
|
)
|
November 1, 2015
|
(7,971
|
)
|
|
(23
|
)
|
|
(7,994
|
)
|
Other comprehensive income (loss) before reclassifications
|
(1,998
|
)
|
|
23
|
|
|
(1,975
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
(643
|
)
|
|
—
|
|
|
(643
|
)
|
Current period other comprehensive income (loss)
|
(2,641
|
)
|
|
23
|
|
|
(2,618
|
)
|
October 30, 2016
|
$
|
(10,612
|
)
|
|
$
|
—
|
|
|
$
|
(10,612
|
)
|
The Company did not have any significant amounts reclassified out of Accumulated other comprehensive loss in fiscal 2014.
Reclassifications from Accumulated other comprehensive loss for the twelve months ended October 30, 2016 were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Affected Line Item in the Statement Where Net Loss is Presented
|
|
October 30, 2016
|
|
November 1, 2015
|
|
Foreign currency translation
|
|
|
|
|
|
Closure of foreign subsidiary
|
$
|
(643
|
)
|
|
$
|
—
|
|
|
Foreign exchange gain (loss), net
|
Sale of foreign subsidiaries
|
—
|
|
|
3,181
|
|
|
Discontinued operations
|
Total reclassifications, net of tax
|
$
|
(643
|
)
|
|
$
|
3,181
|
|
|
|
NOTE 15: Stock Compensation Plans
2015 Equity Incentive Plan
On June 9, 2016, the stockholders of the Company approved the 2015 Equity Incentive Plan (the “2015 Plan”), which replaced the 2006 Plan. The 2015 Plan was previously adopted by the Board on October 19, 2015 and subsequently amended on January 13, 2016. The 2015 Plan authorizes the Board to award equity-based compensation in the form of (1) stock options, including incentive stock options, (2) stock appreciation rights, (3) restricted stock, (4) restricted stock units (“RSUs”), (5) performance awards, (6) other stock-based awards, and (7) performance compensation awards. Subject to adjustment as provided in the 2015
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
Plan, up to an aggregate of
3,000,000
shares of the Company’s common stock may be issued or transferred in connection with awards granted thereunder.
For year 2016, the Company granted an aggregate of
981,154
stock options and
261,721
RSUs. The grants were based on the fair value at the grant date with a total fair value of approximately
$3.9 million
. With the exception of the grants for the Board members that vested immediately, the grants will vest in tranches ratably over
three
years provided the employees remain employed on each of those vesting dates. The weighted average fair value per unit for the RSUs was
$6.41
. Compensation expense for the vested units was recognized on the grant date. The stock options have a weighted average exercise price of
$6.48
and expire
10
years from the initial grant date. Compensation expense for the stock options and units that were not immediately vested is recognized over the vesting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Restricted Stock
|
2015 Plan
|
Number of
shares
|
|
Weighted
average
exercise
price
|
|
Weighted
average
contractual
life
|
|
Aggregate
Intrinsic
Value
|
|
Number of
shares
|
|
Weighted
average
grant date
fair value
|
|
|
|
|
|
(in years)
|
|
(in thousands)
|
|
|
|
|
Outstanding - November 1, 2015
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
981,154
|
|
|
6.48
|
|
|
—
|
|
|
—
|
|
|
261,721
|
|
|
6.41
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(2,748
|
)
|
|
$
|
6.06
|
|
|
—
|
|
|
—
|
|
|
(550
|
)
|
|
6.06
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(75,219
|
)
|
|
6.06
|
|
Outstanding - October 30, 2016
|
978,406
|
|
|
$
|
6.48
|
|
|
9.51
|
|
|
$
|
242
|
|
|
185,952
|
|
|
$
|
7.13
|
|
Unvested at October 30, 2016
|
917,723
|
|
|
$
|
6.36
|
|
|
9.55
|
|
|
$
|
22
|
|
|
185,952
|
|
|
$
|
7.13
|
|
Vested and unexercisable at October 30, 2016
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercisable at October 30, 2016
|
60,683
|
|
|
$
|
8.33
|
|
|
8.98
|
|
|
$
|
—
|
|
|
|
|
|
2006 Incentive Stock Plan
The 2006 Incentive Stock Plan (the “2006 Plan”) was approved by the shareholders of the Company in April 2007 and permitted the issuance of stock options, restricted stock and restricted stock units to employees and non-employee directors of the Company. The 2006 Plan terminated on September 5, 2016 and all of the outstanding shares granted under the 2006 Plan will remain valid.
During fiscal 2016, the Company granted
189,897
stock options and
38,314
RSUs. The grants were based on the fair value at the grant date with a total fair value of approximately
$0.8 million
. The grants will vest in tranches ratably over
three
years provided the employees remain employed on each of those vesting dates. The weighted average fair value per unit for the RSUs was
$7.18
. The stock options have a weighted average exercise price of
$7.18
and expire
10
years from the initial grant date. Compensation expense for the stock options and units that were not immediately vested is recognized over the vesting period.
During fiscal 2015, the Company granted
393,528
stock options and
170,979
RSUs. The grants were based on the fair value at the grant date with a total fair value of approximately
$2.8 million
. The grants will vest in tranches ratably over
three
years provided the employee remain employed on each of those vesting dates. The weighted average fair value per unit for the RSUs was
$9.32
. The stock options have a weighted average exercise price of
$9.21
and expire
seven
years from the grant date. Compensation expense for the stock options and units that were not immediately vested is recognized over the vesting period.
During fiscal 2014, the Company granted
340,000
stock options to purchase shares of the Company's common stock. If certain stock price targets are not met on or prior to July 3, 2017, these options will expire. The closing price for the Company's stock must be no less than certain market targets for
ten
consecutive trading days for the stock options to be exercisable. The stock options have a weighted average exercise price of
$12.59
and expire
seven
years from the grant date. In addition, the Company granted
15,000
shares of the Company's common stock as restricted stock awards. The weighted average fair value for these shares at the grant date was
$9.24
. Compensation expense was recognized on the grant date since the shares vested immediately.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
The following table summarizes transactions involving outstanding stock options and non-vested restricted stock and restricted stock unit awards (stock awards) under the 2006 plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Restricted Stock
|
2006 Plan
|
Number of
shares
|
|
Weighted
average
exercise
price
|
|
Weighted
average
contractual
life
|
|
Aggregate
Intrinsic
Value
|
|
Number of
shares
|
|
Weighted
average
grant date
fair value
|
|
|
|
|
|
(in years)
|
|
(in thousands)
|
|
|
|
|
Outstanding - November 3, 2013
|
484,150
|
|
|
$
|
6.50
|
|
|
5.42
|
|
|
$
|
1,041
|
|
|
73,334
|
|
|
$
|
7.61
|
|
Granted
|
340,000
|
|
|
$
|
12.59
|
|
|
—
|
|
|
—
|
|
|
15,000
|
|
|
$
|
9.24
|
|
Expired
|
(34,600
|
)
|
|
$
|
6.39
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(25,400
|
)
|
|
$
|
6.39
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65,000
|
)
|
|
$
|
7.97
|
|
Outstanding - November 2, 2014
|
764,150
|
|
|
$
|
9.22
|
|
|
5.43
|
|
|
$
|
776
|
|
|
23,334
|
|
|
$
|
7.68
|
|
Granted
|
393,528
|
|
|
$
|
9.21
|
|
|
—
|
|
|
—
|
|
|
170,979
|
|
|
$
|
9.32
|
|
Expired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(94,000
|
)
|
|
$
|
12.49
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(144,154
|
)
|
|
$
|
9.11
|
|
Exercised
|
(83,264
|
)
|
|
$
|
6.39
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding - November 1, 2015
|
980,414
|
|
|
$
|
9.14
|
|
|
5.31
|
|
|
$
|
727
|
|
|
50,159
|
|
|
$
|
9.17
|
|
Granted
|
189,897
|
|
|
$
|
7.18
|
|
|
—
|
|
|
—
|
|
|
38,314
|
|
|
$
|
7.18
|
|
Exercised
|
(11,682
|
)
|
|
$
|
6.39
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Forfeited
|
(216,000
|
)
|
|
$
|
8.34
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44,692
|
)
|
|
$
|
9.24
|
|
Outstanding - October 30, 2016
|
942,629
|
|
|
$
|
8.97
|
|
|
6.91
|
|
|
$
|
1
|
|
|
43,781
|
|
|
$
|
7.35
|
|
Unvested at October 30, 2016
|
214,555
|
|
|
$
|
7.34
|
|
|
9.37
|
|
|
$
|
1
|
|
|
43,781
|
|
|
$
|
7.35
|
|
Vested and unexercisable at October 30, 2016
|
85,000
|
|
|
14.00
|
|
|
4.67
|
|
|
—
|
|
|
—
|
|
|
|
Exercisable at October 30, 2016
|
643,074
|
|
|
$
|
8.84
|
|
|
6.38
|
|
|
$
|
—
|
|
|
|
|
|
2015 and 2006 Incentive Stock Plans
Determining Fair Value - Stock Options
The fair value of the option grants under both plans were estimated using the Black-Scholes option-pricing and Monte Carlo Simulation models which requires estimates of key assumptions based on both historical information and management judgment regarding market factors and trends.
Expected volatility - We developed the expected volatility by using the historical volatility of the Company's stock for a period equal to the expected life of the option.
Expected term - We derived our expected term assumption based on the simplified method due to a lack of historical exercise data, which results in an expected term based on the midpoint between the graded vesting dates and contractual term of an option.
Risk-free interest rate - The rates are based on the average yield of a U.S. Treasury bond whose term was consistent with the expected life of the stock options.
Expected dividend yield - We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield was assumed to be zero.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
The Company estimated the fair value of each stock option grant using the Black-Scholes option-pricing model and Monte Carlo simulation when applicable. The weighted average assumptions used to estimate the fair value of stock options for the respective fiscal years were as follows:
|
|
|
|
|
|
|
|
October 30,
2016
|
|
November 1,
2015
|
|
November 2,
2014
|
Weighted-average fair value of stock option granted
|
$2.41
|
|
$2.97
|
|
$3.21
|
Expected volatility
|
40.0%
|
|
40.0%
|
|
48.0%
|
Expected term (in years)
|
6.00
|
|
4.67
|
|
7.00
|
Risk-free interest rate
|
1.32%
|
|
1.53%
|
|
2.25%
|
Expected dividend yield
|
0.0%
|
|
0.0%
|
|
0.0%
|
Share-based compensation expense was recognized in Selling, administrative and other operating costs in the Company’s Consolidated Statements of Operations as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
October 30,
2016
|
|
November 1,
2015
|
|
November 2,
2014
|
|
|
|
|
|
|
Selling, administrative and other operating costs
|
$
|
1,828
|
|
|
$
|
2,906
|
|
|
$
|
1,198
|
|
Total
|
$
|
1,828
|
|
|
$
|
2,906
|
|
|
$
|
1,198
|
|
As of October 30, 2016, total unrecognized compensation expense of
$3.3 million
related to stock options and RSU's from these grants will be recognized over the remaining average vesting period of
2.4
years of which
$2.1 million
,
$1.0 million
, and
$0.2 million
is expected to be recognized in fiscal 2017, 2018 and 2019, respectively.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
NOTE 16: Earnings (Loss) Per Share
Basic and diluted net loss per share is calculated as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
October 30, 2016
|
|
November 1,
2015
|
|
November 2,
2014
|
Numerator
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(14,570
|
)
|
|
$
|
(19,786
|
)
|
|
$
|
(3,387
|
)
|
Loss from discontinued operations, net of income taxes
|
—
|
|
|
(4,834
|
)
|
|
(15,601
|
)
|
Net loss
|
$
|
(14,570
|
)
|
|
$
|
(24,620
|
)
|
|
$
|
(18,988
|
)
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
Basic weighted average number of shares
|
20,831
|
|
|
20,816
|
|
|
20,863
|
|
Dilutive weighted average number of shares
|
20,831
|
|
|
20,816
|
|
|
20,863
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(0.70
|
)
|
|
$
|
(0.95
|
)
|
|
$
|
(0.16
|
)
|
Loss from discontinued operations, net of income taxes
|
—
|
|
|
(0.23
|
)
|
|
(0.75
|
)
|
Net loss
|
$
|
(0.70
|
)
|
|
$
|
(1.18
|
)
|
|
$
|
(0.91
|
)
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(0.70
|
)
|
|
$
|
(0.95
|
)
|
|
$
|
(0.16
|
)
|
Loss from discontinued operations, net of income taxes
|
—
|
|
|
(0.23
|
)
|
|
(0.75
|
)
|
Net loss
|
$
|
(0.70
|
)
|
|
$
|
(1.18
|
)
|
|
$
|
(0.91
|
)
|
Options to purchase
1,921,036
,
980,414
and
764,150
shares of the Company’s common stock were outstanding at October 30, 2016, November 1, 2015 and November 2, 2014, respectively. Additionally, there were
229,735
,
50,159
and
15,000
restricted shares outstanding at October 30, 2016, November 1, 2015 and November 2, 2014, respectively. The options were not included in the computation of diluted loss per share in fiscal 2016, 2015 and 2014 because the effect of their inclusion would have been anti-dilutive as a result of the Company’s net loss position in those fiscal years.
NOTE 17: Related Party Transactions
During fiscal 2015 and 2014, the law firm of which Lloyd Frank, a former member of the Company’s Board of Directors (until May 2015) is counsel, rendered services to the Company in the amount of
$1.1 million
and
$1.2 million
, respectively. During fiscal 2015 and 2014, the Company paid
$0.1 million
and
$0.1 million
, respectively, to Michael Shaw, Ph.D., son of Jerry Shaw, Executive Officer, and brother of Steven Shaw, the Company’s former Chief Executive Officer and Director, for services rendered to the Company. In addition, during fiscal 2015 the Company paid
$0.1 million
in connection with a settlement agreement dated March 30, 2015 with Glacier Peak Capital LLC and certain of its affiliates, an investment firm of which the President and Senior Portfolio Manager, John C. Rudolf, serves on the Company's Board of Directors.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
NOTE 18: Commitments and Contingencies
The future minimum rental commitments as of October 30, 2016 for all non-cancelable operating leases were as follows (in thousands):
|
|
|
|
|
Fiscal year:
|
Amount
|
|
2017
|
$
|
17,309
|
|
2018
|
14,178
|
|
2019
|
11,187
|
|
2020
|
8,844
|
|
2021
|
6,158
|
|
Thereafter
|
41,136
|
|
Many of the leases also require the Company to pay and contribute to property taxes, insurance and ordinary repairs and maintenance. The lease agreements, which expire at various dates through
2031
, may be subject in some cases to renewal options, early termination options or escalation clauses.
Rent expense for all operating leases in fiscal 2016, 2015 and 2014 were
$18.0 million
,
$15.6 million
, and
$16.2 million
, respectively.
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.
NOTE 19: Subsequent Events
In January 2017, the Company amended the Financing Program with PNC to extend the termination date from January 31, 2017 to January 31, 2018. The amendment also decreases the requirement under the minimum global liquidity covenant to
$20.0 million
, which increases to
$25.0 million
at the earlier of the sale of Maintech or receipt of our IRS refund, and then to
$35.0 million
after any time at which we pay a dividend or repurchase shares of our stock. The amendment includes a performance covenant requiring a minimum Earnings Before Interest and Taxes (“EBIT”) which is measured quarterly. The amendment also reduces the unbilled receivables eligibility from
15%
to
10%
, permits a
$5.0 million
basket for supply chain finance receivables. The amendment also prohibits distributions until both Maintech is sold and the IRS refund is received. When these two transactions occur, up to
$0.5 million
in distributions can be made per fiscal quarter provided that liquidity is at least
$40.0 million
after the distribution. All other material terms and conditions remain substantially unchanged, including interest rates.
NOTE 20: Segment Disclosures
The Company’s strategic reorganization during fiscal 2016 and 2015 included the exit of non-core operations and significant changes in the management structure. The Company changed its operating and reportable segments during the fourth quarter of fiscal 2016 in connection with its new business strategies, 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) Technology Outsourcing Services and Solutions. The non-reportable businesses are combined and disclosed with corporate services under the category Corporate and Other. Accordingly, all prior periods have been recast to reflect the
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
current segment presentation. The change in reportable segments did not have any impact on previously reported consolidated financial results.
Segment operating income (loss) is comprised of segment net revenues 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 relating to our operating activities such as corporate-wide general and administrative costs and fees related to restatement, investigations and remediation. These costs are not allocated because doing so would not enhance the understanding of segment operating performance and they are not used by management to measure segment performance.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 30, 2016
|
|
Total
|
|
North American Staffing
|
|
International Staffing
|
|
Technology Outsourcing Services and Solutions
|
|
Corporate and Other (1)
|
|
Eliminations (2)
|
Net revenue
|
$
|
1,334,747
|
|
|
$
|
1,047,888
|
|
|
$
|
131,496
|
|
|
$
|
106,585
|
|
|
$
|
114,772
|
|
|
$
|
(65,994
|
)
|
Cost of services
|
1,132,253
|
|
|
901,025
|
|
|
112,035
|
|
|
87,731
|
|
|
97,456
|
|
|
(65,994
|
)
|
Gross margin
|
202,494
|
|
|
146,863
|
|
|
19,461
|
|
|
18,854
|
|
|
17,316
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, administrative and other operating costs
|
203,930
|
|
|
122,576
|
|
|
16,402
|
|
|
13,029
|
|
|
51,923
|
|
|
—
|
|
Restructuring and severance costs
|
5,752
|
|
|
1,117
|
|
|
702
|
|
|
327
|
|
|
3,606
|
|
|
—
|
|
Gain on sale of building
|
(1,663
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,663
|
)
|
|
—
|
|
Impairment charges
|
364
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
364
|
|
|
—
|
|
Operating income (loss)
|
(5,889
|
)
|
|
23,170
|
|
|
2,357
|
|
|
5,498
|
|
|
(36,914
|
)
|
|
—
|
|
Other income (expense), net
|
(6,506
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
2,175
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
(14,570
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(14,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 1, 2015
|
|
Total
|
|
North American Staffing
|
|
International Staffing
|
|
Technology Outsourcing Services and Solutions
|
|
Corporate and Other (1)
|
|
Eliminations (2)
|
Net revenue
|
$
|
1,496,897
|
|
|
$
|
1,127,284
|
|
|
$
|
147,649
|
|
|
$
|
135,886
|
|
|
$
|
168,422
|
|
|
$
|
(82,344
|
)
|
Cost of services
|
1,268,363
|
|
|
974,859
|
|
|
127,699
|
|
|
108,309
|
|
|
139,840
|
|
|
(82,344
|
)
|
Gross margin
|
228,534
|
|
|
152,425
|
|
|
19,950
|
|
|
27,577
|
|
|
28,582
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, administrative and other operating costs
|
231,033
|
|
|
131,277
|
|
|
18,990
|
|
|
15,545
|
|
|
65,221
|
|
|
—
|
|
Restructuring and severance costs
|
3,635
|
|
|
705
|
|
|
357
|
|
|
—
|
|
|
2,573
|
|
|
—
|
|
Impairment charges
|
6,626
|
|
|
1,900
|
|
|
—
|
|
|
—
|
|
|
4,726
|
|
|
—
|
|
Operating income (loss)
|
(12,760
|
)
|
|
18,543
|
|
|
603
|
|
|
12,032
|
|
|
(43,938
|
)
|
|
—
|
|
Other income (expense), net
|
(2,380
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
4,646
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
(19,786
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
(4,834
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(24,620
|
)
|
|
|
|
|
|
|
|
|
|
|
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 2, 2014
|
|
Total
|
|
North American Staffing
|
|
International Staffing
|
|
Technology Outsourcing Services and Solutions
|
|
Corporate and Other (1)
|
|
Eliminations (2)
|
Net revenue
|
$
|
1,710,028
|
|
|
$
|
1,284,314
|
|
|
$
|
158,266
|
|
|
$
|
146,547
|
|
|
$
|
208,820
|
|
|
$
|
(87,919
|
)
|
Cost of services
|
1,450,448
|
|
|
1,106,921
|
|
|
135,875
|
|
|
121,168
|
|
|
174,403
|
|
|
(87,919
|
)
|
Gross margin
|
259,580
|
|
|
177,393
|
|
|
22,391
|
|
|
25,379
|
|
|
34,417
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, administrative and other operating costs
|
249,026
|
|
|
140,698
|
|
|
21,281
|
|
|
16,056
|
|
|
70,991
|
|
|
—
|
|
Restructuring and severance costs
|
2,507
|
|
|
730
|
|
|
—
|
|
|
|
|
1,777
|
|
|
—
|
|
Restatement, investigations and remediation
|
3,261
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,261
|
|
|
—
|
|
Operating income (loss)
|
4,786
|
|
|
35,965
|
|
|
1,110
|
|
|
9,323
|
|
|
(41,612
|
)
|
|
—
|
|
Other income (expense), net
|
(2,947
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
5,226
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
(3,387
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
(15,601
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(18,988
|
)
|
|
|
|
|
|
|
|
|
|
|
(1) Revenues are primarily derived from managed service programs and information technology infrastructure services.
(2) The majority of intersegment sales results from North American Staffing providing resources to Technology Outsourcing Services and Solutions.
Assets of the Company by reportable operating segment are summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
October 30,
2016
|
|
November 1,
2015
|
Assets:
|
|
|
|
North American Staffing
|
$
|
135,620
|
|
|
$
|
143,022
|
|
International Staffing
|
36,279
|
|
|
44,162
|
|
Technology Outsourcing Services and Solutions
|
34,038
|
|
|
31,626
|
|
Corporate & Other
|
92,948
|
|
|
85,073
|
|
Total segments
|
298,885
|
|
|
303,883
|
|
Held for sale
|
17,580
|
|
|
22,943
|
|
Total Assets
|
$
|
316,465
|
|
|
$
|
326,826
|
|
Sales to external customers and long-lived assets of the Company by geographic area are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
October 30, 2016
|
|
November 1,
2015
|
|
November 2,
2014
|
Net Revenue:
|
|
|
|
|
|
Domestic
|
$
|
1,148,254
|
|
|
$
|
1,273,971
|
|
|
$
|
1,489,334
|
|
International, principally Europe
|
186,493
|
|
|
222,926
|
|
|
220,694
|
|
Total Net Revenue
|
$
|
1,334,747
|
|
|
$
|
1,496,897
|
|
|
$
|
1,710,028
|
|
|
|
|
|
|
|
|
|
|
|
October 30,
2016
|
|
November 1,
2015
|
Long-Lived Assets:
|
|
|
|
Domestic
|
$
|
27,113
|
|
|
$
|
21,335
|
|
International
|
3,020
|
|
|
2,760
|
|
Total Long-Lived Assets
|
$
|
30,133
|
|
|
$
|
24,095
|
|
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
Capital expenditures and depreciation and amortization by the Company’s operating segments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
October 30,
2016
|
|
November 1,
2015
|
|
November 2,
2014
|
Capital Expenditures:
|
|
|
|
|
|
North American Staffing
|
$
|
480
|
|
|
$
|
422
|
|
|
$
|
287
|
|
International Staffing
|
893
|
|
|
324
|
|
|
308
|
|
Technology Outsourcing Services and Solutions
|
1,339
|
|
|
2,265
|
|
|
641
|
|
Corporate & Other
|
14,838
|
|
|
5,541
|
|
|
4,031
|
|
Total Capital Expenditures
|
$
|
17,550
|
|
|
$
|
8,552
|
|
|
$
|
5,267
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
North American Staffing
|
$
|
517
|
|
|
$
|
619
|
|
|
$
|
1,148
|
|
International Staffing
|
345
|
|
|
332
|
|
|
329
|
|
Technology Outsourcing Services and Solutions
|
1,728
|
|
|
1,172
|
|
|
1,761
|
|
Corporate & Other
|
3,379
|
|
|
4,688
|
|
|
6,085
|
|
Total Depreciation and Amortization
|
$
|
5,969
|
|
|
$
|
6,811
|
|
|
$
|
9,323
|
|
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
NOTE 21: Quarterly Financial Information (unaudited)
The following tables present certain unaudited consolidated quarterly financial information for each quarter in the fiscal years ended October 30, 2016 and November 1, 2015.
The following table presents selected Consolidated Statements of Operations data for each quarter for the fiscal year ended October 30, 2016 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Year Ended
|
|
January 31,
2016
|
|
May 1,
2016
|
|
July 31,
2016
|
|
October 30,
2016
|
|
October 30,
2016
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUE
|
$
|
326,968
|
|
|
$
|
335,576
|
|
|
$
|
330,625
|
|
|
$
|
341,578
|
|
|
$
|
1,334,747
|
|
Cost of services
|
281,400
|
|
|
284,104
|
|
|
282,098
|
|
|
284,651
|
|
|
1,132,253
|
|
GROSS MARGIN
|
45,568
|
|
|
51,472
|
|
|
48,527
|
|
|
56,927
|
|
|
202,494
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
Selling, administrative and other operating costs
|
52,623
|
|
|
51,128
|
|
|
49,543
|
|
|
50,636
|
|
|
203,930
|
|
Restructuring and severance costs
|
2,761
|
|
|
840
|
|
|
970
|
|
|
1,181
|
|
|
5,752
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
—
|
|
|
364
|
|
|
364
|
|
Gain on sale of building
|
—
|
|
|
(1,663
|
)
|
|
—
|
|
|
—
|
|
|
(1,663
|
)
|
TOTAL EXPENSES
|
55,384
|
|
|
50,305
|
|
|
50,513
|
|
|
52,181
|
|
|
208,383
|
|
OPERATING INCOME (LOSS)
|
(9,816
|
)
|
|
1,167
|
|
|
(1,986
|
)
|
|
4,746
|
|
|
(5,889
|
)
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Interest income
|
74
|
|
|
37
|
|
|
18
|
|
|
17
|
|
|
146
|
|
Interest expense
|
(732
|
)
|
|
(899
|
)
|
|
(844
|
)
|
|
(830
|
)
|
|
(3,305
|
)
|
Foreign exchange gain (loss), net
|
344
|
|
|
(579
|
)
|
|
(1,003
|
)
|
|
(565
|
)
|
|
(1,803
|
)
|
Other income (expense), net
|
(279
|
)
|
|
(420
|
)
|
|
(402
|
)
|
|
(443
|
)
|
|
(1,544
|
)
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
(10,409
|
)
|
|
(694
|
)
|
|
(4,217
|
)
|
|
2,925
|
|
|
(12,395
|
)
|
Income tax provision
|
553
|
|
|
1,091
|
|
|
393
|
|
|
138
|
|
|
2,175
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS, NET OF INCOME TAXES
|
(10,962
|
)
|
|
(1,785
|
)
|
|
(4,610
|
)
|
|
2,787
|
|
|
(14,570
|
)
|
DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
NET INCOME (LOSS)
|
$
|
(10,962
|
)
|
|
$
|
(1,785
|
)
|
|
$
|
(4,610
|
)
|
|
$
|
2,787
|
|
|
$
|
(14,570
|
)
|
PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(0.53
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.70
|
)
|
Loss from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
$
|
(0.53
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.70
|
)
|
Weighted average number of shares
|
20,813
|
|
|
20,814
|
|
|
20,846
|
|
|
20,852
|
|
|
20,831
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(0.53
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.70
|
)
|
Loss from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
$
|
(0.53
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.70
|
)
|
Weighted average number of shares
|
20,813
|
|
|
20,814
|
|
|
20,846
|
|
|
21,762
|
|
|
20,831
|
|
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 30, 2016
The following table presents selected Consolidated Statements of Operations data for each quarter for the fiscal year ended November 1, 2015 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Year Ended
|
|
February 1,
2015
|
|
May 3,
2015
|
|
August 2,
2015
|
|
November 1,
2015
|
|
November 1,
2015
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUE
|
$
|
383,066
|
|
|
$
|
385,189
|
|
|
$
|
364,668
|
|
|
$
|
363,974
|
|
|
$
|
1,496,897
|
|
Cost of services
|
330,024
|
|
|
324,673
|
|
|
307,866
|
|
|
305,800
|
|
|
1,268,363
|
|
GROSS MARGIN
|
53,042
|
|
|
60,516
|
|
|
56,802
|
|
|
58,174
|
|
|
228,534
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
Selling, administrative and other operating costs
|
59,389
|
|
|
58,985
|
|
|
57,409
|
|
|
55,250
|
|
|
231,033
|
|
Restructuring and severance costs
|
975
|
|
|
251
|
|
|
1,867
|
|
|
542
|
|
|
3,635
|
|
Impairment charges
|
—
|
|
|
5,374
|
|
|
580
|
|
|
672
|
|
|
6,626
|
|
TOTAL EXPENSES
|
60,364
|
|
|
64,610
|
|
|
59,856
|
|
|
56,464
|
|
|
241,294
|
|
OPERATING INCOME (LOSS)
|
(7,322
|
)
|
|
(4,094
|
)
|
|
(3,054
|
)
|
|
1,710
|
|
|
(12,760
|
)
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Interest income
|
62
|
|
|
261
|
|
|
175
|
|
|
74
|
|
|
572
|
|
Interest expense
|
(696
|
)
|
|
(991
|
)
|
|
(746
|
)
|
|
(811
|
)
|
|
(3,244
|
)
|
Foreign exchange gain (loss), net
|
437
|
|
|
(1,600
|
)
|
|
1,010
|
|
|
(96
|
)
|
|
(249
|
)
|
Other income (expense), net
|
98
|
|
|
43
|
|
|
(178
|
)
|
|
578
|
|
|
541
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
(7,421
|
)
|
|
(6,381
|
)
|
|
(2,793
|
)
|
|
1,455
|
|
|
(15,140
|
)
|
Income tax provision
|
1,379
|
|
|
532
|
|
|
1,351
|
|
|
1,384
|
|
|
4,646
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS, NET OF INCOME TAXES
|
(8,800
|
)
|
|
(6,913
|
)
|
|
(4,144
|
)
|
|
71
|
|
|
(19,786
|
)
|
DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
(4,519
|
)
|
|
—
|
|
|
—
|
|
|
(315
|
)
|
|
(4,834
|
)
|
NET LOSS
|
$
|
(13,319
|
)
|
|
$
|
(6,913
|
)
|
|
$
|
(4,144
|
)
|
|
$
|
(244
|
)
|
|
$
|
(24,620
|
)
|
PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(0.42
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
—
|
|
|
$
|
(0.95
|
)
|
Loss from discontinued operations
|
(0.22
|
)
|
|
—
|
|
|
—
|
|
|
(0.01
|
)
|
|
(0.23
|
)
|
Net loss
|
$
|
(0.64
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(1.18
|
)
|
Weighted average number of shares
|
20,930
|
|
|
20,793
|
|
|
20,741
|
|
|
20,799
|
|
|
20,816
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(0.42
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
—
|
|
|
$
|
(0.95
|
)
|
Loss from discontinued operations
|
(0.22
|
)
|
|
—
|
|
|
—
|
|
|
(0.01
|
)
|
|
(0.23
|
)
|
Net loss
|
$
|
(0.64
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(1.18
|
)
|
Weighted average number of shares
|
20,930
|
|
|
20,793
|
|
|
20,741
|
|
|
20,930
|
|
|
20,816
|
|
Volt Information Sciences (AMEX:VISI)
Historical Stock Chart
Von Jul 2024 bis Aug 2024
Volt Information Sciences (AMEX:VISI)
Historical Stock Chart
Von Aug 2023 bis Aug 2024