UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended May 1, 2016
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the transition period from          to          .
 
Commission File Number: 001-09232  
 
VOLT INFORMATION SCIENCES, INC.
(Exact name of registrant as specified in its charter)
New York
13-5658129
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
1133 Avenue of Americas, New York, New York
10036
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:
(212) 704-2400

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   x  Yes     ¨   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x   Yes   ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
 
 
 
 
 
 
(Do not check if a smaller
reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ¨    No x

As of June 3, 2016, there were 20,832,503 shares of common stock outstanding.

 



PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
May 1, 2016
 
May 3, 2015
 
May 1, 2016
 
May 3, 2015
 
 
REVENUE:
 
 
 
 
 
 
 
 
Staffing services revenue
$
317,247

 
$
362,277

 
$
625,928

 
$
723,098

 
Other revenue
18,192

 
22,912

 
36,341

 
45,157

 
NET REVENUE
335,439

 
385,189

 
662,269

 
768,255

 
 
 
 
 
 
 
 
 
 
EXPENSES:
 
 
 
 
 
 
 
 
Direct cost of staffing services revenue
267,826

 
303,837

 
531,998

 
613,355

 
Cost of other revenue
15,887

 
19,909

 
32,675

 
39,514

 
Selling, administrative and other operating costs
51,382

 
59,912

 
104,307

 
120,202

 
Restructuring and severance costs
840

 
251

 
3,601

 
1,226

 
Impairment charges

 
5,374

 

 
5,374

 
Gain on sale of building
(1,663
)
 

 
(1,663
)
 

 
TOTAL EXPENSES
334,272

 
389,283

 
670,918

 
779,671

 
 
 
 
 
 
 
 
 
 
OPERATING INCOME (LOSS)
1,167

 
(4,094
)
 
(8,649
)
 
(11,416
)
 
 
 
 
 
 
 
 

 
OTHER INCOME (EXPENSE), NET:
 
 
 
 
 
 
 
 
Interest income (expense), net
(862
)
 
(730
)
 
(1,520
)
 
(1,364
)
 
Foreign exchange gain (loss), net
(579
)
 
(1,600
)
 
(235
)
 
(1,163
)
 
Other income (expense), net
(420
)
 
43

 
(699
)
 
141

 
TOTAL OTHER INCOME (EXPENSE), NET
(1,861
)
 
(2,287
)
 
(2,454
)
 
(2,386
)
 
 
 
 
 
 
 
 

 
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(694
)
 
(6,381
)
 
(11,103
)
 
(13,802
)
 
Income tax provision
1,091

 
532

 
1,644

 
1,911

 
LOSS FROM CONTINUING OPERATIONS
(1,785
)
 
(6,913
)
 
(12,747
)
 
(15,713
)
 
DISCONTINUED OPERATIONS
 
 
 
 
 
 
 
 
    Loss from discontinued operations net of income taxes (including loss on disposal of $1.2 million)

 

 

 
(4,519
)
 
NET LOSS
$
(1,785
)
 
$
(6,913
)
 
$
(12,747
)
 
$
(20,232
)
 
 
 
 
 
 
 
 
 
 
PER SHARE DATA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.09
)
 
$
(0.33
)
 
$
(0.61
)
 
$
(0.75
)
 
Loss from discontinued operations

 

 

 
(0.22
)
 
Net loss
$
(0.09
)
 
$
(0.33
)
 
$
(0.61
)
 
$
(0.97
)
 
Weighted average number of shares
20,814

 
20,793

 
20,813

 
20,861

 
Diluted:
 
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.09
)
 
$
(0.33
)
 
$
(0.61
)
 
$
(0.75
)
 
Loss from discontinued operations

 

 

 
(0.22
)
 
Net loss
$
(0.09
)
 
$
(0.33
)
 
$
(0.61
)
 
$
(0.97
)
 
Weighted average number of shares
20,814

 
20,793

 
20,813

 
20,861

See accompanying Notes to Condensed Consolidated Financial Statements.

1



VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
May 1, 2016
 
May 3, 2015
 
May 1, 2016
 
May 3, 2015
 
 
NET LOSS
$
(1,785
)
 
$
(6,913
)
 
$
(12,747
)
 
$
(20,232
)
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of taxes of $0, respectively
2,819

 
1,515

 
304

 
366

 
Unrealized gain (loss) on marketable securities, net of taxes of $0, respectively
(2
)
 
12

 
(2
)
 
16

 
Total other comprehensive income
2,817

 
1,527

 
302

 
382

 
COMPREHENSIVE INCOME (LOSS)
$
1,032

 
$
(5,386
)
 
$
(12,445
)
 
$
(19,850
)

See accompanying Notes to Condensed Consolidated Financial Statements.



2



VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
 
May 1, 2016
 
November 1, 2015
 
(unaudited)
 
 
ASSETS
 
 
 
          CURRENT ASSETS:
 
 
 
                   Cash and cash equivalents
$
23,171

 
$
10,188

                   Restricted cash and short-term investments
11,647

 
14,977

                   Trade accounts receivable, net of allowances of $749 and $960, respectively
177,178

 
198,385

                   Recoverable income taxes
17,762

 
17,583

                   Prepaid insurance and other current assets
17,724

 
15,865

                   Assets held for sale
21,572

 
22,943

          TOTAL CURRENT ASSETS
269,054

 
279,941

          Other assets, excluding current portion
24,695

 
22,790

          Property, equipment and software, net
24,186

 
24,095

TOTAL ASSETS
$
317,935

 
$
326,826



 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

          CURRENT LIABILITIES:

 

                   Accrued compensation
$
28,601

 
$
29,548

                   Accounts payable
31,312

 
39,164

                   Accrued taxes other than income taxes
26,205

 
22,719

                   Accrued insurance and other
34,327

 
34,391

                   Short-term borrowings, including current portion of long-term debt
92,000

 
982

                   Income taxes payable

 
1,658

                   Liabilities held for sale
6,119

 
7,345

          TOTAL CURRENT LIABILITIES
218,564

 
135,807

          Accrued insurance and other, excluding current portion
10,116

 
10,474

          Deferred gain on sale of real estate, excluding current portion
27,080

 

          Income taxes payable, excluding current portion
6,585

 
6,516

          Deferred income taxes
3,490

 
3,225

          Long-term debt, excluding current portion

 
106,313

TOTAL LIABILITIES
265,835

 
262,335

Commitments and contingencies

 



 

STOCKHOLDERS' EQUITY:

 

          Preferred stock, par value $1.00; Authorized - 500,000 shares; Issued - none

 

 Common stock, par value $0.10; Authorized - 120,000,000 shares;                                                                                                                                                 Issued - 23,738,003 and 23,738,003, respectively; Outstanding - 20,832,503 and 20,801,080, respectively
2,374

 
2,374

          Paid-in capital
75,480

 
75,803

          Retained earnings
24,569

 
38,034

          Accumulated other comprehensive loss
(7,692
)
 
(7,994
)
          Treasury stock, at cost; 2,905,500 and 2,936,923 shares, respectively
(42,631
)
 
(43,726
)
TOTAL STOCKHOLDERS' EQUITY
52,100

 
64,491

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
317,935

 
$
326,826

See accompanying Notes to Condensed Consolidated Financial Statements.

3



VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
Six Months Ended
 
May 1, 2016
 
May 3, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(12,747
)
 
$
(20,232
)
Loss from discontinued operations, net of income taxes

 
(4,519
)
Loss from continuing operations
(12,747
)
 
(15,713
)
Adjustment to reconcile net loss to cash provided by operating activities:

 

Depreciation and amortization
3,057

 
3,410

Provision (release) of doubtful accounts and sales allowances
(211
)
 
151

Impairment charges

 
5,374

Unrealized foreign currency exchange loss
1,325

 
172

Gain on dispositions of property and equipment
(1,842
)
 
(111
)
Deferred income tax benefit

 
(79
)
Share-based compensation expense
265

 
718

Accretion of convertible note discount
(77
)
 
(199
)
Change in operating assets and liabilities:


 


Trade accounts receivable
21,480

 
20,411

Restricted cash
2,355

 
4,062

Prepaid insurance and other assets
(3,752
)
 
(166
)
Net assets held for sale
(95
)
 
4,533

Accounts payable
(7,876
)
 
(9,013
)
Accrued expenses and other liabilities
2,364

 
(13,283
)
Income taxes
(1,757
)
 
715

Net cash provided by operating activities
2,489

 
982

CASH FLOWS FROM INVESTING ACTIVITIES:

 

Sales of investments
876

 
796

Purchases of investments
(291
)
 
(501
)
Purchase of minority interest
(1,446
)
 

Proceeds from sale of property and equipment
36,878

 
227

Purchases of property, equipment and software
(8,464
)
 
(3,276
)
Net cash provided by (used in) investing activities
27,553

 
(2,754
)
CASH FLOWS FROM FINANCING ACTIVITIES:

 

Decrease in cash restricted as collateral for borrowings

 
10,352

Repayment of borrowings
(10,000
)
 
(28,506
)
Draw-down of borrowings
2,000

 
30,000

Repayment of long-term debt
(7,295
)
 
(446
)
Debt issuance costs
(445
)
 
(232
)
Proceeds from exercise of stock options
25

 
438

Purchases of common stock under repurchase program

 
(4,262
)
    Withholding tax payment on vesting of restricted stock awards
(116
)
 

Net cash provided by (used in) financing activities
(15,831
)
 
7,344

Effect of exchange rate changes on cash and cash equivalents
(1,228
)
 
(1,958
)
CASH FLOWS FROM DISCONTINUED OPERATIONS:
 
 
 
    Cash flow from operating activities

 
(56
)
Cash flow from investing activities

 
(4,000
)
Net cash used in discontinued operations

 
(4,056
)
Net increase (decrease) in cash and cash equivalents
12,983

 
(442
)
Cash and cash equivalents, beginning of period
10,188

 
6,723

Change in cash from discontinued operations

 
(211
)
Cash and cash equivalents, end of period
$
23,171

 
$
6,070

Cash paid during the period:

 
 
Interest
$
1,662

 
$
1,690

Income taxes
$
2,473

 
$
634

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Note receivable in exchange for Computer Systems segment net assets sold
$

 
$
8,363

See accompanying Notes to Condensed Consolidated Financial Statements.

4




VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Fiscal Periods Ended May 1, 2016 and May 3, 2015
(Unaudited)

NOTE 1: Basis of Presentation

Basis of Presentation
The accompanying interim condensed consolidated financial statements of Volt Information Sciences, Inc. ("Volt" or the "Company") have been prepared in conformity with generally accepted accounting principles, consistent in all material respects with those applied in the Annual Report on Form 10-K for the year ended November 1, 2015. The Company makes estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates and changes in estimates are reflected in the period in which they become known. Accounting for certain expenses, including income taxes, are based on full year assumptions, and the financial statements reflect all normal adjustments that, in the opinion of management, are necessary for fair presentation of the interim periods presented. The interim information is unaudited and is prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"), which provides for omission of certain information and footnote disclosures. This interim financial information should be read in conjunction with the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended November 1, 2015.
Certain reclassifications have been made to the prior year financial statements in order to conform to the current year's presentation.

NOTE 2: Recently Issued 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 adoption 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.
In March 2016, the FASB issued Accounting Standards Update (“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. The Company is in the process of assessing the impact that the adoption of this ASU will have on its consolidated financial statements.
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.

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

5



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. The Company is currently assessing the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures upon implementation in the first quarter of fiscal 2019.
From March through May 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 and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. 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 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. The 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.

NOTE 3: Discontinued Operations
On December 1, 2014, the Company completed the sale of its Computer Systems segment to NewNet Communication Technologies, LLC ("NewNet"), a Skyview Capital, LLC, portfolio company. The 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 are 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 are in exchange for the ownership of Volt Delta Resources, LLC and its operating subsidiaries, which comprise 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 initially valued at $8.4 million which approximated its fair value. The resulting discount will be amortized over four years with an effective interest rate of 5.1%. As of May 1, 2016, the unamortized discount for the note was $1.1 million. The parties are currently in active discussions to finalize the closing balance sheet working capital amounts.
The Company recognized a loss on disposal of $1.2 million from the sale transaction in the first quarter of 2015. 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 Condensed Consolidated Statements of Operations. As of May 1, 2016, $2.0 million has been paid and $0.2 million remains payable and is included in Accrued insurance and other in the Condensed Consolidated Balance Sheets.


6



The following table reconciles the major line items in the Condensed Consolidated Statements of Operations for discontinued operations (in thousands):
 
Six Months Ended May 3, 2015
Loss from discontinued operations
 
Net revenue
$
4,708

Cost of revenue
5,730

Selling, administrative and other operating costs
1,388

Restructuring and other related costs
1,709

Other (income) expense, net
(978
)
Loss from discontinued operations
(3,141
)
Loss on disposal of discontinued operations
(1,187
)
Loss from discontinued operations before income taxes
(4,328
)
Income tax provision
191

Loss from discontinued operations that is presented in the Condensed Consolidated Statements of Operations
$
(4,519
)

NOTE 4: 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 2015. The potential disposal of Maintech 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, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360), ("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 could extend beyond the third quarter of fiscal 2016.
Lakyfor, S.A. met all of the criteria to classify its assets and liabilities as held for sale in the fourth quarter of fiscal 2015.  The disposal of Lakyfor, S.A. did not represent a strategic shift that would have a major effect on the Company’s operations and financial results and was, 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 in the fourth quarter of fiscal 2015. The sale occurred in December 2015 for nominal proceeds and the Company recognized a loss on disposal of $0.1 million from the sale transaction in the first quarter of fiscal 2016.


7



The following table reconciles the major classes of assets and liabilities classified as held for sale as part of continuing operations in the Condensed Consolidated Balance Sheets (in thousands):
 
May 1, 2016
 
November 1, 2015
Assets included as part of continuing operations
 
 
 
Cash and cash equivalents
$
3,773

 
$
1,537

Trade accounts receivable, net
12,939

 
15,671

Recoverable income taxes
22

 
165

Prepaid insurance and other assets
4,208

 
4,886

Property, equipment and software, net
135

 
189

Purchased intangible assets
495

 
495

Total major classes of assets as part of continuing operations - Maintech and Lakyfor, S.A. (1)
$
21,572

 
$
22,943

 
 
 
 
Liabilities included as part of continuing operations
 
 
 
Accrued compensation
$
2,478

 
$
3,509

Accounts payable
816

 
1,387

Accrued taxes other than income taxes
924

 
1,165

Accrued insurance and other
758

 
523

Deferred revenue
1,143

 
761

Total major classes of liabilities as part of continuing operations - Maintech and Lakyfor, S.A. (1)
$
6,119

 
$
7,345

    
(1) The Balance Sheet as of May 1, 2016 only includes Maintech.


8



Note 5: Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss for the three and six months ended May 1, 2016 were (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
 
May 1, 2016
 
May 1, 2016
 
 
Foreign Currency Translation
 
Unrealized Loss on Marketable Securities
 
Foreign Currency Translation
 
Unrealized Loss on Marketable Securities
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive loss at beginning of the period
 
$
(10,486
)
 
$
(23
)
 
$
(7,971
)
 
$
(23
)
Other comprehensive income (loss) before reclassifications
 
2,819

 
(2
)
 
304

 
(2
)
Accumulated other comprehensive loss at May 1, 2016
 
$
(7,667
)
 
$
(25
)
 
$
(7,667
)
 
$
(25
)
 
 
 
 
 
 
 
 
 
Reclassifications from accumulated other comprehensive loss for the three and six months ended May 1, 2016 and May 3, 2015 were (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
 
May 1, 2016
 
May 3, 2015
 
May 1, 2016
 
May 3, 2015
Foreign currency translation
 
 
 

 
 
 
 
Sale of foreign subsidiaries, net of tax
 
$

 
$

 
$

 
$
(3,181
)
 
 
 
 
 
 
 
 
 
Amount reclassified from accumulated other comprehensive loss for the six months ended May 3, 2015 were (in thousands):
 
 
 
 
 
 
 
 
 
Details about Accumulated Other Comprehensive Loss Components
 
Amount Reclassified
 
Affected Line Item in the Statement Where Net Loss is Presented
Foreign currency translation
 
 
 
 
 
 
 
 
Sale of foreign subsidiaries
 
 
 
$
3,181

 
Discontinued operations



9



NOTE 6: 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 May 1, 2016 and November 1, 2015, restricted cash included $5.8 million and $9.3 million, respectively, restricted for payment to associate vendors and $2.0 million and $0.9 million, respectively, restricted for other collateral accounts.

At May 1, 2016 and November 1, 2015, short-term investments were $3.8 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 7: Income Taxes

The income tax provision reflects the geographic mix of earnings in various federal, state and foreign tax jurisdictions and their applicable rates resulting in a composite effective tax rate. The Company’s cumulative results for substantially all United States and certain non-United States jurisdictions for the most recent three-year period is a loss. Accordingly, a valuation allowance has been established for substantially all loss carryforwards and other net deferred tax assets for these jurisdictions, resulting in an effective tax rate that is significantly different than the statutory rate.

The Company's provision for income taxes primarily includes foreign jurisdictions and state taxes. The provision for income taxes in the second quarter of fiscal 2016 and 2015 was $1.1 million and $0.5 million, respectively, and for the six months ended May 1, 2016 and May 3, 2015 was $1.6 million and $1.9 million, respectively. The Company's quarterly provision for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items that occur within the periods presented.

The Company adjusts its effective tax rate for each quarter to be consistent with the estimated annual effective tax rate, consistent with Accounting Standards Codification ("ASC") 270, “Interim Reporting,” and ASC 740-270, “Income Taxes – Intra Period Tax Allocation.” Jurisdictions with a projected loss for the full year where no tax benefit can be recognized are excluded from the calculation of the estimated annual effective tax rate. The Company's future effective tax rates could be affected by earnings being different than anticipated in countries with differing statutory rates, increases in recorded valuation allowances of tax assets, or changes in tax laws.

NOTE 8: 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 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 the quarter ended May 1, 2016, the amortization was $0.3 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

10



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 2016.

NOTE 9: 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 May 1, 2016, the accounts receivable borrowing base was $147.1 million. As of November 1, 2015, the Financing Program was classified as long-term debt on the Condensed Consolidated Balance Sheets, however, as of the end of the Company's first quarter of fiscal 2016, the Financing Program was classified as short-term as the termination date is within twelve months of the Company’s first quarter of fiscal 2016 balance sheet date.

In addition to customary representations, warranties and affirmative and negative covenants, the program is subject to a minimum liquidity covenant which increased under the aforementioned amendment from $20.0 million in cash and cash equivalents and borrowing availability under the Financing Program, to $35.0 million effective January 31, 2016, which increases to $50.0 million effective July 31, 2016. 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. As of May 1, 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 from $150.0 million 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 May 1, 2016, there were no foreign currency denominated borrowings, and the letter of 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 May 1, 2016 and November 1, 2015, the Company had outstanding borrowing under this program of $90.0 million and $100.0 million, respectively, and bore a weighted average annual interest rate of 2.3% and 1.8% during the second quarter of fiscal 2016 and 2015, respectively, and 2.2% and 1.7% during the first six months of fiscal 2016 and 2015, respectively, which is inclusive of all facility fees. At May 1, 2016, there was $26.1 million additional availability under this program.

In February 2016, Maintech, Incorporated, an indirect wholly-owned subsidiary of the Company, 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 minimum interest on $2.0 million which was the outstanding amount under this facility at May 1, 2016. At May 1, 2016, there was $3.1 million additional availability under this program.

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.

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 mortgage 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.

11




NOTE 10: Earnings (Loss) Per Share

Basic and diluted net income (loss) per share is calculated as follows (in thousands, except per share amounts):
 
Three Months Ended
 
Six Months Ended
 
May 1, 2016
 
May 3, 2015
 
May 1, 2016
 
May 3, 2015
Numerator
 
 
 
 
 
 
 
Loss from continuing operations
$
(1,785
)
 
$
(6,913
)
 
$
(12,747
)
 
$
(15,713
)
Loss from discontinued operations, net of income taxes

 

 

 
(4,519
)
Net loss
$
(1,785
)
 
$
(6,913
)
 
$
(12,747
)
 
$
(20,232
)
Denominator
 
 
 
 
 
 
 
Basic weighted average number of shares
20,814

 
20,793

 
20,813

 
20,861

Diluted weighted average number of shares
20,814

 
20,793

 
20,813

 
20,861

 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.09
)
 
$
(0.33
)
 
$
(0.61
)
 
$
(0.75
)
Loss from discontinued operations, net of income taxes

 

 

 
(0.22
)
Net loss
$
(0.09
)
 
$
(0.33
)
 
$
(0.61
)
 
$
(0.97
)
 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.09
)
 
$
(0.33
)
 
$
(0.61
)
 
$
(0.75
)
Loss from discontinued operations, net of income taxes

 

 

 
(0.22
)
Net loss
$
(0.09
)
 
$
(0.33
)
 
$
(0.61
)
 
$
(0.97
)

Options to purchase 943,098 and 661,650 shares of the Company’s common stock were outstanding at May 1, 2016 and May 3, 2015, respectively. Additionally, there were 41,240 unvested restricted shares outstanding at May 1, 2016. The options and restricted shares were not included in the computation of diluted earnings (loss) per share in the three and six months of fiscal 2016 and 2015 because the effect of their inclusion would have been anti-dilutive as a result of the Company’s net loss position in those periods.

Note 11: Restructuring and Severance Costs

In November 2015, the Company implemented a cost reduction plan and estimates that it will incur restructuring charges of approximately $4.0 million in fiscal 2016, primarily resulting from a reduction in workforce, facility consolidation and lease termination costs.


12



The Company incurred total restructuring and severance costs of $0.8 million for the three months ended May 1, 2016 and $3.6 million for the six months ended May 1, 2016. The following table presents the restructuring and severance costs for the three and six months ended May 1, 2016 (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
 
 
 
 
 
 
 May 1, 2016
 
May 1, 2016
Staffing Services segment
 
 
 
 
Severance and benefit costs
 
$
4

 
$
1,350

Other
 
23

 
162

 
 
27

 
1,512

Other segment
 
 
 
 
Severance and benefit costs
 
595

 
888

Corporate
 
 
 
 
Severance and benefit costs
 
218

 
1,201

Total restructuring and severance costs
 
$
840

 
$
3,601

 
 
 
 
 
Consolidated
 
 
 
 
Severance and benefit costs
 
$
817

 
$
3,439

Other
 
23

 
162

Total restructuring and severance costs
 
$
840

 
$
3,601

Accrued restructuring and severance costs are included in Accrued compensation and Accrued insurance and other in the Condensed Consolidated Balance Sheets. Activity for the six months ended May 1, 2016 are summarized as follows (in thousands):
 
 
 
Balance at November 1, 2015
 
$

  Charged to expense
 
3,601

  Cash payments
 
(2,890
)
Balance at May 1, 2016
 
$
711


The remaining charges as of May 1, 2016 for the Staffing Services and Other segments as well as Corporate of $0.4 million, $0.1 million and $0.2 million, respectively, are expected to be paid during fiscal 2016 and 2017.
NOTE 12: Commitments and Contingencies

(a)
Legal Proceedings
The Company is involved in various claims and legal actions arising in the ordinary course of business. The Company’s loss contingencies not discussed elsewhere consist primarily of claims and legal actions arising in the normal course of business related to contingent worker employment matters in the Staffing Services segment. 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 13: Segment Data

The Company’s operating segments are determined in accordance with the Company’s internal management structure, which is based on operating activities. The Company is currently assessing potential changes to its reportable segments in fiscal 2016 based on the new management organization and the changes anticipated by implementing new business strategies, including the initiatives to exit non-strategic and non-core operations.

Segment operating income (loss) is comprised of segment net revenues less direct cost of staffing services revenue or cost of other revenue, selling, administrative and other operating costs and restructuring and severance costs. The Company allocates all operating

13


costs to the segments except for costs not directly relating to operating activities such as corporate-wide general and administrative costs. These costs are not allocated because doing so would not enhance the understanding of segment operating performance and they are not used by management to measure segment performance.

Commencing in the first quarter of fiscal 2016, the Company changed its methodology for the allocation of costs to more effectively reflect and measure the individual businesses' financial and operational efficiency.  Prior period segment results have been revised for these changes.

Financial data concerning the Company’s revenue and segment operating income (loss) by reportable operating segment in the second quarter of fiscal 2016 and 2015 and for the first six months of fiscal 2016 and 2015 are summarized in the following tables (in thousands):
 
Three Months Ended May 1, 2016
 
Total
 
Staffing Services
 
Other
Net revenue
$
335,439

 
$
317,247

 
$
18,192

Expenses
 
 
 
 
 
Direct cost of staffing services revenue
267,826

 
267,826

 

Cost of other revenue
15,887

 

 
15,887

Selling, administrative and other operating costs
42,946

 
41,460

 
1,486

Restructuring and severance costs
622

 
27

 
595

Segment operating income
8,158


7,934


224

Corporate general and administrative
8,436

 

 
 
Corporate restructuring and severance costs
218

 
 
 
 
Gain on sale of building
(1,663
)
 
 
 
 
Operating income
$
1,167

 
 
 
 
 
Three Months Ended May 3, 2015
 
Total
 
Staffing Services
 
Other
Net revenue
$
385,189

 
$
362,277

 
$
22,912

Expenses
 
 
 
 
 
Direct cost of staffing services revenue
303,837

 
303,837

 

Cost of other revenue
19,909

 

 
19,909

Selling, administrative and other operating costs
50,806

 
46,851

 
3,955

Restructuring and severance costs
251

 
275

 
(24
)
Impairment charges
5,374

 
977

 
4,397

Segment operating income (loss)
5,012

 
10,337

 
(5,325
)
Corporate general and administrative
9,106

 
 
 
 
Operating loss
$
(4,094
)
 
 
 
 


14


 
Six Months Ended May 1, 2016
 
Total
 
Staffing Services
 
Other
Net revenue
$
662,269

 
$
625,928

 
$
36,341

Expenses
 
 
 
 
 
Direct cost of staffing services revenue
531,998

 
531,998

 

Cost of other revenue
32,675

 

 
32,675

Selling, administrative and other operating costs
85,675

 
82,750

 
2,925

Restructuring and severance costs
2,400

 
1,512

 
888

Segment operating income (loss)
9,521

 
9,668

 
(147
)
Corporate general and administrative
18,632

 

 
 
Corporate restructuring and severance costs
1,201

 
 
 
 
Gain on sale of building
(1,663
)
 
 
 
 
Operating loss
$
(8,649
)
 
 
 
 

 
Six Months Ended May 3, 2015
 
Total
 
Staffing Services
 
Other
Net revenue
$
768,255

 
$
723,098

 
$
45,157

Expenses
 
 
 
 
 
Direct cost of staffing services revenue
613,355

 
613,355

 

Cost of other revenue
39,514

 

 
39,514

Selling, administrative and other operating costs
101,404

 
94,524

 
6,880

Restructuring and severance costs
251

 
275

 
(24
)
Impairment charges
5,374

 
977

 
4,397

Segment operating income (loss)
8,357

 
13,967

 
(5,610
)
Corporate general and administrative
18,798

 
 
 
 
Corporate restructuring and severance costs
975

 
 
 
 
Operating loss
$
(11,416
)
 

 
 



15



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis ("MD&A") of financial condition and results of operations is provided as a supplement to and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes to enhance the understanding of our results of operations, financial condition and cash flows. This MD&A should be read in conjunction with the MD&A included in our Form 10-K for the fiscal year ended November 1, 2015, as filed with the SEC on January 13, 2016 (the “2015 Form 10-K”). References in this document to “Volt,” “Company,” “we,” “us” and “our” mean Volt Information Sciences, Inc. and our consolidated subsidiaries, unless the context requires otherwise. The statements below should also be read in conjunction with the description of the risks and uncertainties set forth from time to time in our reports and other filings made with the SEC, including under Part I, “Item 1A. Risk Factors” of the 2015 Form 10-K.

Note Regarding the Use of Non-GAAP Financial Measures

We have provided certain Non-GAAP financial information, which includes adjustments for special items, as additional information for our consolidated income (loss) from continuing operations and segment operating income (loss). These measures are not in accordance with, or an alternative for, generally accepted accounting principles (“GAAP”) and may be different from Non-GAAP measures reported by other companies. We believe that the presentation of Non-GAAP measures provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations because it permits evaluation of the results of our continuing operations without the effect of special items that management believes make it more difficult to understand and evaluate our results of operations.

Overview

We are 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 project-based staffing assists with individual customer assignments as well as customer care call centers and gaming industry quality assurance testing services. Our managed service programs consist of managing the procurement and on-boarding of contingent workers from multiple providers. Our information technology infrastructure services ("Maintech") provide server, storage, network and desktop IT hardware maintenance, data center and network monitoring and operations.

As of May 1, 2016, we employed approximately 24,700 people, including 22,300 contingent workers. Contingent workers are on our payroll for the length of their assignment. We operate from 110 locations worldwide with approximately 85% of our revenues generated in the United States. Our principal international markets include Canada, Europe and several Asia Pacific locations. The industry is highly fragmented and very competitive in all of the markets we serve.

Results of Continuing Operations

The following discussion and analysis of operating results is presented at the reporting segment level. Since this discussion would be substantially the same at the consolidated level, we have therefore not included a redundant discussion.  


16



RESULTS OF CONTINUING OPERATIONS
Consolidated Results by Segment
 
Three Months Ended May 1, 2016
 
Three Months Ended May 3, 2015
(in thousands)
Total
 
Staffing Services
 
Other
 
Total
 
Staffing Services
 
Other
Net revenue
$
335,439

 
$
317,247

 
$
18,192

 
$
385,189

 
$
362,277

 
$
22,912

 
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
 
 
Direct cost of staffing services revenue
267,826

 
267,826

 

 
303,837

 
303,837

 

Cost of other revenue
15,887

 

 
15,887

 
19,909

 

 
19,909

Selling, administrative and other operating costs
42,946

 
41,460

 
1,486

 
50,806

 
46,851

 
3,955

Restructuring and severance costs
622

 
27

 
595

 
251

 
275

 
(24
)
Impairment charges

 

 

 
5,374

 
977

 
4,397

Segment operating income (loss)
8,158


7,934


224


5,012


10,337


(5,325
)
Corporate general and administrative
8,436

 
 
 
 
 
9,106

 
 
 
 
Corporate restructuring and severance costs
218

 
 
 
 
 

 
 
 
 
Gain on sale of building
(1,663
)
 
 
 
 
 

 
 
 
 
Operating income (loss)
1,167








(4,094
)
 
 
 
 
Other income (expense), net
(1,861
)
 
 
 
 
 
(2,287
)
 
 
 
 
Income tax provision
1,091

 
 
 
 
 
532

 
 
 
 
Net loss from continuing operations
$
(1,785
)







$
(6,913
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Results of Operations (Q2 2016 vs. Q2 2015)

Staffing Services

Net revenue: The segment’s net revenue in the second quarter of fiscal 2016 decreased $45.1 million, or 12.4%, to $317.2 million from $362.3 million in fiscal 2015. The revenue decline was primarily driven by our traditional staffing, project-based and managed services programs. Traditional staffing experienced lower demand from our customers in both our technical and non-technical administrative and light industrial ("A&I") skill sets as well as a change in the overall mix from technical to A&I skill sets. Declines were most prevalent with our customers in the industrial and commercial manufacturing (primarily supporting the oil and gas industry) and utility industries, partially offset by increases in communications and transportation manufacturing industries. Project-based programs experienced decreases primarily attributed to the exit of a large customer in both our application testing and call center service offerings. Managed services programs experienced a decrease primarily due to the decision not to pursue continued business with certain customers as well as lower volume.

Direct cost of staffing services revenue: Direct cost of staffing services revenue in the second quarter of 2016 decreased $36.0 million, or 11.9%, to $267.8 million from $303.8 million in 2015. The decrease was primarily the result of fewer contingent staff on assignment within our traditional staffing business as well as a reduction in revenues in our project-based and managed services programs. Direct margin of staffing services revenue as a percent of staffing revenue was 15.6% compared to 16.1% in 2015. Despite the slight increase in our traditional staffing direct margin percentage from 2015, the decline in direct margin percentage was primarily experienced in our higher margin other related staffing businesses.

Selling, administrative and other operating costs: The segment’s selling, administrative and other operating costs in the second quarter of 2016 decreased $5.4 million, or 11.5%, to $41.5 million from $46.9 million in 2015, primarily due to lower headcount across all businesses and the impact of the sale of our Uruguayan staffing business during the first quarter of 2016. As a percent of staffing revenue, these costs were 13.1% in the second quarter of 2016 from 12.9% in the second quarter of 2015.

Impairment charges: The $1.0 million impairment charge during 2015 was a result of our annual impairment test for goodwill related to our staffing reporting unit in Uruguay. We perform our annual impairment test for goodwill during the second quarter of the fiscal year, according to ASU No. 2011-08, Intangibles - Goodwill and Other.  We performed a Step 1 analysis of the goodwill impairment test for our European operations utilizing the same Income and Market approach as was applied in the fourth quarter of 2015 quantitative analysis to estimate the implied fair value. The results of our Step 1 analysis in the second quarter of 2016 indicated that there was no impairment of our goodwill of $6.1 million as of May 1, 2016. 


17



Segment operating income: The segment’s operating income in the second quarter of 2016 decreased $2.4 million to $7.9 million from $10.3 million in 2015. The decrease in operating income is primarily due to a decline in the results of our project-based programs and to a lesser extent in our traditional staffing and managed services programs due to the decline in revenue and related direct margin, partially offset by reductions in selling, administrative and other operating costs as well as impairment charges. Operating income in 2015 of $10.3 million included $1.3 million of special items related to impairment charges and restructuring and severance costs. Excluding the impact of these special items, segment operating income would have been $11.6 million on a Non-GAAP basis.

Other

Net revenue: The segment’s net revenue in the second quarter of fiscal 2016 decreased $4.7 million, or 20.6%, to $18.2 million from $22.9 million in fiscal 2015. This decline is primarily due to the sale of substantially all of the assets of the telecommunications infrastructure and security services business ("VTG") in the fourth quarter of 2015 and the sale of our telephone directory publishing and printing business ("printing") in the third quarter of 2015. The remaining decrease was attributable to our information technology infrastructure services business due in part from lower volume from one of our aeronautical defense contractor customers resulting from decreased federal funding.

Cost of other revenue: The segment’s cost of other revenue in the second quarter of 2016 decreased $4.0 million, or 20.2%, to $15.9 million from $19.9 million in 2015. This decrease is primarily due to the sale of our VTG and printing businesses as discussed above as well as the decrease in our information technology infrastructure services business.

Selling, administrative and other operating costs: The segment’s selling, administrative and other operating costs decreased $2.5 million, or 62.4%, to $1.5 million in the second quarter of 2016 from $4.0 million in 2015, primarily in our information technology infrastructure services business in response to the decrease in revenue as well as the sales of our VTG and printing businesses as discussed above.

Impairment charges: In conjunction with the initiative to exit certain non-core operations, we performed an assessment of the telephone directory publishing and printing business in Uruguay in 2015. Consequently, the net assets of the business of $4.4 million were fully impaired during the second quarter of 2015.

Segment operating income (loss): The segment’s operating results in the second quarter of 2016 increased $5.5 million to operating income of $0.2 million from an operating loss of $5.3 million in 2015 primarily from the impairment charge recorded in 2015 as well as the sale of our printing business.

Corporate and Other Expenses

Corporate general and administrative: Corporate general and administrative costs in the second quarter of 2016 decreased $0.7 million, or 7.4%, to $8.4 million from $9.1 million in 2015 primarily from a decrease in costs incurred in connection with responding to activist shareholders and related Board of Directors' search fees as well as audit fees, partially offset in the current year for costs incurred in executive search and consulting fees on corporate-wide initiatives linked to our turn-around strategies.

Gain on sale of building: Volt Opportunity Road Realty Corp., an indirect wholly-owned subsidiary of Volt, closed on the sale of real property comprised of land and building in San Diego, California during the second quarter of 2016. There was no mortgage on the property and the gain recorded on the sale was $1.7 million.

Operating income (loss): Operating results in the second quarter of 2016 increased to operating income of $1.2 million from a loss of $4.1 million in 2015. This increase was primarily from decreased impairment charges, the gain on the sale of our building in San Diego, California as well as a reduction of our Corporate general and administrative costs, partially offset by a decrease in operating results from our Staffing Services segment.

Other income (expense), net: Other expense in the second quarter of 2016 decreased $0.4 million to $1.9 million from $2.3 million in 2015, primarily related to non-cash foreign exchange net losses on intercompany balances, partially offset by the amortization of deferred financing fees.

Income tax provision: Income tax provision was $1.1 million compared to $0.5 million in the second quarter of 2016 and 2015, respectively. The provision in both periods primarily related to locations outside of the United States.


18



Consolidated Results by Segment
 
Six Months Ended May 1, 2016
 
Six Months Ended May 3, 2015
(in thousands)
Total
 
Staffing Services
 
Other
 
Total
 
Staffing Services
 
Other
Net revenue
$
662,269

 
$
625,928

 
$
36,341

 
$
768,255

 
$
723,098

 
$
45,157

 
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
 
 
Direct cost of staffing services revenue
531,998

 
531,998

 

 
613,355

 
613,355

 

Cost of other revenue
32,675

 

 
32,675

 
39,514

 

 
39,514

Selling, administrative and other operating costs
85,675

 
82,750

 
2,925

 
101,404

 
94,524

 
6,880

Restructuring and severance costs
2,400

 
1,512

 
888

 
251

 
275

 
(24
)
Impairment charges

 

 

 
5,374

 
977

 
4,397

Segment operating income (loss)
9,521

 
9,668

 
(147
)
 
8,357

 
13,967

 
(5,610
)
Corporate general and administrative
18,632

 
 
 
 
 
18,798

 
 
 
 
Corporate restructuring and severance costs
1,201

 
 
 
 
 
975

 
 
 
 
Gain on sale of building
(1,663
)
 
 
 
 
 

 
 
 
 
Operating loss
(8,649
)
 
 
 
 
 
(11,416
)
 
 
 
 
Other income (expense), net
(2,454
)
 
 
 
 
 
(2,386
)
 
 
 
 
Income tax provision
1,644

 
 
 
 
 
1,911

 
 
 
 
Net loss from continuing operations
$
(12,747
)
 
 
 
 
 
$
(15,713
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Results of Operations (Q2 2016 YTD vs. Q2 2015 YTD)

Staffing Services

Net revenue: The segment’s net revenue in the first six months of fiscal 2016 decreased $97.2 million, or 13.4%, to $625.9 million from $723.1 million in fiscal 2015. The revenue decline is primarily driven by our traditional staffing, project-based and managed services programs. Traditional staffing experienced lower demand from our customers in both our technical and non-technical A&I skill sets as well as a change in overall mix from technical to A&I skill sets. Declines were most prevalent with our customers in the industrial and commercial manufacturing (primarily supporting the oil and gas industry) and utility industries, partially offset by increases in communications and transportation manufacturing industries. Project-based programs experienced decreases primarily attributed to the exit of a large customer in both our application testing and call center service offerings. Managed services programs experienced a decrease primarily due to the decision not to pursue continued business with certain customers as well as lower volume.

Direct cost of staffing services revenue: Direct cost of staffing services revenue in the first six months of 2016 decreased $81.4 million, or 13.3%, to $532.0 million from $613.4 million in 2015. The decrease was primarily the result of fewer contingent staff on assignment within our traditional staffing business as well as a reduction in revenues in our project-based and managed services programs. Direct margin of staffing services revenue as a percent of staffing revenue in 2016 was 15.0% from 15.2% in 2015. Despite the slight increase in our traditional staffing direct margin percentage from 2015, the decline in direct margin percentage was primarily experienced in our higher margin other related staffing businesses.

Selling, administrative and other operating costs: The segment’s selling, administrative and other operating costs in the first six months of 2016 decreased $11.7 million, or 12.5%, to $82.8 million from $94.5 million in 2015, primarily due to lower headcount across all businesses and the impact of the sale of our Uruguayan staffing business during the first quarter of 2016. As a percent of staffing services revenue, these costs were 13.2% and 13.1% for 2016 and 2015, respectively.

Restructuring and severance costs: The segment's restructuring and severance costs of $1.5 million, primarily severance, were incurred as part of our overall cost reduction plan.

Impairment charges: The $1.0 million impairment charge during 2015 was a result of our annual impairment test for goodwill related to our staffing reporting unit in Uruguay.






19



Segment operating income: The segment’s operating income in the first six months of 2016 decreased $4.3 million to $9.7 million from $14.0 million in 2015. The decrease in operating income is primarily due to a decline in the results of our project-based programs and to a lesser extent in our traditional staffing and managed services programs due to the decline in revenue and related direct margin, partially offset by reductions in selling, administrative and other operating costs as well as impairment charges. Operating income in 2016 of $9.7 million included special items related to restructuring and severance costs of $1.5 million. Excluding the impact of this special item, segment operating income would have been $11.2 million on a Non-GAAP basis. Operating income in 2015 of $14.0 million included $1.3 million of special items related to impairment charges of $1.0 million and restructuring and severance costs of $0.3 million. Excluding the impact of this special item, segment operating income would have been $15.3 million on a Non-GAAP basis.

Other

Net revenue: The segment’s net revenue in the first six months of fiscal 2016 decreased $8.9 million, or 19.5%, to $36.3 million from $45.2 million in fiscal 2015. This decline is primarily due to the sale of substantially all of the assets of the VTG business in the fourth quarter of 2015 and the sale of our printing business in the third quarter of 2015. The remaining decrease was attributable to our information technology infrastructure services business due in part from lower volume from one of our aeronautical defense contractor customers resulting from decreased federal funding.

Cost of other revenue: The segment’s cost of other revenue in the first six months of 2016 decreased $6.8 million, or 17.3%, to $32.7 million from $39.5 million in 2015. The decrease is primarily due to the sale of our VTG and printing businesses as discussed above as well as the decrease in our information technology infrastructure services business.

Selling, administrative and other operating costs: The segment’s selling, administrative and other operating costs decreased $4.0 million, or 57.5%, to $2.9 million in the first six months of 2016 from $6.9 million in 2015, primarily from the sales of our VTG and printing businesses as discussed above as well as in our information technology infrastructure services business in response to the decrease in revenue.

Impairment charges: In conjunction with the initiative to potentially exit certain non-core operations, we performed an assessment of the printing business during 2015. Consequently, the net assets of the business of $4.4 million were fully impaired during the first six months of 2015.

Segment operating loss: The segment’s operating loss in the first six months of 2016 decreased $5.5 million to $0.1 million from $5.6 million in 2015 primarily from the impairment charge recorded in 2015, the sale of our printing business as well as decreased results in our information technology infrastructure services business primarily from lower volume from one of our aeronautical defense contractor customers resulting from decreased federal funding.

Corporate and Other Expenses

Corporate general and administrative: Corporate general and administrative costs decreased $0.2 million, or 0.9%, to $18.6 million from $18.8 million in 2015 primarily from a decrease in costs incurred in connection with responding to activist shareholders and related Board of Directors' search fees as well as higher audit fees, partially offset in the current year for costs incurred in executive search and consulting fees on corporate-wide initiatives linked to our turn-around strategies.

Corporate restructuring and severance costs: Corporate restructuring and severance costs in the first six months of fiscal 2016 included $1.2 million of severance costs incurred as part of our overall cost reduction plan. Corporate restructuring costs in the first six months of fiscal 2015 included $1.0 million of severance charges associated with the departure of our former Chief Financial Officer.

Gain on sale of building: Volt Opportunity Road Realty Corp., an indirect wholly-owned subsidiary of Volt, closed on the sale of real property comprised of land and building in San Diego, California during the second quarter of 2016. There was no mortgage on the property and the gain recorded on the sale was $1.7 million.

Operating loss: Operating loss in the first six months of 2016 decreased to $8.6 million from $11.4 million in 2015. The decrease in operating loss was primarily from impairments within our Staffing Services and Other segments in 2015, the decrease in selling, administrative and other operating costs and the gain on the sale of our building in San Diego, California. These items were partially offset by the decrease in operating results from our Staffing Services segment.

Other income (expense), net: Other expense in the first six months of 2016 increased $0.1 million to $2.5 million from $2.4 million in 2015, primarily due to the amortization of deferred financing fees partially offset by non-cash foreign exchange net losses on intercompany balances.

20




Income tax provision: Income tax provision was $1.6 million compared to $1.9 million in the first six months of 2016 and 2015, respectively. The provision in both periods primarily related to locations outside of the United States.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash flows from operations and proceeds from our Financing Program. Borrowing capacity under this program is directly impacted by the level of accounts receivable which fluctuates during the year due to seasonality and other factors. Our business is subject to seasonality with fiscal first quarter billings typically the lowest due to the holiday season and generally increasing in the fiscal third and fourth quarters when our customers increase the use of contingent labor. Generally, the first and fourth quarters of our fiscal year are the strongest for operating cash flows. In February 2016, Maintech entered into a $10.0 million short-term credit facility with Bank of America, N.A. ("BofA"), which supplements our existing Financing Program and provides additional liquidity for working capital and general corporate purposes.

Our operating cash flows consist primarily of collections of customer receivables offset by payments for payroll and related items for our contingent staff and in-house employees; federal, foreign, state and local taxes; and trade payables. We generally provide customers with 30 - 45 day credit terms, with few extenuating exceptions to 60 days, while our payroll and certain taxes are paid weekly.

We manage our cash flow and related liquidity on a global basis. We fund payroll, taxes and other working capital requirements using cash supplemented as needed from short-term borrowings. Our weekly payroll payments inclusive of employment related taxes and payments to vendors approximates $20.0 million. We generally target minimum global liquidity to be 1.5 to 2.0 times our average weekly requirements. We also maintain minimum effective cash balances in foreign operations and use a multi-currency netting and overdraft facility for our European entities to further minimize overseas cash requirements.

While our overall liquidity continues to improve, our current Financing Program provides for a minimum liquidity covenant which is measured daily and consists of cash in banks plus undrawn amounts of the program. Prior to July 31, 2016, the required minimum liquidity covenant level is $35.0 million, and thereafter is $50.0 million. This places restrictions on our ability to utilize this cash. As of May 1, 2016, our liquidity, as defined in our debt agreement, was $58.8 million and at June 3, 2016 was $50.0 million. We believe our cash flow from operations and planned liquidity will be sufficient to meet our projected cash needs for the foreseeable future. As part of our upcoming financing negotiations, we are looking to replace or modify this covenant.

Capital Allocation

In addition to our planned improvements in technology and overall processes which are anticipated to increase cash flows from operations over time, 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:

Maintaining appropriate levels of working capital. Our business requires a certain level of cash resources to efficiently execute operations. Consistent with similar companies in our industry and operational capabilities, we estimate this amount to be 1.5 to 2.0 times our weekly cash distributions on a global basis and must accommodate seasonality and cyclical trends;

Reinvesting in our business. We are executing a company-wide initiative to reinvest 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 will enhance our ability to win in the marketplace;

Deleveraging our balance sheet. By lowering our debt level, we will strengthen our balance sheet, reduce interest costs and reduce risk going forward;

Returning capital to shareholders. Part of our strategy is to return capital to our shareholders in connection with share buybacks through our existing share buyback program; and

Acquiring value-added businesses. Potentially in the longer-term identifying and acquiring companies which would be accretive to our operating income and that could leverage Volt's scale, infrastructure and capabilities. Strategic acquisitions would strengthen Volt in certain industry verticals or in specific geographic locations.

21




Initiatives to Improve Operating Income, Cash Flows and Liquidity

We continue to make progress on several initiatives undertaken to enhance our liquidity position and shareholder value. We continue to actively manage our portfolio of business units and have exited both non-core businesses that were incurring losses and core businesses that were marginally profitable. We completed a number of significant divestitures in the latter part of fiscal 2015 and the first quarter of 2016, including the sale of our printing and staffing businesses in Uruguay, and the sale of substantially all the assets of our telecommunications, infrastructure and security services business. The above transactions netted nominal proceeds, however, we expect these transactions will be accretive to future operating cash flows.
 
We sold and simultaneously entered into a lease on our Orange, California property in March 2016 for a purchase price of $35.9 million. After the repayment of the mortgage on the property along with transaction-related expenses and fees, we received net cash proceeds of $27.1 million from the sale of the property. The lease on the property will expire in March 2031 with an annual base rent of $2.9 million for the first year with a 3.0% annual increase on the then-current base rent. The net proceeds from the sale will be used to ensure adequate levels of liquidity for working capital purposes, as well as to fund investments in technology and sales and marketing activities in support of our growth objectives. As previously disclosed, we are engaged in a sales process of Maintech. The timeline to complete a transaction could extend beyond the third quarter of fiscal 2016.

In March 2016, Volt Opportunity Road Realty Corp., an indirect wholly-owned subsidiary of Volt, closed on the sale of real property comprised of land and building with office space of approximately 19,000 square feet in San Diego, California with a private commercial real estate investor. There was no mortgage on the property and net proceeds, after transaction-related expenses and fees, totaled $2.0 million.

We have significant tax benefits including recoverable tax receivables of $16.0 million which, although dependent on the IRS, we expect to collect in the fourth quarter of fiscal 2016. Entering fiscal 2016 we also have federal net operating loss carryforwards, which are fully reserved with a valuation allowance of $133.6 million, capital loss carryforwards of $82.3 million and federal tax credits of $41.3 million which we will be able to utilize against future profits.

We remain committed to delivering superior client service at a reasonable cost. In an effort to reduce our future operating costs, we are making a significant investment to update our business processes, back-office financial suite and information technology tools that are critical to our success and offer more functionality at a lower cost. Our estimate of $12.0 million in expensed and capitalized costs remains on target. We expect that these activities will reduce costs of service through either the consolidation and/or elimination of certain systems and processes along with other reductions in discretionary spending. Through our strategy of improving efficiency in all aspects of our operations, we believe we can realize organic growth opportunities, reduce costs and increase profitability.

In the first quarter of fiscal 2016, we implemented a cost reduction plan as part of our overall initiative to become more efficient, competitive and profitable. We incurred restructuring charges of $3.6 million primarily resulting from a reduction in workforce, facility consolidation and lease termination costs. As a result of our cost reduction plan, we anticipate annual cost savings of approximately $10.0 million. Cost savings will be used consistent with our ongoing strategic efforts to strengthen our operations.


22



The following table sets forth our cash and available liquidity levels at the end of our last five quarters and our most recent week ended (in thousands):
Global Liquidity
 
 
 
 
 
 
 
May 3, 2015
August 2, 2015
November 1, 2015
January 31, 2016
May 1, 2016
June 3, 2016
 
 
 
 
 
 
 
Cash and cash equivalents (a)
$
6,070

$
12,332

$
10,188

$
16,515

$
23,171

 
 
 
 
 
 
 
 
Cash in banks (b)
$
9,015

$
18,134

$
13,652

$
21,140

$
29,626

$
20,186

Financing Program - PNC
7,900

8,900

35,700

23,584

26,053

26,766

Short-Term Credit Facility - BofA




3,105

3,032

Available liquidity (c)
$
16,915

$
27,034

$
49,352

$
44,724

$
58,784

$
49,984

(a) Per financial statements.
(b) Amount generally includes unpresented checks.
(c) Our Financing Program contains a minimum liquidity covenant of $35.0 million effective January 31, 2016, which increases to $50.0 million effective July 31, 2016 and thereafter.

Cash flows from operating, investing and financing activities, as reflected in our Condensed Consolidated Statements of Cash Flows, are summarized in the following table (in thousands):
 
Six Months Ended
 
May 1, 2016
 
May 3, 2015
Net cash provided by operating activities
$
2,489

 
$
982

Net cash provided by (used in) investing activities
27,553

 
(2,754
)
Net cash provided by (used in) financing activities
(15,831
)
 
7,344

Effect of exchange rate changes on cash and cash equivalents
(1,228
)
 
(1,958
)
Net cash used in discontinued operations

 
(4,056
)
Net increase (decrease) in cash and cash equivalents
$
12,983

 
$
(442
)

Cash Flows - Operating Activities

The net cash provided by operating activities in the first six months ended May 1, 2016 was $2.5 million, an increase of $1.5 million from the same period in 2015. This increase resulted primarily from increased working capital relating to accrued expenses and other liabilities (accrued compensation and related taxes), partially offset by net assets held for sale and prepaid insurance and other assets. This was partially offset by an increase in our net loss when adjusted for non-cash items related to impairment charges, gain on dispositions of property and equipment and unrealized foreign currency exchange loss.

Cash Flows - Investing Activities

The net cash provided by investing activities in the first six months ended May 1, 2016 was $27.6 million, principally from the sale of property and equipment of $36.9 million, partially offset by the purchases of property, equipment and software of $8.5 million relating to our investment in updating our business processes, back-office financial suite and information technology tools. The net cash used in investing activities in the first six months ended May 3, 2015 was $2.8 million, principally from the purchase of property, equipment and software of $3.3 million.

Cash Flows - Financing Activities

The net cash used in financing activities in the first six months ended May 1, 2016 was $15.8 million principally from the net repayment of borrowings of $8.0 million and repayment of long-term debt of $7.3 million as a result of the sale-leaseback of our Orange, California facility. The net cash provided by financing activities in the first six months of 2015 was $7.3 million resulting from the elimination of cash restricted as collateral for borrowings of $10.4 million, partially offset by $4.3 million for the purchase of common stock.


23



Availability of Credit

At May 1, 2016 and November 1, 2015, we had a financing program that provided for multi-currency borrowing and issuance of letters of credit up to an aggregate of $150.0 million, and up to $250.0 million under an accordion feature in our Financing Program, subject to bank credit review and Volt board approval. At May 1, 2016 and November 1, 2015, we had outstanding borrowings of $90.0 million and $100.0 million, respectively, under the Financing Program and bore a weighted average annual interest rate of 2.2% and 1.7%, respectively, inclusive of certain facility fees.

In February 2016, Maintech entered into a $10.0 million 364-day short-term revolving credit facility with Bank of America, N.A., as lender. The provisions of the agreement will not preclude structuring and other activities required in anticipation of our sale of Maintech. As of May 1, 2016, the amount drawn under this facility was $2.0 million.
Financing Program

In January 2016, we amended our $150.0 million Financing Program with PNC Bank, National Association (“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 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 our other legal entities. Borrowing capacity under the Financing Program is directly impacted by the level of accounts receivable. As of November 1, 2015, the Financing Program was classified as long-term debt on the Condensed Consolidated Balance Sheets, however, as of the end of our fiscal first quarter 2016, the Financing Program was classified as short-term as the termination date is within twelve months of our first quarter 2016 balance sheet date.

In addition to customary representations, warranties and affirmative and negative covenants, the program is subject to a minimum liquidity covenant which increased under the aforementioned amendment from $20.0 million in cash and cash equivalents and borrowing availability under the Financing Program, to $35.0 million effective January 31, 2016, which increases to $50.0 million effective July 31, 2016. 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. As of May 1, 2016, we were in compliance with all debt covenant requirements.

The Financing Program has a feature under which the facility limit can be increased from $150.0 million 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 May 1, 2016, there were no foreign currency denominated borrowings, and the letter of 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.

Bank of America Short-Term Credit Facility

In February 2016, Maintech, Incorporated, an indirect wholly-owned subsidiary of Volt, 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.

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.


24



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information in this section should be read in conjunction with the information on financial market risk related to non-U.S. currency exchange rates, changes in interest rates and other financial market risks in Part II, Item 7A., “ Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended November 1, 2015.

Market risk is the potential economic gain or loss that may result from changes in market rates and prices. In the normal course of business, the Company’s earnings, cash flows and financial position are exposed to market risks relating to the impact of interest rate changes, foreign currency exchange rate fluctuations and changes in the market value of financial instruments. We limit these risks through risk management policies and procedures.

Interest Rate Risk

We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax consequences and overall financing strategies. At May 1, 2016, we had cash and cash equivalents on which interest income is earned at variable rates. At May 1, 2016, we had a $150.0 million accounts receivable securitization program, which can be increased up to $250.0 million subject to credit approval from PNC, to provide additional liquidity to meet our short-term financing needs. In addition, we have a $10.0 million secured revolving credit facility with Bank of America, N.A. which provides additional liquidity to meet our short-term financing needs.

The interest rates on these borrowings and financings are variable and, therefore, interest and other expense and interest income are affected by the general level of U.S. and foreign interest rates. Based upon the current levels of cash invested, notes payable to banks and utilization of the securitization program, on a short-term basis, a hypothetical 1-percentage-point increase in interest rates would have increased net interest expense by $0.5 million and a hypothetical 1-percentage-point decrease in interest rates would have decreased net interest expense by $0.8 million in the second quarter of fiscal 2016.

Foreign Currency Risk
We have operations in several foreign countries and conduct business in the local currency in these countries. As a result, we have risk associated with currency fluctuations as the value of foreign currencies fluctuates against the dollar, in particular the British Pound, Euro, Canadian Dollar and Indian Rupee. These fluctuations impact reported earnings.
Fluctuations in currency exchange rates also impact the U.S. dollar amount of our net investment in foreign operations. The assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect at the fiscal period-end balance sheet date. Income and expense accounts are translated at an average exchange rate during the year which approximates the rates in effect at the transaction dates. The resulting translation adjustments are recorded in stockholders’ equity as a component of accumulated other comprehensive loss. The U.S. dollar weakened relative to many foreign currencies as of May 1, 2016 compared to November 1, 2015. Consequently, stockholders’ equity increased by $2.8 million as a result of the foreign currency translation as of May 1, 2016.
Based upon the current levels of net foreign assets, a hypothetical 10% devaluation of the U.S. dollar as compared to these currencies as of May 1, 2016 would result in an approximate $1.4 million positive translation adjustment recorded in other comprehensive loss within stockholders’ equity. Conversely, a hypothetical 10% appreciation of the U.S. dollar as compared to these currencies as of May 1, 2016 would result in an approximate $1.4 million negative translation adjustment recorded in other comprehensive loss within stockholders’ equity. We do not use derivative instruments for trading or other speculative purposes.

Equity Risk

Our investments are exposed to market risk as they relate to changes in market value. We hold investments primarily in mutual funds for the benefit of participants in our non-qualified deferred compensation plan. Changes in the market value of these investments result in offsetting changes in our liability under the non-qualified deferred compensation plans as the employees realize the rewards and bear the risks of their investment selections. At May 1, 2016, the total market value of these investments was approximately $3.8 million.


25



ITEM 4. CONTROLS AND PROCEDURES
Volt maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, Volt’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and Volt’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Volt has carried out an evaluation, as of the end of the period covered by this report, under the supervision and with the participation of Volt’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Volt’s disclosure controls and procedures. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that Volt’s disclosure controls and procedures were effective.

There have been no significant changes in Volt’s internal controls over financial reporting that occurred during the fiscal quarter ended May 1, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II – OTHER INFORMATION
 
ITEM 1. 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.

Since our 2015 Form 10-K, there have been no material developments in the material legal proceedings in which we are involved.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2015 10-K, which could materially affect our business, financial position and results of operations. There are no material changes from the risk factors set forth in Part I, “Item 1A. Risk Factors” in our 2015 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None



26



ITEM 4. MINE SAFETY DISCLOSURE
Not applicable

ITEM 5. OTHER INFORMATION

On June 8, 2016, the Company’s Board of Directors (the “Board”) adopted an amended and restated Volt Information Sciences, Inc. Deferred Compensation and Supplemental Savings Plan (the “Plan”). The Plan, to be effective as of June 8, 2016, was amended to allow non-employee directors to participate in the Plan and to allow deferral of equity compensation for all participants. The Administrative Committee for Retirement Programs, under the supervision of the Board, administers the Plan and determines participation eligibility.

Each participant in the Plan will have the opportunity to defer a percentage of his or her compensation pursuant to the terms of the Plan as follows:  employee participants may elect to defer (i) up to 20% of his or her base salary; (ii) up to 50% of his or her annual cash commission, cash incentive, or other bonus award (deferrals under (i) and (ii) subject to an aggregate cap as specified in the Plan); and (iii) all or any portion of Company restricted stock units ("Company RSUs”) granted to the employee participant.  Non-employee director participants may elect to defer (i) all or any portion of cash compensation paid for services the director participant performed as a member of the Board; and (ii) all or any portion of Company RSUs granted to the director participant.

Compensation deferred under the Plan is not required to be contributed to the Plan, but will in any event become a liability of the Company and will be paid to participants pursuant to the terms of the Plan. The Board may amend or terminate the Plan at any time.  However, if an amendment would adversely affect a participant’s existing accrued benefits under the Plan, then the Company must first obtain that participant’s written consent.  





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ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Report:

 
Exhibits  
 
Description
 
 
 
3.1
 
Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed January 30, 1997; File No. 001-09232)
 
 
 
3.2
 
Certificate of Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed April 11, 2007; File No. 001-09232)
 
 
 
3.3
  
Amended and Restated By-Laws of the Company, as amended through October 30, 2015 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed November 4, 2015; File No. 001-9232)
 
 
 
10.1
 
Volt Information Sciences, Inc. Deferred Compensation and Supplemental Savings Plan, amended and restated effective June 8, 2016

 
 
 
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
 
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
 
 
 
32.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
 
 
 
32.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
VOLT INFORMATION SCIENCES, INC.
 
 
 
 
 
Date: June 8, 2016
 
By:
/s/
Michael Dean
 
 
 
Michael Dean
 
 
 
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 
Date: June 8, 2016
 
By:
/s/
Paul Tomkins
 
 
 
Paul Tomkins
 
 
 
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
 
 
 
 
 
Date: June 8, 2016
 
By:
/s/
Bryan Berndt
 
 
 
Bryan Berndt
 
 
 
Controller and Chief Accounting Officer
(Principal Accounting Officer)



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