|12 Months Ended|
Oct. 29, 2017
|Debt Disclosure [Abstract]|
Our primary sources of liquidity are cash flows from operations and proceeds from our PNC Financing Program. Both operating cash flows and borrowing capacity under our PNC Financing Program are directly related to the levels of accounts receivable generated by our businesses. 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. Our level of borrowing capacity under the PNC Financing Program increases or decreases in tandem with any change in accounts receivable based on revenue growth. However, our operating cash flow may initially decrease as we fund the revenue growth. As the business grows, we would need to borrow funds to ensure adequate amounts of liquidity to fund operational requirements.
We manage our cash flow and related liquidity on a global basis. Our weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $20.0 million. We generally target minimum global liquidity to be 1.5 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.
As of January 12, 2018, the Company has outstanding debt of $50.0 million under its current PNC Financing Program which expires on January 31, 2018, with an option to extend until March 2, 2018. The Company has signed a commitment letter for a new financing arrangement for a period covering at least 12 months from the issuance of our financial statements. Without a financing program in place, the Company would not be able to meet its obligations, primarily the payment of outstanding borrowings under its current PNC Financing, for a period of 12 months following January 12, 2018. The Company believes that the execution of the new financing agreement is probable and anticipates the closing prior to the expiration of the current agreement. Additionally, the Company has received a proposal with specified terms from another lender as a contingency. Both of these financing options have similar securitization structures to our existing agreement and the Company expects to be in compliance with the covenants under either agreement.
Once the new financing program is in place, the Company’s cash flow from operations and planned liquidity will be sufficient to meet its cash needs for the next twelve months.
In January 2017, the Company amended its $160.0 million PNC Financing Program. Key changes to the agreement were to: (1) extend the termination date to January 31, 2018; (2) increase the minimum global liquidity covenant to $25.0 million upon the sale of Maintech in March 2017; (3) reduce the unbilled receivables eligibility from 15% to 10% of total eligible receivables, (4) permit a $5.0 million basket for supply chain finance receivables and (5) introduce a performance covenant requiring a minimum level of Earnings Before Interest and Taxes (“EBIT”), as defined, which is tested quarterly. With the sale of Maintech in March 2017, the minimum liquidity requirement increased from $20.0 million to $25.0 million, until subsequently amended on August 25, 2017.
On August 25, 2017, the Company amended the Program to lower the EBIT minimum thresholds for the fiscal quarters ended July 30, 2017 and October 29, 2017 and to lower the required liquidity level threshold, as defined, to $5.0 million from $25.0 million. The liquidity level decrease was offset by the establishment of a minimum $10.0 million borrowing base block until the closing of the sale of the quality assurance business on October 27, 2017, subsequent to which the borrowing base block increased to $35.0 million. Further, under the terms of the amendment, the Company was required to pay down $25.0 million in outstanding debt using proceeds from the aforementioned sale. The amendment included an increase in both the program and LC fee margin from 1.2% to 1.8%. In addition, the Company also amended the PNC Financing Program to increase the permitted ratio of delinquent receivables from 2.0% to 2.5% for the fiscal monthly periods ending June through August 2017 and 2.25% for the monthly periods ending September through November 2017. The initial threshold of 2.0% is unchanged thereafter.
Effective upon the closing of the sale of the quality assurance business, an Assignment and Consent (the “Consent”) was entered into by the Company and PNC Bank to provide the required consent to transfer post-closing receivables of the sold business held by the bankruptcy remote subsidiary pursuant to Volt’s Receivables Financing Agreement (“RFA”). The Consent also removed the business as an originator under the RFA and terminated PNC’s security interests in the receivables of the sold business.
The PNC Financing Program is secured by receivables from certain staffing services businesses in the United States and Europe 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 PNC Financing Program is directly impacted by the level of accounts receivable. At October 29, 2017, the accounts receivable borrowing base was $132.4 million.
In addition to customary representations, warranties and affirmative and negative covenants, the program is subject to termination under standard events of default including change of control, failure to pay principal or interest, breach of the liquidity or performance covenants, triggering of portfolio ratio limits, or other material adverse events, as defined. At October 29, 2017, the Company was in compliance with all debt covenant requirements, as amended.
The PNC Financing Program has an accordion feature under which the facility limit can be increased up to $250.0 million subject to credit approval from PNC. Borrowings are priced based upon a fixed program rate plus the daily adjusted one-month LIBOR index, as defined. The program also contains a revolving credit provision under which proceeds can be drawn for a definitive tranche period of 30, 60, 90 or 180 days priced at the adjusted LIBOR index rate in effect for that period. In addition to United States dollars, drawings can be denominated in sub-limit, and British Pounds Sterling, subject to a £20.0 million sub-limit. The program also includes a letter of credit sub-limit of $50.0 million and minimum borrowing requirements. As of October 29, 2017, there were no foreign currency denominated borrowings, and the letter of credit participation was $28.3 million inclusive of $26.9 million for the Company’s casualty insurance program and $1.4 million for the security deposit required under the Orange facility lease agreement.
At October 29, 2017 and October 30, 2016, the Company had outstanding borrowings under the PNC Financing Program of $50.0 million and $95.0 million, respectively, that had a weighted average annual interest rate of 3.1% and 2.3% during fiscal 2017 and 2016, respectively, which is inclusive of certain facility fees. At October 29, 2017, there was $19.1 million additional availability under this program after applying the aforementioned $35.0 million borrowing block, and exclusive of any potential availability under the accordion feature.
In February 2016, Maintech, as borrower, entered into a $10.0 million 364-day secured revolving credit agreement with BofA and the Company had guaranteed the obligations of the borrower up to $3.0 million.
As of March 6, 2017, all amounts outstanding under the credit agreement were satisfied with the proceeds from the sale of Maintech, at which time the Company’s obligation as a guarantor was discharged.
Long-term debt consists of the following (in thousands):
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef