Assets and Liabilities Held for Sale

12 Months Ended

Oct. 29, 2017

Discontinued Operations and Disposal Groups [Abstract]

Sale of Quality Assurance Business

On October 27, 2017, the Company completed the sale of its quality assurance business within the Technology Outsourcing Services and Solutions segment to Keywords International Limited and Keywords Studios plc for a purchase price of $66.4 million, subject to a customary working capital adjustment. The gain on sale of $48.0 million was recorded in continuing operations in the Consolidated Statements of Operations for the year ended October 29, 2017. The divestiture did not meet the criteria to be presented as discontinued operations in accordance with ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). However, the disposition did represent an individually significant component of the Company’s business. The following table presents the pretax income of the quality assurance business included in the Company’s Consolidated Statements of Operations prior to the disposition (in thousands):



	Year Ended
	October 29, 2017		October 30, 2016		November 1, 2015
Income before provision for income taxes	$	4,487	$	9,822	$	15,767

Concurrently with the sale, the Company entered into a Transition Services and Asset Transfer Agreement (the “Transition Services Agreement”) under which the Company will continue to provide certain accounting and operational support services to the buyer, on a monthly fee-for-service basis for a period of up to six months post-closing. Also, under the terms of the Transition Services Agreement, the buyer will provide certain office space to the Company for a monthly fee until a formal agreement is executed.

Discontinued Operations

On December 1, 2014, the Company completed the sale of its Computer Systems segment to NewNet Communication Technologies, LLC (“NewNet”), a Skyview Capital, LLC, portfolio company. The Company met all of the criteria to classify that segment's assets and liabilities as held for sale in the fourth quarter of fiscal 2014. The results of the Computer Systems segment are presented as discontinued operations and excluded from continuing operations and from segment results for all periods presented.

The proceeds of the transaction were a $10.0 million note bearing interest at one half percent (0.5 percent) per year due in four years and convertible into a capital interest of up to 20% in NewNet. The Company may convert the note at any time and is entitled to receive early repayment in the event of certain events such as a change in control of NewNet. The proceeds were in exchange for the ownership of Volt Delta Resources, LLC and its operating subsidiaries, which comprised the Company's Computer Systems segment, and payment of $4.0 million by the Company during the first 45 days following the transaction. The transaction was subject to an additional payment to be made between the parties based on the comparison of the actual transaction date working capital amount to an expected working capital amount of $6.0 million (the contractually agreed upon working capital). The note was valued at $8.4 million on the transaction date which approximated fair value.

For the year ended November 1, 2015, the Company recognized a loss on disposal of $1.5 million. The total related costs associated with this transaction were $2.2 million comprised of $0.9 million in severance costs, $0.9 million of professional fees and $0.4 million of lease obligation costs. These costs are recorded in Discontinued operations in the Consolidated Statements of Operations and were fully paid through fiscal 2016. The unamortized discount for the note was $1.1 million as of October 30, 2016 and remained unchanged through the settlement date.

On October 27, 2017, the Company and NewNet entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”). Pursuant to the terms of the Settlement Agreement, NewNet agreed to early payment of the note for $7.5 million, comprised of a $6.5 million cash payment due to the Company (the “Cash Payment”) and a $1.0 million promissory note in favor of the Company, maturing no later than January 31, 2018. The Cash Payment was offset by a $1.5 million deduction to settle the outstanding working capital adjustment and minor indemnity claims under the Membership Interest Purchase Agreement dated as of December 1, 2014 (the “Purchase Agreement”), and receivables under the transition services agreement related to the Purchase Agreement. As a result, the Company received $5.0 million in cash and the promissory note for a total of $6.0 million on a net basis.

The early payment of the note resulted in a settlement charge of $1.4 million which was recorded in the Consolidated Statements of Operations for the year ended October 29, 2017. The Company also incurred a working capital adjustment of $1.7 million which was recorded as a loss on disposal in Discontinued operations in the Consolidated Statements of Operations for the year ended October 29, 2017.

The following table reconciles the major line items in the Company’s Consolidated Statements of Operations for discontinued operations (in thousands):



	Year Ended
	October 29, 2017			October 30, 2016		November 1, 2015
Loss from discontinued operations
Net revenue	$	—		$	—	$	4,708
Cost of services	—			—		5,730
Selling, administrative and other operating costs	—			—		1,388
Other (income) expense, net	—			—		731
Loss from discontinued operations	—			—		(3,141		)
Loss on disposal of discontinued operations	(1,693		)	—		(1,502		)
Loss from discontinued operations before income taxes	(1,693		)	—		(4,643		)
Income tax provision	—			—		191
Loss from discontinued operations that is presented in the Consolidated Statements of Operations	$	(1,693	)	$	—	$	(4,834	)

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. Maintech 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 Maintech 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, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). 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. Maintech’s financial results were reported within the Corporate and Other category in our segment data.

In March 2017, the Company completed the sale of Maintech to Maintech Holdings, LLC, a newly-formed holding company and affiliate of Oak Lane Partners, LLC (“Buyer”). Under the terms of the Stock Purchase Agreement, the Company received proceeds of $18.3 million, subject to a $0.1 million holdback and certain adjustments including a customary working capital adjustment that was finalized within 60 days of the sale. Net proceeds from the transaction amounted to $13.1 million after certain transaction-related fees, expenses and repayment of an outstanding Bank of America, N.A. (“BofA”) loan balance. The Company recognized a gain on disposal of $3.9 million from the sale transaction in the second quarter of fiscal 2017.

Concurrently with the sale, the Company entered into a Transition Services and Asset Transfer Agreement (the “Transition Services Agreement”). Given that the Buyer had not yet formed legal entities in certain international jurisdictions, the Company still held legal title to approximately $0.4 million, net, of certain of Maintech’s international assets and liabilities. Pursuant to the Transition Services Agreement, the Buyer was entitled to all of the economic benefit and burden of such international assets and liabilities commencing on the sale date, March 6, 2017, as if legal title had transferred. Following the sale, both parties worked in good faith to enter into definitive documentation for the conveyance of these assets and liabilities. As of October 29, 2017, these net assets are no longer presented in the Company’s Consolidated Balance Sheets. Also under the terms of the Transition Services Agreement, the Company continued to provide certain accounting and operational support services to the Buyer, on a monthly fee-for-service basis for a period of up to six months post-closing.

The Company and Maintech have also executed a three-year IT as a service agreement, whereby Maintech will continue to provide helpdesk and network monitoring services to the Company, similar to the services that were provided before the transaction.

The following table reconciles the major classes of assets and liabilities classified as held for sale as part of continuing operations in fiscal 2016 in the Consolidated Balance Sheets (in thousands):



	October 30, 2016
Assets included as part of continuing operations
Trade accounts receivable, net	$	13,553
Recoverable income taxes	15
Prepaid insurance and other assets	3,339
Property, equipment and software, net	178
Purchased intangible assets	495
Total major classes of assets as part of continuing operations	$	17,580

Liabilities included as part of continuing operations
Accrued compensation	$	2,432
Accounts payable	921
Accrued taxes other than income taxes	833
Accrued insurance and other	1,574
Total major classes of liabilities as part of continuing operations	$	5,760