UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the quarterly period
ended
June 30,
2010
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from
to
Commission
File Number
001-34015
EDCI HOLDINGS,
INC.
(Exact
Name of Registrant as Specified in Its Charter)
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DELAWARE
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26-2694280
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
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Identification
No.)
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11
East 44
th
Street, New York, NY
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10017
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(646) 401-0084
(Registrant’s
Telephone Number, Including Area Code)
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
x
No
o
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 (Section 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). Yes
o
No
o
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 Exchange Act. (Check
one):
Large
Accelerated Filer
o
Accelerated
Filer
o
Non-Accelerated
Filer
(Do not check if a smaller
reporting company)
o
Smaller
Reporting Company
x
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of Exchange Act)
Yes
o
No
x
The
number of shares outstanding of the Registrant’s common stock, par value $.02
per share, at August 5, 2010 was 6,730,099 shares.
EDCI
Holdings, Inc. and Subsidiaries
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Part
I – Financial Information:
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Item
1. Financial Statements
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Page
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Consolidated
Statement of Changes in Net Assets in Liquidation (Liquidation Basis) for
the three and six months ended June 30, 2010
(Unaudited)
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3
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Consolidated
Statement of Net Assets in Liquidation (Liquidation Basis) as of June 30,
2010 (Unaudited)
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4
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Consolidated
Balance Sheet (Going Concern Basis) as of December 31, 2009
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5
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Consolidated
Statement of Operations (Going Concern Basis) for the three and six months
ended June 30, 2009 (Unaudited)
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6
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Consolidated
Statement of Cash Flows (Going Concern Basis) for the six months ended
June 30, 2009 (Unaudited)
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7
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Notes
to Consolidated Financial Statements (Unaudited)
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8
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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Item 4.
Controls and Procedures
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17
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Part
II – Other Information:
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Item 1.
Legal Proceedings
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18
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Item 6.
Exhibits
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18
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EX-31.1
SECTION 302, CERTIFICATION OF THE CEO
EX-31.2
SECTION 302, CERTIFICATION OF THE PFO
EX-32.1
SECTION 906, CERTIFICATION OF THE CEO
EX-32.2
SECTION 906, CERTIFICATION OF THE PFO
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PART
I – FINANCIAL INFORMATION
ITEM
1. Financial Statements
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EDCI
HOLDINGS, INC. AND SUBSIDIARIES
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CONSOLIDATED
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION (LIQUIDATION
BASIS)
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(IN
THOUSANDS)
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For
the Period
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January
1, 2010
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to
June 30, 2010
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(Unaudited)
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Common
Stockholders' Equity as of December 31, 2009
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$ 78,397
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Effects
of adopting the liquidation basis of accounting
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Initial
adjustment of EDC assets to estimated net realizable value
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(18,624)
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Initial
adjustment of liabilities to net settlement amounts
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5,345
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Liquidation
accrual
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(8,261)
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Net
Assets (liquidation basis) as of January 1, 2010
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56,857
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Other
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482
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Exercise
of stock options
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76
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Distributions
to stockholders
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(21,000)
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Effect
of foreign currency translation
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(155)
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Changes
in net assets in liquidation
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(20,597)
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Net
assets in liquidation - March 31, 2010
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36,260
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Adjustment
to reserve for uncertain tax positions
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2,312
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Adjustment
to liquidation accrual
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(1,052)
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Other
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849
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Effect
of foreign currency translation
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330
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Changes
in net assets in liquidation
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2,439
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Net
assets in liquidation - June 30, 2010
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$ 38,699
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See
Notes to Consolidated Financial
Statements
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EDCI
HOLDINGS, INC. AND SUBSIDIARIES
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CONSOLIDATED
STATEMENT OF NET ASSETS IN LIQUIDATION (LIQUIDATION
BASIS)
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(IN
THOUSANDS)
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June
30,
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2010
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(Unaudited)
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ASSETS
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Cash
and cash equivalents
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$ 68,347
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Restricted
cash
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2,846
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Investments
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870
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Accounts
receivable, net
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6,378
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Employee
benefit receivable from Universal
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1,688
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Inventories,
net
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3,593
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Prepaid
expenses and other current assets
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8,705
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Deferred
income taxes
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1,858
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Assets
held for sale
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6,400
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Total
assets
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100,685
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LIABILITIES
AND NET ASSETS IN LIQUIDATION
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Accounts
payable
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$ 6,593
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Accrued
expenses and other liabilities
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12,491
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Liquidation
accrual
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6,700
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Loans
from employees
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1,365
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Universal
rebate payable
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1,693
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Deferred
income taxes
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66
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Reserve
for uncertain tax positions
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871
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Pension
and other defined benefit obligations
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32,061
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Total
liabilities
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61,840
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Noncontrolling
interest at estimated value
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146
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Total
liabilities and noncontrolling interest
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61,986
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Net
assets in liquidation
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38,699
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See
Notes to Consolidated Financial
Statements
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EDCI
HOLDINGS, INC. AND SUBSIDIARIES
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CONSOLIDATED
BALANCE SHEET (GOING CONCERN BASIS)
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(IN
THOUSANDS)
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December
31,
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2009
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ASSETS
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Current
Assets:
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Cash
and cash equivalents
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$ 78,093
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Restricted
cash
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23,492
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Accounts
receivable, net of allowances for doubtful accounts of
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$2,853 for
December 31, 2009
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16,446
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Current
portion of long-term receivable
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770
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Inventories,
net
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3,668
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Prepaid
expenses and other current assets
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7,941
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Deferred
income taxes
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27
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Assets
held for sale
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6,400
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Current
assets, discontinued operations
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208
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Total
Current Assets
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137,045
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Restricted
cash
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3,314
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Property,
plant and equipment, net
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16,429
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Long-term
receivable
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1,670
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Long
term investments
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870
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Deferred
income taxes
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1,895
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Other
assets
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3,011
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TOTAL
ASSETS
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$ 164,234
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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Current
Liabilities:
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Accounts
payable
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$ 13,447
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Accrued
expenses and other liabilities
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22,496
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Income
taxes payable
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553
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Loans
from employees
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976
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Current
portion of long-term debt
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437
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Current
liabilities, discontinued operations
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1,584
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Total
Current Liabilities
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39,493
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Other
non-current liabilities
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3,592
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Loans
from employees
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1,610
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Long-term
debt
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1,488
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Pension
and other defined benefit obligations
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34,096
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Deferred
income taxes
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287
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Non-current
liabilities, discontinued operations
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-
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Total
Liabilities
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80,566
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Commitments
and contingencies
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Stockholders'
Equity:
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Preferred
stock, $.01 par value; authorized: 1,000,000 shares, no
shares
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issued
and outstanding
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-
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Common
stock, $.02 par value; authorized: 15,000,000 shares
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7,019,436
shares issued 2009
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140
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Additional
paid in capital
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371,373
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Accumulated
deficit
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(297,835)
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Accumulated
other comprehensive income
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6,376
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Treasury
stock at cost:
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333,299
shares
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(1,657)
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Total
EDCI Holdings, Inc. Stockholders' Equity
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78,397
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Noncontrolling
interest in subsidiary company
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5,271
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Total
Stockholders' Equity
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83,668
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
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$ 164,234
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See
Notes to Consolidated Financial
Statements
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EDCI
HOLDINGS, INC. AND SUBSIDIARIES
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CONSOLIDATED
STATEMENT OF OPERATIONS (GOING CONCERN BASIS)
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(IN
THOUSANDS)
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Three
Months Ended
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Six
Months Ended
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June
30, 2009
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June
30, 2009
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(Unaudited)
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(Unaudited)
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REVENUES:
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Product
revenues
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$ 27,271
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$ 58,352
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Service
revenues
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10,145
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20,315
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Total
Revenues
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37,416
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78,667
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COST
OF REVENUES:
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Cost
of product revenues
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23,935
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51,908
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Cost
of service revenues
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7,740
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15,448
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Total
Cost of Revenues
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31,675
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67,356
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GROSS
PROFIT
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5,741
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11,311
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OPERATING
EXPENSES:
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Selling,
general and administrative expense
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6,568
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13,691
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Severance
cost for UK facility closure
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7,152
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7,152
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Total
Operating Expenses
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13,720
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20,843
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OPERATING
LOSS
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(7,979)
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(9,532)
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OTHER
INCOME (EXPENSE):
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Interest
income
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46
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263
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Interest
expense
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(177)
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(408)
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Gain
on currency swap, net
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-
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2,111
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Loss
on currency transaction, net
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518
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487
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Other
income, net
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3
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14
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Total
Other Income (Expense)
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390
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2,467
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LOSS
FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES
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(7,589)
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(7,065)
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Income
tax benefit
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(154)
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(308)
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LOSS
FROM CONTINUING OPERATIONS
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(7,435)
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(6,757)
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DISCONTINUED
OPERATIONS, NET OF TAX:
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LOSS
FROM DISCONTINUED OPERATIONS
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(1,290)
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(2,652)
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GAIN
ON SALE OF EDC U.S. OPERATIONS
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52
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180
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NET
LOSS
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(8,673)
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(9,229)
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Net
loss attributable to noncontrolling interest in subsidiary
company
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(89)
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(90)
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NET
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
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$ (8,584)
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$ (9,139)
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AMOUNTS
ATTRIBUTABLE TO EDCI HOLDINGS, INC. COMMON SHAREHOLDERS
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Loss
from continuing operations
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$ (7,363)
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$ (6,719)
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Loss
from discontinued operations
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(1,273)
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(2,600)
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Gain
on sale of EDC U.S. Operations
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52
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180
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Net
Loss
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$ (8,584)
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$ (9,139)
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See
Notes to Consolidated Financial
Statements
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EDCI
HOLDINGS, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT
OF CASH FLOWS (GOING CONCERN BASIS)
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(IN
THOUSANDS)
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Six
Months Ended
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June
30, 2009
|
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(Unaudited)
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
loss
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$ (9,139)
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Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
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Gain
on sale of EDC U.S. Operations
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(180)
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Depreciation
and amortization
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3,269
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Stock
compensation expense
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208
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Unrealized
gain on currency swap
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(2,111)
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Foreign
currency transaction gain
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(487)
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Severance
cost for UK facility closure
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7,152
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Gain
on adjustment to discontinued operations tax payable
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(141)
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Deferred
income tax provision
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60
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Non-cash
interest expense
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246
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Noncontrolling
interest in subsidiary company
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(90)
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Other
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(377)
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Changes
in operating assets and liabilities, net of effects of business
dispositions and acquisitions:
|
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Restricted
cash
|
599
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|
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Accounts
receivable
|
12,864
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|
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Inventories
|
1,199
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Prepaid
and other current assets
|
1,820
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|
|
Long-term
receivables
|
123
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|
|
Other
assets
|
970
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|
|
Accounts
payable
|
(8,344)
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|
|
Accrued
liabilities and income taxes payable
|
(6,877)
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|
|
Other
liabilities
|
54
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|
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
818
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|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Purchases
of property, plant and equipment
|
(536)
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|
Cash
restricted under long-term borrowing agreement
|
4,770
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|
|
Proceeds
from sale of U.S. operations
|
2,134
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|
|
Purchase
of available-for-sale securities
|
-
|
|
|
Proceeds
from the sale of short-term securities
|
-
|
|
|
NET
CASH PROVIDED BY INVESTING ACTIVITIES
|
6,368
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Repayment
of employee loans
|
(1,041)
|
|
|
Repayment
of capital lease obligations
|
(68)
|
|
|
Repayment
of long-term borrowing
|
(1,023)
|
|
|
Acquisitions
of treasury stock
|
(85)
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|
|
Settlement
of cross-currency swap
|
(2,093)
|
|
|
NET
CASH USED IN FINANCING ACTIVITIES
|
(4,310)
|
|
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EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
1,011
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|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
3,887
|
|
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
75,112
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|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ 78,999
|
|
|
|
|
|
|
|
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|
See
Notes to Consolidated Financial
Statements
|
EDCI
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS IN LIQUIDATION (Liquidation
Basis)
(Tabular
Amounts in Thousands)
(Unaudited)
EDCI
Holdings, Inc. (“EDCI”), the majority shareholder of Entertainment Distribution
Company, LLC (“EDC”), a European provider of supply chain services to the
optical disc market, is a company engaged in a final Plan of Complete
Liquidation and Dissolution (“Plan of Dissolution”). The Plan of
Dissolution was approved by EDCI’s shareholders at a Special Meeting held on
January 7, 2010. Accordingly, EDCI commenced the voluntary
dissolution, liquidation and winding up of the Company in accordance with
Delaware law. For financial reporting purposes, the Plan of
Dissolution was adopted effective January 1, 2010, as the Company’s operating
results during the period January 1, 2010 through January 7, 2010, were
nominal.
Upon
adoption of the Plan of Dissolution, we have ceased all of EDCI’s business
activities except for those relating to winding up EDCI’s business and affairs
during a minimum three-year period required under Delaware law, including, but
not limited to, gradually settling and closing its business, prosecuting and
defending suits by or against EDCI, seeking to convert EDCI’s assets into cash
or cash equivalents, discharging or making provision for discharging EDCI’s
known and unknown liabilities, making cash distributions to our stockholders,
withdrawing from all jurisdictions in which EDCI is qualified to do business
and, subject to statutory limitations, taking other actions necessary to wind up
the Company’s business affairs. If EDCI is unable to convert any
assets to cash or cash equivalents by the end of the three-year period, we will
either distribute EDCI’s remaining assets in-kind among our stockholders
according to their interests or place them in a liquidating trust for the
benefit of our stockholders.
EDCI’s
ownership of 97.99% of the membership units of EDC is an asset of EDCI that is
subject to the Plan of Dissolution. The Plan of Dissolution does not
directly involve the operating business, assets, liabilities or corporate
existence of EDC and EDC plans to continue to honor the terms of its long term
customer agreement that expires in May 2015. Beginning in January
2010, EDCI’s consolidated financials are required to reflect EDC’s assets and
liabilities under the liquidation basis of accounting (see Note 2) and it should
be noted that during EDCI’s three-year dissolution period, EDCI will continue to
seek value for its investment in EDC by exploring strategic alternatives and
seeking, as appropriate, cash distributions, subject to applicable legal
requirements. While EDC is currently examining the possibility of making a
distribution, including from EDC’s German and UK subsidiaries (“EDC’s European
Operation”) to EDCI, such a distribution remains subject to the future operating
performance of EDC’s European Operation and compliance with German law and tax
considerations, and the distribution of any cash from EDC to EDCI is subject to
additional security obligations and additional U.S. legal and tax
considerations. As previously disclosed, the cooperation of
Universal, EDC’s largest customer, is critical to any sale of EDC’s European
Operations and based on negotiations with a potential acquirer during the fourth
quarter of 2009 and first quarter of 2010, EDC does not believe Universal will
cooperate on acceptable terms with any such transaction. As a result,
any transaction involving the sale of EDC’s European Operations is
unlikely. If EDCI continues to own any interest in EDC at the end of
the three year dissolution period, EDCI anticipates transferring such interests
to a liquidating trust, for the benefit of our shareholders.
On
February 1, 2010, pursuant to the Company’s Plan of Dissolution, EDCI made an
initial dissolution distribution of $3.12 per share of its common
stock. In aggregate, approximately $21.0 million of EDCI’s cash was
returned to its shareholders.
On July
19, 2010, a special committee consisting of independent directors (the “Special
Committee”) of EDCI’s Board of Directors recommended, and EDCI’s Board of
Directors approved, a plan to cease the registration of the Company’s common
stock under the Securities Exchange Act of 1934 (the “Exchange Act”), end its
obligation to file reports with the Securities and Exchange Commission (“SEC”),
and withdraw its shares of common stock from listing on the NASDAQ Stock
Market. This would be accomplished through a 1-for-1,400 reverse
stock split of EDCI’s common stock to be followed immediately by a 1,400-for-1
forward split. In the stock split transaction, shareholders with
fewer than 1,400 shares of EDCI common stock held of record immediately before
the split transaction would receive cash payments in lieu of fractional shares
upon consummation of the reverse split. The Special Committee
recommended and the Board approved that the value to be paid to those
shareholders should be based on the then current $5.00 per share price, which
would be equal to $3.44 per share after the $1.56 per share distribution paid on
July 30, 2010. Accordingly, the proceeds to be paid to the cashed out
shareholders at the time of the reverse split would be $3.44 per
share.
The
Special Committee has received a fairness opinion from its independent financial
advisor, the investment banking firm of Coady Diemar Partners, LLC, that the
cash consideration of $3.44 per share to be paid to shareholders who are
cashed-out in the reverse split is fair from a financial point of view to such
shareholders. The proposed split transaction is subject to approval
by the holders of a majority of the issued and outstanding shares of EDCI’s
common stock.
The Board
of Directors has reserved $4.0 million of additional dissolution proceeds to
implement the reverse stock split and pay the consideration to those
shareholders being cashed-out in the reverse split. Currently, EDCI
only anticipates cashing out approximately 600,000 shares, but is reserving $4.0
million in the event a greater number of shares are required to be cashed out
based on the final record date for the reverse split. Shareholders holding 1,400
or more shares of EDCI common stock immediately before the split transaction
will not receive a cash payment and will continue to hold the same number of
shares after completion of the split transaction. The Board of
Directors has reserved the right to abandon the proposed stock splits at any
time prior to the completion of the proposed transaction if it believes the
split transaction is no longer in the best interests of the Company or its
shareholders. If the split transaction is completed, EDCI expects that the
number of its record shareholders will be reduced from its current level of
approximately 1,300 down to fewer than 200, at which point EDCI will be eligible
to deregister its shares of common stock under the Exchange Act. As a result,
EDCI would no longer be required to file periodic reports, proxy statements, and
other information with the SEC, and EDCI’s common stock will cease to be
eligible for trading on the NASDAQ.
EDCI is
currently preparing proxy materials and anticipates filing a preliminary proxy
statement with the SEC in mid-August 2010 and intends to hold a special meeting
of EDCI’s shareholders during the fourth quarter of 2010. Subject to
regulatory clearance of the Company’s SEC filings relating to the split
transaction and receipt of shareholder approval, it is anticipated that the
proposed transaction will become effective shortly after the special meeting, at
which time EDCI will terminate the registration of its common stock with the
SEC. Any of the $4.0 million not used in the reverse split is
intended either to be distributed pro-rata to shareholders at that time as part
of a further dissolution payment or distributed pro-rata to shareholders after
consummation of the reverse split.
On July
30, 2010, EDCI made an additional dissolution distribution of $1.56 per share of
its common stock. In aggregate, approximately $10.5 million of EDCI’s cash was
returned to its shareholders as part of this second dissolution
distribution.
EDCI
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS IN LIQUIDATION (Liquidation
Basis)
(Tabular
Amounts in Thousands)
(Unaudited)
For
financial reporting purposes, EDCI adopted the liquidation basis of accounting
effective January 1, 2010. The Plan of Dissolution was approved by the Company’s
shareholders on January 7, 2010. Operating results during the stub period ended
January 7, 2010 were nominal. Under the liquidation basis of accounting, the
principal financial statements required are a Statement of Net Assets in
Liquidation and a Statement of Changes in Net Assets in Liquidation. Further,
under the liquidation basis of accounting, assets are stated at their estimated
net realizable value, which is the non-discounted amount of cash, or its
equivalent, into which an asset is expected to be converted in the due course of
business less direct costs, while liabilities are reported at their estimated
settlement amount, which is the non-discounted amounts of cash, or its
equivalent, expected to be paid to liquidate an obligation in the due course of
business, including direct costs. Additionally, under the liquidation basis of
accounting, we are required to establish a reserve for all future estimated
general and administrative expenses and other costs expected to be incurred
during the liquidation period. The reserve for these estimated expenses includes
primarily accruals for employee costs (payroll and benefits), facilities,
professional services and litigation costs, and corporate expenses (insurance,
directors’ fees and statutory fees). Further, the estimates of our costs will
vary with the length of time necessary to complete the Plan of Dissolution.
These estimates will be periodically reviewed and adjusted as appropriate. There
can be no assurance that these estimated values will not materially change.
Accordingly, it is not possible to predict with certainty the timing or
aggregate amount which will ultimately be distributed to stockholders and no
assurance can be given that the distributions will equal or exceed the estimate
presented in the accompanying Statement of Net Assets in Liquidation. The
valuation of assets at their net realizable value and liabilities at their
anticipated settlement amount represent estimates, based on present facts and
circumstances, of the net realizable value of the assets and the costs
associated with carrying out the Plan of Dissolution. The actual values and
costs associated with carrying out the Plan of Dissolution may differ from
amounts reflected in the accompanying financial statements because of the plan’s
inherent uncertainty.
The
unaudited Statement of Net Assets in Liquidation and the Statement of Changes in
Net Assets in Liquidation have been prepared by the Company in accordance with
the rules and regulations of the Securities and Exchange Commission, and
should be read in conjunction with the audited Consolidated Financial Statements
previously filed on the Company’s Form 10-K for the year ended
December 31, 2009. In the opinion of management, the statements reflect all
adjustments necessary for a fair presentation of the net assets of EDCI. Certain
information and note disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America, which are not required for interim purposes, have been
condensed or omitted. The consolidated financial statements as of
December 31, 2009, and for the unaudited three and six months ended June 30,
2009, were prepared on the going concern basis of accounting. We issued these
unaudited condensed consolidated financial statements by filing with the SEC and
have evaluated subsequent events up to the time of filing.
|
3.
|
Adoption
of Liquidation Basis of Accounting
|
Upon the
adoption of the liquidation basis of accounting, the Company recorded the
following adjustments to adjust assets to estimated net realizable value and
liabilities to net settlement amounts:
|
Initial Adjustment of EDC Assets to Estimated Net
Realizable Value
|
|
Amount
|
|
Write
down of fixed assets
|
|
$ 15,613
|
|
Write
down of spare parts
|
|
3,011
|
|
|
|
$ 18,624
|
|
Initial Adjustment of Liabilities to Net
Settlement Amounts
|
|
Amount
|
|
Write
down of deferred taxes
|
|
(221)
|
|
Adjustment
of noncontrolling interest to estimated settlement value
|
|
(5,124)
|
|
|
|
$ (5,345)
|
The
adjustment to deferred income taxes of $0.2 million was the result of EDCI
updating its estimate of the net settlement value of this liability in
liquidation. The adjustment of noncontrolling interest in the amount
of $5.1 million was the result of this liability having a settlement amount upon
EDCI’s adoption of liquidation accounting of less than what was previously
recorded.
The
Company was required to make significant estimates and exercise judgment in
determining the accrued costs of liquidation as of January 1, 2010. Upon
conversion to the liquidation basis of accounting, EDCI accrued for certain
costs to be incurred in liquidation, and has made subsequent adjustments and
payments against these accounts, as follows:
|
Accrued Costs of
Liquidation
|
|
Amount
as of
|
|
Activity to
|
|
Adjustments to
|
|
Amount
as of
|
|
|
|
January 1, 2010
|
|
Date
|
|
Reserves
|
|
June 30, 2010
|
|
Payroll
and severance related
|
|
$ 3,104
|
|
$ (821)
|
|
$ 711
|
(1)
|
$ 2,994
|
|
Professional
fees
|
|
744
|
|
(373)
|
|
56
|
|
427
|
|
Wind
down costs related to EDC's UK facility
|
|
380
|
|
(400)
|
|
20
|
|
-
|
|
Accrual
of carrying costs on EDC's Kings Mountain
facility
|
1,800
|
|
(323)
|
|
23
|
|
1,500
|
|
Outside
services and other wind down expenses
|
|
2,233
|
|
(696)
|
|
242
|
|
1,779
|
|
|
|
$ 8,261
|
|
$ (2,613)
|
|
$ 1,052
|
|
$ 6,700
|
|
|
|
|
|
|
|
|
|
|
|
(1)
EDCI’s Board of Directors approved a discretionary executive bonus program
under which certain performance bonuses could be earned at prescribed
levels during the Plan of Dissolution period if total distributions paid
or payable to EDCI’s shareholders exceed pre-established thresholds per
share. Based on current facts and circumstances the Company recorded $0.4
million for this bonus award as of June 30, 2010.
|
EDCI
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS IN LIQUIDATION (Liquidation
Basis)
(Tabular
Amounts in Thousands)
(Unaudited)
The
Company will continue to incur operating costs throughout the liquidation
period. On a regular basis, we evaluate our assumptions, judgments and estimates
that can have a significant impact on our reported net assets in liquidation
based on the most recent information available to us, and when necessary make
changes accordingly. Actual costs and income may differ from our estimates,
which might reduce net assets available in liquidation to be distributed to
shareholders.
|
4.
|
Selected
Financial Data
|
Statement
of Net Assets in Liquidation - Consolidating
The
Statement of Net Assets in Liquidation presented below is consolidating and is
intended to illustrate which components of the consolidated Statement of Net
Assets in Liquidation are attributable to EDCI and EDC,
respectively.
|
STATEMENT
OF NET ASSETS IN LIQUIDATION (LIQUIDATION BASIS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
EDC
(b)
|
|
EDCI
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$ 38,943
|
|
$ 29,404
|
|
$ -
|
|
$ 68,347
|
|
Restricted
cash
|
2,846
|
|
-
|
|
-
|
|
2,846
|
|
Investments
|
-
|
|
870
|
|
-
|
|
870
|
|
Accounts
receivable, net
|
6,378
|
|
-
|
|
-
|
|
6,378
|
|
Due
from Universal
|
1,688
|
|
-
|
|
-
|
|
1,688
|
|
Inventories,
net
|
3,593
|
|
-
|
|
-
|
|
3,593
|
|
Prepaid
expenses and other current assets
|
8,205
|
|
500
|
|
-
|
|
8,705
|
|
Deferred
income taxes
|
1,858
|
|
-
|
|
-
|
|
1,858
|
|
Due
to EDCI from EDC (a)
|
-
|
|
3,014
|
|
(3,014)
|
|
-
|
|
Assets
held for sale
|
6,400
|
|
-
|
|
-
|
|
6,400
|
|
Total
assets
|
|
69,911
|
|
33,788
|
|
(3,014)
|
|
100,685
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND NET ASSETS IN LIQUIDATION
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
$ 6,593
|
|
$ -
|
|
$ -
|
|
$ 6,593
|
|
Accrued
expenses and other liabilities
|
11,937
|
|
554
|
|
-
|
|
12,491
|
|
Due
from EDC to EDCI (a)
|
3,014
|
|
-
|
|
(3,014)
|
|
-
|
|
Liquidation
accrual
|
1,500
|
|
5,200
|
|
-
|
|
6,700
|
|
Loans
from employees
|
1,365
|
|
-
|
|
-
|
|
1,365
|
|
Universal
rebate payable
|
1,693
|
|
-
|
|
-
|
|
1,693
|
|
Deferred
income taxes
|
-
|
|
66
|
|
-
|
|
66
|
|
Reserve
for uncertain tax positions
|
723
|
|
148
|
|
-
|
|
871
|
|
Pension
and other defined benefit obligations
|
31,383
|
|
678
|
|
-
|
|
32,061
|
|
Total
liabilities
|
58,208
|
|
6,646
|
|
(3,014)
|
|
61,840
|
|
Noncontrolling
interest at estimated value
|
-
|
|
146
|
|
-
|
|
146
|
|
Total
liabilities and noncontrolling interest
|
58,208
|
|
6,792
|
|
(3,014)
|
|
61,986
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets in liquidation
|
$ 11,703
|
|
$ 26,996
|
|
$ -
|
(c)
|
$ 38,699
|
|
(a)
|
The
amount recorded as Due from EDC to EDCI represents an estimate EDC’s
portion of certain shared corporate costs which are anticipated to be
incurred during the dissolution period and which will be recovered from
EDC through intercompany settlements.
|
|
(b)
|
See
Note 1 regarding restrictions on our ability to transfer cash from EDC to
EDCI.
|
|
(c)
|
On
July 30, 2010, EDCI made an additional dissolution distribution of $1.56
per share of its common stock. In aggregate, approximate $10.5 million of
EDCI’s cash was returned to its shareholders as part of this second
dissolution distribution and thus Net Assets in Liquidation were reduced
by a like amount.
|
EDCI
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS IN LIQUIDATION (Liquidation
Basis)
(Tabular
Amounts in Thousands)
(Unaudited)
|
5.
|
Cash
and Cash Equivalents
|
Restricted
Cash
Restricted
cash of EDC’s European Operation at June 30, 2010 was $2.9 million. As part of
the acquisition of the Universal manufacturing and distribution operations, one
of Universal’s subsidiaries deposited these escrowed funds into an account
controlled by an Escrow Agreement restricting the disbursement of the funds.
Universal and EDC participate in determining and approving disbursement. The
earnings on the funds are paid to EDC monthly. A portion of the
restricted cash is being held in escrow to fund employee related obligations. On
June 1, 2010, the restrictions encumbering approximately $18.9 million of the
restricted cash expired and the cash was released to EDC. We are
currently evaluating all options, subject to compliance with German law and tax
considerations and additional security obligations and U.S. legal and tax
considerations, in regards to the future usage of the portion of the restricted
cash that was released from escrow on June 1, 2010. Amounts in excess
of federally insured limits are on deposit with various financial
institutions.
As of
June 30, 2010, the Company has one investment which is recorded at its estimated
net realizable value of $0.9 million in the accompanying Statement of Net Assets
in Liquidation. The investment consists of 10 units of Auction Market
Preferred Securities (“AMPS”) issued by the Boulder Total Return Fund, Inc. (the
“Fund”). The Fund’s AMPS have a liquidation preference of $100,000
per share, plus any accumulated unpaid distributions, whether or not earned or
declared by the Fund but excluding interest thereon (“Liquidation Value”) and
have no set retirement date. The Fund retired 26 shares of AMPS through a
privately negotiated transaction during 2009 at an average price of $84,923 per
share.
The
Company evaluates the fair value of its investment at each reporting period. The
estimated fair values could change significantly based on future market
conditions. The Company will continue to assess the fair value of its investment
for substantive changes in relevant market conditions, changes in financial
condition or other changes that may alter its estimates described above. The
Company may be required to record future write downs of its investment if it
determines that its investment has incurred a change in fair value.
|
7.
|
Employee
Benefit Receivable from Universal
|
Under the
terms of the share purchase agreement relating to the acquisition of Universal’s
European operations, Universal is required to reimburse EDC relating to the
liabilities net of accounts receivable and other receivables assumed by EDC at
the acquisition date. Amounts not paid or received in future periods for these
assumed liabilities and receivables, with the exception of the pension
obligations, will be adjusted through the receivable. The balance of
$1.7 million at June 30, 2010 relates to the long-term service award
plan.
Inventories,
net at June 30, 2010, relate to EDC’s European Operation and consisted
of:
|
|
June
30,
|
|
|
2010
|
|
Raw
materials
|
$ 3,023
|
|
Finished
goods
|
165
|
|
Work
in process
|
405
|
|
Total
|
$ 3,593
|
At June
30, 2010 inventory reserves were approximately $0.8 million.
Assets
Held for Sale as of June 30, 2010, consists of EDC’s Kings Mountain, North
Carolina facility (“Kings Mountain Facility’), which formerly housed EDC’s U.S.
manufacturing operations. EDC has listed the Kings Mountain Facility
for sale since the second quarter of 2009 and is currently unable to predict
when a successful transaction involving the sale of this facility will
occur. Annual carrying costs related to maintaining the Kings
Mountain Facility in a condition to be sold are estimated to be approximately
$0.6 million. Due to EDC’s uncertainty in regards to the timing of a
successful sale transaction, $1.5 million of carrying costs remain accrued as
part of the liquidation accrual as of June 30, 2010.
|
|
June
30,
|
|
|
2010
|
|
Payable
to Universal - undiscounted
|
1,983
|
|
Employee
Loans
|
1,365
|
|
Subtotal
|
3,348
|
|
Less:
Unamortized Discount
|
(290)
|
|
Total
Debt
|
$ 3,058
|
EDCI
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS IN LIQUIDATION (Liquidation
Basis)
(Tabular
Amounts in Thousands)
(Unaudited)
Universal
Under the
terms of the supply contracts that EDC entered into as part of EDC’s purchase of
Universal’s European disc manufacturing and distribution operation, EDC is
obligated to pay to Universal deferred acquisition
payments. Scheduled payments of $0.5 million are due on December 31
for the next five years, ending in 2014.
Employee
Loans
Employees
of EDC’s European Operations participate in a government regulated employee
savings plan whereby a portion of their earnings are held by us in savings
accounts and are therefore treated as loans to us. These loans are for six-year
terms and are signed annually in January. The loans, including all accumulated
interest, are paid at the end of the term. Interest rates are determined prior
to the loans being assigned and remain constant for the six-year period. In
addition to interest, each participant receives a grant of approximately €0.1
million ($0.2 million), which is included in the employee loan balance. The
value of the loans outstanding at June 30, 2010 totaled $1.4 million. Funds for
these loans are held in escrow as restricted cash. See Note 5. These loans are
100% guaranteed by several different banks and are not convertible. Under
certain hardship conditions the employee loan may be paid out
early. The employee savings plan is closed to new
entrants.
During
the six months ended June 30, 2010, the amount of gross unrecognized tax
benefits was reduced by $2.7 million primarily due to the expiration of certain
statutes of limitation. Of the unrecognized tax benefits recorded as
of June 30, 2010, it is anticipated that over the next 12 months various
tax-related statutes of limitation will expire which will cause a $0.1 million
reduction in the unrecognized tax benefits and thus net assets in liquidation
will increase by a like amount. These unrecognized tax benefits
relate primarily to transfer pricing.
|
12.
|
Employee
Benefit Plans
|
Post
retirement benefit obligation consisted of the following
components:
|
|
June
30,
|
|
|
2010
|
|
Pension
obligation
|
27,046
|
|
Post-retirement
health care benefit costs
|
254
|
|
Long-term
service award plan
|
2,508
|
|
Early
retirement program
|
2,253
|
|
|
32,061
|
(a)
Pension Obligations
As a
result of the May 31, 2005 acquisition of EDC, certain obligations of various
defined benefit plans were assumed. Employees and managing directors of EDC’s
European Operations participate in the pension plans. These benefits are based
on pay, years of service and age. As of June 30, 2010, EDC has
accrued approximately $26.6 million related to this plan. EDCI has a pension
plan which covers former employees of EDCI’s Messaging business. The
plans are not funded and therefore have no plan assets. These pension plans are
closed to new entrants.
(b)
Long-term service award plan
EDC
maintains a long-term service awards program, a defined benefit plan, for
qualified employees of EDC’s European Operation, which allows qualified
employees to receive a lump sum service gratuity (“Jubilee”) payment once they
have reached a certain number of years of service. The Jubilee payment is
determined based on 1/12
th
of
the employee’s annual salary. A portion of the long-term service
obligations is funded by Universal (see Note 7).
(c)
Early Retirement Program
In
Germany, Altersteilzeit (“ATZ”) is an early retirement program established by
law, and is designed to create an incentive for employees, within a certain age
group, to transition from (full or part-time) employment into retirement before
their legal retirement age. The German government provides a subsidy to
employers taking advantage of this legislation for bonuses paid to the employee
and the additional contributions paid into the German government pension scheme
under an ATZ arrangement for a maximum of six years. To receive this subsidy, an
employer must meet certain criteria established by the German government.
EDC accrues for ATZ based
on current and future contracts.
(d)
Post retirement health care benefit obligations
EDCI
provides certain U.S. employees of its former Messaging business with certain
health care benefits upon retirement assuming the employees met minimum age and
service requirements as of the date of disposition of the Messaging business.
EDCI’s policy is to fund benefits as they become due. Consequently, the plan has
no assets. For non-funded plans, the expected employer contributions equal the
benefit payments. The plan is closed to new
participants. EDCI has accrued approximately $0.3 million related to
this pension plan.
EDCI
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS IN LIQUIDATION (Liquidation
Basis)
(Tabular
Amounts in Thousands)
(Unaudited)
|
13.
|
Commitments
and Contingencies
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Litigation
In
addition to the legal proceedings discussed below, we are, from time to time,
involved in various disputes and legal actions related to our business
operations. While no assurance can be given regarding the outcome of these
matters, based on information currently available, we believe that the
resolution of these matters will not have a material adverse effect on our
financial position or results of our future operations.
Arbitration Claim under the
International Distribution Agreement.
On
February 27, 2009, EDC, at its election, provided notice to Universal
International Music (“UIM”) of its demand to arbitrate certain allegations by
UIM, which EDC believes lack any merit, that EDC had triggered
certain “Key Failures” (or defaults) as defined in the International
Distribution Agreement between EDC and UIM dated May 31, 2005 as amended (the
“International Distribution Agreement”). UIM is part of Universal,
which is EDC’s largest customer. EDC’s demand to arbitrate was in
response to a notice from UIM dated February 19, 2009 alleging certain Key
Failures related to EDC’s performance levels in July through December of
2008. In connection with the February 19, 2009 notice, UIM withdrew a
prior Failure Notice issued on December 11, 2008, which notice EDC had also
objected to and which EDC and UIM had been attempting to resolve in an amicable
manner. The February 19, 2009 notice from UIM purported to be a
substitution and restatement of many of the same underlying allegations set
forth in the withdrawn December 11, 2008 notice, EDC determined that further
attempts to resolve the matter amicably would not be successful. Accordingly,
EDC determined to proceed to binding arbitration under the International
Distribution Agreement and a hearing occurred in June 2010, although a final
decision has not yet been rendered.
Under the
International Distribution Agreement, EDC has various service level obligations
it is required to maintain. Repeated failures to meet those service level
obligations can result in Key Failures. In its February 19, 2009
notice, UIM alleged that EDC had incurred two Key Failures. EDC
believes neither of the Key Failures is valid. Even if a Key Failure
had been validly established by UIM, EDC is generally provided with a
contractual opportunity to cure such, although as described below, based upon
the nature of the Key Failures alleged by UIM and the timeframes in which they
occurred, EDC would also face penalties for those two Key Failures – if they are
both held to be valid – even if both Key Failures were cured.
There are
various penalties for both cured and uncured Key Failures. Depending
on whether one or two Key Failures were found valid at arbitration, and whether
EDC were able to cure any such valid Key Failures, EDC could face the
following: Upon each of the first two uncured Key Failures occurring
within a five-year period, UIM has the right to source 30% of its distribution
requirements under the International Distribution Agreement and / or 30% of its
manufacturing requirements under the International Manufacturing Agreement
between UIM and EDC dated May 31, 2005 (together with the International
Distribution Agreement, the “Supply Agreements”) from a third party for a period
of 12 months or receive liquidated damages in the amount of $0.6
million as a credit against its payments under such contract. In
addition, based upon the nature of the Key Failures alleged by UIM and the
timeframes in which they occurred, EDC would also face penalties for those two
Key Failures – if they are both held to be valid – even if both Key Failures
were cured. The penalty in such an event, for both uncured Key
Failures combined, would be the right by UIM to source 30% of its requirements
under the Supply Agreements from a third party for a period of 12 months or
receive liquidated damages in the amount of approximately $0.6 million
as a credit against its
payments under such contract. EDC expects that UIM's entire
contractually committed distribution and manufacturing volume under the Supply
Agreements will represent approximately 88% of EDC's total manufacturing and
distribution volume in 2010.
Upon the
occurrence of additional Key Failures (which UIM has not asserted), additional
penalties apply as follows. Upon the occurrence of three Key Failures within a
five year period of the same category, UIM has the right to either source 100%
of its distribution requirements under the International Distribution Agreement
from a third party for the remaining term of the contract, terminate such
contract outright or receive liquidated damages in the amount of $1.9 million as
a credit against its payments under such contract. Upon the
occurrence of four Key Failures within a five year period of any category, UIM
has the right to either source 30% of its distribution requirements under the
International Distribution Agreement from a third party for a period of 12
months, terminate such contract outright or receive liquidated damages in the
amount of $0.6 million as a credit against its payments under such
contract. The occurrence of five Key Failures within a five year
period of any category, whether cured or uncured, would provide UIM with the
same damages as three Key Failures within a five year period of the same
category.
As
described above, EDC continues to believe at this stage of the arbitration that
no Key Failures have occurred and intends to continue to vigorously defend its
position in arbitration. If EDC is unsuccessful in arbitration, the alleged Key
Failures could result in substantial liquidated damages or the loss of volumes
that, based on the high fixed cost nature of EDC’s distribution operations,
would have a material adverse effect on results of operations and cash flows,
however, an amount cannot be estimated at this time. EDC may also be successful
in its claim that no Key Failures have occurred, but the arbitration panel could
reject EDC’s interpretation of the underlying service levels as they are
applicable to future performance, increasing the risk of future potential Key
Failures. As described above, subsequent Key Failures – even if cured – could
result in even greater damages and the ultimate right of UIM to terminate the
International Distribution Agreement.
Anticipatory Breach of Manufacturing
and Related Service Agreement Claim.
On July 23, 2009, UIM
provided notice to EDC of its claim that EDC was in anticipatory breach of the
Manufacturing and Related Services Agreement between EDC and UIM dated May
31
st
,
2005, as amended (the “Manufacturing Agreement”) by taking steps to close EDC’s
Blackburn facility. UIM claimed that the maintenance by EDC of a
facility in the United Kingdom to service UIM’s UK manufacturing requirements is
a “fundamental implied term of the Manufacturing Agreement.” As a
result, UIM claimed that EDC forfeited its right to continue to service 100% of
UIM’s UK manufacturing requirements, and UIM is entitled to sub-contract the
entirety of such volume to a UK - located third party of its
choice. UIM at that time did not elect to enforce that remedy but
reserved the right to do so by written notice. On July 28, 2009, EDC
sent written notice to UIM forcefully refuting its claims and also asserting
that UIM is attempting to imply a term into the Manufacturing Agreement that has
been expressly dealt with in amendments to the agreement providing that EDC
“will use its commercially reasonable endeavors to manufacture the majority of
UIM’s Manufacturing Requirements for the UK at the Blackburn
Facility.” As previously disclosed in March 2009, management of EDC
determined and EDC’s Board of Directors confirmed that it was no longer
commercially reasonable to continue operating the Blackburn manufacturing
facility. EDC stated in its July 28, 2009 response that UIM’s claims
in its July 23, 2009 letter constitute a gross violation of the covenant of good
faith and fair dealing implied into the Manufacturing Agreement. EDC
further provided notice to UIM that if UIM did not withdraw its claims in the
July 23, 2009 notice within seven days of EDC’s July 28, 2009 response, it would
refer this matter to arbitration seeking a declaration that there is no breach
by EDC of the Manufacturing Agreement as a result of the Blackburn – Hannover
Consolidation and seeking damages for the losses incurred by EDC as a direct
result of the July 23, 2009 letter and the continued breaches by UIM of the
implied covenant of good faith and fair dealing. UIM did not withdraw
its claims, and EDC therefore submitted the matter to arbitration in August
2009. The arbitration tribunal was finalized in April 2010 and the
hearing is scheduled for February, 2011.
EDCI
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS IN LIQUIDATION (Liquidation
Basis)
(Tabular
Amounts in Thousands)
(Unaudited)
In
subsequent correspondence related to this matter, UIM indicated that it would
begin to order 40% of its UK manufacturing requirements from third party
manufacturers in 2010, while maintaining its claim that EDC had forfeited its
right to continue to service 100% of those UK requirements. UIM also advanced
additional theories under which EDC's closure of the Blackburn facility and the
manufacture of UIM's UK volume out of EDC's Hannover facility would constitute a
breach of the Manufacturing Agreement - including that EDC would be unable to
meet its contractual service level obligations ("SLAs") for UIM UK requirements
manufactured out of Hannover - and EDC's actions constitute a material breach of
the Manufacturing Agreement entitling UIM to terminate the entire Manufacturing
Agreement. EDC responded that these additional theories also lacked merit, that
EDC could satisfy the SLAs and warned UIM of the legal consequences of breaching
the Manufacturing Agreement by procuring 40% of its UK requirements from third
parties. However, on January 14, 2010
EDC
confirmed that UIM had begun to order certain of its UK requirements from third
parties.
In
consultation with counsel, EDC continues to believe UIM's claims and remedies
lack merit. In particular, the Manufacturing Agreement expressly provides
that EDC is only obliged to use its "commercially reasonable endeavors" to
manufacture the majority of UIM's UK requirements at its Blackburn facility, and
as previously disclosed in March 2009, at that time management of EDC determined
and EDC's Board of Directors confirmed that it was no longer commercially
reasonable to continue operating the Blackburn manufacturing
facility. Further, EDC believes it can meet all SLAs for UIM's UK
requirements manufactured from its Hannover facility and believes that certain
of the UK requirements ordered by UIM were in fact ordered from Austria, a
location that is geographically more distant from the UK than EDC’s Hannover
facility. However, if UIM were successful in its claims in arbitration EDC would
face material and adverse consequences. The loss of 40% of UIM's UK
requirements, based on the high fixed cost nature of EDC's manufacturing
operations, would have a material adverse effect on its operating results. If
UIM were to prevail in its new argument that EDC's breach provides UIM with the
right to terminate the entire Manufacturing Agreement and UIM so elected, EDC
would lose substantially all of its contractually committed manufacturing
business. EDC expects that UIM's entire contractually committed manufacturing
volume will represent approximately 75% of EDC's total manufacturing volume in
2010, that the UK requirements account for approximately 20% of EDC's total
manufacturing volume, and thus 40% of the UK requirements account for
approximately 8% of EDC's total manufacturing volume.
EDC
believes UIM has breached its obligations to EDC with regard to certain of its
UK requirements, and until resolved UIM will likely continue that breach by
procuring up to 40% of its UK requirements from third parties, as it experienced
in the quarter ended June 30, 2010. EDC will seek to recover those losses, other
losses and punitive damages from UIM in arbitration. However, UIM's actions will
also force EDC to evaluate and develop other cost-reduction measures in Hannover
to mitigate those damages in the short run.
EDC does
not believe UIM’s claim has merit and intends to vigorously defend and prosecute
its position in arbitration but at this early stage in these matters, EDC is not
able to assess the likelihood of a favorable outcome. However, if UIM
were successful in its claim and enforced its alleged remedy, EDC could suffer
loss of volumes that, based on the high fixed cost nature of EDC’s manufacturing
operations, would have a material adverse effect on its
profitability.
Other UIM
Matters.
In April 2010, UIM indicated to EDC its intent to
procure certain units currently serviced in accordance with the Distribution or
Manufacturing Agreements, as applicable, from third parties before the end of
2010. EDC believes UIM’s plans are to remove approximately 40% of the
annual distribution volume EDC previously has provided to
UIM. However, based on correspondence from UIM citing their legal
grounds for their plan, and after consultation with counsel, EDC believes that
substantially all of such units are part of the contractually committed volumes
under the appropriate agreements, and thus EDC plans to pursue legal remedies
should UIM order such units from third parties, including seeking injunctive
relief as well as by pursuing arbitration. In addition, EDC engaged
in discussions with UIM to determine if there is a commercial solution, but
those discussions were unsuccessful. As the removal of
40% of UIM’s distribution volume constitutes approximately 37% of EDC’s overall
distribution volume, if UIM began to order such volumes from third parties, and
based on the high fixed cost nature of EDC’s operations, UIM’s actions could
have a material adverse effect on EDC’s profitability.
On August
4, 2010, EDC’s Hannover, Germany subsidiary (“EDC Hannover”) initiated interim
injunction proceedings before the District Court in Utrecht, the Netherlands,
requesting an order to prohibit UIM from procuring any of the aforementioned NDU
business from a third party. The hearing is set for August 18, 2010 and EDC
expects that a judgment for the interim proceedings will be rendered
approximately two weeks after the hearing. At this stage of the
proceedings, the Company is not able to assess the likelihood of a favorable
outcome on either the Netherlands injunction or any subsequent arbitration or
legal proceedings.
Patent
Litigation
: In March 2008, EDC was served as a defendant
in an action by Koninklijke Philips Electronics N. V. and U.S. Philips
Corporation, pending in the U. S. District Court for the Eastern District
of Texas, Beaumont Division, filed on January 18, 2008. This complaint was
dismissed without prejudice on April 30, 2008 and a substantially similar action
was filed in the U.S. District Court for the Southern District of New York (the
“NY Complaint”) on April 30, 2008. In the NY Complaint, plaintiffs
allege breach of contract for failure to pay royalties and patent infringement
and claim unspecified damages and, in addition to naming EDC and the Company,
named James Caparro and Jordan Copland as defendants in their capacities as
former CEOs of EDC. In 2009, the Court denied plaintiffs’ motion for
a summary judgment that EDC breached the contract. Pending before the
Court was a motion for summary judgment that there is no patent
infringement. The Court terminated the motion for summary judgment
pending a decision on claim construction, a hearing for which was held in
December 2009 and a decision for which was rendered in May 2010, and as a result
of which EDC plans to submit a modified motion for judgment accounting for the
court’s claim construction. On January 22, 2010, the Court dismissed
the action against the individual defendants, Messrs. Caparro and
Copland. In April of 2010, the defendants objected to a request by
Philips to amend its complaint to add additional claims (including allegations
of breach of contract, and new claims for fraud in the inducement, unjust
enrichment, tortuous interference with business relations and civil conspiracy)
a decision for which was rendered in May 2010 stating that Phillips could not
amend its complaint to add new claims but could add specificity to its
previously pled breach of contract allegations, which Phillips has now done. On
July 12, 2010, Phillips also filed a complaint against EDC in the New York State
court making newly alleged claims for breach of contract, fraud in the
inducement and unjust enrichment, essentially the same claims the federal court
did not permit Phillips to introduce by amendment. EDC does not
believe the complaint, including the claims Philips added through the
amendment motion or the New York State Court complaint, have merit, intends to
vigorously defend these actions and believes it has indemnification
rights under certain contractual arrangements covering a substantial
portion of the alleged infringement, but at this early stage in the matter, EDC
is not able to assess the likelihood of a favorable outcome. The federal case is
still pending and discovery and motion practice are continuing, and EDC is
evaluating its response to the New York State Court complaint.
14. Restructuring
On June
15, 2010, the Board of Directors of EDC approved a restructuring plan (the
“Restructuring Plan”) related to the manufacturing and logistics operations of
its EDC Hannover subsidiary, subject to certain specified
conditions. During the second quarter of 2010, management
representatives of EDC Hannover completed a comprehensive review of the cost
reduction and sales growth potential of the EDC Hannover operations and
commenced consultations with the workers council and chemical industry workers
union regarding the Restructuring Plan. As part of these
consultations, management presented its plan to streamline the organizational
structure and to initiate several special projects to increase efficiencies in
manufacturing, logistics and in business support areas. Negotiations
with management representatives of EDC Hannover’s unionized workforce and the
chemical industry workers union are ongoing and will likely continue over the
upcoming months. If the Restructuring Plan is implemented, we
estimate that approximately $8.3 million in severance costs could be
incurred. Based on current facts and circumstances and the uncertainty in
regards to the ultimate implementation of the Restructuring Plan, no accrual of
costs related to the Restructuring Plan have been made.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We, from
time to time, make “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements reflect the
expectations of management at the time such statements are made. The reader can
identify such forward-looking statements by the use of words such as “may,”
“will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “intend(s),” “potential,” “continue,” or the negative of such terms,
or other comparable terminology. Forward-looking statements also include the
assumptions underlying or relating to any of the foregoing
statements.
These
forward-looking statements are not guarantees of future performance and involve
risks, uncertainties and assumptions that are difficult to predict. All
forward-looking statements included in this quarterly report on Form 10-Q are
based on information available to us on the date hereof. We assume no obligation
to update any forward-looking statements and do not intend to do
so.
Overview
On
September 9, 2009, our Board of Directors unanimously approved recommending a
dissolution process to EDCI’s stockholders, and on October 14, 2009 approved the
final Plan of Dissolution. At a Special Meeting held on January 7, 2010 the
stockholders of EDCI approved the voluntary dissolution and liquidation of EDCI
pursuant to the Plan of Dissolution. Delaware law provides that a corporation
may dissolve upon the recommendation of the Board of Directors of the
corporation, followed by the approval of its stockholders. As the Plan of
Dissolution was approved by the requisite vote of our stockholders at the
Special Meeting, we filed a certificate of dissolution with the Delaware
Secretary of State in January 2010.
The Plan
of Dissolution provides for the voluntary dissolution, liquidation and winding
up of EDCI. As of January 2010, we have ceased all of EDCI’s business
activities except for those relating to winding up EDCI’s business and affairs
during a minimum three-year period required under Delaware law, including, but
not limited to, gradually settling and closing its business, prosecuting and
defending suits by or against EDCI, seeking to convert EDCI’s assets into cash
or cash equivalents, discharging or making provision for discharging EDCI’s
known and unknown liabilities, making cash distributions to our stockholders,
withdrawing from all jurisdictions in which EDCI is qualified to do business
and, if EDCI is unable to convert any assets to cash or cash equivalents by the
end of the three-year period, distributing EDCI’s remaining assets in-kind among
our stockholders according to their interests or placing them in a liquidating
trust for the benefit of our stockholders, and, subject to statutory
limitations, taking all other actions necessary to wind up the Company’s
business and affairs.
EDCI’s
ownership of 97.99% of the membership units of EDC is an asset of EDCI that is
subject to the Plan of Dissolution. The Plan of Dissolution does not
directly involve the operating business, assets, liabilities or corporate
existence of EDC and its subsidiaries, and EDC plans to continue to honor the
terms of its long term customer agreement that expires in May
2015. Beginning in January 2010, EDCI’s consolidated financials are
required to reflect the value of EDC’s assets and liabilities under liquidation
accounting and it should be noted that during EDCI’s three-year dissolution
period, EDCI will continue to seek value for its investment in EDC by exploring
strategic alternatives and seeking, as appropriate, cash distributions, subject
applicable legal requirements. While EDC is currently examining the
possibility of making a distribution, including from EDC's European Operations
to EDCI, such a distribution remains subject to the future operating performance
of EDC’s European Operations and compliance with German law and tax
considerations, and the distribution of any cash from EDC to EDCI is subject to
additional security obligations and additional U.S. legal and tax
considerations. As previously disclosed, the cooperation of Universal, EDC’s
largest customer, is critical to any sale of EDC’s European Operations and based
on negotiations with a potential acquirer during the fourth quarter of 2009 and
first quarter of 2010, EDC does not believe Universal will cooperate on
acceptable terms with any such transaction. As a result, any
transaction involving the sale of EDC’s European Operations is
unlikely. If EDCI continues to own any interest in EDC at the end of
the three year dissolution period, EDCI anticipates transferring such interests
to a liquidating trust, for the benefit of our stockholders.
On
February 1, 2010, pursuant to the Company’s Plan of Dissolution, EDCI made an
initial dissolution distribution of $3.12 per share of its common
stock. In aggregate, approximately $21.0 million of EDCI’s cash was
returned to its shareholders. On July 30, 2010, EDCI made an
additional dissolution distribution of $1.56 per share of its common stock. In
aggregate, approximately $10.5 million of EDCI’s cash was returned to its
shareholders as part of this second dissolution distribution.
Results
of Operations
Consolidated
statements of operations and statement of cash flows are presented on a going
concern basis of accounting and therefore only include results for the 2009
period and as a result, no comparative discussion is presented.
Financial
Condition and Liquidity
Overview
At June
30, 2010, we had cash and cash equivalents totaling $68.4 million, of which
$29.4 million was cash held by the EDCI and $38.9 million was cash held at EDC.
At June 30, 2010, the principal sources of liquidity were our unrestricted cash
and cash equivalents. On July 30, 2010, EDCI made a dissolution
distribution of $1.56 per share of its common stock. In aggregate, approximately
$10.5 million of EDCI’s cash was returned to its shareholders as part of this
second dissolution distribution. At June 30, 2010, EDCI had
investments of $0.9 million in one auction-rate security.
EDCI
plans to use its cash and cash equivalents in connection with the Plan of
Dissolution. EDC expects to use its cash and cash equivalents for
working capital and other general corporate purposes. On June 1,
2010, the restrictions encumbering approximately $18.9 million of previously
restricted cash held by EDC expired and the cash was released to
EDC. We are currently evaluating all options, subject to compliance
with German law and tax considerations and additional security obligations and
U.S. legal and tax considerations, in regards to the future usage of the portion
of the restricted cash that was released from escrow on June 1,
2010. We believe that the liquidity position EDC is adequate to fund
their operating needs in the near term and to provide EDC with flexibility to
respond to further changes in its business environment. The challenges of the
present business environment and disagreements with its primary customer may
cause a material reduction in EDC’s liquidity as a result of an adverse change
in its cash flow from operations or its access to credit or other
capital. In addition, EDCI does not guarantee any of the liabilities
of EDC.
Capital
Expenditures
Capital
expenditures amounted to approximately $1.6 million in the six months ended June
30, 2010 and are anticipated to be approximately $1.3 million for the remaining
six months of 2010. All capital expenditures in 2010 relate to EDC’s
European Operations and consist primarily of normal equipment and facility,
replacement and upgrades and efficiency improvements.
Update
on Plan of Dissolution
EDCI
expects to make further distributions to its shareholders of its remaining cash
and investments, less any amount reserved to cover ongoing expenses during the
three-year dissolution period and any amounts reserved for, known and unknown
contingent liabilities. The amounts reserved will be based on a
determination by the board of directors, including consultation with management
and outside experts as reasonably required, if the board of directors determines
that it is advisable to retain such experts, and a review of, among other
things, our estimated known and unknown contingent liabilities and our estimated
ongoing expenses, including, but not limited to, payroll, legal expenses,
regulatory filings and other miscellaneous expenses. Each shareholder
will receive his or her pro rata share of any future distribution based on the
number of shares held at the time of the record date for such
distribution.
The range
of dissolution proceeds in the Company’s proxy statement (the “Proxy Statement”)
filed November 16, 2009 did not include any estimates as to potential
distributions from EDC due to the uncertainty of the value of EDCI’s investment
in EDC at that time. However, certain developments have occurred subsequent to
the filing of our Proxy Statement which has increased EDCI’s confidence in its
ability to ultimately obtain value from its investment in EDC. The components
and circumstances related to EDCI’s updated assessment of its ability to obtain
value from its investment in EDC are as follows:
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EDC
has exceeded its original expectations in regards to managing the sale of
its Entertainment Distribution Company (USA) LLC (“EDC USA”) subsidiary in
December 2009 and the related wind down of EDC’s U.S. operations, which
has positioned EDC to realize distributions related to the liquidation
value of certain net assets which remain post-sale. EDC
currently expects that EDC USA could distribute up to approximately $7.3
million of liquidating proceeds up to EDC, of which the majority is
related to EDC’s estimate of net proceeds which EDC expects to receive
upon the sale of EDC USA’s Kings Mountain Facility and other remaining
cash left at EDC USA after the settlement of certain contingencies which
are currently reserved for.
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EDC
has effectively managed the shutdown of its Blackburn, UK manufacturing
operation (“EDC Blackburn”) such that EDC expects to ultimately obtain up
to $4.7 million in liquidating distributions from EDC Blackburn as part of
the liquidation. On June 3, 2010, EDC Blackburn made an initial
liquidation distribution of $3.2 million to EDC and expects that the
remaining estimated liquidating proceeds of approximately $1.5 million
will be distributed to EDC upon the settlement of all remaining
liabilities, the receipt of certain tax refunds and the completion of the
liquidation process. We expect those amounts would be
distributed from EDC Blackburn to EDC within 12
months.
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EDC
notes that its EDC Hannover remains cash flow positive and that EDC
Hannover management continues to negotiate a Restructuring Plan which
could position EDC Hannover to be more competitive. On June 22,
2010 EDC Hannover repaid a $3.7 million note to EDC and is exploring the
potential of making future nominal dividends from EDC GmbH to EDC, subject
to the future operating performance of EDC GmbH and compliance with German
legal and tax considerations, as well as taking into consideration any
reserves EDC may need to take should its current assumptions as to those
eventualities be incorrect.
|
EDCI
notes that in addition to the conditions set forth above there are several
obstacles to overcome in order for EDC to receive those distributions from its
subsidiaries, and in turn for EDC to distribute the proceeds to EDCI as detailed
above. In particular, any distribution of cash from EDC to EDCI is subject to
certain security obligations covering indemnity obligations resulting from the
sale of EDC’s U.S. assets in December 2009, as a result of which any, proceeds
obtained by EDCI from EDC must be held as cash collateral until at least January
1, 2012 (and later to the extent a claim is filed during that period) to satisfy
those indemnification obligations. However, on June 30, 2010, EDC’s
indemnity obligations with regard to many of the representations and warranties
related to that sale have ceased, and EDC will only be responsible for
indemnifying the purchaser for a breach of fundamental representations (EDC’s
proper organization and authority to sell the assets); taxes; employment
benefits and labor matters; fraudulent conveyance; post-closing covenants and
excluded liabilities; and environmental matters. In addition, similar to EDCI,
EDC may need to establish its own contingency reserves for contingent
liabilities before making such distributions to EDCI, or obtain indemnification
from EDCI for any such contingencies.
On July
19, 2010, a special committee consisting of independent directors (the “Special
Committee”) of EDCI’s Board of Directors recommended, and EDCI’s
Board of Directors approved, a plan to cease the registration of the Company’s
common stock under the Securities Exchange Act of 1934 (the “Exchange Act”), end
its obligation to file reports with the Securities and Exchange Commission
(“SEC”), and withdraw its shares of common stock from listing on the NASDAQ
Stock Market. This would be accomplished through a 1-for-1,400
reverse stock split of EDCI’s common stock to be followed immediately by a
1,400-for-1 forward split. In the stock split transaction,
shareholders with fewer than 1,400 shares of EDCI common stock held of record
immediately before the split transaction would receive cash payments in lieu of
fractional shares upon consummation of the reverse split. The Special
Committee recommended and the Board approved that the value to be paid to those
shareholders should be based on a then current $5.00 per share price, which
would be equal to $3.44 per share after the $1.56 per share distribution paid on
July 30, 2010. Accordingly, the proceeds paid to the cashed-out
shareholders at the time of the reverse split would be $3.44 per
share.
The
Special Committee has received a fairness opinion from its independent financial
advisor, the investment banking firm of Coady Diemar Partners, LLC, that the
cash consideration of $3.44 per share to be paid to shareholders who are
cashed-out in the reverse split is fair from a financial point of view to such
shareholders. The proposed split transaction is subject to approval
by the holders of a majority of the issued and outstanding shares of EDCI’s
common stock.
The Board
of Directors has reserved $4.0 million of additional dissolution proceeds to
implement the reverse stock split and pay the consideration to those
shareholders being cashed-out in the reverse split. Currently, EDCI
only anticipates cashing out approximately 600,000 shares, but is reserving $4.0
million in the event a greater number of shares are required to be cashed out
based on the final record date for the reverse split. Shareholders holding 1,400
or more shares of EDCI common stock immediately before the split transaction
will not receive a cash payment and will continue to hold the same number of
shares after completion of the split transaction. The Board of
Directors has reserved the right to abandon the proposed stock splits at any
time prior to the completion of the proposed transaction if it believes the
split transaction is no longer in the best interests of the Company or its
shareholders. If the split transaction is completed, EDCI expects that the
number of its record shareholders will be reduced from its current level of
approximately 1,300 down to fewer than 200, at which point EDCI will be eligible
to deregister its shares of common stock under the Exchange Act. As a
result, EDCI would no longer be required to file periodic reports, proxy
statements, and other information with the SEC, and EDCI’s common stock will
cease to be eligible for trading on the NASDAQ.
EDCI is
currently preparing proxy materials and anticipates filing a preliminary proxy
statement with the SEC in mid-August 2010 and intends to hold a special meeting
of EDCI’s shareholders during the fourth quarter of 2010. Subject to
regulatory clearance of the Company’s SEC filings relating to the split
transaction and receipt of shareholder approval, it is anticipated that the
proposed transaction will become effective shortly after the special meeting, at
which time EDCI will terminate the registration of its common stock with the
SEC. Any of the $4.0 million not used in the reverse split, is
intended either to be distributed pro-rata to shareholders at that time as part
of a further dissolution payment or distributed pro-rata to shareholders after
consummation of the reverse split.
On July
30, 2010, EDCI made a dissolution distribution of $1.56 per share of its common
stock. In aggregate, approximately $10.5 million of EDCI’s cash was returned to
its shareholders as part of this second dissolution distribution.
EDC
Business Update
Having
completed the sale and wind down of EDC’s U.S. operations and the
Blackburn-Hannover consolidation, the sole EDC focus has shifted to maximizing
the profitability at its remaining international operations in Hannover,
Germany. While the Blackburn-Hannover Consolidation will improve
profitability at our remaining Hannover facility, we anticipate decline rates of
CD and DVD volumes in Europe in the 10-15% range for 2010. As in
2009, EDC will continue its cost-savings initiatives and plan to right size
operating capacity in 2010 to deal with forecasted and actual volume declines.
On June 15, 2010, the Board of Directors of EDC approved a restructuring plan
(the “Restructuring Plan”) related to the manufacturing and logistics operations
of its Hannover, Germany (“EDC Hannover”) subsidiary, subject to certain
specified conditions. During the second quarter of 2010, management
representatives of EDC Hannover completed a comprehensive review of the cost
reduction and sales growth potential of the EDC Hannover operations and
commenced consultations with the workers council and chemical industry workers
union regarding the Restructuring Plan. As part of these
consultations, management presented its plan to streamline the organizational
structure and to initiate several special projects to increase efficiencies in
manufacturing, logistics and in business support areas. Negotiations
with management representatives of EDC Hannover’s unionized workforce and the
chemical industry workers union are ongoing and will likely continue over the
upcoming months. If the Restructuring Plan is implemented, we
estimate that approximately $8.3 million in severance costs could be
incurred. Based on current facts and circumstances and the uncertainty in
regards to the ultimate implementation of the Restructuring Plan, no accrual of
costs related to the Restructuring Plan have been made.
In
January 2010, Universal began to place a portion of its UK manufacturing
requirements with another manufacturer. EDC has placed Universal on
notice that it will seek damages for this action via the ongoing arbitration
process. See “Notes to Consolidated Financial Statements – Note 13. Commitments
and Contingencies – Litigation”.
Critical
Accounting Policies and Estimates
For
financial reporting purposes, EDCI adopted the liquidation basis of accounting
effective January 1, 2010. The Plan of Dissolution was approved by the Company’s
shareholders on January 7, 2010. Operating results during the stub period ended
January 7, 2010 was nominal. Under the liquidation basis of accounting, the
principal financial statements required are a Statement of Net Assets in
Liquidation and a Statement of Changes in Net Assets in Liquidation. Further,
under the liquidation basis of accounting, assets are stated at their estimated
net realizable value, which is the non-discounted amount of cash, or its
equivalent, into which an asset is expected to be converted in the due course of
business less direct costs, while liabilities are reported at their estimated
settlement amount, which is the non-discounted amounts of cash, or its
equivalent, expected to be paid to liquidate an obligation in the due course of
business, including direct costs. Additionally, under the liquidation basis of
accounting, we are required to establish a reserve for all future estimated
general and administrative expenses and other costs expected to be incurred
during the liquidation period. The reserve for these estimated expenses includes
primarily accruals including employee costs (payroll and benefits), facilities,
professional services and litigation costs, and corporate expenses (insurance,
directors’ fees and statutory fees). Further, the estimates of our costs will
vary with the length of time necessary to complete the Plan of Dissolution.
These estimates will be periodically reviewed and adjusted as appropriate. There
can be no assurance that these estimated values will be realized. The valuation
of assets at their net realizable value and liabilities at their anticipated
settlement amount represent estimates, based on present facts and circumstances,
of the net realizable value of the assets and the costs associated with carrying
out the Plan of Dissolution. The actual values and costs associated with
carrying out the Plan of Dissolution may differ from amounts reflected in the
accompanying financial statements because of the plan’s inherent
uncertainty. These differences may be material. In particular, the
net asset value attributed to the Company’s EDC subsidiary in the accompanying
Statement of Net Assets in Liquidation is subject to numerous uncertainties and
the ultimate value of EDC to its shareholders in liquidation may be
substantially different from that as presented herein. Further, the estimates of
our costs will vary with the length of time necessary to complete the Plan of
Dissolution. Accordingly, it is not possible to predict with certainty the
timing or aggregate amount which will ultimately be distributed to stockholders
and no assurance can be given that the distributions will equal or exceed the
estimate presented in the accompanying Statement of Net Assets in
Liquidation.
ITEM
4. CONTROLS AND PROCEDURES
As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Principal Financial Officer, of the effectiveness of
the design and operation of our “disclosure controls and procedures” (as defined
in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange
Act”)) pursuant to Rule 13a-15 of the Exchange Act. It should be noted that
any system of controls, however well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of the system are
met. Based on that evaluation, our management, including our Chief Executive
Officer, concluded that our disclosure controls and procedures were effective as
of June 30, 2010.
During
the quarter ended June 30, 2010, there were no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
PART
II – OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
See Note
13 in Part I, Item 1, which discusses material pending legal
proceedings to which the Company or its subsidiaries is party and is
incorporated herein by reference.
ITEM 6. EXHIBITS
The
exhibits required to be filed as a part of this quarterly report on Form 10-Q
are listed in the accompanying Exhibit Index which is hereby incorporated
by reference
.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
EDCI
HOLDINGS, INC.
Date:
August 10, 2010
|
|
By /s/ Clarke H.
Bailey
Chief
Executive Officer
|
|
|
Treasurer
(Principal Financial
Officer)
|
19
EDCI
HOLDINGS, INC. AND SUBSIDIARIES
EXHIBIT
INDEX
Exhibit
Number
Description
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a – 14(a)/15d – 14(a),
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer pursuant to Rule 13a – 14(a)/15d – 14(a),
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
32.2
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
20
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