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| REMC.OB > SEC Filings for REMC.OB > Form 10-Q on 15-Dec-2008 | All Recent SEC Filings |
15-Dec-2008
Quarterly Report
The following discussion should be read in conjunction with our financial statements and notes appearing elsewhere in this Form 10-Q. Such financial statements and information have been prepared to reflect our net assets in liquidation as of October 31, 2008 and January 31, 2008, together with changes in net assets for the three and nine months ended October 31, 2008 and November 2, 2007, respectively.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements
represent our current expectations, assumptions, estimates and projections about
REMEC. These forward-looking statements include estimates of the net assets of
the Company in liquidation, statements about the amount and timing of the
payment of additional liquidating distributions and statements about the
Company's operating costs through final dissolution, including the additional
wind up costs, which will vary with the length of time it operates. The
forward-looking statements in this report are subject to a number of other
significant risks and uncertainties, and there can be no assurance that the
expectations reflected in those statements will be realized or achieved. Such
risks and uncertainties include, without limitation, possible contingent
liabilities and post-closing indemnification and other obligations arising from
the sale of the Company's remaining assets; the risk that federal, state or
local taxing authorities will audit the tax returns filed by the Company
resulting in additional taxes being assessed against the Company; the risk that
income, sales, use and other tax returns filed by the Company prior to the
divestiture of its business units might be audited by federal, state or local
taxing authorities resulting in additional taxes being assessed against the
Company; the risk that the Company may not be able to realize its current
estimate of the net value of its assets; the risk that the Company may have
underestimated the settlement expense of its obligations and liabilities,
including without limitation, accrued compensation and tax liabilities; risks
associated with the liquidation and dissolution of the Company, including
without limitation, settlement of the Company's litigation, liabilities and
obligations, costs including professional fees, incurred in connection with
carrying out the Plan of Dissolution, discharge of any outstanding creditor
claims, and the winding up and dissolution of the Company. See Part II, Item 1A,
"Risk Factors" for additional information regarding these risks and
uncertainties. In light of these risks, uncertainties and assumptions, readers
are cautioned not to place undue reliance on such forward-looking statements.
These forward-looking statements represent beliefs and assumptions only as of
the date of this report. Except as required by applicable law, we do not intend
to update or revise forward-looking statements contained in this report to
reflect future events or circumstances.
Overview
During fiscal year 2005, we engaged the services of financial advisors to evaluate strategic alternatives to enhance shareholder value, which included exploring the disposition of some or all of our business units. It was determined that in the best interest of shareholder value that the Company divest all remaining product line business units. During fiscal 2006, with shareholder approval, the Company divested all its remaining business units, as follows: On May 20, 2005, the Company completed the sale of the Defense & Space group to Chelton Microwave. On July 1, 2005, the Company completed the sale of certain assets and liabilities constituting a substantial portion of the Electronic Manufacturing Services business to Veritek Manufacturing Services, LLC and Samjor Family Limited Partnership. On August 26, 2005, the Company completed the sale of the Outdoor Unit/Transceiver business to Wireless Holdings International, Inc. On September 2, 2005, the Company sold the Wireless Systems business unit to Powerwave Technologies, Inc. The Wireless Systems business was the last remaining REMEC product line business unit. On August 31, 2005, the Company's shareholders adopted the Plan of Dissolution, effective September 3, 2005.
The Company is in the process of finalizing the disposition of its remaining business assets, and the Company will continue in existence until its final dissolution, which is subject to settlement of outstanding litigation and the payment of liabilities. During this period, we will not continue our business as a going concern.
Our Plan of Dissolution provides us with authority to retain a third party liquidator or trust without further approval by our shareholders at the discretion of our Board of Directors. We may determine that the continued liquidation of REMEC may be more efficiently handled by retaining a third party liquidator or trust to manage the liquidation process. In particular, we may determine to do so at such time as our outstanding litigation and other significant creditor claims have been resolved. We cannot predict when or if these matters will be resolved, or when or if we will engage a third party liquidator or trust.
Since the Company is in liquidation without continuing operations, the need to present future quarterly Statements of Operations and Comprehensive Income Statements as well as a Statements of Cash Flows is eliminated.
Liquidation Basis of Accounting and Plan of Dissolution
The accompanying condensed financial statements have been prepared on the liquidation basis of accounting. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their estimated settlement amounts, which estimates are periodically reviewed and adjusted. Uncertainties as to the precise net value of our non-cash assets and the ultimate amount of our liabilities make it impracticable to predict the aggregate net value that may ultimately be distributable to shareholders. Claims, liabilities and future expenses for operations, although currently declining in the aggregate, will continue to be incurred with execution of the plan. These costs will reduce the amount of net assets available for ultimate distribution to shareholders. Although we do not believe that a precise estimate of those expenses can currently be made, we believe that available cash and amounts received from sales of non-cash assets will be adequate to provide for our obligations, liabilities, operating costs and claims, and to make cash distributions to shareholders. If available cash and amounts received from sales of non-cash assets are not adequate to provide for our obligations, liabilities, operating costs and claims, estimated future distributions of cash to our shareholders will be reduced.
Net Assets in Liquidation
The following paragraphs summarize certain material actions and events which have occurred regarding the Company's liquidation process during the three and nine months ended October 31, 2008.
Three Months Ended October 31, 2008
Net assets in liquidation decreased approximately $0.4 million, or $0.01 per share, to $23.4 million for the three months ended October 31, 2008.
Nine Months Ended October 1, 2008
Net assets in liquidation decreased approximately $15.1 million, or $0.50 per share, to $23.4 million for the nine months ended October 31, 2008.
The primary reason for the decrease in net assets in liquidation for the nine months ended October 31, 2008, was the result of the liquidating cash distribution paid to our shareholders on July 7, 2008 of approximately $15.0 million, or $0.50 per share.
Other changes in net assets for the nine months ended October 31, 2008 include the change in estimated costs to be incurred during liquidation which include a reduction for liability insurance related the directors and officers policy premium, amounting to approximately $0.5 million. Additionally, during the second quarter of fiscal 2009, the Company successfully defended its Retiree Medical Claim in arbitration. On May 14, 2008, the arbitrator issued an award to the parties, and determined that none of the claimants were entitled to any recovery from the Company. As a result, the related potential award reserve of approximately $0.5 million was reversed.
Liquidity and Capital Resources
As of October 31, 2008, net assets in liquidation totaled $23.4 million. Total assets of $39.1 million include $17.5 million in cash and cash equivalents and $20.7 million of restricted cash. Restricted cash consists of approximately $16.8 million for escrow funds and interest held back in escrow pending the resolution of indemnity claims arising from the sale of the Wireless Systems business unit, and $3.9 million of restricted cash held as security on letters of credit. Receivable and other assets consist of approximately $0.6 million and long term notes receivables of approximately $0.3 million. Total assets are offset by approximately $15.7 million of estimated total liabilities to be incurred during liquidation, consisting of $7.3 million in taxes payable, $5.0 million related to potential estimated indemnification costs, $3.0 million of estimated operating costs, and approximately $0.4 million of estimated litigation costs.
We expect to use our capital resources to execute and complete our Plan of Dissolution, settle existing claims against the Company, including existing litigation and other current liabilities and accrued expenses, and to make liquidating distributions to our shareholders. Capital resources available for liquidating distributions to shareholders may vary if we incur greater than estimated operating expenses associated with executing the Plan of Dissolution, actual settlement costs for existing claims against the Company vary from estimates, or if there are existing, but unknown claims made against us in the future. We intend to distribute net assets in liquidation to shareholders as liquidating distributions as promptly as practicable as we convert our remaining assets to cash. At October 31, 2008, our cash and cash equivalents were held primarily in money market funds and other bank deposit accounts. We expect to continue to hold our cash and cash equivalents primarily in money market funds while we execute the Plan of Dissolution.
Distributions
On August 2, 2005, we filed additional proxy material with the SEC that provided shareholders with an estimate of the cash and the number of shares of Powerwave common stock that would be distributed to REMEC shareholders following the sale of REMEC's Wireless Systems business unit to Powerwave. That filing indicated shareholders were ultimately expected to receive between $2.45 to $2.95 in total cash distributions and 0.333 shares of Powerwave stock for every share of REMEC stock held at the time the transaction closed. In September 2005, 10 million shares of Powerwave stock were issued to the shareholders of record on September 13, 2005 of REMEC stock at a ratio of 0.3443 shares of Powerwave stock for every share of REMEC stock held. On October 4, 2005, an initial cash liquidating distribution was made to shareholders of record of REMEC stock on September 13, 2005 at a rate of $1.35 per share totaling $39.2 million.
On October 19, 2006, the Board of Directors approved a cash liquidating distribution of approximately $22.5 million, or $0.75 per share to shareholders of record as of November 1, 2006 pursuant to our Plan of Dissolution. On November 8, 2006, a cash liquidating distribution was made to all shareholders of record as of November 1, 2006 at a rate of $0.75 per share, totaling $22.5 million.
On December 14, 2007, the Board of Directors approved a cash liquidating distribution of approximately $22.5 million, or $0.75 per share to shareholders of record as of the close of business on December 14, 2007 pursuant to our Plan of Dissolution. On December 21, 2007, a cash liquidating distribution was made to all shareholders of record as of December 14, 2007 at a rate of $0.75 per share, totaling $22.5 million.
On June 17, 2008, the Board of Directors approved a cash liquidating distribution of approximately $15.0 million, or $0.50 per share to shareholders of record as of the close of business on June 27, 2008 pursuant to our Plan of Dissolution. On July 7, 2008, a cash liquidating distribution was made to all shareholders of record as of June 27, 2008 at a rate of $0.50 per share, totaling $15.0 million.
The sources for payment of these distributions were funds made available from the settlement of liabilities and the liquidation of assets.
Subsequent cash distributions are pending, subject to review by REMEC's Board of Directors of the Company's remaining obligations. However, the significant number of liabilities and obligations that REMEC must satisfy along with the uncertainty surrounding these obligations makes the actual amount and timing of distributions uncertain and may result in the actual cash distribution being lower or higher than the expected range.
Off-Balance Sheet Arrangements
As of October 31, 2008, we did not have any other relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Obligations and Commitments
Our contractual obligations and commitments as of October 31, 2008 are reported in the condensed statements of net assets in liquidation as accrued expenses and accounts payable or estimated costs to be incurred during liquidation. Included in estimated costs to be incurred during liquidation are our remaining facility leases, all of which, except for the principal executive offices, are fully subleased. As of October 31, 2008 the accrual for the estimated net lease settlements on the remaining facility obligations is approximately $0.1 million net of contractual sublease income totaling approximately $2.2 million.
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