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Note 12 - FC1 - FC2 Transition - Restructuring Costs
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Sep. 30, 2012
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| Restructuring and Related Activities Disclosure [Text Block] |
Note
12. FC1 –
FC2 Transition – Restructuring Costs
On
August 5, 2009, the Company announced to its U.K.
employees that the Company would evaluate the future of
its U.K. facility following the decision of two of its
largest customers to switch their purchases from the
first generation product, FC1, manufactured in the U.K.
facility, to the second generation product, FC2, which is
manufactured in Malaysia. As is required by British labor
law, the Company went through an evaluation process,
working in tandem with employee representatives, in which
various manufacturing alternatives were
considered.
In
September 2009, the process concluded when management and
the labor representatives were unable to identify a
viable alternative. In late September,
production employees were notified of the redundancy
(plan to terminate their employment) and of the one-time
termination payments due them. Manufacturing
ceased in mid-October 2009.
In
November 2009, following the cessation of FC1
manufacturing in the U.K. facility, the Company entered
into an agreement with a new owner of the London
manufacturing facility to surrender its existing property
lease, which would have expired in December 2016, in
exchange for a lease surrender fee of $1,490,716 and a
new short-term lease. Per the terms of the agreement, the
Company was responsible for removing certain leasehold
improvements from the property (dilapidations) prior to
termination of the lease. Upon execution of
the new agreements, the Company deposited the new annual
rent of approximately $484,000, as required by the lease
terms.
From
a cash flow perspective, replacing the previous lease at
that time eliminated future payments of approximately
$4.3 million (for rent and related expenses) over the
remaining term of the previous lease, producing a
positive net impact of $2.8 million (after deducting the
lease surrender payments).
On
April 27, 2010, the Company signed two related
agreements, with the former and new landlords of the U.K.
facility, which terminated the November 2009 U.K. lease
and granted the Company rent-free occupation of the
premises from April 28, 2010 through June 30,
2010. Per the terms of these agreements, the
Company agreed to a lease exit fee of $216,000 and a
$248,000 payment in lieu of
dilapidations. Those obligations were
fulfilled by a cash payment of $234,000 and surrender of
remaining rent prepayment of $230,000, which had been
held in trust since November 2009.
The
Company evaluated, measured and recognized the
restructuring costs under the guidance of ASC
Topic 420, Exit or Disposal Cost Obligations, and
recognized such costs in the period
incurred. The costs associated with
this restructuring fall under the scope of
associated costs of an exit activity, as suggested by the
Interpretive Response in Staff Accounting Bulletin Topic
5(P)(4), including footnote 17. The components
of the restructuring expenses recognized for the year
ended September 30, 2010 are as
follows:
While
FC1 production has ceased, the Company continues to
conduct significant operating activities in the
U.K. Such activities include global sales and
marketing of the FC2 female condom, management and
direction of Global Manufacturing Operations (including
production planning, inventory management, quality
assurance and quality control, finished goods release,
compliance with good manufacturing practices),
relationships with regulatory agencies world-wide,
oversight of the Global Technical Support Team and new
product development.
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