UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________ to __________
------------------------
Commission file number N/A
I.R.S. Employer Identification number 54-2066534
COMDISCO HOLDING COMPANY, INC.
(AS SUCCESSOR TO COMDISCO, INC, COMMISSION FILE NUMBER 1-7725)
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone: (847) 698-3000
All references in this Form 10-Q to common stock are for Comdisco, Inc. common
stock prior to emergence from Bankruptcy.
Name of each Number of shares
Title of exchange on outstanding as of
each class which registered June 30, 2002
---------- ---------------- -------------
Comdisco Stock, None 150,558,942
$.10 par value
Comdisco Ventures Stock, N/A -
$.10 par value
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 XX No .
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Comdisco, Inc. and Subsidiaries (Predecessor to Comdisco Holding Company, Inc.)
INDEX
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements (Unaudited)
On July 16, 2001, the company and fifty of its domestic U.S. subsidiaries filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code, in the United States Bankruptcy Court for the Northern District of
Illinois (Case No. 01-24795). Please see Note 1 to the Consolidated Financial
Statements. On April 26, 2002, the company announced that it had filed a
proposed Joint Plan of Reorganization and Disclosure Statement with the
Bankruptcy Court and on July 30, 2002, the First Joint Amended Plan of
Reorganization was confirmed by the Bankruptcy Court. On August 12, 2002, the
company emerged from Chapter 11. Comdisco Holding Company, Inc. is the successor
company to Comdisco, Inc. Comdisco, Inc. was a Debtor-in-Possession as of June
30, 2002. Accordingly, the following financial statements in this Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2002 are for
Comdisco, Inc.:
Consolidated Statements of Earnings (Loss) --
Three and nine months Ended June 30, 2002 and 2001...................4
Consolidated Balance Sheets --
June 30, 2002 and September 30, 2001.................................5
Consolidated Statements of Cash Flows --
Nine months Ended June 30, 2002 and 2001.............................6
Notes to Consolidated Financial Statements............................8
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations. ..........................................30
Item 3. Quantitative and Qualitative Disclosures about Market Risk............52
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................53
Item 6. Exhibits and Reports on Form 8-K......................................54
SIGNATURES....................................................................57
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Note on Forward Looking Statements
The company believes that certain statements in this Quarterly Report on Form
10-Q, including "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and in the future filings by the company with the
Securities and Exchange Commission and in the company's written and oral
statements made by or with the approval of an authorized executive officer
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
and the company intends that such forward-looking statements be subject to the
safe harbors created thereby. The words and phrases "looking ahead," "is
confident," "should be," "will," "predicted," "believe," "plan," "intend,"
"estimates," "likely," "expect" and "anticipate" and similar expressions
identify forward-looking statements.
These forward-looking statements reflect the company's current views with
respect to future events and financial performance, but are subject to many
uncertainties and factors relating to the company's operations and business
environment, including those discussed below under "Risk Factors," which may
affect the accuracy of forward-looking statements and cause the actual results
of the company to be materially different from any future results expressed or
implied by such forward-looking statements.
The company's actual revenues and results of operations could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in "Risk Factors". As a result of
these and other factors, in some future quarter the company's operating results
may fall below the expectations of securities analysts and investors. In such an
event, the trading price of the company's common stock and other securities
would likely be materially and adversely affected. Many of the factors that will
determine results of operations are beyond the company's ability to control or
predict.
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Comdisco, Inc. and Subsidiaries
Debtor-In-Possession as of June 30, 2002
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED)
(in millions except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
-------- -------- -------- --------
2002 2001 2002 2001
-------- -------- -------- --------
Revenue
Leasing
Operating ................................... $ 169 $ 377 $ 763 $1,158
Direct financing ............................ 23 40 86 131
Sales-type .................................. 13 18 36 104
-------- -------- -------- --------
Total leasing ............................ 205 435 885 1,393
Sales ............................................ 84 66 263 241
Technology services .............................. 21 29 70 112
Other ............................................ 16 55 47 451
-------- -------- -------- --------
Total revenue ............................ 326 585 1,265 2,197
-------- -------- -------- --------
Costs and expenses
Leasing
Operating ................................... 143 302 619 918
Sales-type .................................. 12 20 32 71
-------- -------- -------- --------
Total leasing ............................ 155 322 651 989
Sales ............................................ 90 72 255 199
Technology services .............................. 12 30 43 106
Selling, general and administrative .............. 28 126 163 292
Write-down of equity securities .................. 27 68 70 101
Bad debt expense ................................. 35 117 145 341
Interest
(total contractual interest 2002 - $70 and 230)... 11 112 51 315
Reorganization items ............................. 57 -- 349 --
-------- -------- -------- --------
Total costs and expenses .................... 415 847 1,727 2,343
-------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes (benefit) and cumulative
effect of change in accounting principle ........ (89) (262) (462) (146)
Income taxes (benefit) ........................... 5 (94) (58) (52)
-------- -------- -------- --------
Earnings (loss) from continuing operations
before cumulative effect of change in
accounting principle ............................ (94) (168) (404) (94)
Earnings (loss) from discontinued operations,
net of tax ...................................... (3) 4 201 (38)
-------- -------- -------- --------
Earnings (loss) before cumulative effect of
change in accounting principle .................. (97) (164) (203) (132)
Cumulative effect of change in accounting
principle, net of tax ........................... -- -- -- 2
-------- -------- -------- --------
Net earnings (loss) .............................. $ (97) $ (164) $ (203) $ (130)
======== ======== ======== ========
Basic earnings (loss) per common share:
Earnings (loss) from continuing operations ...... $(0.62) $(1.10) $(2.69) $(0.62)
Earnings (loss) from discontinued operations .... (0.02) 0.02 1.34 (0.25)
Cumulative effect of change in accounting
principle ...................................... -- -- -- 0.01
-------- -------- -------- --------
Net earnings (loss) ............................. $(0.64) $(1.08) $(1.35) $(0.86)
======== ======== ======== ========
Diluted earnings (loss) per common share:
Earnings (loss) from continuing operations ...... $(0.62) $(1.10) $(2.69) $(0.62)
Earnings (loss) from discontinued operations .... (0.02) 0.02 1.34 (0.25)
Cumulative effect of change in accounting
principle ...................................... -- -- -- 0.01
-------- -------- -------- --------
Net earnings (loss) ............................. $(0.64) $(1.08) $(1.35) $(0.86)
======== ======== ======== ========
See accompanying notes to consolidated financial statements
-4-
Comdisco, Inc. and Subsidiaries
Debtor-In-Possession as of June 30, 2002
CONSOLIDATED BALANCE SHEETS
(in millions except number of shares)
Unaudited Audited
June 30, September 30,
2002 2001
---------- ----------
ASSETS
Cash and cash equivalents ..................................... $ 2,577 $ 543
Cash - legally restricted ..................................... 53 54
Receivables, net .............................................. 274 587
Inventory of equipment ........................................ 47 95
Leased assets:
Direct financing and sales-type ............................. 1,031 1,738
Operating (net of accumulated depreciation) ................. 801 2,265
------- -------
Net leased assets ......................................... 1,832 4,003
Property, plant and equipment, net ............................ 46 60
Equity securities ............................................. 58 138
Net assets of discontinued operations held for sale ........... 2 433
Other assets .................................................. 149 215
------- -------
$ 5,038 $ 6,128
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities not subject to compromise
Term notes payable .......................................... $ 79 $ 360
Discounted lease rentals .................................... 354 964
Notes payable ................................................ 146 179
Accounts payable ............................................. 76 110
Income taxes ................................................. 104 35
Deferred income ............................................... 67 159
Other liabilities ............................................ 219 186
------- -------
1,045 1,993
Liabilities subject to compromise
Notes payable ................................................ 917 917
Senior notes .................................................. 2,639 2,639
Accounts payable ............................................. 17 19
Other liabilities ............................................ 146 113
------- -------
3,719 3,688
------- -------
Stockholders' equity:
Preferred stock $.10 par value
Authorized 100,000,000 shares (none issued); Series C
and Series D .............................................. -- --
Comdisco stock $.10 par value. Authorized 750,000,000 shares;
issued 225,555,293 shares (225,555,293 at September
30, 2001) ..................................................... 23 23
Comdisco Ventures stock $.10 par value ......................
Authorized 750,000,000 shares (none issued) ............... -- --
Additional paid-in capital .................................. 365 365
Accumulated other comprehensive income (loss) ............... (63) (93)
Retained earnings ........................................... 569 772
------- -------
894 1,067
Common stock held in treasury, at cost; 74,996,351 shares
(74,996,351 at September 30, 2001) ....................... (620) (620)
------- -------
Total stockholders' equity .............................. 274 447
------- -------
$ 5,038 $ 6,128
======= =======
See accompanying notes to consolidated financial statements
-5-
Comdisco, Inc. and Subsidiaries
Debtor-In-Possession as of June 30, 2002
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
For the Nine Months Ended June 30, 2002 and 2001
2002 2001
-------- --------
Cash flows from operating activities:
Operating lease and other leasing receipts ............................ $ 1,444 $ 2,057
Leasing costs, primarily rentals paid ................................. (7) (5)
Sales ................................................................. 258 306
Sales costs ........................................................... (7) (59)
Technology services receipts .......................................... 42 124
Technology services costs ............................................. (18) (94)
Note receivable receipts .............................................. 181 269
Warrant proceeds ...................................................... 28 447
Other revenue ......................................................... 39 63
Selling, general and administrative expenses .......................... (138) (289)
Interest .............................................................. (56) (258)
Income taxes .......................................................... (2) (16)
-------- --------
Net cash provided by continuing operations .......................... 1,764 2,545
Net cash provided by discontinued operations ........................ 879 26
-------- --------
Net cash provided by operating activities before reorganization items 2,643 2,571
-------- --------
Operating cash flows from reorganization items:
Proceeds from the sale of leased assets ............................... 350 --
Interest received on cash accumulated because of Chapter 11
proceeding .......................................................... 22 --
Professional fees paid for services rendered in connection with
the Chapter 11 proceeding ........................................... (40) --
-------- --------
Net cash by reorganization items .................................... 332 --
-------- --------
Net cash provided by operating activities ........................... 2,975 2,571
-------- --------
Cash flows from investing activities:
Equipment purchased for leasing ....................................... (275) (1,152)
Notes receivable ...................................................... (18) (210)
Equity investments .................................................... (1) (54)
Capital expenditures on discontinued operations ....................... (4) (129)
Other ................................................................. (1) 39
-------- --------
Net cash used in investing activities ............................... (299) (1,506)
-------- --------
Cash flows from financing activities:
Discounted lease proceeds ............................................. 13 565
Net decrease in notes and term notes payable .......................... (320) (353)
Maturities and repurchases of senior notes ............................ -- (693)
Principal payments on secured debt .................................... (338) (309)
Common stock purchased and placed in treasury ......................... -- (84)
Dividends paid on common stock ........................................ -- (8)
Increase in legally restricted cash ................................... 1 (15)
Other ................................................................. 2 (10)
-------- --------
Net cash used in financing activities ............................... (642) (907)
-------- --------
Net increase in cash and cash equivalents ................................ 2,034 158
Cash and cash equivalents at beginning of period ......................... 543 315
-------- --------
Cash and cash equivalents at end of period ............................... $ 2,577 $ 473
======== ========
See accompanying notes to consolidated financial statements.
-6-
Comdisco, Inc. and Subsidiaries
Debtor-In-Possession as of June 30, 2002
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED (in millions)
For the Nine Months Ended June 30, 2002 and 2001
2002 2001
------- -------
Reconciliation of earnings (losses) from continuing operations to net cash
provided by operating activities:
Earnings (losses) from continuing operations ............................. $ (404) $ (94)
Adjustments to reconcile earnings (losses) from continuing
operations to net cash provided by operating activities
Leasing costs, primarily
depreciation and amortization ...................................... 644 984
Leasing revenue, primarily principal portion of
direct financing and sales-type lease rentals ...................... 559 664
Cost of sales ........................................................ 248 140
Technology services costs, primarily
depreciation and amortization ..................................... 25 12
Interest ............................................................. (5) 57
Income taxes ......................................................... (60) (68)
Principal portion of notes receivable ................................ 157 194
Selling, general, and administrative expenses ........................ 240 445
Warrant proceeds in excess of income ................................. 12 94
Reorganization items ................................................. 681 --
Other, net ........................................................... (1) 117
------- -------
Net cash provided by continuing operations ............. 2,096 2,545
Net cash provided by discontinued operations ........... 879 26
------- -------
Net cash provided by operating activities .............. $2,975 $2,571
======= =======
Supplemental Schedule of Noncash Financing Activities:
Reduction of discounted lease rentals in lease portfolio
sale ..................................................................... $ 287 $ --
======= =======
See accompanying notes to consolidated financial statements.
-7-
Comdisco, Inc. and Subsidiaries
Debtor-In-Possession as of June 30, 2002
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2002
1. Chapter 11 Proceedings
On July 16, 2001, the company and fifty of its domestic U.S. subsidiaries
(collectively, the "Debtors") filed voluntary petitions for relief under Chapter
11 (the "Filing") of the United States Bankruptcy Code (the "Bankruptcy Code"),
in the United States Bankruptcy Court for the Northern District of Illinois (the
"Bankruptcy Court") (Case No. 01-24795) (the "Reorganization Cases"). As of June
30, 2002, the Debtors were managing their properties and operating their
businesses as "debtors-in-possession" under the jurisdiction of the Bankruptcy
Court and in accordance with the applicable provisions of the Bankruptcy Code
(see discussion following on the impact of debtor-in-possession status). On
August 12, 2002, the company emerged from bankruptcy.
The Debtors' subsidiaries located outside of the United States were not included
in the petitions. Condensed combined financial statements of the Debtors are
presented herein.
Reorganization Plan:
On April 26, 2002, the company announced that it had filed a proposed Joint Plan
of Reorganization and Disclosure Statement with the Bankruptcy Court and on July
30, 2002, the First Amended Joint Plan of Reorganization was confirmed by the
Bankruptcy Court (collectively, the "Plan"). On August 12, 2002 (the "Effective
Date"), the company emerged from Chapter 11.
The Plan results in the substantive consolidation of the company and its
domestic U.S. subsidiaries that filed for Chapter 11 relief into two groups: (1)
the substantive consolidation of the estate of Comdisco and its subsidiaries
other than the Prism entities and; (2) the substantive consolidation of Prism
and its subsidiaries.
Upon emergence from bankruptcy Comdisco Holding Company, Inc. is the successor
to Comdisco, Inc. and Comdisco Holding Company, Inc. has three primary operating
subsidiaries--Comdisco, Inc., Comdisco Global Holding Company, Inc., and
Comdisco Ventures, Inc. (a subsidiary of Comdisco, Inc.) As more fully described
in the Plan, the reorganized company will continue to operate in an orderly sale
or run off of all its existing asset portfolios, which is expected to take up to
three years to complete.
Approximately forty-five days after the company's emergence from bankruptcy, or
approximately the end of September 2002, the company's general unsecured
creditors will receive and the disputed claims reserve will be funded with their
pro-rata share of an initial cash distribution, which will be funded by current
cash on hand from asset sales and cash flow from operations, less amounts
necessary to establish a cash reserve to pay secured, administrative, priority
and other payments required under the Plan, including the establishment of an
operating reserve to fund the reorganized company's continuing operations. In
addition, general unsecured claim holders will receive and the disputed claims
reserve will be funded with their pro-rata share of two separate note issuances:
New Senior Notes in the face amount of $400 million with an interest rate of
three month LIBOR plus 3% and New Payment-in-Kind (PIK) Notes in the face amount
of $650 million with an interest rate of 11%. General unsecured claimholders
will also receive and the disputed claims reserve will also be funded with their
pro rata share of 100% of the new common stock of the reorganized company.
-8-
The Plan provides that existing equity interests were cancelled as of the
Effective Date. Stockholders prior to the Effective Date and holders of allowed
subordinated claims will receive contingent distribution rights entitling
holders to distributions in increasing amounts based upon creditor recoveries
achieving specified thresholds. The company is unable to accurately predict the
ultimate value, if any, that will be realized by such equity holders and holders
of subordinated claims relative to the distribution under the Plan.
The Plan further provides that certain subrogation rights the company may have
against certain managers who participated in a Shared Investment Plan ("SIP")
will be placed in a trust for the benefit of creditors. Under the SIP program,
106 senior managers in 1998 took out full recourse, personal loans to purchase
six million shares of the company's common stock and the company provided a
guarantee in the event of default. The loans have a scheduled outstanding
principal balance at June 30, 2002 of approximately $104 million. To the extent
that the company makes a payment under its guaranty on behalf of a SIP
participant, the company may be subrogated to the rights of the lender to
collect such amounts from the participant, subject to any defenses or claims
that the SIP participant may assert. In the Plan, the company currently proposes
various discounts ranging from 20% to 80% with respect to repayment on account
of subrogation claims at graduated levels based upon an employee's prepetition,
post-petition and/or post-emergence service to the company and other
consideration. The subrogation rights of SIP participants who do not fulfill
their repayment obligations will be placed in the SIP Subrogation Trust for the
benefit of creditors.
In regard to the Prism subsidiaries, Comdisco had intercompany secured claims
against Prism that exceeded the value of the assets of Prism. Pursuant to the
Plan, Comdisco reduced its claims against the Prism entities to no more than
one-third of the total distribution to Prism creditors. The assets of the Prism
entities will continue to be liquidated.
Fresh Start Accounting
As a result of the emergence from bankruptcy, the company expects to adopt
"fresh-start" reporting in accordance with Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7") effective August 1, 2002. SOP 90-7 requires the company to allocate
the reorganization value of the reorganized company to its assets, and to state
liabilities existing at the Plan confirmation date at present values of amounts
to be paid determined at appropriate current interest rates. The required
adjustments are expected to materially reduce the equity of the company such
that the fair value of the liabilities will exceed the reorganization value of
the assets. For financial reporting purposes, the effective date of the
emergence from bankruptcy is expected to be the close of business on July 31,
2002. Accordingly, the effects of the adjustments on the reported amounts of
individual assets and liabilities resulting from the adoption of fresh-start
reporting will be reflected in the company's final statement of operations prior
to emergence.
As a result of the reorganization and the recording of the restructuring
transaction and the expected implementation of Fresh Start Reporting, the
company's results of operations after July 31, 2002 will not be comparable to
results reported in prior periods.
-9-
Sale of Assets:
Leasing: On April 18, 2002, the court approved the sale of the company's
Healthcare leasing business to GE Capital Corporation. In accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), the company recorded a pre-tax charge of $15 million ($9 million
after-tax, or $.06 per share, after-tax) in the second quarter of fiscal 2002 to
reduce cost in excess of fair value (primarily related to the write-down of
deferred assets) to reflect the difference between carrying value and estimated
proceeds from the sale. On May 31, 2002, the company and GE Capital completed a
first closing on the sale of the Healthcare assets. The company received
approximately $117 million for the sale of these assets, including the
assumption of approximately $46 million of related secured debt and other
liabilities. On June 30, 2002, the company and GE Capital completed a second
closing on the sale of Healthcare assets for which the company received an
additional $20 million, including the assumption of approximately $5 million of
related secured debt and other liabilities. Both closings are subject to an
adjustment to the proceeds based upon the completion of a final audit of the
purchased assets and assumed debt. GE rejected $28 million of Healthcare assets
due to documentation or credit issues, and Comdisco continues to manage these
assets.
On April 9, 2002, the company announced that it had agreed to sell its
information technology (IT) leasing assets in Australia and New Zealand to
Allco, an Australian company specializing in equipment and infrastructure
finance and leasing. Under the terms of the agreement, Allco will pay the
company approximately $44 million for the purchase of most of its assets in
Australia and New Zealand. On June 30, 2002, the company and Allco completed a
first closing on the sale of leased assets in Australia and New Zealand. The
company received approximately $8 million for the sale of these assets.
Additional closings at which additional assets of Australia and New Zealand will
be sold are expected to occur by September 30, 2002. In accordance with SFAS
121, the company recorded a pre-tax charge of $6 million ($4 million after-tax,
or $.03 per share after-tax) in the third quarter of fiscal 2002 to reduce cost
in excess of fair value to reflect the difference between carrying value and
estimated proceeds from the sale.
On February 5, 2002 the company announced the completion of the Bankruptcy
Court-supervised sales evaluation process for its leasing businesses. During the
Court-supervised bidding process concluded in early January 2002, the company
received bids for all of its leasing business units (North American Information
Technology (IT) Leasing, Telecommunications, Healthcare, Electronics and
Laboratory and Scientific).
At the conclusion of the Bankruptcy Court-approved bidding process, the Board of
Directors determined to accept no bids for its North American IT Leasing,
Telecommunications and Healthcare businesses. Accordingly, on February 5, 2002,
the company announced that it intended to retain the remaining leasing
businesses (North American IT, Telecommunications and Healthcare). Subsequent to
that date, the company announced that it had agreed to sell certain of its
Healthcare leasing assets in the United States to GE Capital's Healthcare
Financial Services unit.
On January 24, 2002, the Bankruptcy Court approved the sale of the company's
Electronics and Laboratory and Scientific equipment leasing businesses to
General Electric Capital's Commercial Equipment Financing unit (the "Buyer"). In
accordance with SFAS 121, the company recorded a pre-tax charge of $250 million
($189 million after-tax, or $1.25 per share, after-tax) in the first quarter of
fiscal 2002 to reduce cost in excess of fair value to reflect the difference
between carrying value and estimated proceeds from the sale. On April 24, 2002,
-10-
the company and the Buyer completed a first closing on the sale of approximately
$794 million of assets, or approximately 81% of the company's Electronics and
Laboratory and Scientific net leased assets at March 31, 2002. The company
received approximately $548 million for the sale of these assets, which included
the assumption of approximately $258 million of related secured debt and other
obligations. On May 31, 2002, the company and the Buyer completed a second
closing on the sale of Electronics and Laboratory and Scientific assets, for
which the company received an additional approximately $24 million, including
the assumption of approximately $5 million of related secured debt and other
obligations. Both closings are subject to an adjustment to the proceeds based
upon the completion of a final audit of the purchased assets and assumed debt.
GE rejected $93 million of assets due to documentation or credit issues, and
Comdisco continues to manage these assets.
Pursuant to the Plan, the reorganized company will continue to operate in an
orderly sale or run off of all its existing asset portfolios, which is expected
to take up to three years to complete. There can be no assurance that the
company will be able to realize net book value on any asset sales. Accordingly,
additional losses may be recorded in future periods.
Services: The company announced on February 5, 2002 that it had executed an
agreement for the sale of substantially all of its North American IT CAP
Services contracts to T-Systems Inc. for approximately $7 million, plus
consideration for future business with those accounts. The sale was approved by
the Bankruptcy Court on February 14, 2002, and, closed on February 28, 2002.
During the second quarter of fiscal 2002, the company recorded a $3 million
pre-tax loss on the sale to T-Systems.
On November 15, 2001, the company completed the sale of its Availability
Solutions business to SunGard Data Systems Inc. ("SunGard") for $825 million in
cash (plus approximately $25 million in cash for estimated working capital
received in excess of agreed-upon levels). During the second quarter of fiscal
2002, the company returned $15 million to SunGard to settle all outstanding
working capital adjustment issues. The terms of the sale were arrived at
pursuant to the auction process approved by the Bankruptcy Court. The sale
included the purchase of assets of the U.S. operations of the Availability
Solutions business and the stock of its subsidiaries in the United Kingdom,
France and Canada. The sale excluded the purchase of the stock of subsidiaries
in Germany and Spain, as well as other identified assets, including Network
Services and IT CAP services business. The company is in the process of exiting
the Availability Solutions businesses in Germany and Spain.
Impact of Debtor-in-Possession
From the Bankruptcy Date through the Emergence Date, each of the Debtors
continued to operate its business and manage its property as a
debtor-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
Shortly after the Filing, the Debtors began notifying all known or potential
creditors of the Filing for the purposes of identifying all pre-petition claims
against the Debtors. Subject to certain exceptions under the Bankruptcy Code,
the Debtor's Filing automatically enjoined the continuation of any judicial or
administrative proceedings against the Debtors. Any creditor actions to obtain
possession of property from the Debtors or to create, perfect or enforce any
lien against the property of the Debtors were also enjoined. As a result, the
creditors of the Debtors were precluded from collecting pre-petition debts
without the approval of the Bankruptcy Court.
Certain pre-petition liabilities have been paid after obtaining the approval of
the Bankruptcy Court, including certain wages and benefits of employees,
insurance costs, payments to governmental agencies and cash payments deemed
critical to the Debtors' business.
-11-
Under the Bankruptcy Code, the Debtors have the right to assume or reject
executory contracts. An executory contract is one in which the parties have
mutual obligations to perform (e.g., real property leases). Unless otherwise
agreed, the assumption of a contract will require the company to cure all prior
defaults under the related contract, including all pre-petition liabilities.
Unless otherwise agreed, the rejection of a contract is deemed to constitute a
breach of the agreement as of the moment immediately preceding the Filing,
giving the other party to the contract a right to assert a general unsecured
claim for damages arising out of the breach.
The company estimates that lease contracts rejected by the Debtors through June
30, 2002, have resulted in general unsecured claims totaling approximately $38
million. In accordance with SOP 90-7, the company has recorded as a liability
subject to compromise such estimated amount of allowed claims without regard to
potential mitigation relating to lease rejections.
There were differences between the liabilities recorded in the financial
statements and the amount claimed by the company's creditors. See Note 6 of
Notes to Consolidated Financial Statements for the current status of the claims
filed against the company.
The company has incurred and will continue to incur significant costs associated
with the reorganization. The amount of these costs, which are being expensed as
incurred, may significantly affect current and future results of operations.
Pursuant to the Plan, the Bankruptcy Court has set a bar date of September 26,
2002 for the filing of administrative claims.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial statements and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures required by accounting principles generally
accepted in the United States of America for annual financial statements. In the
opinion of management, all adjustments considered necessary, including
adjustments for fair presentation have been included. Such adjustments consist
of normal recurring and other adjustments. For further information, refer to the
consolidated financial statements and notes thereto included in the company's
Annual Report on Form 10-K for the year ended September 30, 2001. The balance
sheet at September 30, 2001 has been derived from the audited financial
statements included in the company's Annual Report on Form 10-K, for the year
ended September 30, 2001.
The accompanying unaudited consolidated financial statements have been prepared
on a going concern basis of accounting and in accordance with SOP 90-7. This
basis contemplates the continuity of operations, realization of assets, and
discharge of liabilities in the ordinary course of business. The statements also
present the assets of the company at historical cost.
Pursuant to SOP 90-7, revenues, expenses (including professional fees), realized
gains and losses, and provisions for losses that can be directly associated with
the reorganization and restructuring of the business are reported in the
Consolidated Statement of Earnings (Loss) separately as reorganization items,
except for items classified as discontinued operations. Professional fees are
expensed as incurred. Interest expense is reported only to the extent that it
will be paid during the cases or that it is probable that it will be an allowed
claim. Accordingly, no interest has been recorded on liabilities subject to
compromise since the Filing. The balance sheet distinguishes pre-petition
liabilities subject to compromise from those liabilities that are not subject to
compromise.
-12-
Liabilities affected by the plan are reported at the amounts expected to be
allowed to the extent that they are probable and reasonably estimatable. Based
upon current facts and circumstances, all of the company's outstanding secured
debt as well the unsecured debt of non-debtors is reflected as liabilities not
subject to compromise in the Consolidated Balance Sheets.
Reorganization items, if any, are reported separately within the operating,
investing and financing categories of the Consolidated Statements of Cash Flows.
As a result of the emergence from bankruptcy, the company expects to adopt
"fresh-start" reporting in accordance with SOP 90-7 effective August 1, 2002.
SOP 90-7 requires the company to allocate the reorganization value of the
reorganized company to its assets, and to state liabilities existing at the Plan
confirmation date at present values of amounts to be paid determined at
appropriate current interest rates. The required adjustments are expected to
materially reduce the equity of the company such that the fair value of the
liabilities will exceed the reorganization value of the assets. For financial
reporting purposes, the effective date of the emergence from bankruptcy is
expected to be the close of business on July 31, 2002. Accordingly, the effects
of the adjustments on the reported amounts of individual assets and liabilities
resulting from the adoption of fresh-start reporting will be reflected in the
company's final statement of operations prior to emergence.
As a result of the reorganization and the recording of the restructuring
transaction and the expected implementation of Fresh Start Reporting, the
company's results of operations after July 31, 2002 will not be comparable to
results reported in prior periods.
Certain reclassifications, including those for discontinued operations, have
been made in the 2001 financial statements to conform to the 2002 presentation.
Legally restricted cash represents cash and cash equivalents that are restricted
solely for use as collateral in secured borrowings, cash and cash equivalents
received by the company from non-owned lease portfolios serviced by the company
and cash and cash equivalents held in escrow or in similar accounts as a result
of the various proposed or completed asset sales. Legally restricted cash is
comprised of the following at June 30, 2002 (in millions):
SunGard escrow ..................... $ 45
Cash received on non-owned leases... 8
-----------
$ 53
===========
3. Discontinued Operations
Availability Solutions: The company's Availability Solutions business was
offered for sale in the third quarter of fiscal 2001 and the sale was completed
in the first quarter of fiscal 2002 (see Note 1 of Notes to Consolidated
Financial Statements). As a result of the sale, the Availability Solutions
segment has been accounted for as a discontinued operation, and accordingly,
amounts in the financial statements and related notes for all periods shown have
been restated to reflect Availability Solutions as a discontinued operation.
-13-
Network Services: During the second quarter of fiscal 2001, the network
management services segment of the company was discontinued and was subsequently
transferred to a new provider.
On October 1, 2001, the company ceased funding Prism Communications, Inc., and
as a result, Prism began winding down its operations. The company has accounted
for its interest in Prism as a discontinued operation.
The following is a summary of the operating results of the discontinued
businesses for the three and nine months ended June 30, 2001 and for the nine
months ended June 30, 2002. During the three months ended June 30, 2002, the
company recorded an additional $3 million charge related to continued declines
in the fair market value of Prism inventory equipment. In addition to the
businesses sold, the Availability Solutions information included below also
includes the results from the company's Availability Solutions businesses in
Germany and Spain (in millions):
Nine months ended June 30, 2002
Availability Network
Solutions Services Prism Total
------------- ------------ --------- ---------
Revenue ............... $ 67 $ $ $ 67
============ ============ ========= =========
Gain on sale .......... $ 326 $ -- $ -- $ 326
============ ============ ========= =========
Income from discontinued operations:
Before income taxes . $ 334 $ -- $ (3) $ 331
Income taxes ........ 130 -- -- 130
------------ ------------ --------- ---------
Net earnings ........ $ 204 $ -- $ (3) $ 201
============ ============ ========= =========
Three months ended June 30, 2002
Availability Network
Solutions Services Prism Total
------------- ------------ --------- ---------
Revenue ............... $ 126 $ $ $ 126
============ ============ ========= =========
Income from discontinued operations:
Before income taxes . $ 6 -- -- $ 6
Income taxes ........ 2 -- -- 2
------------ ------------ --------- ---------
Net earnings ........ 4 -- -- 4
Estimated loss on disposal
Before income tax benefit -- -- -- --
Income tax benefit .. -- -- -- --
------------ ------------ --------- ---------
Net loss.............
Total ............... $ 4 $ -- $ -- $ --
============ ============ ========= =========
-14-
Nine months ended June 30, 2001
Availability Network
Solutions Services Prism Total
------------- ------------ --------- ---------
Revenue ............... $ 358 $ 9 $ -- $ 367
============ ============ ========= =========
Income (loss) from discontinued operations:
Before income taxes (benefit) $ 19 $ (13) $ -- $ 6
Income taxes (benefit) 7 (5) -- 2
------------- ------------ --------- ---------
Net earnings (loss) . 12 (8) -- 4
Estimated loss on disposal
Before income tax benefit -- (38) (30) (68)
------------- ------------ --------- ---------
Income tax benefit .... -- (14) (12) (26)
------------- ------------ --------- ---------
Net loss ............ -- (24) (18) (42)
------------- ------------ --------- ---------
Total ............... $ 12 $ (32) $ (18) $ (38)
============ ============ ========= =========
4. Reorganization Items and Restructuring costs
Reorganization items: Expenses and income directly incurred or realized as a
result of the Chapter 11 cases have been segregated from the normal operations
and are disclosed separately. The major components for the three and nine months
ended June 30, 2002 and 2001 are as follows (in millions):
Three months Nine months
ended ended
June 30, June 30,
2002 2001 2002 2001
------ ------ ------ ------
Estimated loss on sale of leased assets ... $ 6 $ -- $271 $ --
Professional fees ........................ 12 -- 40 --
Lease rejection claims .................... 27 -- 27 --
Other asset write-downs ................... 22 -- 22 --
DIP fees .................................. -- -- 8 --
Loss on IT CAP sale ....................... -- -- 3 --
Interest income ........................... (10) -- (22) --
------ ------ ------ ------
$ 57 $ -- $349 $ --
====== ====== ====== ======
Professional fees relate to legal, investment advisory and other professional
services.
DIP fees relate to the write-off of previously capitalized arrangement and
structure fees the company incurred in connection with the DIP facility (see
Note 5 of Notes to Consolidated Financial Statements).
Interest income includes interest earned on the company's unrestricted cash
balance that would not have been earned if the company had not filed for Chapter
11 protection.
Restructuring costs: During the third quarter of fiscal 2001, the company
announced an on-going plan to reduce its use of outside services, non-labor
costs, including facilities, and workforce to improve future profitability and
enhance strategic opportunities for the company.
-15-
On December 5, 2001, as part of its ongoing cost reduction efforts, the company
cut its workforce by approximately 10 percent, or 128 positions. Just over half
of the employees affected worked in the company's facilities in the greater
Chicago area, primarily in operation functions. Others were located throughout
company operations worldwide.
On April 26, 2002, the company announced that as part of its restructuring
efforts, it would reduce its U.S. workforce by approximately 20 percent, or 180
positions. About 80% of the reductions affected employees that worked in the
company's corporate headquarters.
As a result of these reductions, the company initially incurred a charge of $8
million in the fiscal third quarter ending June 30, 2001. The company incurred
additional charges of $15 million and $3 million in the three months ended March
31, 2002 and June 30, 2002, respectively. Approximately $24 million has been
paid and charged against the accrued liability through June 30, 2002. The
company anticipates further reductions in workforce and additional charges, the
range of which remains undetermined.
5. Interest-Bearing Liabilities
On April 3, 2001, the company drew down approximately $880 million of committed
loan facilities for general corporate purposes, including the retirement of
commercial paper obligations as they became due. The committed facilities
involved in the transaction included the $550 million global credit facility and
the $525 million multi-option facility.
As a result of the Filing, principal and interest payments on outstanding
unsecured debt obligations of the Debtors were suspended, which nonpayment, in
turn, resulted in a default under its credit lines. NonDebtor subsidiaries
continued to make principal and interest payments on their debt obligations
under these facilities and the NonDebtor obligations under these facilities were
retired subsequent to June 30, 2002.
The average daily borrowings outstanding during the nine months ended June 30,
2002 were approximately $4.6 billion, with a related contractual weighted
average interest rate of 6.61%. This compares to average daily borrowings during
the nine months of fiscal 2001 of approximately $6.1 billion, with a related
weighted average interest rate of 6.78%.
In connection with the Filing, the company obtained a two-year, $450 million
senior secured Debtor-In-Possession financing facility ("DIP facility"). During
the second quarter of fiscal 2002 the company terminated the DIP facility,
without ever drawing down upon it.
In connection with the DIP facility, the company paid an arrangement and
structuring fee of $9 million or 2% of the credit line. The company was also
required to pay a fifty basis point annual unused line fee and annual
administration and collateral monitoring fees, as defined in the agreement. The
unamortized fee balance as of September 30, 2001 was expensed in the first
quarter of fiscal 2002 (see note 4 of Notes to Consolidated Financial
Statements).
-16-
Approximately forty-five days after the company's emergence from bankruptcy, or
approximately the end of September 2002, the company's general unsecured
creditors will receive and the disputed claims reserve will be funded with their
pro-rata share of an initial cash distribution, which will be funded by current
cash on hand from asset sales and cash flow from operations, less amounts
necessary to establish a cash reserve to pay secured, administrative, priority
and other payments, including the establishment of an operating reserve to fund
the reorganized company's continuing operations. In addition, general unsecured
claim holders will receive and the disputed claims reserve will be funded with
their pro-rata share of two separate note issuances: New Senior Notes in the
face amount of $400 million with an interest rate of three month LIBOR plus 3%
and New Payment-in-Kind (PIK) Notes in the face amount of $650 million with an
interest rate of 11%. General unsecured claimholders will also receive and the
disputed claims reserve also will be funded with their pro rata share of 100% of
the new common stock of the reorganized company.
6. Liabilities Subject to Compromise
The principal categories of obligations classified as liabilities subject to
compromise to unrelated parties under Chapter 11 cases are identified below. The
liabilities subject to compromise included in the company's financial statements
vary significantly from the stated amount of proofs of claim that have been
filed with the Bankruptcy Court and may be subject to future adjustment
depending on Bankruptcy Court action, further developments with respect to
potential disputed claims, determination as to the value of any collateral
securing claims, or other events. The Bankruptcy Court set November 30, 2001
(the "bar date") as the last date for parties to file proofs of claim with
respect to non-governmental pre-petition obligations. Payment terms for these
amounts are included in the Plan. Approximately 3,900 proofs of claim have been
filed against the Comdisco Debtors and approximately 400 claims have been filed
against the Prism Debtors. The total dollar value of these claims is
approximately $10.7 billion with respect to the Comdisco Debtors and
approximately $591 million with respect to the Prism Debtors. The Debtors filed
three Omnibus Objections (the "Omnibus Objections") seeking to disallow, reduce
or reclassify certain of these claims. As a result of the Omnibus Objections,
the aggregate dollar value of the Comdisco claims has been reduced by
approximately $3.6 billion, and the aggregate dollar value of the Prism claims
has been reduced by over $67 million. Additionally claims against the Comdisco
Debtors with an aggregate value of $2.1 billion have been withdrawn. The Debtors
continue to work to reconcile claims and intend to file a fourth Omnibus
Objection prior to the end of the company's fiscal year. In addition, numerous
Claims were asserted by various alleged creditors in unliquidated amounts. The
Debtors believe that certain claims that have been asserted are without merit
and intend to object to all such claims. There can be no assurance that the
Debtors will be successful in contesting any such Claims.
The Debtors have filed a motion with the Bankruptcy Court seeking to estimate
certain contingent, unliquidated or disputed claims for purposes of establishing
a disputed claims reserve. The Debtors anticipate that the Bankruptcy Court will
hear such motion on August 20, 2002.
Significant Disputed Claims:
a). The 80/20 Plan: Included in the claims against Comdisco are eleven
claims in the amount of approximately $223 million stemming from the company's
Ventures division. The claimants allege that the Debtors failed to make payments
under various compensation plans. The Debtors dispute the amounts claimed by the
claimants. Subsequent to June 30, 2002, The Company has agreed to a $2.5 million
settlement with one of the claimants resolving $60 million in filed claims.
b). The Shared Investment Plan ("SIP"): Many of the SIP Participants (see
Note 9 of Notes to Consolidated Financial Statements) have filed proofs of claim
alleging that the company intentionally misrepresented, concealed and omitted
material facts to induce the purchase of common stock through the SIP. The
company believes that these claims are without merit. While the company intends
to defend against those claims, the company has currently proposed in the Plan a
program to relieve a portion of employees' and former employees' SIP obligations
in exchange for the waiver of claims against Comdisco to the extent the company
makes a payment under its guaranty on behalf of a SIP participant and the
company is subrogated to the rights of the lender to collect such amounts from
the participant.
-17-
c). Securities Litigation: A total of fifteen class action lawsuits were
filed against the company alleging claims of securities fraud under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934. In connection with the
Plan confirmation process, plaintiffs agreed to withdraw their claims against
Comdisco, but maintained their rights, if any, against Nicholas K. Pontikes and
any person not released by the Plan. The settlement with such plaintiffs is
pursuant to a stipulation and agreed order dated June 13, 2002.
d) The SIP Guaranty Claim: As disclosed in Note 9 to the Consolidated
Financial Statements, the company provided a guaranty to Bank One's predecessor,
guarantying the payment of the SIP loans in the event of default. On November
29, 2001, Bank One, on behalf of itself and the other lenders, filed a proof of
claim in the company's Bankruptcy Estate in the amount of $133,036,819 ("SIP
Guaranty Claim" or "SIP Lender's Claim" or "SIP Claim" or "Master Claim"). The
SIP Guaranty Claim is a disputed claim. On July 29, 2002, the company filed an
objection to the SIP Guaranty Claim. The basis of the company's position, as
explained in this excerpt from the objection, is as follows:
"...9. After examining the statutory and regulatory laws and the terms and
conditions contained in this SIP, the debtor-in-possession believes that
this entire transaction violates the Federal margin rules that are defined
in Regulations U and X. 15 U.S.C.ss.78cc(b).
10. By this objection, Comdisco seeks an entry of an Order pursuant to 11
U.S.C. ss.ss.102(1), 105(a), and 502(b) and Rule 3007 of the Federal Rules
of Bankruptcy Procedure, disallowing the Master Claim filed by Bank One and
expunging the claim therein...."
Based on Federal Reserve Board interpretations and case law, the company
believes that the underlying SIP obligation of the participants to the lender,
as well as the related guaranty obligation of the company, violates Regulations
U and X of the Federal Reserve Board and therefore are not enforceable. If the
company receives a favorable ruling from the Bankruptcy Court, the lender's
claim will not be allowed and no obligation under the guaranty will be borne by
the company. The company, based on its own analysis and advice from its legal
counsel, believes that it has strong arguments in support of its position. On
July 30, 2002, at the Confirmation Hearing for the company's Plan of
Reorganization, the Bankruptcy Court made the following finding:
"Disputed Claims Reserve. The Debtors are required, pursuant to Section
10.4 of the Plan to estimate all Disputed General Unsecured Claims prior to
making any distribution to the holders of such claims under the Plan in a
manner to insure that an adequate reserve would be available should each
Disputed Claim become an Allowed Claim. Certain claims, including the SIP
claim, are not estimatable based on the information available to the
Debtors and the testimony of witnesses available at the hearing and,
therefore, may be reserved in their full face amount. Such reserve may not
be relied upon to show that any Disputed Claim, including the SIP Lender's
Claim (to which the Debtors intend to object) is either probable or
estimable for any other purpose."
Based on the information currently available to the company, the requirements
contained in Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies" and SOP 90-7, and the disputed nature of the SIP Guaranty Claim
it is the opinion of the management of the company that a loss related to the
SIP Guaranty Claim, although possible, is neither probable nor reasonably
estimatable at this time.
-18-
Due to the uncertain nature of many of the claims and the fact that the company
has not been able to fully assess the merits, if any, of many of these claims,
the company is unable to project the actual amount that will eventually be
determined to be required to satisfy such claims with any degree of certainty.
The principal categories of claims classified on the balance sheet as
liabilities subject to compromise under reorganization proceedings are listed
below (in millions):
June 30, September 30,
2002 2001
----------------- ------------------
Notes payable $ 917 $ 917
Senior notes 2,639 2,639
Accounts payable 17 19
Other liabilities
Accrued interest 83 83
Lease rejection claims 38 5
Other accrued expenses 25 25
----------------- ------------------
$ 3,719 $ 3,688
================= ==================
Lease rejection claims represent additional liabilities as a result of the
rejection of executory contracts, primarily property leases, and from the
determination of the Bankruptcy Court (or agreement by parties in interest) of
these rejections as allowed claims. These claims are recorded as liabilities in
accordance with SOP 90-7.
Senior notes subject to compromise include the following (amounts in millions):
June 30, September 30,
2002 2001
---------------- ------------------
Medium term notes $ 505 $ 505
5.750% Senior Notes due 2001 -- --
6.130% Senior Notes due 2001 267 267
6.375% Senior Notes due 2002 250 250
6.000% Senior Notes due 2002 345 345
5.950% Senior Notes due 2002 345 345
7.250% Senior Notes due 2002 257 257
6.125% Senior Notes due 2003 194 194
9.500% Senior Notes due 2003 476 476
----------------- ------------------
Total senior note $ 2,639 $ 2,639
================= ==================
Approximately $428 million of the medium term notes referenced above were
scheduled to mature at various dates subsequent to the Filing through June 30,
2002.
-19-
During fiscal 2001, the company's $275 million of Mandatory Par Put Remarketed
Securities-type senior debentures (MOPPRS) were called. The call was stayed as a
result of the Filing. Included in accrued interest subject to compromise is $10
million owed to the underwriter pursuant to the terms of the Remarketing
Agreement.
As a result of the Reorganization Cases, no principal or interest payments were
made on unsecured debt of the Debtors. Therefore, interest on unsecured debt of
the Debtors was not accrued after the Petition Date. Contractual interest not
recorded on unsecured pre-petition debt of the Debtors totaled approximately $70
million and $230 million for the three and nine months ended June 30, 2002.
NonDebtor subsidiaries, which were not included in the petitions, continued to
make principal and interest payments on their debt obligations and the NonDebtor
obligations under these facilities were retired subsequent to June 30, 2002.
7. Receivables
Receivables include the following as of June 30, 2002 and September 30, 2001 (in
millions):
June 30, September 30,
2002 2001
------- -------
Notes ............................... $ 185 $ 463
Accounts ............................ 233 286
Receivable from sale of leased assets 50 --
Income taxes ........................ 27 36
Other ............................... 57 104
------- -------
Total receivables ................... 587 889
Allowance for credit losses ......... (278) (302)
------- -------
Total ............................... $ 274 $ 587
======= =======
Receivable from the sale of leased assets at June 30, 2002 represents the
balance due from GE Capital on the sale by the company of its electronics,
laboratory and scientific and healthcare leasing businesses.
The company provided loans to privately held venture capital-backed companies in
networking, optical networking, software, communications, Internet-based and
other industries. The company's loans are generally structured as equipment
loans or subordinated loans. At June 30, 2002 and September 30, 2001, Comdisco
Ventures group had notes receivable of approximately $173 million and $432
million, respectively. As part of a venture note transaction, the company
receives warrants to purchase an equity interest in the customer, or a
conversion option, in each case at a stated exercise price based on the price
paid by other venture capitalists. Loans provide current income from interest
and fees. At June 30, 2002, guarantees, primarily for landlord obligations,
provided by Comdisco Ventures group in exchange for warrants to purchase equity
interest, were approximately $11 million.
-20-
The allowance for credit losses includes management's estimate of the amounts
expected to be lost on specific accounts and for losses on other as of yet
unidentified accounts included in receivables at June 30, 2002, including
estimated losses on future noncancelable lease rentals, net of estimated
recoveries from remarketing of related leased equipment. In estimating the
reserve component for unidentified losses within the receivables and lease
portfolio, management relies on historical experience, adjusted for any known
trends, including industry trends, in the portfolio.
Changes in the allowance for credit losses (combined notes and accounts
receivable) for the nine months ended June 30, 2002 and 2001 were as follows (in
millions):
Consolidated Comdisco Ventures group
----------------------- -----------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---------- ---------- ---------- -----------
Balance at beginning of period $ 302 $ 119 $ 202 $ 95
Provision for credit losses 145 341 115 306
Net credit losses (169) (209) (175) (199)
---------- ---------- ---------- -----------
Balance at end of period $ 278 $ 251 $ 142 $ 202
========== ========== ========== ===========
8. Equity Securities
The company provided financing to privately held companies, in networking,
optical networking, software, communications, Internet-based and other
industries through the purchase of equity securities. Substantially all of these
investments were made by Comdisco Ventures group. For equity investments which
are non-quoted investments, the company's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The company identifies and records impairment
losses on equity securities when events and circumstances indicate that such
assets might be impaired. Such events and circumstances can include but are not
limited to bankruptcies and/or equity down-rounds. Bankruptcies result in a full
write-off of the cost of the company's investment while equity down-rounds
result in the company writing down its investment to the most recent equity
round price. The company also has an established credit rating system that
analyzes the prospects of each portfolio company by considering certain
quantitative and qualitative factors. This quarterly analysis is also used in
determining if equity securities are partially or completely impaired.
Impairments in equity securities totaled $70 million and $101 million during the
nine months ended June 30, 2002 and 2001, respectively. During fiscal year 2002,
certain of these investments in privately held companies became
available-for-sale securities when the issuers completed initial public
offerings.
Net unrealized gains on Comdisco Ventures group public holdings were as follows
(in millions):
Gross Gross
unrealized unrealized Market
Cost gains losses value
-------- ------------- ------------- ----------
June 30, 2002 $ -- $ 1 $ -- $ 1
September 30, 2001 $ 1 $ 1 $ -- $ 2
-21-
Realized gains or losses are recorded on the trade date based upon the
difference between the proceeds and the cost basis determined using the specific
identification method. Changes in the valuation of available-for-sale securities
are included as changes in the unrealized holding gains in accumulated other
comprehensive income (loss). Net realized gains from the sale of equity
investments were $2 million and $99 million during the nine months ended June
30, 2002 and 2001, respectively. Gross realized gains from the sale of equity
investments were $5 million and $101 million during the first nine months of
fiscal 2002 and 2001, respectively. Net realized gains are included in other
revenue.
The company records the proceeds to be received from the sale or liquidation of
warrants received in conjunction with its lease or other financings as revenue
on the trade date. These gains were $14 million during the first nine months of
fiscal 2002 compared to $254 million in the year earlier period. These amounts
are included in other revenue.
9. Stockholders' Equity
Total comprehensive income (loss) consists of the following (in millions):
Three months Nine months
ended June 30, ended June 30,
2002 2001 2002 2001
--------- --------- --------- ----------
Foreign currency translation adjustments .......... $ 43 $ (2) $ 31 $ (17)
Unrealized gains (losses) on derivative instruments -- 3 (2) 5
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period .............................. 1 4 17 (292)
Reclassification adjustment for gains
included in earnings before
income taxes (benefit) ......................... (7) (17) (16) (353)
--------- --------- --------- ----------
Net unrealized gains (losses), before
income taxes (benefit) ......................... (6) (13) 1 (645)
Income taxes (benefit) ............................ (2) (4) -- (232)
--------- --------- --------- ----------
Net unrealized gains (losses) ..................... (4) (9) 1 (413)
--------- --------- --------- ----------
Other comprehensive income (loss) ................. (8) (425) 39 30
Net earnings (loss) ............................... (97) (164) (203) (130)
--------- --------- --------- ----------
Total comprehensive income (loss) ................. $ (58) $ (172) $ (173) $ (555)
========= ========= ========= ==========
Accumulated other comprehensive income (loss) presented below and in the
accompanying balance sheets consists of the accumulated net unrealized loss on
foreign currency translation adjustments, the accumulated net unrealized gain on
available-for-sale securities and the net unrealized gain on derivative
instruments (in millions):
-22-
Unrealized
Foreign gain on Unrealized Accumulated
currency available- gain on other
translation for-sale derivative comprehensive
adjustment securities instruments income (loss)
-------------- --------------- --------------- ------------------
Balance at September 30, 2001 $ (97) $ -- $ 4 $ (93)
Current period change 31 1 (2) 30
-------------- --------------- --------------- ------------------
Balance at June 30, 2002 $ (66) $ 1 $ 2 $ (63)
============== =============== =============== ==================
On May 2, 2001, the Board of Directors voted to suspend the payment of quarterly
dividends on the company's common stock until the company's liquidity and
capital position warrants the resumption of dividend payments.
In February 1998, 106 senior managers of the company purchased over six million
shares of the company's common stock for approximately $109 million. Under the
voluntary Shared Investment Plan ("SIP"), the senior managers (the SIP
Participants) took out full recourse, personal loans to purchase the shares. The
company has guaranteed repayment of the loans in the event of default. The
purchased shares represented over 4% of the then current total shares
outstanding. The loans have a scheduled outstanding principal balance of
approximately $104 million as of June 30, 2002. To the extent that the company
makes a payment under its guaranty on behalf of a SIP participant, the company
may be subrogated to the rights of the lender to collect such amounts from the
participant, subject to any defenses or claims that the SIP participant may
assert. In the Plan, the company currently proposes various discounts ranging
from 20% to 80% with respect to payment on account of subrogation claims at
graduated levels based on an employee's prepetition, post-petition, and/or
post-emergence service to the company and other consideration. The subrogation
rights of SIP participants who do not fulfill their repayment obligations will
be placed in the SIP Subrogation Trust for the benefit of stakeholders. Please
see Note 6 section d) to the Consolidated Financial Statements, referenced
herein, for the company's position on its guaranty of the SIP loans.
The Plan provides that existing equity interests were cancelled on the Effective
Date. Stockholders prior to the Effective Date and holders of allowed
subordinated claims will receive contingent distribution rights entitling
holders to distributions in increasing amounts based upon creditor recoveries
achieving specified thresholds. The company is unable to accurately predict the
ultimate value, if any, that will be realized by such equity holders and holders
of subordinated claims relative to the distribution under the Plan
10. Industry Segment and Operations by Geographic Areas
The company evaluates the performance of its operating segments based on
earnings (loss) before income taxes. Intersegment sales are not significant. The
Services segment includes IT CAP services and the remaining network services not
treated as discontinued operations. Summarized financial information (excluding
the loss from discontinued operations, and pre-tax losses on reorganization
items of $57 million and $349 million for the three months and nine months ended
June 30, 2002, respectively) for the company's reportable segments for the three
and nine months ended June 30, 2002 and 2001 is shown in the following table (in
millions). During the nine months ended June 30, 2002 and 2001, the company
invested approximately $4 million and $129 million, respectively, in
discontinued operations.
-23-
Comdisco
Three months ended Ventures
June 30, 2002 Leasing Services group Total
- ------------- ----------- ---------- ------------ ---------
Revenues $ 239 $ 21 $ 66 $ 326
Segment profit (loss) (10) 9 (31) (32)
Investing activities 75 -- 13 88
Comdisco
Three months ended Ventures
June 30, 2001 Leasing Services group Total
- ------------- ----------- ---------- ------------ ---------
Revenues $ 449 $ 29 $ 107 $ 585
Segment profit (loss) (142) (1) (119) (262)
Investing activities 243 -- 69 312
Comdisco
Nine months ended Ventures
June 30, 2002 Leasing Services group Total
- ------------- ----------- ---------- ------------ ---------
Revenues $ 970 $ 70 $ 225 $ 1,265
Segment profit (loss) 23 27 (163) (113)
Investing activities 265 -- 30 295
Comdisco
Nine months ended Ventures
June 30, 2001 Leasing Services group Total
- ------------- ----------- ---------- ------------ ---------
Revenues $ 1,450 $ 112 $ 635 $ 2,197
Segment profit (113) 6 (39) (146)
Investing activities 913 (2) 466 1,377
The following table presents revenue by geographic location based on the
location of the company's local offices (in millions):
For the three months ended For the nine months ended
June 30, June 30,
2002 2001 2002 2001
--------------------------- ------------------------
North America ......... $ 181 $ 419 $ 773 $ 1,692
Europe ................ 134 120 359 376
Pacific Rim ........... 11 46 133 129
------- ------- ------- ---------
Total ................. $ 326 $ 585 $1,265 $ 2,197
======= ======= ======= =========
The following table presents total assets by geographic location based on the
location of the company's local offices (in millions):
June 30, September 30,
2002 2001
------- -------
North America ............ $3,684 $4,326
Europe ................... 1,124 1,291
Pacific Rim .............. 230 511
------- -------
Total .................... $5,038 $6,128
======= =======
-24-
The following table presents total assets for each of the company's reportable
segments (in millions):
June 30, September 30,
2002 2001
-------- --------
Leasing .................. $4,621 $4,742
Services ................. 37 51
Ventures ................. 378 900
Net assets of discontinued
operations held for sale 2 435
-------- --------
Total .................... $5,038 $6,128
======== ========
In the presentation of the Leasing segment total assets, the company has
historically included corporate cash balances not directly attributable to a
specific segment in the leasing and North America total assets. Corporate cash
balances at June 30, 2002 and September 30, 2001 were $2.3 billion and $397
million, respectively, and are included for reporting purposes in the leasing
and North America total assets.
11. Debtor Financial Statements
The following represents the consolidation of the company and its Debtor
subsidiaries as of June 30, 2002 and September 30, 2001 and for the three and
nine months ended June 30, 2002, and 2001. Investments in NonDebtor subsidiaries
are presented using the equity method.
-25-
COMDISCO, INC. AND DEBTOR SUBSIDIARIES
(DEBTOR IN POSSESSION AS OF JUNE 30, 2002)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(UNAUDITED)
(in millions)
Three Months Ended Nine Months Ended
June 30, June 30,
------- ------- ------- -------
2002 2001 2002 2001
------- ------- ------- -------
Revenue
Leasing
Operating ............................................................. $ 101 $ 240 $ 463 $ 754
Direct financing ...................................................... 14 34 59 112
Sales-type ............................................................ 5 15 21 98
------- ------- ------- -------
Total leasing ...................................................... 120 289 543 964
Sales ...................................................................... 33 46 146 177
Technology services ........................................................ 10 21 34 77
Other ...................................................................... 16 54 48 452
Equity in earnings of nondebtor subsidiaries ............................... 3 11 40 41
------- ------- ------- -------
Total revenue ...................................................... 182 421 811 1,711
------- ------- ------- -------
Costs and expenses
Leasing
Operating ............................................................. 83 192 360 587
Sales-type ............................................................ 4 17 17 66
------- ------- ------- -------
Total leasing ....................................................... 87 209 377 653
Sales ...................................................................... 41 52 154 141
Technology services ........................................................ 5 24 23 88
Selling, general and administrative ........................................ 84 298 354 698
Interest (total contractual interest 2002 - $63 and $203) 4 100 24 277
Reorganization items ....................................................... 50 -- 341 --
------- ------- ------- -------
Total costs and expenses .............................................. 271 683 1,273 1,857
------- ------- ------- -------
Earnings (loss) from continuing operations before income taxes (benefit) and
cumulative effect of change in accounting principle ...................... (89) (262) (462) (146)
Income taxes (benefit) ..................................................... 5 (94) (58) (52)
------- ------- ------- -------
Earnings (loss) from continuing operations before
cumulative effect of change in accounting principle ...................... (94) (168) (404) (94)
Earnings (loss) from discontinued operations of
debtor subsidiaries, net of tax .......................................... (3) 4 201 (38)
Earnings (loss) from discontinued operations of
nondebtor subsidiaries, net of tax ....................................... -- -- -- --
------- ------- ------- -------
Earnings (loss) before cumulative effect of change in
accounting principle ....................................................... (97) (164) (203) (132)
Cumulative effect of change in accounting principle,
net of tax ................................................................. -- -- -- 2
------- ------- ------- -------
Net earnings (loss) ........................................................ $ (97) $ (164) $ (203) $ (130)
======= ======= ======= =======
-26
COMDISCO, INC. AND DEBTOR SUBSIDIARIES
(DEBTOR IN POSSESSION AS OF JUNE 30, 2002)
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions)
June 30, September 30,
2002 2001
------- -------
ASSETS
Cash and cash equivalents ........................ $ 2,258 $ 405
Cash - legally restricted ........................ 53 54
Receivables, net ................................. 210 503
Receivable from nondebtor subsidiaries ........... 407 558
Inventory of equipment ........................... 53 61
Leased assets:
Direct financing and sales-type ................ 567 1,277
Operating (net of accumulated depreciation) .... 395 1,350
------- -------
Net leased assets ............................ 962 2,627
Property, plant and equipment, net ............... 43 50
Equity securities ................................ 70 138
Investment in nondebtor subsidiaries ............. 340 421
Net assets of discontinued operation held for sale 2 355
Other assets ..................................... 66 188
------- -------
4,464 5,360
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities not subject to compromise
Term notes payable ............................. $ 79 $ 360
Discounted lease rentals ....................... 140 539
Notes payable ................................... -- 9
Accounts payable ................................ 19 73
Other liabilities ............................... 186 260
Income taxes .................................... 47 (11)
------- -------
471 1,230
Liabilities subject to compromise
Notes payable ................................... 917 917
Senior notes ..................................... 2,639 2,639
Accounts payable ................................ 17 19
Other liabilities ............................... 146 108
------- -------
3,719 3,683
------- -------
Common stockholders' equity ...................... 274 447
------- -------
$ 4,464 $ 5,360
======= =======
-27-
COMDISCO, INC. AND DEBTOR SUBSIDIARIES
(DEBTOR IN POSSESSION AS OF JUNE 30, 2002)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
2002 2001
---------- ---------
Cash flows from operating activities:
Operating lease and other leasing receipts ............................ $ 1,057 $ 1,510
Leasing costs, primarily rentals paid ................................. (7) (5)
Sales ................................................................. 178 210
Sales costs ........................................................... (7) (52)
Technology services receipts .......................................... 38 91
Technology services costs ............................................. (18) (82)
Note receivable receipts .............................................. 181 269
Warrant proceeds ...................................................... 28 447
Other revenue ......................................................... 39 63
Selling, general and administrative expenses .......................... (106) (254)
Interest .............................................................. (25) (219)
Income taxes .......................................................... 9 (4)
------- -------
Net cash provided by continuing operations .......................... 1,367 1,974
Net cash provided by discontinued operations ........................ 871 11
------- -------
Net cash provided by operating activities before reorganization items 2,238 1,985
------- -------
Operating cash flows from reorganization items:
Proceeds from the sale of leased assets ............................... 242 --
Interest received on cash accumulated because of Chapter 11
proceeding .......................................................... 22 --
Professional fees paid for services rendered in connection with
the Chapter 11 proceeding ........................................... (40) --
------- -------
Net cash provided by reorganization items ........................... 224 --
------- -------
Net cash provided by operating activities ........................... 2,462 1,985
------- -------
Cash flows from investing activities:
Equipment purchased for leasing ....................................... (47) (689)
Notes receivable ...................................................... (18) (210)
Equity investments .................................................... (1) (54)
Capital expenditures on discontinued operations ....................... (4) (107)
Other ................................................................. (1) 39
------- -------
Net cash used in investing activities ............................... (71) (1,021)
------- -------
Cash flows from financing activities:
Discounted lease proceeds ............................................. -- 411
Net decrease in notes and term notes payable .......................... (291) 15
Maturities and repurchases of senior notes ............................ -- (683)
Principal payments on secured debt .................................... (201) (251)
Common stock purchased and placed in treasury ......................... -- (84)
Dividends paid on common stock ........................................ -- (8)
Increase in legally restricted cash ................................... 1 (15)
Advances to nondebtor subsidiaries .................................... (49) (144)
Other, net ............................................................ 2 (10)
------- -------
Net cash used in financing activities ............................... (538) (769)
------- -------
Net increase in cash and cash equivalents ................................ 1,853 195
Cash and cash equivalents at beginning of period ......................... 405 177
------- -------
Cash and cash equivalents at end of period ............................... $ 2,258 $ 372
======= =======
-28-
COMDISCO, INC. AND DEBTOR SUBSIDIARIES
(DEBTOR IN POSSESSION AS OF JUNE 30, 2002)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
(UNAUDITED)
(in millions)
2002 2001
------- -------
Reconciliation of earnings (losses)
from continuing operations to net cash
provided by operating activities:
Earnings (losses) from continuing operations ................. $ (404) $ (94)
Adjustments to reconcile earnings (losses) from continuing
operations to net cash provided by operating activities
Leasing costs, primarily
depreciation and amortization .......................... 370 648
Leasing revenue, primarily principal portion of
direct financing and sales-type lease rentals .......... 514 546
Cost of sales ............................................ 147 89
Technology services costs, primarily
depreciation and amortization ......................... 5 6
Interest ................................................. (1) 58
Income taxes ............................................. (49) (56)
Principal portion of notes receivable .................... 157 194
Selling, general, and administrative expenses ............ 248 444
Warrant proceeds in excess of income ..................... 12 94
Reorganization items ..................................... 565 --
Other, net ............................................... 27 45
------- -------
Net cash provided by continuing operations . 1,591 1,974
Net cash provided by discontinued operations 871 11
------- -------
Net cash provided by operating activities .. $ 2,462 $ 1,985
======= =======
Supplemental Schedule of Noncash Financing Activities:
Reduction of discounted lease rentals in lease portfolio
sale ......................................................... $ 198 $ --
======= =======
See accompanying notes to consolidated financial statements.
-29-
Comdisco, Inc. and Subsidiaries
Debtor-In-Possession as of June 30, 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Voluntary Petition for Relief Under Chapter 11
On July 16, 2001 (the "Petition Date"), the company and fifty of its domestic
U.S. subsidiaries (collectively the "Debtors") filed voluntary petitions for
relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code"), in the United States Bankruptcy Court for the Northern District of
Illinois (the "Filing"). As of June 30, 2002, the Debtors were operating their
businesses as debtors-in-possession in accordance with provisions of the
Bankruptcy Code through the company's emergence. On August 12, 2002 the company
announced that its First Amended Joint Plan of Reorganization became effective
and that the company had emerged from Chapter 11. Upon emergence from
bankruptcy, Comdisco Holding Company, Inc. is the successor to Comdisco, Inc.
The Chapter 11 cases of the Debtors (collectively, the "Chapter 11 Cases") were
jointly administered under Case No. 01-24795. The company's subsidiaries located
outside of the United States and certain US subsidiaries (collectively, the
"NonDebtor Subsidiaries") were not included in the petitions. See Note 1 of the
Notes to Consolidated Financial Statements, "Chapter 11 Proceedings" for
additional information about the Filing.
Consequence of Filing
As a consequence of the Filing, all pending litigation as of the Petition Date
against the Debtors was automatically stayed by Section 362 of the Bankruptcy
Code and, absent further order of the Bankruptcy Court, no party could take any
action to recover pre-petition claims against the Debtors. In addition, as set
forth in the Plan pursuant to Section 365 of the Bankruptcy Code, the Debtors
may reject or assume pre-petition executory contracts and unexpired leases, and
other parties to contracts or leases that are rejected may assert rejection
damages claims as permitted by the Bankruptcy Code.
An official committee of unsecured creditors and an equity committee
representing common stockholders were appointed as official committees in the
Chapter 11 Cases and, in accordance with the provisions of the Bankruptcy Code,
had the right to be heard on all matters that come before the Bankruptcy Court.
These committees were dissolved on August 12, 2002 when the company emerged from
bankruptcy.
As a result of the Filing, the company was required to file various documents
periodically with the Bankruptcy Court. These filings included certain financial
information prepared on an unconsolidated basis. This information also included
statements of financial affairs, schedules of assets and liabilities, and
monthly operating reports on forms prescribed by federal bankruptcy law.
Such materials were prepared according to requirements of federal bankruptcy
law. While they provide then-current information required under federal
bankruptcy law, they are nonetheless unconsolidated, unaudited, and were
prepared in a format different from that used in the company's consolidated
financial statements filed under the securities laws. Accordingly, the company
believes that the substance and format do not allow meaningful comparison with
its regular publicly disclosed consolidated financial statements.
-30-
The materials filed with the Bankruptcy Court were not prepared for the purpose
of providing a basis for an investment decision relating to the company's common
stock, or for comparison with other financial information filed with the
Securities and Exchange Commission.
Notwithstanding, most of the Debtors' filings with the Court are available to
the public at the office of the Clerk of the Bankruptcy Court. The company
undertakes no obligation to make any further public announcement with respect to
the documents filed with the Court or any matters referred to in them.
Joint Plan of Reorganization and Disclosure Statement
On April 26, 2002, the company announced that it had filed a proposed Joint Plan
of Reorganization and Disclosure Statement with the Bankruptcy Court and on July
30, 2002, the First Amended Joint Plan of Reorganization was confirmed by the
Bankruptcy Court (collectively, the "Plan"). On August 12, 2002 (the "Effective
Date"), the company emerged from Chapter 11.
The Plan results in the substantive consolidation of the company and its
domestic U.S. subsidiaries that filed for Chapter 11 relief into two groups: (1)
the substantive consolidation of the estate of Comdisco and its subsidiaries
other than the Prism entities and; (2) the substantive consolidation of Prism
and its subsidiaries.
Upon emergence from bankruptcy, Comdisco Holding Company, Inc. is the successor
to Comdisco, Inc. and Comdisco Holding Company, Inc. has three primary operating
subsidiaries--Comdisco, Inc., Comdisco Global Holding Company, Inc., and
Comdisco Ventures, Inc. ( a subsidiary of Comdisco, Inc.). As more fully
described in the Plan, the reorganized company will continue to operate in an
orderly sale or run off of all its existing asset portfolios, which is expected
to take up to three years to complete.
Approximately forty-five days after the company's emergence from bankruptcy, or
approximately the end of September 2002, the company's general unsecured
creditors will receive and the disputed claims reserve will be funded with their
pro-rata share of an initial cash distribution, which will be funded by current
cash on hand from asset sales and cash flow from operations, less amounts
necessary to establish a cash reserve to pay secured, administrative, priority
and other payments required under the Plan, including the establishment of an
operating reserve to fund the reorganized company's continuing operations. In
addition, general unsecured claim holders will receive and the disputed claims
reserve will be funded with their pro-rata share of two separate note issuances:
New Senior Notes in the face amount of $400 million with an interest rate of
three month LIBOR plus 3% and New Payment-in-Kind (PIK) Notes in the face amount
of $650 million with an interest rate of 11%. General unsecured claimholders
will also receive and the disputed claims reserve also will be funded with their
pro rata share of 100% of the new common stock of the reorganized company.
The Plan provides that existing equity interests were cancelled as of the
Effective Date. Stockholders prior to the Effective Date and holders of allowed
subordinated claims will receive contingent distribution rights entitling
holders to distributions in increasing amounts based upon creditor recoveries
achieving specified thresholds. The company is unable to accurately predict the
ultimate value, if any, that will be realized by such equity holders and holders
of subordinated claims relative to the distribution under the Plan.
The Plan further provides that certain subrogation rights the company may have
against certain managers who participated in a Shared Investment Plan ("SIP")
will be placed in a trust for the benefit of creditors. Under the SIP program,
-31-
106 senior managers in 1998 took out full recourse, personal loans to purchase
six million shares of the company's common stock and the company provided a
guarantee in the event of default. The loans have a scheduled outstanding
principal balance at June 30, 2002 of approximately $104 million. To the extent
that the company makes a payment under its guaranty on behalf of a SIP
participant, the company may be subrogated to the rights of the lender to
collect such amounts from the participant, subject to any defenses or claims
that the SIP participant may assert. In the Plan, the company currently proposes
various discounts ranging from 20% to 80% with respect to repayment on account
of subrogation claims at graduated levels based upon an employee's prepetition,
post-petition and/or post-emergence service to the company and other
consideration. The subrogation rights of SIP participants who do not fulfill
their repayment obligations will be placed in the SIP Subrogation Trust for the
benefit of creditors.
In regard to the Prism subsidiaries, Comdisco had intercompany secured claims
against Prism that exceeded the value of the assets of Prism. Pursuant to the
Plan, Comdisco reduced its claims against the Prism entities to no more than
one-third of the total distribution to Prism creditors. The assets of the Prism
entities will continue to be liquidated.
Fresh Start Accounting
As a result of the confirmation, the company expects to adopt "fresh-start"
reporting in accordance with Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") effective
August 1, 2002. SOP 90-7 requires the company to allocate the reorganization
value of the reorganized company to its assets, and to state liabilities
existing at the Plan confirmation date at present values of amounts to be paid
determined at appropriate current interest rates. The required adjustments are
expected to materially reduce the equity of the company such that the fair value
of the liabilities will exceed the reorganization value of the assets. For
financial reporting purposes, the effective date of the emergence from
bankruptcy is expected to be the close of business on July 31, 2002.
Accordingly, the effects of the adjustments on the reported amounts of
individual assets and liabilities resulting from the adoption of fresh-start
reporting will be reflected in the company's final statement of operations prior
to emergence.
As a result of the reorganization and the recording of the restructuring
transaction and the expected implementation of Fresh Start Reporting, the
company's results of operations after July 31, 2002 will not be comparable to
results reported in prior periods.
New Officers and Directors
On the Effective Date, Ronald C. Mishler, 41, was appointed chairman and chief
executive officer of the newly reorganized company. Mishler, who joined Comdisco
in July 2001 as a senior vice president and treasurer, had been serving as
president and chief operating officer since April 26, 2002. Mishler replaces
Norman P. Blake, who had been serving as chairman and chief executive officer
since he joined Comdisco in March 2001.
The following individuals have been named to serve on the Board of Directors of
the newly reorganized Comdisco: Ronald C. Mishler, (chairman), Jeffrey A.
Brodsky, Robert M. Chefitz, William A. McIntosh and Randolph I. Thornton. On the
Effective Date, they succeeded all of the former directors of the company.
-32-
Recent Developments
Leasing: On April 18, 2002, the court approved the sale of the company's
Healthcare leasing business to GE Capital Corporation. In accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), the company recorded a pre-tax charge of $15 million ($9 million
after-tax, or $.06 per share, after-tax) in the second quarter of fiscal 2002 to
reduce cost in excess of fair value (primarily related to the write-down of
deferred assets) to reflect the difference between carrying value and estimated
proceeds from the sale. On May 31, 2002, the company and GE Capital completed a
first closing on the sale of the Healthcare assets. The company received
approximately $117 million for the sale of these assets, including the
assumption of approximately $46 million of related secured debt and other
liabilities. On June 30, 2002, the company and GE Capital completed a second
closing on the sale of Healthcare assets for which the company received an
additional $20 million, including the assumption of approximately $5 million of
related secured debt and other liabilities. Both closings are subject to an
adjustment to the proceeds based upon the completion of a final audit of the
purchased assets and assumed debt. GE rejected $28 million of Healthcare assets
due to documentation or credit issues, and Comdisco continues the management of
these assets.
On April 9, 2002, the company announced that it had agreed to sell its
information technology (IT) leasing assets in Australia and New Zealand to
Allco, an Australian company specializing in equipment and infrastructure
finance and leasing. Under the terms of the agreement, Allco will pay the
company approximately $44 million for the purchase of most of its assets in
Australia and New Zealand. On June 30, 2002, the company and Allco completed a
first closing on the sale of leased assets in Australia and New Zealand. The
company received approximately $8 million for the sale of these assets.
Additional closings at which additional assets of Australia and New Zealand will
be sold are expected to occur by September 30, 2002. In accordance with SFAS
121, the company recorded a pre-tax charge of $6 million ($4 million after-tax,
or $.03 per share after-tax) in the third quarter of fiscal 2002 to reduce cost
in excess of fair value to reflect the difference between carrying value and
estimated proceeds from the sale.
Pursuant to the Plan, the reorganized company will continue to operate in an
orderly sale or run off of all its existing asset portfolios, which is expected
to take up to three years to complete.
Management: On April 26, 2002, the company announced a new executive management
structure. Ronald C. Mishler, 41, who had been serving as chief financial
officer, was appointed president and chief operating officer of the company,
reporting to Norman P. Blake, chairman and chief executive officer. In this new
position, Mishler was responsible for all of the company's operating units, and
he retained responsibility for the company's finance and accounting areas. See
"GENERAL-NEW OFFICERS AND DIRECTORS" for management changes on the Effective
Date.
New appointments reporting to Mishler included: Francis J. Cirone, 43, who
joined Comdisco in 1984 and has served in various management positions in
Leasing and Finance, was named chief executive officer of US Leasing (Comdisco,
Inc.) ; Robert E.T. Lackey, 54, who has served as senior vice president and
chief legal officer since he joined the company in June 2001, was named chief
executive officer of Comdisco Ventures group (Comdisco Ventures, Inc.); Robert
E. Koe, 57, was named chief executive officer of European Leasing (Comdisco
Global Holding Company, Inc.); and John R. McNally, 41, who joined the company
in 1988 and has served in various management positions in Finance and Leasing,
was named president of the company's Corporate Asset Management group.
-33-
Other new appointments reporting to the chief executive officer, include:
Nazneen Razi, 49, who has served as senior vice president, Human Resources since
October 2000, was promoted to executive vice president and chief administrative
officer; Gregory D. Sabatello, 41, who has served as senior vice president and
chief information officer since June 1994, was promoted to executive vice
president and CIO; and Robert E.T. Lackey, was promoted to executive vice
president and will continue in his role as chief legal officer and as chief
executive officer of Comdisco Ventures, Inc.
The New York Stock Exchange announced on April 11, 2002 that it would suspend
trading and move to delist Comdisco common stock prior to the opening of the
market on April 12, 2002 because the stock no longer met listing requirements.
As a result, Comdisco common stock began trading on the over-the-counter market
and was traded until the emergence date when the existing common stock was
cancelled. See "GENERAL- JOINT PLAN OF REORGANIZATION AND DISCLOSURE STATEMENT"
for cancellation of equity interests on the Effective Date.
Business
The Plan provides for an up to three-year orderly runoff or sale of the
company's remaining assets, which is expected to take up to three years to
complete.
Beginning in the first quarter of fiscal 2002, following its exit from the
services businesses, the company was aligned into two primary business lines: 1)
global leasing ("Leasing"), in sectors such as electronics, telecommunications,
healthcare, pharmaceutical, biotechnology, manufacturing and other high
technology businesses, which included the leasing and remarketing of distributed
systems, such as PCs, servers, workstations and routers, communications
equipment, equipment leasing and technology lifecycle management services; and
2) venture financing through Comdisco Ventures group, which provided venture
leases, venture debt and direct equity financing to venture capital-backed
companies.
Weakening economic conditions, the Filing, and capital constraints had a
negative impact on the company's ability to provide the necessary financial
support for new lease volume. As a result, equipment purchased for leasing
decreased from $245 million in the third quarter of fiscal 2001 to $82 million
in the third quarter of fiscal 2002. Equipment purchased for lease in fiscal
2002 was primarily in Europe. Certain of the company's lease transactions,
primarily in Germany, commit the company to additional lease fundings and these
deals represent the majority of the equipment purchased for lease during the
third quarter of fiscal 2002. Declining leased assets resulted in declines in
total lease revenue and earnings contributions and cash flow from leasing.
As part of the orderly run-off or sale of remaining assets, the company
remarkets used equipment from its lease portfolio. Remarketing is the sale or
re-lease of equipment either at original lease termination or during the
original lease. These transactions may be with existing lessees or, when
equipment is returned, with new customers. Remarketing activity is comprised of
earnings from follow-on leases and gross profit on equipment sales. Remarketing
activity, an important factor for earnings, decreased in the third quarter of
fiscal 2002 compared to the third quarter of fiscal 2001. The general economic
slowdown and particularly the decrease in corporate technology equipment
spending have had a negative impact on the equipment values and remarketing
results. Uncertainty created by the company's liquidity situation and subsequent
Filing also negatively impacted the company's remarketing activities. The
decline in leased assets described in the preceding paragraph and the sale of
the Electronics, Laboratory and Scientific and Healthcare leased assets will
also have a negative impact on future contributions from remarketing activity as
the company will have fewer assets to remarket. While remarketing activity
-34-
continues to be an important contributor to quarterly earnings and cash flow
from operations in the near and long term because of the size of the company's
lease portfolio, there can be no assurance that the company will be able to
increase its remarketing activities above current levels or that these
uncertainties will not continue to have a negative impact on remarketing. See
"RISK FACTORS -- REMARKETING RESULTS ARE UNCERTAIN" below.
The company's Filing and the anticipated sale of some or all of its businesses
created uncertainty that had an adverse impact on the company's business,
ability to obtain credit, customer's confidence, its ability to retain employees
and, although the company has emerged, may impact employees' performance in
future periods. The company believes this uncertainty negatively impacted the
company's financial results for the three months ended June 30, 2002.
Furthermore, there can be no assurance that this uncertainty will not continue
to have an impact on the company's operations, and its ability to implement and
execute the Plan. See "RISK FACTORS" below for additional risks associated with
the Filing and implementation of the Plan.
In addition to the sales discussed below, please see "-Recent Developments" for
a discussion of more recent sales transactions.
On January 24, 2002, the Bankruptcy Court approved the sale of the company's
Electronics and Laboratory and Scientific equipment leasing businesses to
General Electric Capital's Commercial Equipment Financing unit (the "Buyer"), In
accordance with SFAS 121 the company recorded a pre-tax charge of $250 million
($189 million after-tax, or $1.25 per share, after-tax) in the first quarter of
fiscal 2002 to reduce cost in excess of fair value to reflect the difference
between carrying value and estimated proceeds from the sale. On April 24, 2002,
the company and the Buyer completed a first closing on the sale of approximately
$794 million of assets, or approximately 81% of the company's Electronics and
Laboratory and Scientific net leased assets at March 31, 2002. The company
received approximately $548 million for the sale of these assets, which included
the assumption of approximately $258 million of related secured debt and other
obligations. On May 31, 2002, the company and the Buyer completed a second
closing on the sale of Electronics and Laboratory and Scientific assets, for
which the company received an additional approximately $24 million, including
the assumption of approximately $5 million of related secured debt and other
obligations. Both closings are subject to an adjustment to the proceeds based
upon the completion of a final audit of the purchased assets and assumed debt.
GE rejected $93 million of assets due to documentation or credit issues, and
Comdisco continues the management of these assets.
On February 5, 2002, the company announced that had it had completed the
bankruptcy court-supervised auction process without accepting any transaction
and that it intended to retain the remaining leasing businesses (North American
IT, Telecommunications and Healthcare). Subsequent to that date, the company
announced that it had agreed to sell certain of its healthcare leasing assets in
the United States to GE Capital's Healthcare Financial Services unit.
The company announced on February 5, 2002 that it had executed an agreement for
the sale of substantially all of its North American IT CAP Services contracts to
T-Systems Inc. for approximately $7 million, plus consideration for future
business with those accounts. The sale was approved by the Bankruptcy Court on
February 14, 2002, and, closed on February 28, 2002. During the second quarter
of fiscal 2002, the company recorded a $3 million pre-tax loss on the sale to
T-Systems.
-35-
On November 15, 2001, the company completed the sale of its Availability
Solutions business to SunGard Data Systems Inc. ("SunGard") for $825 million in
cash (plus approximately $25 million in cash for estimated working capital
received in excess of agreed-upon levels). During the second quarter of fiscal
2002, the company returned $15 million to SunGard to settle all outstanding
working capital adjustments. The terms of the sale were arrived at pursuant to
the auction process approved by the Bankruptcy Court.
The sale included the purchase of assets of the U.S. operations of the
Availability Solutions business and the stock of its subsidiaries in the United
Kingdom, France and Canada. The sale excluded the purchase of the stock of
subsidiaries in Germany and Spain, as well as other identified assets, including
Network Services and IT CAP Solutions. For purposes of our consolidated
financial statements, the company has accounted for the businesses included in
the sale to SunGard as discontinued operations of the company. Furthermore, as a
result of the company's intention to exit the Availability Solutions businesses
of Germany and Spain, the company has also accounted for these businesses as
discontinued operations. As such, for the three months ended June 30, 2002 and
2000, the only businesses included within Services continuing operations are IT
CAP services business and the remaining network services business.
SUMMARY
During the quarter ended March 31, 2002, the company recorded a loss on the sale
of its North American IT CAP services of $3 million ($2 million after-tax). This
loss is included in reorganization items.
During the quarter ended December 31, 2001, the company recorded a gain on the
sale of Availability Solutions of $326 million ($199 million or $1.32 per
diluted share, after-tax). This gain is included within discontinued operations.
The Bankruptcy Court approved the sales of the company's Electronics and
Laboratory and Scientific Leasing businesses and its Healthcare leasing business
in January 2002 and April 2002, respectively. In accordance with SFAS 121, the
company recorded a pre-tax charge of $250 million ($189 million, or $1.25 per
share) in the first quarter of fiscal 2002 to reduce cost in excess of fair
value to reflect the difference between the carrying value and estimated
proceeds from the sale, or disposition of assets excluded from the sale of
Electronics and Laboratory and Scientific Leasing businesses and, in the second
quarter of fiscal 2002, a pre-tax charge of $15 million ($9 million after-tax,
or $.06 per share) for the sale of the Healthcare leasing business. These
charges are included in reorganization items.
As a result of the leased asset sales, the related impact on future taxable
income, and continued constraints on business expansion in the near-term, the
company established an income tax valuation allowance totaling $23 million, or
$.15 per share, during the quarter ended March 31, 2002. This was based on
management's assessment that it was more likely than not that the company would
not realize its net deferred tax assets. Also, the company recognized an $18
million U.S. tax benefit as a result of the recently enacted tax law change
which extends the net operating loss carry back period from two to five years.
The tax benefit had no impact on results of operations.
Net loss for the three months ended June 30, 2002 was $97 million, or $.64 per
common share, as compared a net loss of $164 million, or $1.08 per common share,
for the three months ended June 30, 2001. The decrease in the net loss in the
third quarter of fiscal 2002 compared to the third quarter of fiscal 2001 was
primarily the result of lower selling, general and administrative costs, lower
-36-
bad debt expenses, and lower interest expenses. Net loss for the nine months
ended June 30, 2002 was $203 million, or $1.35 per common share, as compared to
a net loss of $130 million, or $.86 per common share, in the prior year period.
The increase in the net loss in the nine months ended June 30, 2002 compared to
the year earlier period was primarily the result of the sales discussed above,
offset by lower selling, general and administrative costs and lower interest
expenses. Reorganization expenses incurred as a result of the bankruptcy for the
three and nine months ended June 30, 2002 were $57 million and $349 million,
respectively. The company's results of operations in the three and nine months
ended June 30, 2002 benefited from a weaker dollar, primarily during the quarter
ended June 30, 2002, resulting in foreign exchange gains, which are included in
the statements of operations in selling, general and administrative expenses, of
$26 million and $24 million, respectively.
RESULTS OF OPERATIONS
Overview
Leasing: Leasing volume decreased in the three months ended June 30, 2002 as
compared to the prior year. The decrease is due to the company's financial
constraints and the related impact on new business volume and remarketing as
discussed above (see "RISK FACTORS - UNCERTAINTIES RELATING TO THE
IMPLEMENTATION OF THE PLAN OF REORGANIZATION, general economic conditions,
anticipated asset sales and the impact of the Filing on the business.
Leasing had pretax losses of $10 million in the three months ended June 30,
2002, compared to pretax losses of $142 million and pretax losses of $10 million
the three months ended June 30, 2001 and March 31, 2002. The decrease in the
pretax losses in the third quarter of fiscal 2002 compared to the net loss in
the third quarter of fiscal 2001 was primarily the result of lower selling,
general and administrative costs, lower bad debt expenses, and lower interest
expenses. Cost of equipment placed on lease was $82 million during the quarter
ended June 30, 2002. This compares to cost of equipment placed on lease of $245
million and $185 million during the quarters ended June 30, 2001 and March 31,
2002, respectively.
Comdisco Ventures group: Comdisco Ventures group recorded revenue of $66 million
in the three months ended June 30, 2002 compared to $107 million in the year
earlier period. The decrease was due to lower revenue from the sale of equity
investments, and lower leasing revenue and interest income on venture debt.
Comdisco Ventures group had pretax losses of $31 million in the three months
ended June 30, 2002, compared to pretax losses of $119 million and pretax losses
of $63 million in the three months ended June 30, 2001 and March 31, 2002,
respectively. The decrease in pretax losses in the current period compared to
prior year period was primarily due to reduced bad debt expenses, offset by
lower revenue from the sale of equity investments.
Revenue from the sale of equity investments obtained in conjunction with the
company's financing transactions, which is included in "Other revenue" on the
Statement of Earnings (Loss), was $7 million in the three months ended June 30,
2002 compared to $17 million in the prior year period. Warrant sale proceeds and
capital gains for the three months ended June 30, 2002 and 2001 were as follows
(in millions):
-37-
For the three months ended
June 30,
2002 2001
--------------
Proceeds from the sale of equity securities $ 2 $ 11
Less: cost of equity securities ........... (4) (6)
----- -----
Capital gains (2) 5
Warrant sale proceeds ..................... 9 12
----- -----
Total ..................................... $ 7 $ 17
===== =====
Comdisco Ventures group records the proceeds from the sale of warrants received
in conjunction with its financing transactions as income on the trade date.
Historically, Comdisco Ventures group's general policy has been to sell its
equity positions in an orderly manner as soon as possible after a liquidity
event. See "Risk Factors" for a discussion of the factors that could affect the
timing of, and the amounts received, from the sales of the company's equity
interests in these companies.
Comdisco Ventures group has not actively sought new commitments since the second
quarter of fiscal 2001. Total new fundings for the three months ended June 30,
2002 and 2001 by product were as follows (in millions):
Three Months Ended
June 30,
2002 2001
---------------------------
Leases $ 1 $ 38
Debt 12 31
Equity -- --
------------ -------------
$ 13 $ 69
============ =============
Lower bad debt expense in the current quarter compared to the year earlier
quarter reflects, in part, the reduction in overall commitments and related
fundings during the last twelve months, as well as reduced overall Ventures
group total assets.
Three months ended June 30, 2002
Revenue
Total revenue for the three months ended June 30, 2002 was $326 million compared
to $585 million in the prior year quarter and $444 million in the quarter ended
March 31, 2002. The decrease in total revenue in the current year quarter
compared to the year earlier period is due to lower revenues from Comdisco
Ventures group and lower leasing revenue. The decrease in total revenue in the
quarter ended June 30, 2002 compared to the second quarter of fiscal 2002 is
primarily due to reduced revenue from leasing.
-38-
Leasing: Total leasing revenue of $205 million for the quarter ended June 30,
2002 represented a decrease of 53% compared to the year earlier period. Total
leasing revenue was $319 million in the second quarter of fiscal 2002. The
decrease in total leasing revenue in the current year period compared to both
the year earlier period and the first quarter of fiscal 2002 is primarily due to
a reduction in operating lease revenue and reduced revenue from direct financing
leases. The decrease reflects the reduction in total leased assets, and, for the
year earlier period, the reduction in remarketing activity. The company expects
the lease portfolio to continue to decline as new leasing volume remains at
relatively low levels and because of the sale of the Electronics, Laboratory and
Scientific and Healthcare leased assets and as the company continues to operate
in an orderly sale or run off of all its existing asset portfolios. The decrease
in leasing volume during the last eighteen months was initially due to a
decision by the company to reduce its capital expenditures in response to
lowered senior unsecured credit ratings in October, 2000, the resulting negative
impact on the company's access to the capital markets, and, subsequently, the
loss of access to its lines of credit, the anticipated sale of leased assets,
the customer uncertainty created by the Filing, and, effective with the
company's Plan, the orderly sale or run off of all its existing asset
portfolios.
Operating lease revenue minus operating lease cost was $26 million, or 15.4% of
operating lease revenue (collectively, the "Operating Lease Margin"), and $75
million, or 19.9% of operating lease revenue, in the three months ended June 30,
2002 and 2001, respectively. The Operating Lease Margin was $57 million, or
20.5% in the quarter ended March 31, 2002. The decrease in operating lease
revenue minus operating lease cost in the current period compared to the year
earlier period is due to significantly reduced leased assets.
Sales: Revenue from sales, which includes remarketing and buy/sell activities,
during the three months ended June 30, 2002 and 2001 is shown in the table below
(in millions):
For the three months ended June 30,
2002 2001
----------------------------------- ----------------------------------
Revenue Expense Margin Revenue Expense Margin
------------ ----------- ---------- ----------- ------------ ---------
Sales $ 84 $ 90 -7% $ 66 $ 72 -9%
The loss on equipment sales in the quarter ended June 30, 2002 is primarily from
the sale of electronics equipment. Published reports indicate continued earnings
pressures for the semi-conductor and contract manufacturers and the year-to-year
declines in bookings has negatively impacted the market for used electronics
equipment.
Technology services: Revenue from technology services was $21 million, $29
million and $25 million in the three months ended June 30, 2002 and 2001 and
March 31, 2002 respectively. The decrease in the current year period compared to
the year earlier period is primarily the result of reduced revenues from the IT
CAP service business. The prior year period included approximately $7 million of
North American IT CAP services business revenue while there were no revenues in
the current period. See "Business" for information relating to the sale of the
assets of the North American IT CAP services business.
-39-
Other revenue: Other revenue for the three months ended June 30, 2002 and 2001
was $16 million and $55 million, respectively. The components of other revenue
were as follows (in millions):
For the three months ended
June 30,
2002 2001
--------------------------------
Comdisco Ventures group:
Sale of equity holdings $ 7 $17
Interest income on notes 6 15
Other .................. -- --
------- -------
Total 13 32
Leasing:
Investment income ...... -- 8
Other .................. 3 15
------- -------
Total ................ 3 23
------- -------
Total Other revenue ...... $16 $55
======= =======
The decrease in interest income on notes reflects continued reductions in the
Comdisco Ventures group promissory note assets.
Costs and Expenses
Total costs and expenses for the quarter ended June 30, 2002 were $415 million
compared to $847 million in the prior year period. The decrease is primarily due
to reduced leasing expenses and interest expense as a result of the Filing.
Leasing costs: Leasing costs totaled $155 million for the three months ended
June 30, 2002, compared to $322 million in the year earlier period and $233
million in the first quarter of fiscal 2002. The decrease is due to the decrease
in leasing volume, sale of leased assets and a decrease in remarketing
activities recorded as sales-type leases.
Technology services costs: Services costs were $12 million, $30 million and $15
million in the three months ended June 30, 2002 and 2001 and March 31, 2002,
respectively. The decrease reflects the overall reduction in services revenue
and, for the current quarter, the sale of IT CAP Services North America in
February 2002.
Selling, general and administrative: Selling, general and administrative
expenses totaled $28 million in the quarter ended June 30, 2002 compared to $126
million in the quarter ended June 30, 2001 and $73 million in the quarter ended
March 31, 2002. The following table summarizes selling, general and
administrative expenses (in millions):
-40-
For the three months ended
June 30,
2002 2001
--------------- ---------------
Incentive compensation $ 18 $ 21
Estimated severance payments 3 8
Other compensation and benefits 18 30
Outside professional services 8 29
Foreign exchange gain (26) --
Other expenses 7 38
--------------- ---------------
$ 28 $126
=============== ===============
The reductions in severance payments and other compensation and benefits in the
current year quarter compared to the year earlier period reflect the continued
reduction in personnel. As of the Petition Date, the company had approximately
2,100 domestic employees. As of the date of emergence from bankruptcy, the
company had approximately 400 domestic employees. The decrease in outside
professional services reflects the reduction in overall operating activities and
the reduced need for system development and enhancement as the company
implements its Plan.
Write-down of equity securities: The write-down of equity securities totaled $27
million in the three months ended June 30, 2002 compared to $68 million and $10
million in the three months ended June 30, 2001 and March 31, 2002,
respectively. For equity investments which are non-quoted investments, the
company's policy is to regularly review the assumptions underlying the operating
performance and cash flow forecasts in assessing the carrying values. The
company identifies and records impairment losses on equity securities when
events and circumstances indicate that such assets might be impaired. Such
events and circumstances can include but are not limited to bankruptcies and/or
equity down-rounds. Bankruptcies result in a full write-off of the cost of the
company's investment while equity down-rounds result in the company writing down
its investment to the most recent equity round price. The company also has an
established credit rating system that analyzes the prospects of each portfolio
company by considering certain quantitative and qualitative factors. This
quarterly analysis is also used in determining if equity securities are
partially or completely impaired.
Bad debt: Bad debt expenses totaled $35 million in the three months ended June
30, 2002 compared to $117 million and $72 million in the three months ended June
30, 2001 and March 31, 2002, respectively. The decrease in the current year
period compared to the second quarter of fiscal 2001 was primarily due to a
reduction in bad debt expense for Ventures.
The following table summarizes bad debt expense (in millions):
For the three months ended
June 30,
2002 2001
------------ ------------
Comdisco Ventures group $ 13 $ 81
Leasing 22 36
------------ ------------
Total bad debt expense $ 35 $117
============ =============
-41-
Interest expense: Interest expense for the three months ended June 30, 2002 and
2001 totaled $11 and $112 million, respectively. Interest expense for the
current period primarily represents interest accrued on the company's secured
debt obligations and debt obligations of the company's foreign subsidiaries. As
of July 16, 2001, the company ceased accruing interest on the unsecured debt
obligations of the Debtors. Contractual interest on all obligations for the
three months ended June 30, 2002 was $70 million, which is $59 million in excess
of recorded interest expense included in the accompanying financial statements.
Reorganization items: See Note 4 of Notes to Consolidated Financial Statements,
which is incorporated in this section by reference, for a discussion of
reorganization items. Included in reorganization items for the three months
ended June 30, 2002 is the pre-tax charge of $6 million for the previously
discussed estimated loss on the sale of Australian and New Zealand IT assets.
Discontinued operations
Net loss from discontinued operations was $3 million for the three months ended
June 30, 2002 compared to net earnings of $4 million in the prior year period.
Prism Communications: Continued declines in the telecommunications industry in
the three months ended June 30, 2002, negatively impacted the market for
telecommunications equipment. As a result, the company recorded a charge of $3
million, or $.02 per common share, to write-down these assets to current fair
market value. The estimated fair market value of these assets is approximately
$2 million at June 30, 2002.
Availability Solutions: On November 15, 2001, the company completed the sale of
its Availability Solutions business to SunGard. The results of operations of
Availability Solutions have been classified as discontinued operations and prior
periods have been restated. Revenue from Availability Solutions was $126 million
during the three months ended June 30, 2001. Availability Solutions costs were
$120 million during the three months ended June 30, 2001. Net earnings of the
Availability Solutions business were $6 million for the three months ended June
30, 2001.
The sale excluded the purchase of the stock of subsidiaries in Germany and
Spain. The company is in the process of exiting the Availability Solutions
businesses in Germany and Spain and has accounted for these as discontinued
businesses effective September 30, 2001. Revenue and expenses for theses
businesses for three months ended June 30, 2001 were immaterial.
All periods presented, including the restatement of previously published
results, reflect the results of Availability Solutions, Network Services, and
Prism as discontinued operations.
Nine months ended June 30, 2002
Total revenue was $1.3 billion and $2.2 billion for the nine months ended June
30, 2002 and 2001, respectively. Total leasing revenue was $885 million and $1.4
billion for the nine months ended June 30, 2002 and 2001, respectively. The
-42-
decrease in total leasing revenue compared to the prior year period was due to
decreases in revenue from operating leases and sales-type leases. The decrease
in operating lease revenue in the current year period compared to the prior year
is due to the decrease in leasing volume. The decrease in leasing volume is due
to the decision by the company to reduce its capital expenditures, initially in
response to lowered senior unsecured credit ratings, and subsequently, to
proceed with an orderly liquidation and sale of the company's leased assets in
accordance with the Plan. Sales-type lease revenue decreased 65% in the current
year period compared to the year earlier period, primarily as a result of a
decrease in remarketing transactions.
Operating lease margins were $144 million, or 18.9% of operating lease revenue,
and $240 million, or 20.7% of operating lease revenue, in the nine months ended
June 30, 2002 and 2001, respectively. The decrease in operating lease revenue
minus operating lease cost in the current period compared to the year earlier
period is due to significantly reduced leased assets.
Revenue from sales, which includes sales of previously leased equipment and
buy/sell activities, totaled $263 million in the nine months ended June 30,
2002, compared to $241 million in the year earlier period. Margins on sales were
and 3.0% and 17.4% in the nine months ended June 30, 2002 and 2001,
respectively. The decrease in margin reflects the overall decrease in margins on
technology equipment and the continuing slow market for electronics equipment.
The increase in revenue in the current period is due to remarketing, primarily
electronics equipment, as the company continues the orderly sale of its existing
asset portfolios.
Revenue from services for the nine months ended June 30, 2002 and 2001 was $70
million and $112 million, respectively, a 38% decrease. The decrease is
primarily the result of reduced revenues from the IT CAP services business,
including the impact of the sale of its North American IT CAP services business
in February 2002.
Other revenue for the nine months ended June 30, 2002 and 2001 was $47 million
and $451 million, respectively. Revenue from the sale of available-for-sale
securities by Comdisco Ventures was $16 million and $353 million in the nine
months ended June 30, 2002 and 2001, respectively. During the nine months ended
June 30, 2001, twenty-five companies in the equity securities portfolio were
acquired/merged or completed an initial public offering, compared to twenty-four
companies in the year earlier period. The components of other revenue for the
nine months ended June 30, 2002 and 2001 were as follows (in millions):
For the nine months ended
June 30,
2002 2001
--------------------------------
Comdisco Ventures group:
Sale of equity holdings $16 $353
Interest income on notes 23 50
Other .................. -- 2
------- -------
Total 39 405
Leasing:
Investment income ...... -- 23
Other .................. 8 23
------- -------
Total ................ 8 46
------- -------
Total other revenue ...... $47 $451
======= =======
-43-
Warrant sale proceeds and capital gains for the nine months ended June 30, 2002
and 2001 were as follows (in millions):
For the nine months ended
June 30,
2002 2001
-------------- ---------------
Proceeds from the sale of equity securities $ 14 $ 129
Less: cost of equity securities (12) (30)
-------------- ---------------
Capital gains 2 99
Warrant sale proceeds 14 254
-------------- ---------------
Total $ 16 $ 353
============== ===============
Total costs and expenses for the nine months ended June 30, 2002 were $1.7
billion compared to $2.3 billion in the prior year period. The decrease is due
to reduced leasing costs and reduced interest expense as a result of the Filing,
offset by $349 million of reorganization items, including the $271 million of
pre-tax charges for the sales of electronics, laboratory and scientific and
healthcare leased equipment and Australian and New Zealand IT assets discussed
above.
Leasing costs totaled $651 million and $989 million in the nine months ended
June 30, 2002 and 2001, respectively. The decrease in the current year period
compared to the year earlier period is due to reduced operating lease revenue
resulting from reduced leasing volume and a reduction in sales-type lease
transactions.
Technology services costs were $43 million in the current year period compared
to $106 million in the year earlier period. The decrease reflects the overall
reduction in services offered and services revenue.
Selling, general and administrative expenses totaled $163 million in nine months
ended June 30, 2002 compared to $292 million in the prior year period. The
decrease in the current year period is primarily the result of reduced
compensation costs and $24 million of foreign exchange gains during the current
period. The following table summarizes selling, general and administrative
expenses (in millions):
For the nine months ended
June 30,
2002 2001
--------------- --------------
Incentive compensation $ 50 $ 68
Estimated severance payments 18 8
Other compensation and benefits 64 94
Outside professional services 28 34
Foreign exchange gain (24) --
Other expenses 27 88
--------------- --------------
$ 163 $ 292
=============== ==============
-44-
Write-down of equity securities: The write-down of equity securities totaled $70
million in the nine months ended June 30, 2002 compared to $101 million in the
nine months ended June 30, 2001.
Bad debt expense was $145 million and $341 million in the nine months ended June
30, 2002 and 2001, respectively. The following table summarizes bad debt expense
(in millions):
For the nine months ended
June 30,
2002 2001
------------ ------------
Comdisco Ventures group $115 $292
Leasing 30 49
------------ ------------
Total bad debt expense $145 $341
============ =============
Interest expense for the nine months ended June 30, 2002 and 2001 totaled $51
million and $315 million, respectively. Interest expense for the current period
represents interest accrued on the company's secured debt obligations and debt
obligations of the company's foreign subsidiaries. As of July 16, 2001, the
company ceased accruing interest on the Debtors unsecured debt obligations.
Contractual interest for all obligations for the nine months ended June 30, 2002
was $230 million, which is $179 million in excess of recorded interest expense
included in the accompanying financial statements.
Reorganization items: See Note 4 of Notes to Consolidated Financial Statements,
which is incorporated in this section by reference, for a discussion of
reorganization items. Included in reorganization items is the pre-tax charge of
$271 million of pre-tax charges for the sales of electronics, laboratory and
scientific and healthcare leased equipment and Australian IT assets. The pre-tax
charges are discussed above.
Discontinued operations
Net earnings from discontinued operations were $201 million for the nine months
ended June 30, 2002 compared to a net loss of $38 million in the year earlier
period.
Availability Solutions: On November 15, 2001, the company completed the sale of
its Availability Solutions business to SunGard. The results of operations of
Availability Solutions have been classified as discontinued operations and prior
periods have been restated. Revenue from Availability Solutions was $67 million
and $358 million during the nine months ended June 30, 2002 and 2001,
respectively. Availability Solutions costs were $59 million and $339 million
during the nine months ended June 30, 2002 and 2001, respectively. The decreases
in both revenues and costs were due to the sale of the business effective
November 15, 2001.
Net earnings of the Availability Solutions business were $204 million for the
nine months ended June 30, 2002 compared to $12 million in the prior year
period. Approximately $199 million of the net earnings within discontinued
operations for the current year period relates to the gain on the sale of the
Availability Solutions business.
The sale excluded the purchase of the stock of subsidiaries in Germany and
Spain. However, as a result of the company's intention to exit the Availability
Solutions businesses of Germany and Spain (including the possible sale of assets
-45-
in either or both countries), the company has also accounted for these
businesses as discontinued operations. Revenue and expenses for the company's
operations in Germany and Spain for nine months ended June 30, 2001 were
immaterial.
Network Services: During the second quarter of fiscal 2001, the network
management services business of the company was discontinued. The network
management services were transferred to a new provider during the third quarter
of fiscal 2001. Loss from discontinued operations of Network Services for the
nine months ended June 30, 2001 was $32 million, or $.20 per common share.
Due to unfavorable market conditions, Prism reduced its estimated proceeds from
the sale of assets from $80 million at September 30, 2000 to $20 million at
March 31, 2001. Given these negative market conditions, Prism accelerated the
process of shutting down its operations, thereby reducing operating costs by
approximately $30 million. As a result, the company recorded in the quarter
ended March 31, 2001 a noncash pre-tax charge of $30 million, $18 million after
tax, or $.12 per common share, to write down these assets to current estimated
fair market value. Continued declines in the telecommunications industry in the
three months ended June 30, 2002, negatively impacted the market for
telecommunications equipment. As a result, the company recorded a charge of $3
million, or $.02 per common share, to write down these assets to current fair
market value. The estimated fair market value of these assets is approximately
$2 million at June 30, 2002.
Cumulative effect of change in accounting principle
- ----------------------------------------------------
The company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," in the first quarter of fiscal 2001. SFAS No. 133 redefines
"derivative instruments" and requires that an entity recognize all derivatives
as either assets or liabilities on the balance sheet and measure those
instruments at fair value.
FINANCIAL CONDITION
At June 30, 2002, the company had cash and cash equivalents of $2.6 billion, an
increase of approximately $2.0 billion compared to September 30, 2001. Net cash
provided by operating activities for the nine months ended June 30, 2002 was
$3.0 billion. Net cash used in investing activities was $299 million in the nine
months ended June 30, 2002.
The company's primary cash flow from operating activities is leasing receipts,
which declined $613 million in the nine months ended June 30, 2002 compared to
the year earlier period. The decline reflects the continued decrease in leased
assets. Cash flow from the sale of equity securities was $28 million in the
current year period compared to $447 million in the prior year period. See
discussion above regarding sale of equity securities. Selling, general and
administrative cash expenses were $138 million in the nine months ended June 30,
2002 compared to $289 million in the year earlier period. The decrease primarily
reflects the significant reductions in personnel, primarily domestic, during the
last twelve months. Net cash provided from operating activities for the nine
months ended June 30, 2002 includes cash from remarketing through the sale of
equipment totaling $258 million.
As discussed above, during the last eighteen months the company significantly
reduced its capital expenditures. This decision was made in response to lowered
senior unsecured credit ratings in October, 2000, the resulting negative impact
on the company's access to the capital markets, and, subsequently, the loss of
access to its lines of credit, the anticipated sale of
-46-
leased assets, the customer uncertainty created by the Filing, and, effective
with the company's emergence from bankruptcy, the requirement pursuant to the
Plan that the company's activities be limited to the orderly sale or run off of
all its existing asset portfolios. Net cash used in investing activities
decreased from $1.5 billion during the nine months ended June 30, 2001 to $299
million during the nine months ended June 30, 2002. Each of the company's
investing activities were down significantly in the current period compared to
the prior year period.
Net cash used in financing activities during the nine months ended June 30, 2002
were $642 million compared to $907 million in the prior year period. The
significant decrease is due to the company's Filing. Principal payments on
outstanding unsecured debt obligations of the Debtors have been stayed as a
result of the Filing. In addition, the company's access to capital markets was
significantly reduced resulting in reduced cash flows from financing activities.
See "Recent Developments" above for a description of the Plan and its proposals
relating to general unsecured creditors, initial cash distribution, New Senior
Notes, New Payment-in-Kind Notes, equity interests, SIP and Prism.
Pursuant to the Plan, the company's activities will be limited to the orderly
run-off or sale of its existing assets, which is expected to take up to three
years. Based on the Plan, the company believes it will have sufficient cash on
hand and available from operations to meet its requirements under the Plan
through the completion of such run-off or sale. The company's primary source of
cash will be from operations, primarily from the run-off and sale of assets.
Approximately forty-five days from the Effective Date, or the end of September
2002, the company's general unsecured creditors will receive and the disputed
claims reserve will be funded with their pro-rata share of an initial
distribution. Thereafter, the company's primary uses of cash will be operating
expenses, interest and principal under the New Senior Notes and the New
Payment-in-Kind Notes and remaining distributions under the Plan.
The company's cash flow from operating activities is dependent on a number of
variables, including, but not limited to, implementation of the Plan and the
run-off or sale of remaining assets, the ability of the company to respond to
external market conditions, timely payment by its customers, global economic
conditions and the ability of the company to control operating costs and
expenses.
ADDITIONAL INFORMATION REGARDING CONTINGENT DISTRIBUTION RIGHTS
Pursuant to the terms of the contingent distribution rights to be distributed
pursuant to the Plan, the company agreed to provide information regarding the
present value of distributions to creditors in its annual and quarterly reports.
As the present value of distributions to creditors reaches certain levels of
recovery established pursuant to the Plan, the holders of the contingent
distribution rights are entitled to share in distributions made by the company
on the terms set forth in the Plan. No distributions have been made for purposes
of determining the level of recovery of creditors under the Plan. The first
distribution to creditors is expected to occur approximately forty-five days
after the company emerges from bankruptcy, or approximately the end of
September, 2002.
ADDITIONAL INFORMATION REGARDING CONTINGENT DISTRIBUTION RIGHTS
Pursuant to the terms of the contingent distribution rights to be distributed
pursuant to the Plan, the company agreed to provide information regarding the
present value of distributions to creditors in its annual and quarterly reports.
As the present value of distributions to creditors reaches certain levels of
recovery established pursuant to the Plan, the holders of the contingent
distribution rights are entitled to share in distributions made by the company
on the terms set forth in the Plan. No distributions have been made for purposes
of determining the level of recovery of creditors under the Plan. The first
distribution to creditors is expected to occur approximately forty-five days
after the company's emergence from bankruptcy, or approximately the end of
September, 2002.
-47-
RISK FACTORS
The following risk factors and other information included in this Quarterly
Report on Form 10-Q should be carefully considered. The risks and uncertainties
described below are not the only ones the company confronts. Additional risks
and uncertainties not presently known to it or that it currently deems
immaterial also may impair the company's business operations and prospects of
reorganization. If any of the following risks actually occurs, the company's
business, financial condition, operating results and prospects for
reorganization could be materially adversely affected.
UNCERTAINTIES RELATING TO IMPLEMENTATION OF THE PLAN
The company's ability to implement the Plan may be harmed by (i) the reluctance
of customers and third parties to do business with a company recently emerged
from bankruptcy proceedings; (ii) the ability of the company to attract, retain
and compensate key executives and associates and to retain employees generally;
(iii) the company's ability to obtain trade credit; and (iv) limitations imposed
by a plan narrowly focused on the orderly run-off or sale of assets.
In addition, the company has incurred and will continue to incur significant
costs associated with the reorganization. The amount of these costs, which are
being expensed as incurred, are expected to have a significant adverse affect on
the results of operations.
INHERENT UNCERTAINTY OF LIMITED BUSINESS PLAN
The company's business plan upon emergence from bankruptcy is limited to an
orderly run-off or sale of its remaining assets. This business plan is based on
numerous assumptions including the anticipated future performance of the company
in running off its operations, the time frame for the run off, general business
and economic conditions, and other matters, many of which are beyond the control
of the company and some of which may not materialize. As a result, the company's
ability to implement this business plan is inherently uncertain. In addition,
unanticipated events and circumstances occurring subsequent to the date of
emergence from bankruptcy may affect the actual financial results of the
company's operations.
THE COMPANY'S LIQUIDITY IS DEPENDENT ON A NUMBER OF FACTORS
The company's liquidity generally depends on cash provided by operating
activities. The company's cash flow from operating activities is dependent on a
number of variables, including, but not limited to, timely payment by its
customers, global economic conditions, control of operating costs and expenses
and the ability of the company to dispose of the securities held by Comdisco
Ventures group.
-48-
REMARKETING RESULTS ARE UNCERTAIN
Quarterly operating results and cash from the sale of assets depend
substantially upon remarketing transactions, which are difficult to forecast
accurately.. The general economic slowdown and particularly the decrease in
corporate technology equipment spending have had a negative impact on equipment
values and remarketing results. While remarketing activity continues to be an
important contributor to operating results in the near and long term, there can
be no assurance that the company will be able to increase its remarketing
activities above or maintain them at current levels or that the uncertainties
with the company's current financial condition and emergence will not continue
to have a negative impact on the ability of the company to sell its remaining
assets.
THE COMPANY'S INVESTMENTS IN THE COMMUNICATIONS INDUSTRY MAY CAUSE BUSINESS AND
FINANCIAL RESULTS TO SUFFER
The company's communications industry customers are generally companies with
accumulated net deficits and extensive liquidity requirements. To the extent
that these companies are unable to meet their business plans, or unable to
obtain funding or funding at reasonable rates to execute their business plans,
there could be an increase in the company's credit losses above historical
levels for businesses in the communications industry. The communications
industry has been severely affected by the current economic downturn. There can
be no assurance that this industry will rebound to levels seen prior to the
economic downturn.
CURRENT ECONOMIC CONDITIONS HAVE MADE IT DIFFICULT FOR COMDISCO VENTURES GROUP
TO TIMELY REALIZE ON ITS INVESTMENTS AND HAVE ADVERSELY AFFECTED THE ABILITY OF
COMDISCO VENTURES CUSTOMERS TO TIMELY MEET THEIR OBLIGATIONS TO THE COMPANY.
The company, through its Comdisco Ventures group, has leased equipment to, made
loans to and equity investments in various privately held companies. These
companies typically are in an early stage of development with limited operating
histories and limited or no revenues and may be expected to incur substantial
losses. Further, the current slowdown in economic growth has and could continue
to materially affect these companies. Accordingly, investments in these
companies may not result in any return and the company may lose its entire
investment and/or principal balance.
Many of the companies to which Comdisco Ventures group provided venture
financing are dependent on third parties for liquidity. The significant change
in the availability of funds has had, and may continue to have, a material
impact on the company's customer base as well as, the fair market value of its
equity instruments and credit risk on its debt instruments and commitments for
further financing. If more of these companies are unable to meet their business
plans, or unable to obtain funding or funding at reasonable rates to execute
their business plans, there could be an increase in the company's credit losses.
Further, increases in credit losses during fiscal 2001 and the nine months half
of fiscal 2002 indicate that there is an increasing number of companies in the
Comdisco Ventures group portfolio that are currently experiencing or will be
experiencing liquidity shortfalls in the near term. Early-stage companies,
unable to obtain additional financing, are reducing overhead or closing down
completely. Management has an on-going business and portfolio review process
intended to identify problem companies within Comdisco Ventures group financing
portfolio. To the extent there are revisions in management's estimates, the
company's operating results and financial condition could be materially
adversely affected.
-49-
Current economic conditions also have adversely affected the opportunities for
the acquisition/merger of the Internet-related, communications and other high
technology and emerging growth companies that make up the substantial majority
of Comdisco Ventures group's portfolio. Additionally, the public market for high
technology and other emerging growth companies is extremely volatile. Such
volatility has adversely affected the ability of the company to dispose of the
equity securities and the value of those securities on the date of sale.
Exacerbating these conditions is the fact that the equity instruments held by
the company are subject to lockup agreements restricting its ability to sell
until several months after an initial public offering. Without an available
liquidity event, the company is unable to dispose of its equity securities. As a
result, Comdisco Ventures group may not be able to generate gains or receive
proceeds from the sale of equity holdings and the company's business and
financial results may suffer. Additionally, liquidation preferences have been,
and may continue to be, granted by companies in the portfolio to parties willing
to lend to such companies. The liquidation preferences have had, and may
continue to have, an adverse impact on the value of the Comdisco Ventures
group's equity and warrant holdings. For those securities without a public
trading market, the realizable value of Comdisco Ventures group's interests may
prove to be lower than the carrying value currently reflected in the financial
statements.
IMPACT OF INTEREST RATES AND FOREIGN EXCHANGE RATES
Changes in interest rates and foreign exchange rates affect the fair market
value of the company's leased assets. Decreases in interest rates would
positively impact the value of the company's assets and a strengthening of the
dollar would negatively impact the value of our net foreign assets. As a result
of the Filing, the company did not accrue for or pay any interest on any of its
unsecured debt while in bankruptcy. Nondebtor subsidiaries continue to accrue
for and make interest payments on their debt obligations and the Nondebtor debt
obligations were paid subsequent to June 30, 2002
OPERATING RESULTS ARE SUBJECT TO QUARTERLY FLUCTUATIONS
The company's operating results are subject to quarterly fluctuations resulting
from the factors discussed above.
DISCONTINUED OPERATIONS AND THE USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. With respect to the company's
discontinued operations, actual losses could differ from those estimates and
will be reflected as adjustments in future financial statements when probable
and estimable.
DEFENSE OF CLASS ACTION LAWSUITS COULD OCCUPY COMPANY RESOURCES TO THE DETRIMENT
OF ITS BUSINESS
While the company believes the litigation outstanding against it is without
merit, the company's defense of this litigation could result in substantial
costs and a diversion of our management's attention and resources which could
materially adversely affect the company's business, results of operations and
financial condition. The purported class action litigation was subject to a
proof of claim in the company's bankruptcy which was withdrawn and the
litigation will now proceed against named former officers of the company. See
page 17 of the company's Annual Report on Form 10-K for fiscal year ended 2001
for information about this litigation.
-50-
OTHER
Other uncertainties include general business conditions, competition, ability to
sell assets, reductions in technology budgets and related spending plans and the
impact of workforce reductions on the company's operations.
-51-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the company's market risk during the
three months ended June 30, 2002. For additional information, refer to page 34
of the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 2001.
See Note 5 of Notes to Consolidated Financial Statements for average daily
borrowings and average interest rates for the nine months ended June 30, 2002.
See "Default Under Credit Facilities and Senior Debt" in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 2001 for the impact
of the Filing on the Company's outstanding obligations.
-52-
Part II Other Information
ITEM 1. LEGAL PROCEEDINGS
Material developments relating to the company's Filing during the first quarter
of fiscal 2002 are discussed in Note 1 of the Notes to the Consolidated
Financial Statements, which is incorporated in this section by this reference.
-53-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
2.00 Joint Plan of Reorganization Incorporated by reference to Exhibit 99.3
filed with the company's Current Report on Form 8-K dated April 21,
2002 and filed with the Commission on May 10, 2002.
3.01 Certificate of Incorporation of Comdisco Holdings Company, Inc.
3.02 By-Laws of Comdisco Holding Company, Inc.
4.01 Indenture Agreement between Registrant and Citibank, N.A., as Trustee
dated as of June 15, 1992 incorporated by reference to Exhibit 4.1
filed with the company's Current Report on Form 8-K dated September 1,
1992, as filed with the Commission on September 2, 1992, File No.
1-7725, the copy of Indenture, dated as of June 15, 1992, between
Registrant and Citibank, N.A., as Trustee (said Indenture defines
certain rights of security holders).
4.02 Indenture Agreement between Registrant and Chemical Bank, N.A., as
Trustee, dated as of April 1, 1988 incorporated by reference to
Exhibit 4.5 filed with the company's Form 8 dated February 21, 1991,
File No. 1-7725, the copy of Indenture dated as of April 1, 1988,
between Registrant and Manufacturers Hanover Trust Company (said
Indenture defines certain rights of security holders).
4.03 First Supplemental Indenture between Registrant and Chemical Bank,
N.A., as Trustee, dated as of January 1, 1990 incorporated by
reference to Exhibit 4.8 filed with the company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1990, File No. 1-7725,
the copy of the First Supplemental Indenture dated as of January 1,
1990, between Registrant and Manufacturers Hanover Trust Company, as
Trustee (said Indenture defines certain rights of security holders).
4.04 Amended and Restated Rights Agreement, dated as of May 4, 2000, 1997,
between the Registrant and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent, which includes as exhibits thereto the forms of
rights certificates. Incorporated by reference to Exhibit 4.1 filed
with the company's Current Report on Form 8-K dated June 13, 2000, as
filed with the Commission File No. 1-7725.
4.05 Indenture Agreement between Registrant and Chase Manhattan Bank, as
successor in interest to The Fuji Bank and Trust Company, as Trustee,
dated as of February 1, 1995 incorporated by reference to Exhibit 4.1
filed with the company's Current Report on Form 8-K dated May 15,
1995, as filed with the Commission on May 15, 1995, File No. 1-7725,
the copy of the Indenture dated as of February 1, 1995 between the
Registrant and The Fuji Bank and Trust Company, as Trustee (said
Indenture defines certain rights of security holders).
-54-
Exhibit No. Description of Exhibit
4.06 Indenture Agreement between Registrant and Chase Manhattan Bank, as
successor in interest to The Fuji Bank and Trust Company, as Trustee,
dated as of December 15, 1998 incorporated by reference to Exhibit 4.1
filed with the company's Current Report on Form 8-K dated January 19,
1999, as filed with the Commission on January 20, 1999, File No.
1-7725, the copy of the Indenture dated as of December 15, 1998
between the Registrant and The Fuji Bank and Trust Company, as Trustee
(said Indenture defines certain rights of security holders).
4.07 Indenture Agreement between Registrant and SunTrust Bank, as Trustee,
dated as of September 15, 1999 incorporated by reference to Exhibit
4.1 filed with the company's Current Report on Form 8-K dated February
29, 2000, as filed with the Commission on March 9, 2000, File No.
1-7725, the copy of the Indenture dated as of September 15, 1999
between the Registrant and SunTrust Bank, as Trustee (said Indenture
defines certain rights of security).
11.00 Computation of Earnings (Loss) Per Share
99.10 Certification pursuant to 18 u.s.c. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley act of 2002
-55-
b) Reports on Form 8-K: The company has filed the following current reports on
Form 8-K which have not been previously reported:
On August 9, 2002, the company filed a Current Report on Form 8-K dated
July 30, 2002 reporting Item 3. Bankruptcy or Receivership and reporting
Item 7. Financial Statements and Exhibits. The filing included the First
Amended Joint Plan of Reorganization dated June 13, 2002.
On August 14, 2002, the company filed Current Report on Form 8-K dated
August 12, 2002 reporting Item 5. Other Events. The filing included a press
release dated August 13, 2002 announcing the company's emergence from
bankruptcy.
-56-
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.
COMDISCO HOLDING COMPANY, INC.
(AS SUCCESSOR TO COMDISCO, INC.)
----------------------------------
Date: August 19, 2002 /s/ Ronald C. Mishler /s/ David S. Reynolds
--------------------- ----------------------
Ronald C. Mishler David S. Reynolds
Chairman and Controller
Chief Executive Officer
-57-
Exhibit 3.01
CERTIFICATE OF INCORPORATION
OF
COMDISCO HOLDING COMPANY, INC.
FIRST: The name of the Corporation is Comdisco Holding Company, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The Corporation
Company Trust.
THIRD: The business purpose of the Corporation is to sell, collect or
otherwise reduce to money the assets of the Corporation in the ordinary course
in an orderly manner, pay and discharge the Corporation's liabilities and
distribute any excess to the Corporation's shareholders in the form of dividends
or other distributions. The Corporation shall not be permitted to engage in any
activities inconsistent with the foregoing purpose. The Corporation may engage
in any lawful transaction of any or all lawful purposes for which corporations
may be incorporated under the General Corporation Law of the State of Delaware
as set forth in Title 8 of the Delaware Code (the "GCL") to accomplish that
business purpose.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 10,000,000 shares of Common Stock, each having a par
value of one cent ($0.01). Notwithstanding any other provisions contained herein
to the contrary, the Corporation shall not issue nonvoting equity securities.
This prohibition on the issuance of nonvoting equity securities is included in
this Certificate of Incorporation in compliance with Section 1123(a)(6) of the
Bankruptcy Code (11 U.S.C.ss.1123(a)(6)). The holders of Common Stock shall not
have cumulative voting rights. The holders of Common Stock shall not be entitled
to preemptive or subscription rights.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors and, in so managing the
business and affairs of the Corporation with the business purpose to
sell, collect or otherwise reduce to money the assets of the
Corporation in the ordinary course and in an orderly manner, pay and
discharge the Corporation's liabilities and distribute any excess to
the Corporation's shareholders in the form of dividends or other
distributions, the Board of Directors shall have no duty or obligation
whatsoever to consider re-commencing ordinary operations.
(2) The Board of Directors shall consist of five (5) members. Members of
the Board of Directors shall be elected for a two (2) year term.
(3) A director shall hold office until the annual meeting for the year in
which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however to prior death,
resignation, retirement, disqualification or removal from office.
(4) Until the first annual meeting of shareholders of the Corporation at
which directors are to be elected, any vacancy occurring on the Board
of Directors (i) with respect to a member originally selected to serve
on the Board of Directors by the Creditors' Committee pursuant to the
First Amended Joint Plan of Reorganization of Comdisco, Inc. and its
Affiliated Debtors and Debtors in Possession, dated as of June 13,
2002 (the "Plan"), shall be filled by a person designated by the
remaining directors selected by the Creditors' Committee, even if less
than a quorum, as a replacement to serve out the remainder of the
applicable term and (ii) with respect to the member initially serving
as the Chief Executive Officer pursuant to the Plan shall be filled by
a person designated by a majority of the Board of Directors then in
office, even if less than a quorum, to serve out the remainder of the
applicable term.
(5) Any vacancy occurring on the Board of Directors after the first annual
meeting of shareholders at which directors are to be elected may be
filled by a majority of the Board of Directors then in office, even if
less than a quorum, or by a sole remaining director. Any director
elected to fill a vacancy shall have the same remaining term as that
of his predecessor.
(6) The directors shall have concurrent power with the stockholders to
make, alter, amend, change, add to or repeal the By-Laws of the
Corporation.
(7) No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as
a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the GCL as the same exists
or may hereafter be amended. If the GCL is amended hereafter to
authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Corporation shall
be eliminated or limited to the fullest extent authorized by the GCL,
as so amended. Any repeal or modification of this Article Fifth shall
not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or
modification.
SIXTH: The Corporation shall indemnify its directors and officers to the
fullest extent authorized or permitted by applicable law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who has
ceased to be a director or officer of the Corporation and shall inure to the
benefit of his or her heirs, executors and personal and legal representatives;
provided, however, that, except for proceedings to enforce rights to
indemnification, the Corporation shall not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors. The right to indemnification conferred by this
Article Sixth shall include the right to be paid by the Corporation the expenses
incurred in defending or otherwise participating in any proceeding in advance of
its final disposition upon receipt by the Corporation of an undertaking by or on
behalf of the director or officer receiving advancement to repay the amount
advanced if it shall ultimately be determined that such person is not entitled
to be indemnified by the Corporation under this Article Sixth.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those conferred
in this Article Sixth to directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses conferred in
this Article Sixth shall not be exclusive of any other right which any person
may have or hereafter acquire under this Certificate of Incorporation, the
By-Laws of the Corporation, any statute, agreement, vote of stockholders or
disinterested directors or otherwise.
Any repeal or modification of this Article Sixth by the stockholders of the
Corporation shall not adversely affect any rights to indemnification and to the
advancement of expenses of a director or officer of the Corporation existing at
the time of such repeal or modification with respect to any acts or omissions
occurring prior to such repeal or modification.
SEVENTH: Meetings of stockholders may be held within or without the State
of Delaware, as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred upon
it by the laws of the State of Delaware, the Board of Directors shall have the
power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of at least a majority of the entire Board of Directors shall
be required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of the shares entitled to vote at an election of directors.
NINTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation, provided that, notwithstanding
Section 242(b)(1) of the GCL, any amendment shall be approved by the affirmative
vote of the holders of at least eighty percent (80%) of the voting power of the
shares entitled to vote thereon.
TENTH: The name and mailing address of the Sole Incorporator is as follows:
Deborah M. Reusch, P.O. Box 636, Wilmington, Delaware 19899.
[The remainder of this page intentionally blank.]
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the GCL, do make this Certificate,
hereby declaring and certifying that this is my act and deed and the facts
herein stated are true, and accordingly have hereunto set my hand this 8th day
of August, 2002.
/s/ Deborah M. Reusch
----------------------------
Deborah M. Reusch
Sole Incorporator
Exhibit 3.02
BY-LAWS
OF
COMDISCO HOLDING COMPANY, INC.
A Delaware Corporation
Effective August 9, 2002
TABLE OF CONTENTS
Page
ARTICLE I OFFICES........................................................................................1
Section 1. Registered Office......................................................................1
Section 2. Other Offices..........................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS......................................................................1
Section 1. Place of Meetings......................................................................1
Section 2. Annual Meetings........................................................................2
Section 3. Special Meetings.......................................................................2
Section 4. Notice.................................................................................2
Section 5. Adjournments...........................................................................3
Section 6. Quorum.................................................................................3
Section 7. Voting.................................................................................4
Section 8. Proxies................................................................................4
Section 9. Consent of Stockholders in Lieu of Meeting.............................................5
Section 10. List of Stockholders Entitled to Vote..................................................8
Section 11. Record Date............................................................................8
Section 12. Stock Ledger..........................................................................10
Section 13. Conduct of Meetings...................................................................10
Section 14. Inspectors of Election................................................................11
ARTICLE III DIRECTORS...................................................................................12
Section 1. Number and Election of Directors......................................................12
Section 2. Vacancies.............................................................................12
Section 3. Duties and Powers.....................................................................12
Section 4. Meetings..............................................................................13
Section 5. Organization..........................................................................13
Section 6. Resignations of Directors.............................................................13
Section 7. Quorum................................................................................14
Section 8. Actions of the Board by Written Consent...............................................14
Section 9. Meetings by Means of Conference Telephone.............................................14
Section 10. Committees............................................................................15
Section 11. Compensation..........................................................................15
Section 12. Interested Directors..................................................................16
ARTICLE IV OFFICERS.....................................................................................17
Section 1. Officers..............................................................................17
Section 2. Powers and Duties of the Chairman of the Board........................................18
Section 3. Powers and Duties of the Chief Executive Officer......................................18
Section 4. Powers and Duties of the Chief Operating Officer......................................19
Section 5. Powers and Duties of the President....................................................20
Section 6. Powers and Duties of the Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents......................................................20
Section 7. Powers and Duties of the Controller...................................................20
Section 8. Powers and Duties of the Treasurer....................................................21
Section 9. Powers and Duties of the Secretary....................................................21
Section 10. Powers and Duties of Additional Officers..............................................22
ARTICLE V STOCK.........................................................................................22
Section 1. Form of Certificates..................................................................22
Section 2. Signatures............................................................................22
Section 3. Lost Certificates.....................................................................23
Section 4. Transfers.............................................................................23
Section 5. Dividend Record Date..................................................................24
Section 6. Record Owners.........................................................................24
Section 7. Transfer and Registry Agents..........................................................24
ARTICLE VI NOTICES......................................................................................25
Section 1. Notices...............................................................................25
Section 2. Waivers of Notice.....................................................................26
ARTICLE VII GENERAL PROVISIONS..........................................................................26
Section 1. Dividends.............................................................................26
Section 2. Disbursements.........................................................................27
Section 3. Fiscal Year...........................................................................27
Section 4. Corporate Seal........................................................................27
ARTICLE VIII AMENDMENTS.................................................................................28
Section 1. Amendments............................................................................28
Section 2. Entire Board of Directors.............................................................28
BY-LAWS
OF
COMDISCO HOLDING COMPANY, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
Section 2. Other Offices. The Corporation also may have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the election
of directors or for any other purpose shall be held at such time and place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors. The Board of Directors may, in its sole
discretion, determine that a meeting of the stockholders shall not be held at
any place, but may instead be held solely by means of remote communication in
the manner authorized by the General Corporation Law of the State of Delaware
(the "DGCL").
Section 2. Annual Meetings. The Annual Meeting of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors. Any proper business may be transacted at the Annual
Meeting of Stockholders.
Section 3. Special Meetings. Unless otherwise required by law or by the
certificate of incorporation of the Corporation, as amended and restated from
time to time (the "Certificate of Incorporation"), Special Meetings of
Stockholders, for any purpose or purposes, may be called by either: (i) the
Chairman, the Chief Executive Officer, the President or the Secretary; (ii) any
such officer at the request in writing of the Board of Directors or a committee
of the Board of Directors that has been duly designated by the Board of
Directors and whose powers and authority include the power to call such
meetings; or (iii) stockholders owning a majority of the capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. At a Special Meeting of
Stockholders, only such business shall be conducted as shall be specified in the
notice of meeting (or any supplement thereto).
Section 4. Notice. Whenever stockholders are required or permitted to take
any action at a meeting, a written notice of the meeting shall be given which
shall state the place, if any, date and hour of the meeting, the means of remote
communications, if any, by which stockholders and proxyholders may be deemed to
be present in person and vote at such meeting, and, in the case of a Special
Meeting, the purpose or purposes for which the meeting is called. Unless
otherwise required by law, written notice of any meeting shall be given not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to notice of and to vote at such meeting.
Section 5. Adjournments. Any meeting of the stockholders may be adjourned
from time to time to reconvene at the same or some other place, and notice need
not be given of any such adjourned meeting if the time and place, if any,
thereof and the means of remote communications, if any, by which stockholders
and proxyholders may be deemed to be present in person and vote at such
adjourned meeting are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, notice of the adjourned meeting in accordance
with the requirements of Section 4 hereof shall be given to each stockholder of
record entitled to notice of and to vote at the meeting.
Section 6. Quorum. Unless otherwise required by applicable law or the
Certificate of Incorporation, the holders of a majority of the Corporation's
capital stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
in the manner provided in Section 5 hereof, until a quorum shall be present or
represented.
Section 7. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of the
stockholders, other than the election of directors, shall be decided by the vote
of the holders of a majority of the total number of votes of the Corporation's
capital stock represented and entitled to vote thereat, voting as a single
class. Unless otherwise provided in the Certificate of Incorporation, and
subject to Section 5 of Article V hereof, each stockholder represented at a
meeting of the stockholders shall be entitled to cast one (1) vote for each
share of the capital stock entitled to vote thereat held by such stockholder.
Such votes may be cast in person or by proxy as provided in Section 8 hereof.
The Board of Directors, in its discretion, or the officer of the Corporation
presiding at a meeting of the stockholders, in such officer's discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of the
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder as proxy, but no such proxy shall be voted upon after three (3)
years from its date, unless such proxy provides for a longer period. Without
limiting the manner in which a stockholder may authorize another person or
persons to act for such stockholder as proxy, the following shall constitute a
valid means by which a stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing another person or
persons to act for such stockholder as proxy. Execution may be
accomplished by the stockholder or such stockholder's authorized
officer, director, employee or agent signing such writing or causing
such person's signature to be affixed to such writing by any
reasonable means, including, but not limited to, by facsimile
signature.
(ii) A stockholder may authorize another person or persons to act for such
stockholder as proxy by transmitting or authorizing the transmission
of a telegram, cablegram or other means of electronic transmission to
the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent
duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram, cablegram
or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by
the stockholder. If it is determined that such telegrams, cablegrams
or other electronic transmissions are valid, the inspectors or, if
there are no inspectors, such other persons making that determination
shall specify the information on which they relied.
Any copy, facsimile telecommunication or other reliable reproduction
of the writing or transmission authorizing another person or persons
to act as proxy for a stockholder may be substituted or used in lieu
of the original writing or transmission for any and all purposes for
which the original writing or transmission could be used; provided,
however, that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original
writing or transmission.
Section 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of the stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered in the manner required by this Section 9 to
the Corporation, written consents signed by a sufficient number of holders to
take action are delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of the stockholders are recorded. A telegram, cablegram or other
electronic transmission consenting to an action to be taken and transmitted by a
stockholder or proxyholder, or by a person or persons authorized to act for a
stockholder or proxyholder, shall be deemed to be written, signed and dated for
the purposes of this Section 9, provided that any such telegram, cablegram or
other electronic transmission sets forth or is delivered with information from
which the Corporation can determine (i) that the telegram, cablegram or other
electronic transmission was transmitted by the stockholder or proxyholder or by
a person or persons authorized to act for the stockholder or proxyholder and
(ii) the date on which such stockholder or proxyholder or authorized person or
persons transmitted such telegram, cablegram or electronic transmission. The
date on which such telegram, cablegram or electronic transmission is transmitted
shall be deemed to be the date on which such consent was signed. No consent
given by telegram, cablegram or other electronic transmission shall be deemed to
have been delivered until such consent is reproduced in paper form and until
such paper form shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
Corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested. Any copy, facsimile or other reliable
reproduction of a consent in writing may be substituted or used in lieu of the
original writing for any and all purposes for which the original writing could
be used, provided that such copy, facsimile or other reproduction shall be a
complete reproduction of the entire original writing. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing
and who, if the action had been taken at a meeting, would have been entitled to
notice of the meeting if the record date for such meeting had been the date that
written consents signed by a sufficient number of holders to take the action
were delivered to the Corporation as provided above in this Section 9.
Section 10. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten (10) days before every meeting of the stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting (i) on a reasonably accessible electronic network, provided that the
information required to gain access to such list is provided with the notice of
the meeting, or (ii) during ordinary business hours, at the principal place of
business of the Corporation. In the event that the Corporation determines to
make the list available on an electronic network, the Corporation may take
reasonable steps to ensure that such information is available only to
stockholders of the Corporation. If the meeting is to be held at a place, then
the list shall be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
If the meeting is to be held solely by means of remote communication, then the
list shall also be open to the examination of any stockholder during the whole
time of the meeting on a reasonably accessible electronic network, and the
information required to access such list shall be provided with the notice of
the meeting.
Section 11. Record Date.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of the stockholders or any
adjournment thereof, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which
record date shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting. If no record date is fixed by
the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of the stockholders
shall be at the close of business on the day next preceding the day on
which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of
or to vote at a meeting of the stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which record date shall not be
more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date
for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of
Directors is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to
its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of the stockholders are
recorded. Delivery made to the Corporation's registered office shall
be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by applicable
law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
Section 12. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 10 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of the
stockholders.
Section 13. Conduct of Meetings. The Board of Directors of the Corporation
may adopt by resolution such rules and regulations for the conduct of any
meeting of the stockholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the Corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
Section 14. Inspectors of Election. In advance of any meeting of the
stockholders, the Board of Directors, by resolution, the Chairman, the Chief
Executive Officer or the President shall appoint one or more inspectors to act
at the meeting and make a written report thereof. One or more other persons may
be designated as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of the stockholders,
the chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by applicable law, inspectors may be
officers, employees or agents of the Corporation. Each inspector, before
entering upon the discharge of the duties of inspector, shall take and sign an
oath faithfully to execute the duties of inspector with strict impartiality and
according to the best of such inspector's ability. The inspector shall have the
duties prescribed by law and shall take charge of the polls and, when the vote
is completed, shall make a certificate of the result of the vote taken and of
such other facts as may be required by applicable law.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The number of the members of
the Board of Directors shall be as set forth in the Certificate of
Incorporation. Members of the Board of Directors shall be elected for a two (2)
year term. Except as provided in Section 2 of this Article III, each director
shall be elected by a plurality of the votes cast at the Annual Meeting of
Stockholders for the year in which his or her two-year term expires and each
such director so elected shall hold office until such director's successor is
duly elected and qualified in accordance with the Certificate of Incorporation
or until such director's earlier death, resignation or removal. Directors need
not be stockholders.
Section 2. Vacancies. Vacancies on the Board of Directors shall be filled
as set forth in the Certificate of Incorporation.
Section 3. Duties and Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such power and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or these By-Laws required to be
exercised or done by the stockholders. In so managing the business and affairs
of the Corporation with the business purpose to sell, collect or otherwise
reduce to money the assets of the Corporation in the ordinary course and in an
orderly manner, pay and discharge the Corporation's liabilities and distribute
any excess to the Corporation's shareholders in the form of dividends or other
distributions, the Board of Directors shall have no duty or obligation
whatsoever to consider re-commencing ordinary operations.
Section 4. Meetings. The Board of Directors may hold meetings, both regular
and special, either within or without the State of Delaware. Regular meetings of
the Board of Directors may be held without notice at such time and at such place
as may from time to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the Chairman, the Chief
Executive Officer, the President, or by any director. Notice thereof stating the
place, date and hour of the meeting shall be given to each director either by
mail not less than forty-eight (48) hours before the date of the meeting, by
telephone, telegram or electronic means on twenty-four (24) hours' notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
Section 5. Organization. At each meeting of the Board of Directors, the
Chairman of the Board of Directors, or, in his or her absence, a director chosen
by a majority of the directors present, shall act as chairman. The Secretary of
the Corporation shall act as secretary at each meeting of the Board of
Directors. In case the Secretary shall be absent from any meeting of the Board
of Directors, an Assistant Secretary shall perform the duties of secretary at
such meeting; and in the absence from any such meeting of the Secretary and all
the Assistant Secretaries, the chairman of the meeting may appoint any person to
act as secretary of the meeting.
Section 6. Resignations of Directors. Any director of the Corporation may
resign at any time, by giving notice in writing or by electronic transmission to
the Chairman of the Board of Directors, the President or the Secretary of the
Corporation. Such resignation shall take effect at the time therein specified
or, if no time is specified, immediately; and, unless otherwise specified in
such notice, the acceptance of such resignation shall not be necessary to make
it effective.
Section 7. Quorum. Except as otherwise required by law or the Certificate
of Incorporation, at all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting of the time and place of the adjourned meeting,
until a quorum shall be present.
Section 8. Actions of the Board by Written Consent. Unless otherwise
provided in the Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing
or by electronic transmission, and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the
Board of Directors or committee. Such filing shall be in paper form if the
minutes are maintained in paper form and shall be in electronic form if the
minutes are maintained in electronic form.
Section 9. Meetings by Means of Conference Telephone. Unless otherwise
provided in the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee thereof, may participate
in a meeting of the Board of Directors or such committee by means of a
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 9 shall constitute presence in person at such
meeting.
Section 10. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent permitted by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each committee shall keep regular minutes and report to the
Board of Directors when required.
Section 11. Compensation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
for service as director, payable in cash or securities. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for service as committee members.
Section 12. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because any such director's or officer's
vote is counted for such purpose if: (i) the material facts as to the director's
or officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; (ii) the material
facts as to the director's or officer's relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or ratified
by the Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Corporation shall be a Chairman of
the Board of Directors, a Chief Executive Officer, a Chief Operating Officer, a
President, one or more Executive Vice Presidents, one or more Senior Vice
Presidents, one or more Vice Presidents, a Controller, a Treasurer, one or more
Assistant Treasurers, a Secretary, and one or more Assistant Secretaries. Any
number of offices may be held by the same person. All such officers shall be
elected by the Board of Directors at the meeting of the Board of Directors held
on the date of each Annual Meeting of the stockholders (or action by written
consent of stockholders in lieu of the Annual Meeting of Stockholders). The
Board of Directors may elect such additional officers as they deem necessary,
who shall have such authority and shall perform such duties as the Board of
Directors from time to time prescribe. In its discretion, the Board of Directors
may leave any office unfilled.
Officers of the Corporation shall hold their offices for such terms as
shall be determined by the Board of Directors; and each officer of the
Corporation shall hold office until such officer's successor is elected and
qualified, or until such officer's earlier death, resignation or removal. Any
officer elected by the Board of Directors may be removed at any time by vote of
the Board of Directors.
The President or Chief Operating Officer may also appoint officers of the
Corporation's divisions or business units, but such individuals will not be
deemed to be officers of the Corporation.
Section 2. Powers and Duties of the Chairman of the Board. The Chairman of
the Board of Directors shall preside at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board of Directors shall be the
Chief Executive Officer of the Corporation. Except where by law the signature of
the President is required, the Chairman of the Board of Directors shall possess
the same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. He shall from time to time secure information concerning the business
and affairs of the Corporation and shall promptly lay such information before
the Board of Directors. He shall communicate to the Board of Directors all
matters presented by any officer of the Corporation for its consideration, and
shall from time to time communicate to the officers such action of the Board of
Directors as may in his judgment affect the performance of their official
duties. During the absence or disability of the President, the Chairman of the
Board of Directors shall exercise all the powers and discharge all the duties of
the President. The Chairman of the Board of Directors also shall perform such
other duties and may exercise such other powers as may from time to time be
assigned by these By-Laws or by the Board of Directors.
Section 3. Powers and Duties of the Chief Executive Officer. The Chief
Executive Officer shall be the chief executive officer of the Corporation and,
subject to the supervision, direction and control of the Board of Directors and
Chairman of the Board of Directors, shall have the general supervision,
direction and control of the business and officers of the Corporation with all
such powers as may be reasonably incident to such responsibilities. The Chief
Executive Officer shall implement the general directives, plans and policies
formulated by the Board of Directors and shall further have such duties,
responsibilities and authorities as may be assigned to him by the Board of
Directors. The Chief Executive Officer shall have the general powers and duties
of management usually vested in the chief executive officer of a corporation.
During the time of any vacancy in the office of the Chairman of the Board
of Directors or in the event of the absence of the Chairman of the Board of
Directors, the Chief Executive Officer shall have the duties and powers of the
Chairman of the Board of Directors unless otherwise determined by the Board of
Directors. In the absence of the Chairman of the Board of Directors, the Chief
Executive Officer shall preside at meetings of the Stockholders and Board of
Directors. During any time of any vacancy in the office of Chief Operating
Officer or in the event of the absence or disability of the Chief Operating
Officer, the Chief Executive Officer shall have the duties and powers of the
Chief Operating Officer unless otherwise determined by the Board of Directors.
Section 4. Powers and Duties of the Chief Operating Officer. The Chief
Operating Officer shall be the chief operating officer of the Corporation and,
subject to the supervision, direction and control of the Chief Executive Officer
and the Board of Directors, shall manage day-to-day operations of the
Corporation. He shall have the general powers and duties of management usually
vested in the chief operating officer of a corporation and such other powers and
duties as may be assigned to him by the Board of Directors, the Chief Executive
Officer or these By-Laws. In the absence of the Chief Operating Officer, his
duties shall be performed and his authority may be exercised by the Chief
Executive Officer or an Executive Vice President of the Corporation as may have
been designated by the Chief Operating Officer with the right reserved to the
Board of Directors to designate or supersede any designation so made.
During the time of any vacancy in the offices of the Chairman of the Board
of Directors and Chief Executive Officer or in the event of the absence or
disability of the Chairman of the Board of Directors and the Chief Executive
Officer, the Chief Operating Officer shall have the duties and powers of the
Chief Executive Officer unless otherwise determined by the Board of Directors.
Section 5. Powers and Duties of the President. The President shall have
such powers and perform such duties as may from time to time be assigned to him
by these By-Laws, the Board of Directors, the Chairman of the Board of Directors
or the Chief Executive Officer.
Section 6. Powers and Duties of the Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents. Each Executive Vice President, each Senior Vice
President and each Vice President shall have such powers and perform such duties
as may from time to time be assigned to him by these By-Laws, the Board of
Directors, the Chairman of the Board of Directors, the Chief Executive Officer
or the President.
Section 7. Powers and Duties of the Controller. The Controller shall be the
principal officer in charge of the accounts of the Corporation, and shall
perform such duties as from time to time may be assigned to him by the Board of
Directors, the Chairman of the Board of Directors, the Chief Executive Officer
or the President.
Section 8. Powers and Duties of the Treasurer. The Treasurer shall have
custody of all the funds and securities of the Corporation which may have come
into his hands; when necessary or proper, he may endorse or cause to be endorsed
on behalf of the Corporation for collection, checks, notes and other obligations
and shall deposit the same to the credit of the Corporation in such bank or
banks or depository or depositories as may have been designated by the Board of
Directors or by any officer authorized by the Board of Directors to make such
designation; whenever required by the Board of Directors he shall render a
statement of the funds and securities of the Corporation in his custody; and he
shall perform all acts incident to the position of Treasurer, subject to the
control of the Board of Directors.
Section 9. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he may sign with the
Chairman of the Board of Directors, the President, any Executive Vice President,
any Senior Vice President or any Vice President, in the name of the Corporation,
all contracts authorized by the Board of Directors or by any committee of the
Corporation having the requisite authority and, when so ordered by the Board of
Directors or such committee, he shall affix the seal of the Corporation thereto;
he shall have charge of the stock certificate books, transfer books and stock
ledgers and such other books and papers as the Board of Directors shall direct,
all of which shall at all reasonable times be open to the examination of any
Director, upon application at the office of the Corporation during business
hours; and he shall in general perform all the duties incident to the office of
Secretary, subject to the control of the Board of Directors.
Section 10. Powers and Duties of Additional Officers. The Board of
Directors may from time to time by resolution delegate to any Assistant Vice
President or Vice Presidents, Assistant Controller or Controllers, any Assistant
Treasurer or Treasurers and/or any Assistant Secretary or Secretaries, elected
by the Board of Directors, any of the powers or duties herein assigned to the
Vice President, Controller, the Treasurer or the Secretary, respectively.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation (i) by the Chairman of the Board of Directors, Chief Executive
Officer, the President or a Vice President and (ii) by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by such stockholder in the
Corporation.
Section 2. Signatures. Any or all of the signatures on a certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation on account of the alleged loss, theft or
destruction of such certificate or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by applicable law and in these By-Laws. Transfers of stock
shall be made on the books of the Corporation only by the person named in the
certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, properly endorsed for transfer
and payment of all necessary transfer taxes; provided, however, that such
surrender and endorsement or payment of taxes shall not be required in any case
in which the officers of the Corporation shall determine to waive such
requirement. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked "Cancelled", with the date of cancellation, by the
Secretary or Assistant Secretary of the Corporation or the transfer agent
thereof. No transfer of stock shall be valid as against the Corporation for any
purpose until it shall have been entered in the stock records of the Corporation
by an entry showing from and to whom transferred.
Section 5. Dividend Record Date. In order that the Corporation may
determine the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
Section 6. Record Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise required by law.
Section 7. Transfer and Registry Agents. The Corporation may from time to
time maintain one or more transfer offices or agencies and registry offices or
agencies at such place or places as may be determined from time to time by the
Board of Directors.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Without limiting the
manner by which notice otherwise may be given effectively to stockholders, any
notice to stockholders given by the Corporation under applicable law, the
Certificate of Incorporation or these By-Laws shall be effective if given by a
form of electronic transmission if consented to by the stockholder to whom the
notice is given. Any such consent shall be revocable by the stockholder by
written notice to the Corporation. Any such consent shall be deemed to be
revoked if (i) the Corporation is unable to deliver by electronic transmission
two (2) consecutive notices by the Corporation in accordance with such consent
and (ii) such inability becomes known to the Secretary or Assistant Secretary of
the Corporation or to the transfer agent, or other person responsible for the
giving of notice; provided, however, that the inadvertent failure to treat such
inability as a revocation shall not invalidate any meeting or other action.
Notice given by electronic transmission, as described above, shall be deemed
given: (i) if by facsimile telecommunication, when directed to a number at which
the stockholder has consented to receive notice; (ii) if by electronic mail,
when directed to an electronic mail address at which the stockholder has
consented to receive notice; (iii) if by a posting on an electronic network,
together with separate notice to the stockholder of such specific posting, upon
the later of (A) such posting and (B) the giving of such separate notice; and
(iv) if by any other form of electronic transmission, when directed to the
stockholder. Notice to directors or committee members may be given personally or
by telegram, telex, cable or by means of electronic transmission.
Section 2. Waivers of Notice. Whenever any notice is required by applicable
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed by the person or persons entitled to notice, or a waiver by electronic
transmission by the person or persons entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent thereto. Attendance of
a person at a meeting, present in person or represented by proxy, shall
constitute a waiver of notice of such meeting, except where the person attends
the meeting for the express purpose of objecting at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
Annual or Special Meeting of Stockholders or any regular or special meeting of
the directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by law, the Certificate of
Incorporation or these By-Laws.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the requirements of the DGCL and the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting of the Board of Directors (or any action by written consent
in lieu thereof in accordance with Section 8 of Article III hereof), and may be
paid in cash, in property, or in shares of the Corporation's capital stock.
Before payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for purchasing any of the shares of capital
stock, warrants, rights, options, bonds, debentures, notes, scrip or other
securities or evidences of indebtedness of the Corporation, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for any proper purpose, and the Board of Directors may modify or abolish any
such reserve.
Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. Amendments. These By-Laws may be altered, amended or repealed,
in whole or in part, or new By-Laws may be adopted by the stockholders or by the
Board of Directors; provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of the stockholders or Board of Directors, as the case may be. All such
amendments must be approved by the affirmative vote of the holders of at least
eighty percent (80%) of the voting power of the shares entitled to vote at an
election of directors or by affirmative vote of at least a majority of the
entire Board of Directors.
Section 2. Entire Board of Directors. As used in this Article VIII and in
these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
Adopted as of August 9, 2002
Comdisco, Inc. and Subsidiaries Exhibit 11.00
Debtor-In-Possession
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(in millions except per share data)
Average shares used in computing earnings (loss) per common and common
equivalent share were as follows:
Three months Nine months
ended ended
June 30, June 30,
2002 2001 2002 2001
---------- --------- --------- ----------
Average shares outstanding--basic 151 152 151 152
Effect of dilutive options -- -- -- 2
---------- --------- --------- ----------
Average shares outstanding--diluted 151 152 151 154
========== ========= ========= ==========
Net earnings (loss) to common stockholders $ (97) $ (164) $ (203) $ (130)
========== ========= ========= ==========
Net earnings (loss) per common share:
Earnings (loss) per common share-basic:
Earnings (loss) from continuing operations $ (0.62) $(1.10) $ (2.69) $(0.62)
Earnings (loss) from discontinued operations (0.02) 0.02 1.34 (0.25)
Cumulative effect of change in accounting
principle -- -- -- 0.01
---------- --------- --------- ----------
$ (0.64) $(1.08) $ (1.35) $(0.86)
========== ========= ========= ==========
Net Earnings (loss) per common share-diluted:
Earnings (loss) from continuing operations $ (0.62) $(1.10) $ (2.69) $(0.62)
Earnings (loss) from discontinued operations (0.02) 0.02 1.34 (0.25)
Cumulative effect of change in accounting
principle -- -- -- 0.01
---------- --------- --------- ----------
$ (0.64) $(1.08) $ (1.35) $(0.86)
========== ========= ========= ==========
In accordance with Statement of Financial Accounting Standards No.128-Earnings
Per Share, no potential common shares (the assumed exercise of stock options)
are included in the computation of any diluted per share amount when a loss from
continuing operations exists.
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Comdisco Holding Company, Inc. (as
successor to Comdisco, Inc.) (the "Company") on Form 10-Q for the period ending
June 30, 2002 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), the undersigned Principal Executive Officer and Principal
Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. ss350, as
adopted pursuant to ss06 of the Sarbanes-Oxley Act of 2002 that based on their
knowledge: 1) the Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, and 2) the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company as of and for the periods
covered in the Report.
August 19, 2002 /s/ Ronald C. Mishler
---------------------------
Ronald C. Mishler,
Principal Executive Officer
/s/ David S. Reynolds
---------------------------
David S. Reynolds,
Principal Financial Officer