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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-K
___________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 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 000-499-68
COMDISCO HOLDING COMPANY, INC.
(Exact name of registrant as specified in charter)
Delaware 54-2066534
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
6111 North River Road
Rosemont, Illinois 60018
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (847) 698-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
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Common Stock, par value $0.01 per share
Contingent Distribution Rights
Indicate by a check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes |_| No |X|
The aggregate market value of common stock held by non-affiliates of
Comdisco, Inc.* was approximately $27.8 million based on its closing price per
share of $0.33 on March 28, 2002. On March 28, 2002, there were 151,028,708
shares of common stock of Comdisco, Inc. outstanding. Shares of common stock
held by each officer and director and each shareholder who owned 5 percent or
more of the outstanding common stock at that time have been excluded in that
such persons may be deemed affiliates. The determination of affiliate status
is not necessarily a conclusive determination for other purposes.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |X| No |_|
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title of Each Class Number of Shares Outstanding at January 6, 2003
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Common Stock, par value $0.01 per share 4,200,000
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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*See Explanatory Note on second following page.
COMDISCO HOLDING COMPANY, INC.
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.............................................................................2
ITEM 2. DESCRIPTION OF PROPERTY............................................................................14
ITEM 3. LEGAL PROCEEDINGS..................................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................15
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..............................15
ITEM 6. SELECTED FINANCIAL DATA............................................................................16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..............................................................................18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........................................38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................................40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...............40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................................83
ITEM 11. EXECUTIVE COMPENSATION.............................................................................87
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.....94
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................................................95
ITEM 14. CONTROLS AND PROCEDURES............................................................................96
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....................................96
SIGNATURES ..................................................................................................101
CERTIFICATIONS...............................................................................................102
COMDISCO HOLDING COMPANY, INC.
2002 ANNUAL REPORT ON FORM 10-K
EXPLANATORY NOTE
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As more fully described below in Item 1, Description of Business,
Comdisco, Inc. filed for bankruptcy under Chapter 11 of the Bankruptcy Code on
July 16, 2001. Comdisco Holding Company, Inc., as the successor company to
Comdisco, Inc., emerged from bankruptcy under a confirmed plan of
reorganization that became effective on August 12, 2002. Pursuant to the plan of
reorganization, all outstanding shares of common stock of Comdisco, Inc. were
cancelled on August 12, 2002. On August 12, 2002, Comdisco Holding Company,
Inc. became the successor entity to Comdisco, Inc.
On September 30, 2002, Comdisco Holding Company, Inc. made an initial
distribution to former creditors of Comdisco, Inc. in accordance with the plan
of reorganization. The initial distribution included, among other things, the
issuance of 4.2 million shares of common stock of Comdisco Holding Company,
Inc. The aggregate market value of common stock held by non-affiliates of
Comdisco Holding Company, Inc. was approximately $165 million based on the
closing price per share on the Over-the-Counter Bulletin Board of $78.25 on
January 6, 2003. On January 6, 2003, there were 4.2 million shares of common
stock outstanding.
PART I
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Forward-Looking Statements
This Annual Report on Form 10-K contains, and our periodic filings
with the Securities and Exchange Commission and written and oral statements
made by the Company's officers and directors to press, potential investors,
securities analysts and others, will contain, 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.
These forward-looking statements are not historical facts, but rather are
predictions and generally can be identified by use of statements that include
phrases such as "believe," "expect," "anticipate," "estimate," "intend,"
"plan," "foresee," "looking ahead," "is confident," "should be," "will,"
"predicted," "likely" or other words or phrases of similar import. Similarly,
statements that describe or contain information related to matters such as our
intent, belief, or expectation with respect to financial performance, claims
resolution under the Plan, cash availability and cost-cutting measures are
forward-looking statements. These forward-looking statements often reflect a
number of assumptions and involve known and unknown risks, uncertainties and
other factors that could cause our actual results to differ materially from
those currently anticipated in these forward-looking statements. In light of
these risks and uncertainties, the forward-looking events might or might not
occur, 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.
Important factors that could cause actual results to differ
materially from those suggested by these written or oral forward-looking
statements, and could adversely affect our future financial performance,
include the risk factors discussed in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operation, below. Many of the
risk factors that could affect the results of the Company's operations are
beyond our ability to control or predict.
ITEM 1. DESCRIPTION OF BUSINESS
COMDISCO HOLDING COMPANY, INC. WAS FORMED ON AUGUST 8, 2002 FOR THE
PURPOSE OF SELLING, COLLECTING OR OTHERWISE REDUCING TO MONEY IN AN ORDERLY
MANNER THE REMAINING ASSETS OF THE COMPANY AND ALL OF ITS DIRECT AND INDIRECT
SUBSIDIARIES, INCLUDING COMDISCO, INC. THE COMPANY'S BUSINESS PURPOSE IS
LIMITED TO THE ORDERLY SALE OR RUN-OFF OF ALL OF ITS REMAINING ASSETS.
PURSUANT TO THE PLAN OF REORGANIZATION AND RESTRICTIONS CONTAINED IN ITS
CERTIFICATE OF INCORPORATION, THE COMPANY IS SPECIFICALLY PROHIBITED FROM
ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS
PURPOSE.
AS A RESULT OF THE REORGANIZATION AND THE IMPLEMENTATION OF
FRESH-START REPORTING, AS FURTHER DESCRIBED HEREIN, THE COMPANY'S RESULTS OF
OPERATIONS AFTER JULY 31, 2002 ARE NOT COMPARABLE TO RESULTS REPORTED IN PRIOR
PERIODS FOR COMDISCO, INC.
General Development of Business
Reorganized Corporate History
On July 16, 2001, Comdisco, Inc. and fifty of its domestic
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 (consolidated case number 01-24795). Comdisco
Holding Company, Inc., as the successor company to Comdisco, Inc., emerged
from bankruptcy under a confirmed plan of reorganization (the First Amended
Joint Plan of Reorganization (the "Plan")) that became effective on August 12,
2002. Prior to the effective date of the Plan, Comdisco, Inc. formed Comdisco
Holding Company, Inc., a Delaware corporation (the "Company" or "Comdisco
Holding"), and Comdisco Holding, in turn, formed Comdisco Leasing Merger
Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of
Comdisco Holding. On August 12, 2002, in accordance with the Plan, Comdisco
Leasing Merger Subsidiary, Inc. merged with and into Comdisco, Inc. such that
Comdisco, Inc. emerged as the surviving corporation of the merger and a
wholly-owned subsidiary of Comdisco Holding. As a result of that merger,
Comdisco Holding became the successor to Comdisco, Inc. A copy of the Plan for
Comdisco, Inc., as well as other information related to distributions of cash
and securities pursuant to the Plan, can be found in a Current Report on Form
8-K filed on August 9, 2002 with the Securities and Exchange Commission by
Comdisco, Inc. A copy of the Plan is filed as an exhibit hereto.
In this Annual Report on Form 10-K, references to "the Company,"
"Comdisco Holding," "we," "us" and "our" mean Comdisco Holding Company, Inc.,
its consolidated subsidiaries, including Comdisco Global Holding Company,
Inc., Comdisco, Inc., Comdisco Domestic Holding Company, Inc. and Comdisco
Ventures, Inc., and its predecessors, except in each case where the context
indicates otherwise. All references to "Comdisco, Inc." mean Comdisco, Inc.
and its subsidiaries, other than the Prism entities, prior to the Company's
emergence from bankruptcy on August 12, 2002, except where the context
indicates otherwise.
Prior to the bankruptcy, Comdisco, Inc. provided technology services
worldwide to help its customers maximize technology functionality,
predictability and availability, while freeing them from the complexity of
managing their technology. Comdisco, Inc. leased information technology
equipment to a variety of industries and more specialized equipment to key
vertical industries, including semiconductor manufacturing and electronic
assembly, healthcare, telecommunications, pharmaceutical, biotechnology and
manufacturing. Through its Ventures group, Comdisco, Inc. provided equipment
leasing and other financing and services to venture capital-backed companies.
Implementation of the Plan resulted in the reorganization of
Comdisco, Inc. and its domestic and foreign subsidiaries into Comdisco Holding
Company, Inc. and three new primary subsidiaries: (i) Comdisco Global Holding
Company, Inc. (a direct wholly-owned subsidiary of Comdisco Holding), which
manages the sale and run-off of the Company's reorganized European IT Leasing
operations and assets; (ii) Comdisco, Inc. (a direct wholly-owned subsidiary
of Comdisco Holding), which manages the sale and run-off of the Company's
reorganized US Leasing operations and assets; and (iii) Comdisco Ventures,
Inc. (a direct wholly-owned subsidiary of Comdisco, Inc.), which manages the
sale and run-off of the Company's venture financing operations and assets
("Ventures"). The Company's Corporate Asset Management, or CAM, group is
responsible for the sale and run-off of certain corporate and leasing assets
held by Comdisco Global Holding Company, Inc., Comdisco, Inc. and their
subsidiaries that remained after certain pre-emergence bankruptcy asset sales.
The CAM group's operations are managed through Comdisco, Inc. Implementation
of the Plan also resulted in the reorganization of Prism Communication
Services, Inc. and its subsidiaries ("Prism"); as a consequence, Prism is now
a direct wholly-owned subsidiary of Comdisco Domestic Holding Company, Inc.,
which is itself a direct wholly-owned subsidiary of Comdisco, Inc.
Comdisco Holding was formed on August 8, 2002 for the purpose of
selling, collecting or otherwise reducing to money in an orderly manner the
remaining assets of the Company and all of its direct and indirect
subsidiaries, including Comdisco, Inc. As more fully described in the Plan,
the Company's business purpose is limited to the orderly sale or run-off of
all of its remaining assets. Pursuant to the Plan and restrictions contained
in its certificate of incorporation, the Company is specifically prohibited
from engaging in any business activities inconsistent with its limited
business purpose.
General Terms of the Plan of Reorganization
Approximately $10.7 billion in claims were initially filed in the
Comdisco, Inc. bankruptcy case. By September 30, 2002, the claims amount was
reduced to not more than approximately $4.4 billion. This amount may be further
reduced as Disputed Claims are resolved. The $4.4 billion claims amount
consists of $3.9 billion in Allowed Claims, of which $3.6 billion is from
Allowed Class C-3 Claims and Allowed Class C-4 Claims and $0.3 billion is from
Allowed Class C-1 Claims, and an estimated $0.5 billion in claims that are
still unresolved (the "Disputed Claims"). A claim is deemed allowed by the
bankruptcy court when it is resolved and settled pursuant to the Plan or court
order (an "Allowed Claim").
In very general terms, the Plan contemplates six different classes of
claims against the Comdisco, Inc. bankruptcy estate:
o "Class C-1" Claims. This class is comprised of secured claims
against Comdisco, Inc.
o "Class C-2" Claims. This class is comprised of certain priority
claims against Comdisco, Inc., not including Administrative
Claims or Priority Tax Claims, as each are defined in the Plan.
o "Class C-3" Claims. This class is comprised of general unsecured
convenience claims against Comdisco, Inc. that were $15,000 or
less and claims in excess of $15,000, but whose holder elected
to reduce his or her claims to $15,000 in the aggregate and have
the reduced single claim reclassified as a general unsecured
convenience claim.
o "Class C-4" Claims. The largest class of claims against the
Comdisco, Inc. bankruptcy estate, this class is comprised of
general unsecured claims other than Class C-3 Claims and
includes holders of Comdisco, Inc. notes, bonds, credit lines
and other trade debt.
o "Class C-5A" Claims. This class is comprised of equity claims,
consisting of holders of shares of Comdisco, Inc. common stock
and other "Interests" as defined in the Plan. All shares of
common stock of Comdisco, Inc. were cancelled on August 12, 2002
in accordance with the Plan.
o "Class C-5B" Claims. This class is comprised of subordinated
claims against Comdisco, Inc.
The Plan provides that holders of Allowed Class C-1 Claims, Allowed
Class C-2 Claims, Administrative Claims and Priority Tax Claims will be
unimpaired. Class C-1 Claims primarily relate to discounted lease rentals
where the Company generated cash proceeds by selling the future rental
payments for specific domestic lease contracts on a non-recourse basis. As
these rental payments are collected from our customers, they are remitted to
holders of the Allowed C-1 Claims. The face amount of Class C-2 Claims,
Administrative Claims and Priority Tax Claims is approximately $8.8 million.
Administrative Claims total $5.9 million and Priority Tax Claims total $2.9
million. These claims, if and when allowed, will be paid in cash from
operations of the Company.
On August 12, 2002, pursuant to the Plan, the Company, along with its
direct wholly-owned subsidiary, Comdisco, Inc., co-issued variable rate senior
secured notes due 2004 (the "Senior Notes") in the principal amount of $400
million and 11 percent subordinated secured notes due 2005 (the "Subordinated
Notes") in the principal amount of $650 million. Further, on September 30,
2002, the Company issued 4.2 million shares of common stock, $0.01 par value
per share (the "Common Stock").
On September 30, 2002, the Company also made an initial distribution
to holders of Allowed Class C-3 and Class C-4 Claims based upon an aggregate
allowed amount of approximately $3.6 billion. As part of the initial
distribution, Allowed Claims for Class C-3 creditors were paid in cash at the
rate of approximately 89.8 percent of the allowed amount of their claims.
Allowed Claims for Class C-4 creditors received a distribution valued at 89.8
percent of the allowed amount of their claims, comprised of cash equal to
approximately 55 percent of their allowed claims, and pro-rata shares of the
Senior Notes, Subordinated Notes, new Common Stock of the Company and rights
to the Trust Assets (as defined below). In addition, Allowed Claims for Class
C-5A received contingent distribution rights ("Contingent Distribution
Rights") that may be entitled to distributions from the Company in increasing
amounts based upon Class C-4 creditor recoveries achieving specified
thresholds. If and when any Class C-5B claims are allowed, holders of such
claims also will receive Contingent Distribution Rights. However, no Class
C-5B claims have been allowed to date. More information on the Contingent
Distribution Rights can be found in a Registration Statement on Form 8-A filed
by the Company on August 12, 2002 with the Securities and Exchange Commission.
Approximately $1.3 billion face amount of outstanding claims are
Disputed Claims. Pursuant to the Plan, the Company established a reserve for
Disputed Claims in the face amount of $450 million (the "Disputed Claims
Reserve"), which has been funded based upon a bankruptcy court order granting
authority to Comdisco, Inc. to estimate certain claims. The Disputed Claims
Reserve has been established to fund a claim once the claim is deemed an
Allowed Claim so long as funds are available. Disputed Claims will be settled
only with funds in the Disputed Claims Reserve. The process of resolving the
Disputed Claims is ongoing. If a Disputed Claim is not settled consensually,
it will ultimately be heard and determined by the bankruptcy court. The
Company cannot predict with accuracy when the claims resolution process will
be completed or what the total amount of Allowed Claims will be upon
completion. Payments and distributions from the Disputed Claims Reserve will
be made as appropriate to the holder of any Disputed Claim that has become an
Allowed Claim, on the next Quarterly Distribution Date (as defined by the
Plan) after the date the Disputed Claim becomes an Allowed Claim. Such
distributions will be based upon the cumulative distributions that would have
been made to the holder of such a claim under the Plan if the Disputed Claim
had been allowed on the Effective Date (as defined by the Plan) and will not
be limited by the Disputed Claim Amounts (as defined by the Plan) previously
reserved with respect to such Disputed Claim to the extent that additional
amounts are available in the Disputed Claims Reserve, but only to the extent
that such additional amounts have not yet been distributed to holders of
Allowed Claims. Upon distribution, the Disputed Claims Reserve is reduced by
an amount equal to the amount reserved with respect to the Disputed Claim. To
the extent the amount reserved for the Disputed Claim exceeds the allowed
amount, if any, of the claim, the remainder may be distributed quarterly in
supplemental distributions to holders of Class C-4 Claims that have been
allowed in accordance with the provisions of the Plan.
The Plan further provides that, under certain circumstances,
subrogation rights that the Company may have against senior managers (the "SIP
Participants") who participated in Comdisco, Inc.'s Shared Investment Plan
("SIP") be placed in a trust for the benefit of creditors (the "Trust
Assets"). In February 1998, pursuant to the SIP, the SIP Participants took out
full recourse, personal loans to purchase approximately six million shares of
Comdisco, Inc.'s common stock. In connection therewith, Comdisco, Inc.
executed a guaranty dated February 2, 1998 (the "Guaranty") providing a
guaranty of the loans in the event of default by the SIP Participants to the
lenders under the SIP (the "SIP Lenders"). On November 29, 2001, the SIP
Lenders filed a master proof of claim in the Comdisco, Inc. bankruptcy in the
amount of $133 million ("SIP Guaranty Claim"). The SIP Guaranty Claim is a
Disputed Claim. On July 29, 2002, the Company filed an objection to the SIP
Guaranty Claim asserting various arguments in support of its defense against
the SIP Guaranty Claim. As of September 30, 2002, the loans had a scheduled
outstanding principal balance of approximately $102 million. To the extent
that the Company makes a payment or distribution to the SIP Lenders, and as a
result thereof obtains subrogation rights, whether by operation of law, by
agreement with the SIP Lenders or otherwise, such subrogation rights may
become part of the Trust Assets. Pursuant to the Plan, the Company has been
authorized to provide various levels of relief (the "SIP Relief") to the SIP
Participants on account of any subrogation claims which the Company may have
against the SIP Participants. Such SIP Relief ranges from 20 to 80 percent
with respect to repayment on account of subrogation claims at graduated levels
based upon the employee's service to the Company and other considerations. On
November 27, 2002, the bankruptcy court approved the offering by the Company
of enhanced SIP Relief of 70 percent to former employees and 80 percent to
post-emergence employees who remained with the Company following its emergence
from bankruptcy, provided that such employees executed waivers and releases in
favor of the Company, made irrevocable and unconditional agreements to pay
their unreleased SIP Subrogation Claims (as defined in the Plan) and fulfilled
certain other conditions. As of December 31, 2002, five of sixty-three former
employees and twenty-one of twenty-three post-emergence employees have
executed such waivers and releases, agreements to pay and provided additional
documentation in support of the fulfillment of certain other conditions. As
part of the acquisition of Comdisco, Inc.'s Availability Solutions business by
SunGard Data Systems, Inc. ("SunGard"), SunGard agreed to assume certain of
Comdisco, Inc.'s obligations and rights under the Guaranty as it related to
nine transferred employees. See Sales of Assets in this Item 1, below, for
information regarding the acquisition. Effective November 12, 2002, the
Company and SunGard agreed, subject to bankruptcy court approval or a
determination that such approval is not necessary, to a release of the
assumption of such obligations and the transfer back to Comdisco, Inc. of the
rights, if any, in exchange for cash consideration paid by SunGard to
Comdisco, Inc.
In regard to Prism and its subsidiaries, Comdisco, Inc. had
intercompany secured claims against Prism that exceeded the value of the
assets of Prism. Pursuant to the Plan, Comdisco, Inc. reduced its Allowed
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 and to the extent any proceeds are realized from
such liquidation, they will be distributed to creditors of Prism in accordance
with the Plan.
As more fully described in the Plan, the Company's business purpose
is limited to the orderly sale or run-off of all of its remaining assets.
Pursuant to the Plan and restrictions contained in its certificate of
incorporation, the Company is specifically prohibited from engaging in any
business activities inconsistent with its limited business purpose.
Changes in Management
On August 12, 2002, Ronald C. Mishler, 42, was appointed Chairman,
Chief Executive Officer and President of the reorganized Company. Mishler, who
joined Comdisco, Inc. in July 2001 as a senior vice president and treasurer,
had been serving as president and chief operating officer of Comdisco, Inc.
since April 26, 2002. Pursuant to the Plan, Mishler replaced Norman P. Blake,
who had been serving as chairman and chief executive officer of Comdisco, Inc.
since he joined Comdisco, Inc. in February 2001.
In addition, the following individuals have been named to serve for
two-year terms on the board of directors of the reorganized Company: Ronald C.
Mishler (chairman), Jeffrey A. Brodsky, Robert M. Chefitz, William A. McIntosh
and Randolph I. Thornton. See Item 10, Directors and Executive Officers of the
Registrant, below, for biographical information for each member of the
Company's board of directors. On August 12, 2002, they succeeded all of the
former directors of Comdisco, Inc. to serve on the board of directors of
Comdisco Holding as set forth in the Plan.
Fresh-Start Reporting
Upon its emergence from bankruptcy on August 12, 2002, the Company
adopted 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 as of July 31, 2002 for financial reporting purposes.
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. As a result, the adjustments made in
accordance with SOP 90-7 have materially impacted the financial statements of
the Company.
For financial reporting purposes only, the "effective date" of the
emergence from bankruptcy was selected as 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 are reflected in the Company's financial statements as of July 31,
2002. As a result of the reorganization and the recording of the restructuring
transaction and the implementation of fresh-start reporting pursuant to SOP
90-7, the Company's results of operations after July 31, 2002 are not
comparable to results reported in prior periods for Comdisco, Inc.
Basis of Presentation
The Company and fifty of its domestic 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 on
July 16, 2001. Prior to emerging from Chapter 11 on August 12, 2002, Comdisco,
Inc. operated its business as a debtor-in-possession subject to the
jurisdiction of the United States Bankruptcy Court. The reorganized Company
adopted fresh-start reporting and gave effect to its emergence as of July 31,
2002 for financial reporting purposes.
Under fresh-start reporting, the final consolidated balance sheet as
of July 31, 2002 became the opening consolidated balance sheet of the
reorganized Company. Since fresh-start reporting has been reflected in the
accompanying consolidated balance sheet as of September 30, 2002, the
consolidated balance as of that date is not comparable in certain material
respects to any such balance sheet for any period prior to July 31, 2002. In
addition, Comdisco, Inc.'s results of operations prior to July 31, 2002 are
not comparable to the Company's results of operations after its emergence from
bankruptcy due to the adoption of fresh-start reporting.
Sales of Assets
Leasing Asset Sales
-------------------
On January 14, 2002, Comdisco, Inc. announced the sale of
substantially all of its electronics and laboratory and scientific equipment
leasing assets to General Electric Capital Corporation ("GE Capital"). The
bankruptcy court approved the sale on January 24, 2002. On April 24, 2002,
Comdisco, Inc. 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, Comdisco, Inc. and GE
Capital completed a second closing on the sale of electronics and laboratory
and scientific assets, for which Comdisco, Inc. received an additional
approximately $24 million, including the assumption of approximately $5
million of related secured debt and other obligations. The purchase price for
both closings is subject to adjustment based upon the completion of a
post-closing review of the purchase price calculation. A portion of the
purchase price was held back at each closing pending the resolution of that
review. In addition the Company may receive additional consideration based on
the future performance of the electronics assets sold to GE Capital. Certain
electronics and laboratory and scientific assets were not purchased by GE
Capital due to documentation, credit or other issues. The Company, through its
CAM group, continues to manage the sale or run-off of these assets.
On April 4, 2002, Comdisco, Inc. announced the sale of substantially
all of its healthcare leasing assets to GE Capital. The bankruptcy court
approved the sale on April 18, 2002. On May 31, 2002, Comdisco, Inc. and GE
Capital completed a first closing on the sale of the healthcare assets.
Comdisco, Inc. 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, Comdisco, Inc. and GE
Capital completed a second closing on the sale of healthcare assets for which
Comdisco, Inc. received an additional $20 million, including the assumption of
approximately $5 million of related secured debt and other liabilities. The
purchase price for both closings is subject to an adjustment to the proceeds
based upon the completion of a post-closing review of the purchase price
calculation. A portion of the purchase price was held back at each closing
pending the resolution of that review. Certain healthcare assets were not
purchased by GE Capital due to documentation, credit, or other issues. The
Company, through its CAM group, continues to manage the sale or run-off of
these assets.
On April 9, 2002, Comdisco, Inc. announced that it had agreed to sell
substantially all of its information technology (IT) leasing assets in
Australia and New Zealand to Allco, an Australian company specializing in
equipment and infrastructure finance and leasing. The bankruptcy court
approved the sale on April 18, 2002. Under the terms of the sale agreement,
Allco agreed to hire all of the Comdisco Australia and New Zealand employees
and purchase most of its assets in Australia and New Zealand in a series of
closings. On June 28, 2002, Comdisco, Inc. and Allco completed the first
closing on the sale of leased assets in Australia and New Zealand. Comdisco,
Inc. received approximately $8 million for the sale of these assets. Comdisco,
Inc. has received $24 million for the assets sold through November 2002 and
the final closing is expected to occur during the second fiscal quarter of
2003. Allco did not purchase all of the Company's IT leasing assets in
Australia and New Zealand. As such, the Company, through its CAM group,
continues to manage the sale or run-off of these assets.
On October 18, 2002, the Company announced that it had sold Computer
Discount GmbH, a leasing subsidiary of Comdisco, Inc. formerly known as
Comdisco Austria GmbH, to the Austrian company PH Holding GmbH. Under the
terms of the purchase agreement, PH Holding GmbH agreed to pay (euro) 8.7
million (approximately U.S. $8.6 million as of September 30, 2002) for 100
percent of the stated share capital of Computer Discount GmbH. As part of the
deal, PH Holding GmbH agreed to continue to oversee the liquidation of
Comdisco Ceska Republika S.R.O., a wholly-owned Czech subsidiary of Computer
Discount GmbH. PH Holding GmbH is owned by Peter Huber, a former employee of
the Company who, until the sale, had been serving as the regional manager for
the Company's Austrian and Swiss operations. The Company's operations in
Austria comprised approximately two percent of the Company's total European
assets as of August 14, 2002, the closing date of the sale.
On October 18, 2002, the Company announced that it had sold
Comprendium Finance S.A., formerly known as Comdisco (Switzerland) S.A., a
leasing subsidiary of Comdisco Global Holding Company, Inc., to Comprendium
Investments S.A., a Swiss company. Pursuant to the terms of the sale
agreement, the Company received CHF 13.0 million (approximately U.S. $8.7
million as of September 30, 2002). Comprendium Investments S.A. is owned by
Thomas Flohr, a former employee of the Company who, until January 2001, served
as President of Comdisco Europe. The Company's operations in Switzerland
comprised approximately two percent of the Company's total European assets as
of October 10, 2002, the closing date of the sale.
On October 18, 2002, the Company announced that it, along with
Comdisco Global Holdings Company, Inc., had entered into an agreement for the
sale of the stock of the Company's French leasing subsidiaries, Comdisco
France SA and Promodata SNC, to Econocom Group SA/NV. Comdisco France S.A. was
a wholly-owned subsidiary of Comdisco Global Holding Company, Inc. and
Promodata SNC was a wholly-owned subsidiary of Comdisco France S.A. The sale
of the leasing assets closed on December 23, 2002 and proceeds in the amount
of approximately (euro) 69 million were received. These proceeds were
converted into U.S. $70 million and repatriated by the Company. The Company's
operations in France comprised approximately thirteen percent of the Company's
total European assets as of September 30, 2002.
IT CAP Services Asset Sales
---------------------------
Comdisco, Inc. 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.
Prior to its sale to T-Systems Inc., the Company's IT CAP Services
business provided strategic solutions for desktop management services to its
customers to assist them in managing their information technology assets with
the objective of increasing productivity and reducing technology cost and
risk. These technology service solutions were built around the collection,
integration, and management of information on enterprise assets through the
implementation of an integrated database of asset information. These solutions
also included improving, supporting, and managing distributed systems and
critical business processes through a single point of contact. The services,
which were designed to complement the Company's leasing activities, included
transitional strategies, integration planning and implementation, and
financing (hardware and software). The Company's integrated desktop management
software tools allowed customers to order, track and manage their inventory of
distributed systems equipment.
Availability Solutions Asset Sales
----------------------------------
On October 12, 2001, Comdisco, Inc. announced the sale of its
availability solutions business to SunGard. The bankruptcy court approved the
sale on November 9, 2001. On November 11, 2001, Comdisco, Inc. announced that
it had completed the sale for $825 million in cash (plus approximately $25
million in cash for estimated working capital received in excess of
agreed-upon levels). At closing, $45 million of the purchase price was put
into escrow to satisfy any post-closing indemnity claims and $15 million was
put into escrow to satisfy any closing date working capital shortfalls. Of the
$45 million put into escrow, approximately $2 million continues to be held in
escrow pending resolution of disputed matters. During the second quarter of
fiscal 2002, Comdisco, Inc. returned the entire $15 million working capital
escrow to SunGard to settle all outstanding working capital adjustment issues.
The sale included the purchase of assets of the domestic operations of the
availability solutions business and the stock of Comdisco, Inc.'s 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 management services and IT CAP services businesses.
Prior to its sale to SunGard, the Company's availability solutions
business provided web-hosting, including production hosting, for both primary
and alternate sites. These services included multi-site protection of a
customer's data, servers, network and applications. The Company's availability
solutions business offered continuous web-availability to ensure a continuous
web presence. Availability solutions also addressed the challenges of managing
through peak demand periods via a shared infrastructure service.
Discontinued Operations
Leasing Operations
------------------
On April 9, 2002, Comdisco, Inc. announced that it had agreed to sell
substantially all of its information technology (IT) leasing assets in
Australia and New Zealand to Allco, an Australian company specializing in
equipment and infrastructure finance and leasing. On October 18, 2002, the
Company announced that it had sold Computer Discount GmbH, a leasing
subsidiary of Comdisco, Inc. formerly known as Comdisco Austria GmbH, to the
Austrian company PH Holding GmbH. On the same day, the Company announced that
it had sold Comprendium Finance S.A., formerly known as Comdisco (Switzerland)
S.A., a leasing subsidiary of Comdisco Global Holding Company, Inc., to
Comprendium Investments S.A., a Swiss company. Finally, also on October 18,
2002, the Company announced that it, along with Comdisco Global Holdings
Company, Inc., had entered into an agreement for the sale of the stock of the
Company's French leasing subsidiaries, Comdisco France SA and Promodata SNC,
to Econocom Group SA/NV. As a result of these sales, the Australian, New
Zealand, Austrian, French and Swiss leasing operations have been accounted for
as discontinued operations, and accordingly, amounts in the financial
statements and related notes for all historical periods shown have been
restated to reflect the Australian, New Zealand, Austrian, French and Swiss
leasing operations as discontinued operations.
Availability Solutions
----------------------
Comdisco, Inc.'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. 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 historical
periods shown have been restated to reflect availability solutions as a
discontinued operation.
Network Management
------------------
During the second quarter of fiscal 2001, the network management
services segment of Comdisco, Inc. was discontinued and was subsequently
transferred to a new provider. As a result of the transfer, the network
management segment has been accounted for as a discontinued operation, and
accordingly, amounts in the financial statements and related notes for all
historical periods shown have been restated to reflect network management as a
discontinued operation.
Prism
-----
On October 1, 2000, Comdisco, Inc. ceased funding Prism and, as a
result, Prism began winding down its operations. Pursuant to the Plan, the
assets of the Prism entities will continue to be liquidated and proceeds, if
any, realized from the liquidation will continue to be distributed to
creditors of Prism. As a result, Prism has been accounted for as a
discontinued operation, and accordingly, amounts in the financial statements
and related notes for all historical periods shown have been restated to
reflect Prism as a discontinued operation.
Financial Information about Segments
See Note 21 of Notes to Consolidated Financial Statements, which is
incorporated in this section by reference, for financial information about the
Company's reportable business segments. The Company has restated the
corresponding items of segment information for earlier periods to reflect the
post-emergence reorganization changes made to its reportable segments.
Narrative Description of Business
General
Since Comdisco, Inc. emerged from Chapter 11 bankruptcy proceedings
on August 12, 2002, the Company's business activities have been limited to the
orderly sale or run-off of all of its existing asset portfolios. Pursuant to
the Plan and restrictions contained in its certificate of incorporation, the
Company is specifically prohibited from engaging in any business activities
inconsistent with its limited business purpose. The Company has not engaged in
any new leasing or financing activities, except for previously existing
customer commitments and to restructure existing equipment leases and loans to
maximize the value of the Company's assets.
Principal Business Segments
Following Comdisco, Inc.'s emergence from bankruptcy on August 12,
2002, the Company's operations were re-organized into four reportable business
groups. These business groups are: (i) US Leasing, which includes leasing
operations in the US and Canada and is managed by Comdisco, Inc.; (ii)
European IT Leasing, which is managed by Comdisco Global Holdings Company,
Inc.; (iii) Ventures, which is managed by Comdisco Ventures, Inc.; and (iv)
the Corporate Asset Management, or CAM, group. For business segment reporting
purposes, the CAM group includes various corporate assets and liabilities
managed by corporate staff.
The Company's operations are primarily conducted through its
principal office in Rosemont, Illinois and regional offices located in North
America and Europe. All of the Company's business segments are directed by
their own management teams and have their own account management operations
and customer support personnel. Overall corporate control and coordination are
achieved through centralized policies and procedures, financial reporting,
cash management, legal services, additional customer support and strategic
planning.
The following is a narrative description of the US Leasing, European
IT Leasing, Ventures and CAM business segments as operated in fiscal year
2002. See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, below, for recent developments relating to the
Company's reportable business segments.
US Leasing
----------
The Company's post-bankruptcy business purpose is limited to the
orderly sale or run-off of all of its remaining asset portfolios, including
those in the US Leasing portfolio. Pursuant to the Plan and restrictions
contained in its certificate of incorporation, the Company is specifically
prohibited from engaging in any business activities inconsistent with its
limited business purpose.
Prior to the bankruptcy, the Company provided a variety of leasing
products and related services to its customers. These services included
acquisition management, expenditure tracking, asset tracking and reselling of
third party services. The rate and all other transaction terms were
individually negotiated with customers. The leased equipment was owned by the
Company, which purchased the equipment from a variety of manufacturers.
Substantially all equipment leases that the Company originated had
specified non-cancelable initial terms ranging from two to five years. The
general terms and conditions of all of its leases were substantially similar
and were embodied in a master lease agreement. For each lessee, the lease
term, rent interval, lease rate factor and other specific terms for each piece
of leased equipment were set forth on equipment schedules, which also
incorporated the terms and conditions of its master lease agreement.
The Company bought, sold, leased and remarketed technology equipment
made by most of the leading manufacturers. Specifically, the Company leased
PCs, point of sale, server, enterprise, network, telecommunications and other
equipment. The Company's strategy for the distributed systems market was to
provide financing, asset management and reconditioning services, and software
tools to its customers.
The Company offered a variety of leasing products to the marketplace
and many times the leases were enhanced with service products for its
customers. The Company differentiated itself from competitors through a number
of service offerings tied into the assets on lease. For example, the Company's
asset management services included procurement, tracking, help desk and
break/fix services for the assets on lease.
The Company's telecommunications group, which is part of the
Company's US Leasing operations, provided leasing and remarketing, asset
management and reconditioning services for telecommunications equipment. The
Company focused on helping carriers competitively respond to network capacity
requirements through customized financing, reconditioned equipment options and
other services for various switches, routers and other telecommunications
equipment.
Today, the Company's US Leasing operations are managed and directed
from the Company's Rosemont, Illinois headquarters. Regional sales offices
also are maintained by the Company in several locations throughout the United
States.
European IT Leasing
-------------------
The Company's post-bankruptcy business purpose is limited to the
orderly sale or run-off of all of its remaining asset portfolios, including
those in the European IT Leasing portfolio. Pursuant to the Plan and
restrictions contained in its certificate of incorporation, the Company is
specifically prohibited from engaging in any business activities inconsistent
with its limited business purpose.
The European IT Leasing segment's operations, assets and business
strategy are substantially similar to those of the US Leasing segment.
However, the European IT Leasing segment offered a different variety of
leasing products to the marketplace than those of US Leasing. For example, the
technology refresh option product, offered primarily in Europe, involves
long-term funding commitments and allowed customers to reduce technology risk
while maintaining a predictable spending pattern.
Prior to bankruptcy, the Company's European IT Leasing operations
were conducted through its subsidiaries with multiple operations centers
across Europe. Today, European IT Leasing has substantially consolidated its
operations into a single operation located in Germany.
Ventures
--------
The Company's post-bankruptcy business purpose is limited to the
orderly sale or run-off of all of its remaining asset portfolios, including
those in the Ventures business segment. Pursuant to the Plan and restrictions
contained in its certificate of incorporation, the Company is specifically
prohibited from engaging in any business activities inconsistent with its
limited business purpose. Prior to bankruptcy, however, the Ventures group
structured financial relationships specific to a company's needs and provided
services specific to the company's stage of development. The Ventures group
served as a strategic financing source to complement venture capital and
commercial banking relationships and provided a means for leveraging the
equity capital invested.
The Ventures group invested in various stages of companies from seed
stage to pre-IPO companies and offered financing products that included
leasing, subordinated debt, secured debt (e.g., lines of credit, working
capital), bridge loans, expansion loans, acquisition financing, landlord
guarantees, convertible debt, and equity. The Ventures group also offered the
value added services of the Company, such as discounted purchasing of new
equipment and access to reconditioned equipment.
The Ventures group provided venture leases, venture debt and direct
equity financing to venture capital-backed companies. Venture leases were
leases with warrants that were intended to compensate the Ventures group for
providing equipment leases with terms having lower periodic cash costs than
leases without warrants. Similarly, venture debt was a high-risk loan with
warrants or a conversion-to-equity feature with more flexible terms than more
traditional debt financing. Direct equity financings involved the Ventures
group's purchase of convertible preferred stock and common stock from its
customers.
The Ventures group provided financing to companies providing Internet
services, and in industries that included software and computer services,
communications and networking, hardware, semiconductors, biotechnology and
medical devices, and others. Although Comdisco, Inc. funded the Ventures
group's contractual financing commitments in place as of July 16, 2001, the
Company has not made new venture financing commitments since the second
quarter of fiscal 2001.
On the effective date of the Plan, the assets of the Ventures group
were transferred to Comdisco Ventures, Inc., which is responsible for the
orderly sale or run-off of the remaining assets in the portfolio.
The Corporate Asset Management Group ("CAM")
--------------------------------------------
CAM was established as a separate business unit pursuant to the Plan,
operating as a division of Comdisco, Inc. CAM's business purpose is limited to
the orderly sale or run-off of all of the remaining assets that it manages.
For business segment reporting purposes, the CAM group includes various
corporate assets and liabilities managed by corporate staff. CAM manages a
diverse set of assets located globally including:
o management of the amounts due from buyers on portfolio sales
including performance based payments;
o management of the remaining assets for industry specific leasing
portfolios including assets located in North America, Europe and
the Pacific Rim;
o realizing value on various corporate assets including real
estate and equity positions;
o the orderly liquidation of the network leasing portfolio; and
o the orderly liquidation of the Japanese and Mexican IT
portfolios.
Substantially all equipment leases managed by CAM have specified
non-cancelable initial terms ranging from two to five years. The general terms
and conditions of all of its leases were substantially similar and were
embodied in a master lease agreement. For each lessee, the lease term, rent
interval, lease rate factor and other specific terms for each piece of leased
equipment were set forth on equipment schedules, which also incorporated the
terms and conditions of its master lease agreement.
Prior to the bankruptcy proceeding, the Company provided leasing and
remarketing, asset management and reconditioning services for industry
specific equipment including the following leasing groups:
o Electronics Group: The Company leased new and used electronic
manufacturing, testing and monitoring equipment, including
semiconductor production equipment, automated test equipment and
assembly equipment to customer's globally. Additionally, the
Company maintains a dedicated refurbishing and sales facility in
the Silicon Valley area. CAM continues to manage the sale or
run-off of the electronics assets remaining after the sale to GE
Capital.
o Healthcare Group: The Company leased medical and other high
technology equipment to healthcare providers, including used
reconditioned medical equipment. The Company's portfolio
included angiography, MRI systems, CT scanners, nuclear imaging
devices, test equipment such as oscilloscopes, analyzers and
testers and other laboratory equipment. CAM continues to manage
the sale or run-off of the healthcare assets remaining after the
sale to GE Capital.
o Laboratory and Scientific Group: The Company assisted
organizations in the pharmaceutical, chemical, research,
healthcare and biotechnology industries through the
implementation of an equipment life-cycle management strategy
for various laboratory and scientific equipment. CAM continues
to manage the sale or run-off of the laboratory and scientific
assets remaining after the sale to GE Capital.
Customers
Due to the Company's limited business purpose, the Company does not
expect to be dependent upon a single customer or group of customers to
generate future investment or revenue opportunities. However, the Company does
have a concentration of its current investments in a few customers. Such
concentration is exemplified by the following customers:
o T-Systems and Victoria group are technology refresh option
leasing customers of the European IT Leasing business that have
leased assets in the amount of approximately (euro) 390 million
(approximately U.S. $384 million) and approximately (euro) 70
million (approximately U.S. $68 million), respectively, as of
September 30, 2002.
o AT&T Solutions was a leasing customer of the US Leasing business
that had leased assets in the amount of approximately $74
million as of September 30, 2002. On November 7, 2002, AT&T
Solutions repurchased its remaining lease obligations from the
Company thereby eliminating this concentration.
Competition
The Company's post-bankruptcy business purpose is limited to the
orderly sale or run-off of all of its remaining asset portfolios. Pursuant to
the Plan and restrictions contained in its certificate of incorporation, the
Company is specifically prohibited from engaging in any business activities
inconsistent with its limited business purpose. However, the Company may
experience competition as part of its ongoing remarketing operations. Such
competition may come from manufacturers and other financing sources attempting
to replace the Company's existing leased equipment with updated equipment or
with similar equipment on more favorable terms.
Employees
On September 30, 2002, the Company had approximately 355 U.S.
employees and 196 non-U.S. employees, for a total of 551 employees. No
employees are represented by a labor union. French and German employees are,
however, represented by a "works council" (the Company's French operations
were sold to Econocom Group SA/NV, as discussed above). The Company
anticipates further reductions in its workforce to coincide with future sales
and run-off of its remaining asset portfolios.
Other
The Company does not own any patents, trademarks, licenses,
franchises or concessions which it considers to be material to the Company's
businesses.
The Company's businesses are not seasonal; however,
quarter-to-quarter results from operations can vary significantly.
Because of the nature of the Company's business, the Company is not
required to carry significant amounts of inventory either for delivery
requirements or to assure continuous availability of goods from suppliers.
Financial Information about Geographic Areas
See Note 21 of Notes to Consolidated Financial Statements, which is
incorporated in this section by reference, for information about foreign and
domestic operations.
ITEM 2. DESCRIPTION OF PROPERTY
Owned Property
The Company owns its principal executive office building in Rosemont,
Illinois that has approximately 286,000 square feet. The Company's technical
services division utilizes a 250,000 square foot building owned by the Company
in Schaumburg, Illinois. This space is used primarily for refurbishing,
maintenance and storage of equipment held for lease or sale to customers by
the Company. The Company owns a 75,000 square foot data center in Carlstadt,
New Jersey and a 36,000 square foot data center in Eching, Germany. All four
owned properties are being offered for sale by the Company at this time. This
sale process is being managed by the CAM group.
Leased Property
The Company leases office space for its US Leasing and European IT
Leasing operations in various domestic and international locations. The
Company leases office space for its Ventures operations in San Francisco,
California (8,661 square feet). Finally, the Company leases warehouse space in
Hayward, California (112,800 square feet) and office/warehouse space in San
Jose, California (67,582 square feet) for its electronics operations.
ITEM 3. LEGAL PROCEEDINGS
Bankruptcy Proceeding
On July 16, 2001, Comdisco, Inc. and fifty of its domestic
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) to facilitate the
restructuring of Comdisco, Inc.'s debt, trade and other obligations. Comdisco,
Inc. continued to operate its business and manage its property as a
debtor-in-possession subject to the bankruptcy court's supervision and orders
until the Company's reorganization Plan was confirmed on July 30, 2002 and
became effective on August 12, 2002. The provisions of the Plan are further
described under Item 1, Description of Business, of this Report and in a
Current Report on Form 8-K filed on August 9, 2002 with the Securities and
Exchange Commission by Comdisco, Inc.
Securities Litigation
On February 7, 2001, a purported class action complaint was filed in
the United States District Court for the Northern District of Illinois against
Comdisco, Inc., Nicholas K. Pontikes, and John J. Vosicky, alleging violations
of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, as
amended. See Blitzer v. Comdisco, et al., No. 01-C-0874. Nicholas K. Pontikes
is a former chief executive officer and director of Comdisco, Inc.; John J.
Vosicky formerly served as a director, executive vice president, and chief
financial officer of Comdisco, Inc. In addition, fourteen other similar
purported class action lawsuits were filed against Comdisco, Inc., Nicholas K.
Pontikes and John J. Vosicky in the United States District Court for the
Northern District of Illinois. Those individual class action lawsuits, along
with the first filed Blitzer case, were dismissed and the complaints were
combined into a single action, captioned In re: Comdisco Securities
Litigation, No. 01-C-2110.
As a result of the bankruptcy filing on July 16, 2001, the
consolidated lawsuit against Comdisco, Inc. was stayed pursuant to the
automatic stay issued by the bankruptcy court. The lead plaintiff filed a
motion to lift the automatic stay in order to permit the lawsuit to proceed
against Comdisco, Inc. and the bankruptcy court denied this motion. The
consolidated lawsuit, however, was allowed to proceed individually against
Nicholas K. Pontikes and John J. Vosicky.
In connection with the Plan confirmation process, plaintiffs in the
consolidated lawsuit agreed to dismiss the action with respect to Comdisco,
Inc., but maintained their rights, if any, against Nicholas K. Pontikes, John
Vosicky and any person not released from liability by the Plan. The settlement
with such plaintiffs is pursuant to a stipulation and agreed order dated June
13, 2002.
On November 15, 2002, the plaintiffs in the consolidated lawsuit
filed their Amended Class Action Complaint in the United States District Court
for the Northern District of Illinois, Eastern Division, Master File No. 01 C
2110 ("Amended Complaint"). Neither the Company nor Comdisco, Inc. were named
as a defendant in the Amended Complaint. The only defendants named in the
Amended Complaint were Nicholas K. Pontikes and John J. Vosicky. On December
10, 2002, Messrs. Pontikes and Vosicky filed a motion to dismiss the Amended
Complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the three months ended September 30, 2002.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to Comdisco, Inc.'s bankruptcy proceedings, the common stock of
Comdisco, Inc. was traded on the New York Stock Exchange ("NYSE") under the
symbol "CDO." On April 11, 2002, the NYSE announced that it would suspend
trading and move to delist Comdisco, Inc.'s common stock because the common
stock had traded below $1.00 per share for more than 30 consecutive trading
days. As a result, the common stock of Comdisco, Inc. began to be traded on
the Over-the-Counter Bulletin Board system under the symbol "CDSOQ." On August
12, 2002, in conjunction with the effective date of the Plan, all shares of
common stock of Comdisco, Inc. were cancelled.
In connection with the September 30, 2002 initial distribution under
the Plan, the Company issued approximately 3.74 million shares of Common Stock
to holders of Allowed Claims in Class C-4. Approximately 460,000 additional
shares of Common Stock were deposited in the Disputed Claims Reserve for
future distribution pending the outcome of Disputed Claims. The Company's
Common Stock currently trades on the Over-the-Counter Bulletin Board system
under the symbol "CDCO." In addition, the Contingent Distribution Rights
currently trade on the Over-the-Counter Bulletin Board system under the symbol
"CDCOR." Over-the-Counter Bulletin Board quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
The Plan authorizes, but does not require, the issuance of additional
shares of the Company's Common Stock to make distributions to holders of
Contingent Distribution Rights if Class C-4 creditor recoveries achieve
specified thresholds. The Company may choose to distribute cash to holders of
Contingent Distribution Rights in lieu of shares of Common Stock. More
information on distributions to holders of Contingent Distribution Rights can
be found in a Registration Statement on Form 8-A filed by the Company on
August 12, 2002 with the Securities and Exchange Commission.
As of January 6, 2003, there were fifty-nine shareholders of record
of the Company's Common Stock. The following tables set forth the high and low
sales prices for the common stock of Comdisco, Inc. for fiscal 2001 and from
October 1, 2001 through August 12, 2002. Between August 13, 2002 and September
30, 2002, Comdisco Holding had no shares of Common Stock outstanding; as such,
the Company does not have information on trading that may have occurred during
that time. On September 30, 2002, Comdisco Holding made an initial
distribution of Common Stock to its creditors in accordance with the Plan. The
first day that trading information is available for the shares of Common Stock
is October 3, 2002. Between October 3, 2002 and January 6, 2003, the Common
Stock traded on the Over-the-Counter Bulletin Board at a high of $80.00 and a
low of $46.00. Due to the bankruptcy proceedings and the reorganization
transactions, share prices for the Common Stock are not comparable to those
reported in prior periods for Comdisco, Inc.
Comdisco, Inc. Comdisco, Inc.
Stock Price
Stock Price September 30, 2001
Fiscal Year 2001 to August 12, 2002 (1)
High Low High Low
---- --- ---- ---
First Quarter $19.13 $10.13 First Quarter $0.94 $0.27
Second Quarter 16.95 7.03 Second Quarter 1.14 0.29
Third Quarter 7.90 0.53 Third Quarter 0.41 0.01
Fourth Quarter 1.91 0.42 Fourth Quarter 0.08 0.01
(July 1, 2002 to
August 12, 2002)
(1) In accordance with the Plan, all shares of common stock of Comdisco, Inc.
were cancelled on August 12, 2002.
The Company's transfer agent and registrar is Mellon Investor
Services, L.L.C., P.O. Box 590, Ridgefield Park, New Jersey, 07660-0590. The
shareholder relations telephone number is (800) 205-7699 and the internet
address is http://www.mellon-investor.com.
From February 1979 to March 2001, Comdisco, Inc. paid quarterly
dividends to shareholders of record in the prior calendar quarter. In the
first and second quarters of fiscal 2001, Comdisco, Inc. paid out dividends in
the amount of $0.025 per share. In May 2001, Comdisco, Inc. suspended the
payment of quarterly dividends.
The Company anticipates that distributions will be made to holders of
its Common Stock as provided in the Plan. However, in accordance with the Plan
and the indentures governing the Senior Notes and the Subordinated Notes,
distributions to shareholders cannot occur before all debt with respect to the
Senior Notes and Subordinated Notes is extinguished.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data of the Company for the two
months from August 1, 2002 to September 30, 2002 and for Comdisco, Inc. for
the ten months from October 1, 2001 to July 31, 2002 and the years ended
September 30, 2001, 2000, 1999 and 1998, has been derived from the Company's
and/or Comdisco, Inc.'s audited consolidated financial statements. This
information should be read in conjunction with the consolidated financial
statements and the related notes thereto appearing elsewhere in this Report
and in conjunction with Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations. Certain reclassifications have
been made to the prior period financial statements to conform to the
presentation used in the September 30, 2002 consolidated financial statements.
As a result of the reorganization, the recording of the restructuring
transactions, the asset disposition transactions and the implementation of
fresh-start accounting pursuant to SOP 90-7, the Company's results of
operations after July 31, 2002 are not comparable to results reported in prior
periods for Comdisco, Inc.
|
SUCCESSOR | PREDECESSOR
Two Months | Ten Months
ended | ended
September 30, | July 31, Years ended September 30,
(in millions except per share data) 2002 | 2002 2001 2000 1999 1998
------------ | ------------ -------- -------- -------- -------
Consolidated summary of earnings (losses) |
Revenue |
Leasing $ 98 | $ 830 $ 1,630 $ 2,053 $ 2,418 $ 2,229
Sales 50 | 297 280 390 261 287
Mainframe, medical and vendor portfolio sale - | - - - 598 -
Technology services 10 | 70 128 119 76 46
Other 12 | 48 453 530 119 52
------------ | ----------- - -------- -------- -------- -------
Total revenue 170 | 1,245 2,491 3,092 3,472 2,614
Costs and expenses |
Leasing 77 | 593 1,155 1,479 1,784 1,633
Sales 31 | 289 237 308 220 238
Mainframe, medical and vendor portfolio sale - | - - - 596 -
Technology services 10 | 39 123 119 71 55
Selling, general and administrative 34 | 170 312 362 267 218
Write-down of equity securities 3 | 70 129 7 - -
Bad debt expense 4 | 149 489 141 36 12
Interest 15 | 47 341 340 325 315
Reorganization items - | 439 34 - - -
Fresh-start accounting adjustments - | 369 - -
Other - | - - - 120 -
------------ | ----------- --------- -------- -------- -------
Total costs and expenses 174 | 2,165 2,820 2,756 3,419 2,471
Earnings (loss) from continuing operations before |
income taxes (benefit), extraordinary gain |
and cumulative effect of |
change in accounting principle (4) | (920) (329) 336 53 143
Income taxes (benefit) 4 | 45 (132) 120 19 56
------------ | ----------- --------- -------- -------- -------
Earnings (loss) from continuing operations before |
extraordinary gain and cumulative effect of |
change in accounting principle (8) | (965) (197) 216 34 87
Earnings (loss) from discontinued operations, |
net of income tax (9) | 271 (77) (283) 14 66
Extraordinary gain 241 | 153 - - - -
Cumulative effect of change in accounting |
principle, net of income tax - | - 2 - - -
Preferred dividends - | - - - - (2)
------------ | ----------- --------- -------- -------- -------
Net earnings (loss) to common stockholders $ 224 | $ (541) $ (272) $ (67) $ 48 $ 151
============ | =========== ========= ======== ======== =======
|
Per common share data: |
Earnings (loss) from continuing operations-diluted (1.81) | $ (6.41) $ (1.31)$ 1.34 $ 0.21 $ 0.52
Earnings (loss) from discontinued operations-diluted (2.20) | 1.80 (0.50) (1.75) 0.09 0.41
Earnings from extraordinary gain-diluted 57.38 | 1.02 - - - -
Cumulative effect of change in accounting principle - | - 0.01 - - -
------------ | ----------- --------- -------- -------- -------
Net earnings (loss) to common stockholders-diluted $ 53.37 | $ (3.59)$ (1.80) $ (0.41) $ 0.30 $ 0.93
============ | =========== ========= ======== ======== =======
|
Cash dividends paid on common stock - | - 0.05 .10 .10 .10
Average common shares (in thousands)-diluted 4,200 | 150,559 151,132 161,782 161,787 162,770
|
Financial position: |
Total assets $ 2,341 | $ 2,291 $ 6,202 $ 8,697 $ 7,807 $7,063
Notes payable 1,050 | 1,050 1,096 1,314 820 1,121
Total long-term debt 1,113 | N/A 2,999 4,147 4,236 3,318
Discounted lease rentals 262 | 304 964 794 515 596
Stockholders' equity 641 | 413 447 1,214 1,060 979
|
Other data: |
Total rents of new leases $ 69 | $ 241 $ 1,500 $ 2,800 $ 3,100 $3,400
Future contractual cash flows 1,798 | N/A 5,397 7,063 6,731 6,089
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Overview
On July 16, 2001, Comdisco, Inc. and fifty of its domestic
subsidiaries voluntarily filed for bankruptcy. Prior to bankruptcy, Comdisco,
Inc. provided technology services including leasing to customers worldwide,
offered leasing to key vertical industries and, through its venture financing
group, provided equipment leasing and other financing and services to venture
capital-backed companies. Comdisco Holding Company, Inc., as the successor
company to Comdisco, Inc., emerged from bankruptcy under a confirmed plan of
reorganization that became effective on August 12, 2002. In accordance with the
Plan, Comdisco Holding became the successor to Comdisco, Inc. In addition, the
Company's operations were reorganized into four reportable business groups: US
Leasing; European IT Leasing; Ventures; and the Corporate Asset Management, or
CAM, group. See Item 1, Description of Business, above, for more details about
the Company's business operations.
Comdisco Holding was formed on August 8, 2002 for the purpose of
selling, collecting or otherwise reducing to money in an orderly manner the
remaining assets of the Company and all of its direct and indirect
subsidiaries, including Comdisco, Inc. As more fully described in the Plan,
the Company's business purpose is limited to the orderly sale or run-off of
all of its remaining assets. Pursuant to the Plan and restrictions contained
in its certificate of incorporation, the Company is specifically prohibited
from engaging in any business activities inconsistent with its limited
business purpose.
All funds generated from the Company's remaining asset portfolios in
excess of defined cash reserves and operating expenses are required by the
Plan to be used to satisfy creditors of the Company and, if available after
the redemption of all debt with respect to the Senior Notes and Subordinated
Notes, pay dividends on the Company's Common Stock and, if applicable, make
distributions with respect to the Contingent Distribution Rights in the manner
and priorities set forth in the Plan. Because of the composition and nature of
its asset portfolios, over time, the Company expects to generate funds from
the sale or run-off of its asset portfolios at a decreasing rate.
Events Leading to Bankruptcy
In February 1999, Comdisco, Inc. acquired Prism, a provider of
dedicated high-speed connectivity, for a cash purchase price of approximately
$53 million. From the date of acquisition through September 30, 2000,
Comdisco, Inc. provided Prism with cash totaling $478 million for the
expansion of its network and for its operating costs. However, Prism's
operations through September 2000 resulted in significant cash losses. On
October 1, 2000, Comdisco, Inc.'s Board of Directors voted to cease funding
the ongoing operations of Prism. On October 1, 2000, Prism's Board of
Directors voted to cease operations and pursue the immediate sale of Prism's
assets. Comdisco's wind-down of Prism has continued since that time and the
Company expects to complete this process pursuant to the Plan.
The venture leases, venture debt and direct equity financing provided
by the Ventures group to venture capital-backed companies in the technology
and Internet-based industries were, by their nature, high risk. For fiscal
2000, Ventures had net income of $246 million on revenues of $673 million.
However, during the first and second calendar quarter of 2001, a market
downturn in the technology and Internet-based sectors resulted in a
substantial decrease in the revenues of Ventures, deterioration in the credit
quality of the Ventures portfolio and significant increases in bad debt
expense. As a result of these factors, the Ventures operation posted a loss of
$150 million for the fiscal year ended September 30, 2001.
As a result of the losses associated with Prism and the Ventures
group, Comdisco, Inc.'s cash reserves, overall financial performance and
financial condition were significantly negatively impacted. As a result, in
part, of the erosion of the Ventures' business and the losses associated with
Prism, Comdisco, Inc.'s debt ratings were downgraded below investment grade
and Comdisco, Inc. lost access to the commercial paper market. In order to
retire commercial paper obligations and other scheduled debt maturities and to
finance operations, Comdisco, Inc. borrowed the remaining availability under
its prepetition credit agreements in April 2001.
Another fundamental challenge faced by Comdisco, Inc. was its debt
structure, which involved relatively short-term debt maturities and long-term
lease and financing obligations associated with their principal business
products. Accordingly, although Comdisco, Inc.'s operations generally generated
sufficient cash to meet its working capital needs, without access to the
commercial paper market, Comdisco, Inc. could not generate sufficient cash to
retire all of the debt maturities scheduled to be repaid during 2001 and 2002.
As a result of these events, on July 15, 2001, Comdisco, Inc.
concluded that filing for bankruptcy was in the best interests of all of its
stakeholders. Comdisco Inc.'s Chapter 11 bankruptcy proceeding commenced the
next day on July 16, 2001.
Critical Accounting Policies
The Company's consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires Comdisco to use
estimates and assumptions that affect reported amounts of assets and
liabilities, revenues and expenses and disclosure of contingent assets and
liabilities. These estimates are subject to known and unknown risks,
uncertainties and other factors that could materially impact the amounts
reported and disclosed in the financial statements.
The Securities and Exchange Commission issued Financial Reporting
Release No. 60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies" ("FFR No. 60") which recommends that companies provide
additional disclosure and analysis of those accounting policies considered
most critical.
The Company believes the following to be among the most critical
judgment areas in the application of its accounting policies:
o Fresh-Start Reporting: Upon the emergence from bankruptcy
proceedings, the Company adopted fresh-start reporting which
resulted in material adjustments to the historical carrying
amounts of the Company's assets and liabilities. Fresh-start
reporting was applied in accordance with SOP 90-7, which
required the Company to allocate the reorganization value to
its assets and liabilities based upon their estimated fair
value in accordance with the procedures specified by Statement
of Financial Accounting Standards No. 141, Business
Combinations ("SFAS No. 141"). The fair values of the assets as
determined for fresh-start reporting were based on estimates of
anticipated future cash flows of assets discounted at rates
consistent with the discount rates used in the Plan.
Liabilities existing at the Plan confirmation date are stated
at the present values of amounts to be paid discounted at
appropriate current rates. Deferred taxes are reported in
conformance with existing generally accepted accounting
principles. Debt issued in connection with the Plan is recorded
at the stated value. The difference between the net fair value
of the assets and the liabilities existing at the confirmation
date (excluding restructured debt in accordance with the Plan)
and the reorganization value is "Excess of the Net Fair Value
over Reorganization Value." "Excess of the Net Fair Value over
Reorganization Value" is subject to the provisions of SFAS No.
141. Under SFAS No. 141, the excess of the net fair value is
used to reduce certain assets, as defined by SFAS No. 141
(generally long-lived non-financial assets), to zero. Any
excess net fair value remaining after the reduction is
recognized as an extraordinary gain. The determination of the
net fair values of the assets and liabilities is subject to
significant estimation and assumptions. Actual results could
differ from the estimates made.
o Ventures Investments: Ventures provided venture leases, venture
debt and direct equity financing to venture capital-backed
companies (collectively the "investments"). Venture leases are
leases with warrants that were intended to compensate Ventures
for providing equipment leases with terms having lower periodic
rental payments than leases without warrants. Similarly, venture
debt is a high-risk loan with warrants or a conversion-to-equity
feature with more flexible terms than more traditional debt
financing. Direct equity financings involved Ventures' purchase
of convertible preferred stock and common stock from its
customers. The Company carries the investments at the lower cost
or net realizable value. The Company regularly estimates the net
realizable value of these investments by adjusting their
carrying value for known trends and historical collection
experience. This estimate could require further adjustment based
on changing circumstances, including changes in the economy or
in the particular circumstances of a specific investment.
o Allowance for Doubtful Accounts: The Company maintains an
allowance for doubtful accounts. This allowance reflects
management's estimate of the amount of the Company's receivables
that it will be unable to collect and is based on current trends
and historical collection experience. The estimate could require
adjustments based on changing circumstances, including changes
in the economy or in the particular circumstances of individual
customers. Accordingly, the Company may be required to increase
or decrease the allowance.
o Residual Value of Rental Equipment: Direct financing and
sale-type leased assets consist of the present value of the
future minimum lease payments plus the present value of the
residual (collectively referred to as the "Net Investment").
Residual is the estimated fair market value of the equipment on
lease at lease termination. Revenue on operating leases consists
of the contractual lease payments which is recognized on a
straight-line basis over the lease term. Costs and expenses are
principally depreciation of the equipment. Depreciation is
recognized on a straight-line basis over the lease term to the
Company's estimate of the equipment's fair market value at lease
termination, commonly referred to as "residual value." In
estimating the equipment's fair value at lease termination, the
Company relies on historical experience by equipment type and
manufacturer and, where available, valuations by independent
appraisers, adjusted for known trends. The Company's estimates
are reviewed continuously to ensure reasonableness, however, the
amounts the Company will ultimately realize could differ from
the amounts assumed in determining the fair market value of the
equipment at lease termination and the ultimate gain or loss on
disposition of assets
The above listing is not intended to be a comprehensive list of all
the Company's accounting policies. Please refer to the Company's consolidated
financial statements and notes thereto which contain the Company's significant
accounting policies and other disclosures required by accounting principles
generally accepted in the United States of America.
Basis of Presentation
The Company and fifty of its domestic 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 on
July 16, 2001. Prior to emerging from Chapter 11 on August 12, 2002, Comdisco,
Inc. operated its business as a debtor-in-possession subject to the
jurisdiction of the United States Bankruptcy Court. The reorganized Company
adopted fresh-start reporting and gave effect to its emergence as of July 31,
2002 for financial reporting purposes.
Under fresh-start reporting, the final consolidated balance sheet as
of July 31, 2002 became the opening consolidated balance sheet of the
reorganized Company. Since fresh-start reporting has been reflected in the
accompanying consolidated balance sheet as of September 30, 2002, the
consolidated balance as of that date is not comparable in certain material
respects to any such balance sheet for any period prior to July 31, 2002. In
addition, Comdisco, Inc.'s results of operations prior to July 31, 2002 are
not comparable to the Company's results of operations after its emergence from
bankruptcy due to the adoption of fresh-start reporting.
Recent Developments
On October 18, 2002, the Company announced that it had sold Computer
Discount GmbH, a leasing subsidiary of Comdisco, Inc. formerly known as
Comdisco Austria GmbH, to the Austrian company PH Holding GmbH. Under the
terms of the purchase agreement, PH Holding GmbH agreed to pay (euro) 8.7
million (approximately U.S. $8.6 million as of September 30, 2002) for 100
percent of the stated share capital of Computer Discount GmbH. As part of the
deal, PH Holding GmbH agreed to continue to oversee the liquidation of
Comdisco Ceska Republika S.R.O., a wholly-owned Czech subsidiary of Computer
Discount GmbH. PH Holding GmbH is owned by Peter Huber, a former employee of
the Company who, until the sale, had been serving as the regional manager for
the Company's Austrian and Swiss operations. The Company's operations in
Austria comprised approximately two percent of the Company's total European
assets as of August 14, 2002, the closing date of the sale.
On October 18, 2002, the Company announced that it had sold
Comprendium Finance S.A., formerly known as Comdisco (Switzerland) S.A., a
leasing subsidiary of Comdisco Global Holding Company, Inc., to Comprendium
Investments S.A., a Swiss company. Pursuant to the terms of the sale
agreement, the Company received CHF 13.0 million (approximately U.S. $8.7
million as of September 30, 2002). Comprendium Investments S.A. is owned by
Thomas Flohr, a former employee of the Company who, until January 2001, served
as President of Comdisco Europe. The Company's operations in Switzerland
comprised approximately two percent of the Company's total European assets as
of October 10, 2002, the closing date of the sale.
On October 18, 2002, the Company announced that it, along with
Comdisco Global Holdings Company, Inc., had entered into an agreement for the
sale of the stock of the Company's French leasing subsidiaries, Comdisco
France SA and Promodata SNC, to Econocom Group SA/NV. Comdisco France S.A. was
a wholly-owned subsidiary of Comdisco Global Holding Company, Inc. and
Promodata SNC was a wholly-owned subsidiary of Comdisco France S.A. The sale
of the leasing assets closed on December 23, 2002 and proceeds in the amount
of approximately (euro) 69 million were received. These proceeds were
converted into U.S. $70 million and repatriated by the Company. The Company's
operations in France comprised approximately thirteen percent of the Company's
total European assets as of September 30, 2002.
On October 21, 2002, the Company voluntarily redeemed the entire $400
million outstanding principal amount of its Senior Notes at a price equal to
100 percent of their principal amount plus accrued and unpaid interest from
August 12, 2002 to the redemption date. On November 14, 2002, pursuant to its
mandatory redemption obligations under the Subordinated Notes, the Company
made a partial redemption of $65 million of the outstanding principal amount
of its Subordinated Notes at a price equal to 100 percent of their principal
amount plus accrued and unpaid interest from August 12, 2002 to the redemption
date. On December 23, 2002, the Company made a voluntary partial redemption of
$200 million of the outstanding principal amount of its Subordinated Notes at
a price equal to 100 percent of their principal amount plus accrued and unpaid
interest from August 12, 2002 to the redemption date. On December 31, 2002,
the Company made an approximately $16 million interest payment with respect to
the Subordinated Notes. In addition, on January 9, 2003, the Company made a
voluntary partial redemption of $100 million of the outstanding principal
amount of its Subordinated Notes at a price equal to 100 percent of their
principal amount plus accrued and unpaid interest to the redemption date.
After the January 9, 2003 redemption, the outstanding principal balance of
Subordinated Notes is $285 million.
Results of Operations
For purposes of this Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, the results of operations of
the Company for the fiscal year ended September 30, 2002 are comprised of
selected consolidated financial data of the Company for the two months from
August 1, 2002 to September 30, 2002 and of Comdisco, Inc. for the ten months
from October 1, 2001 to July 31, 2002. In addition, certain reclassifications
have been made to the prior period financial statements to conform to the
presentation used in the September 30, 2002 consolidated financial statements.
As a result of the reorganization, the recording of the restructuring
transactions, the asset disposition transactions and the implementation of
fresh-start accounting pursuant to SOP 90-7, the Company's results of
operations after July 31, 2002 are not comparable to the results reported in
prior periods for Comdisco, Inc. The information in this section should be
read in conjunction with the consolidated financial statements and the related
notes thereto appearing in Item 8, Financial Statements and Supplementary Data.
Fiscal Year Ended September 30, 2002 Compared to the Fiscal Year
Ended September 30, 2001
Total Revenue
Total revenue decreased 44 percent to $1.4 billion for the fiscal
year ended September 30, 2002 from $2.5 billion for the fiscal year ended
September 30, 2001. The decrease is due to lower revenues from all of the
Company's operations. During fiscal 2002, the Company's operations were
limited by the Company's financial constraints and the related impact on new
business volume and remarketing, general economic conditions, anticipated
asset sales and actual lease portfolio sales, significant reductions in
personnel and the impact of the filing on the business. See the Risk Factor
entitled "Uncertainties Relating to the Bankruptcy Plan" in this Item 7,
below, for more information. Additional revenue information for each of the
four business segments, US Leasing, European IT Leasing, Ventures and CAM
group, is set forth below.
Total Leasing Revenue
Total leasing revenue from US Leasing operations decreased 55 percent
to $271 million for the fiscal year ended September 30, 2002. Total leasing
revenue from European IT Leasing operations decreased 11 percent to $163
million for the fiscal year ended September 30, 2002. Total leasing revenue
from CAM group decreased 50 percent to $277 million for the fiscal year ended
September 30, 2002. Total leasing revenue from Ventures operations decreased
26% to $217 million for the fiscal year ended September 30, 2002. The decrease
in total leasing revenue from CAM group is primarily due to the leased asset
sales to GE Capital and other organizations discussed in Note 5 of Notes to
Consolidated Financial Statements. As such, total leasing revenue from
operations decreased 42 percent to $928 million for the fiscal year ended
September 30, 2002 from $1.6 billion for the fiscal year ended September 30,
2001.
Total leasing revenue is comprised of three revenue components: (i)
operating lease revenue; (ii) direct financing lease revenue; and (iii)
sales-type lease revenue.
Operating lease revenue: US Leasing operating lease revenue decreased
51 percent to $202 million for the fiscal year ended September 30, 2002 from
$415 million for the fiscal year ended September 30, 2001 primarily due to the
continued orderly run-off of the lease base, the absence of any new business
volume and the emphasis by the Company on remarketing, primarily by sales.
European IT Leasing operating lease revenue decreased 24 percent to $122
million for the fiscal year ended September 30, 2002 from $160 million for the
fiscal year ended September 30, 2001 primarily due to reduced IT leasing
volume in Europe compared to prior years. CAM group operating lease revenue
decreased 48 percent to $243 million for the fiscal year ended September 30,
2002 from $466 million for the fiscal year ended September 30, 2001. Venture
operating lease revenue decreased 26 percent to $216 million for the fiscal
year ended September 30, 2002 from $293 million for the fiscal year ended
September 30, 2001.
Direct financing lease revenue: US Leasing direct financing lease
revenue decreased 48 percent to $57 million for the fiscal year ended
September 30, 2002 from $109 million for the fiscal year ended September 30,
2001 primarily due to the decrease in leased assets. European IT Leasing
direct financing lease revenue increased 100 percent to $26 million for the
fiscal year ended September 30, 2002 from $13 million for the fiscal year
ended September 30, 2001 primarily due to continued funding of its commitments
in Germany for its technology refresh option product, primarily for T-Systems.
T-Systems is the Company's largest lessee in Europe and one of its largest
customers worldwide. CAM group direct financing lease revenue decreased 56
percent to $19 million for the fiscal year ended September 30, 2002 from $43
million for the fiscal year ended September 30, 2001.
Sales-type revenue: The Company's emphasis on sales rather than
remarketing by extending existing leases resulted in decreases in fiscal 2002
compared to fiscal 2001 for revenue from sales-type leases, domestically,
while in Europe, sales-type lease revenue increased slightly. US Leasing
sales-type lease revenue decreased to $12 million for the fiscal year ended
September 30, 2002 from $77 million for the fiscal year ended September 30,
2001. European IT Leasing sales-type lease revenue increased 36 percent to $15
million for the fiscal year ended September 30, 2002 from $11 million for the
fiscal year ended September 30, 2001 primarily from its UK operations. CAM
group sales-type lease revenue decreased 64 percent to $15 million for the
fiscal year ended September 30, 2002 from $42 million for the fiscal year
ended September 30, 2001. Venture sales-type lease revenue was $1 million for
both the fiscal year ended September 30, 2002 and 2001.
Sales Revenue
The Company generates sales from two sources: (a) the sale of used
equipment from its lease portfolio; and (b) 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. Revenue from sales increased 24 percent to $347 million for the
fiscal year ended September 30, 2002 from $280 million for the fiscal year
ended September 30, 2001. The increase is due to the Company's emphasis on
remarketing transactions structured as sales rather than as leases and the
overall business purpose of the Company to sell or orderly liquidate its
assets. US Leasing sales revenue increased 12 percent to $154 million for the
fiscal year ended September 30, 2002 from $137 million for the fiscal year
ended September 30, 2001. European IT Leasing sales revenue increased 50
percent to $33 million for the fiscal year ended September 30, 2002 from $22
million for the fiscal year ended September 30, 2001. CAM group sales revenue
increased 26 percent to $139 million for the fiscal year ended September 30,
2002 from $110 million for the fiscal year ended September 30, 2001. Ventures
sales revenue increased 91 percent to $21 million for the fiscal year ended
September 30, 2002 from $11 million for the fiscal year ended September 30,
2001.
Technology Services Revenue
Revenue from technology services were $80 million and $128 million
for the fiscal years ended September 30, 2002 and 2001, 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 services, business.
The IT CAP Services North America business was sold in February 2002.
Other Revenue
Other revenue, which is primarily comprised of revenue from the sale
of Ventures' equity investments, interest income earned on notes from
Ventures' customers and other revenue, decreased 87 percent to $60 million for
the fiscal year ended September 30, 2002 from $453 million for the fiscal year
ended September 30, 2001. The decrease is primarily due to reduced revenue
from the sale of equity securities. Revenue from the sale of equity securities
was $16 million for the year ended September 30, 2002, compared to $353
million for the year ended September 30, 2001. During fiscal 2002 and the last
six months of fiscal 2001, there was a significant decline in the number of
public offerings and mergers/acquisitions within the Company's portfolio of
venture companies. Interest income on notes decreased 53 percent to $30
million compared for the fiscal year ended September 30, 2002 from $64 million
for the fiscal year ended September 30, 2001. The components of other revenue
were as follows (in millions):
Years ended
---------------
2002 2001
---- ----
Ventures:
Sale of equity holdings $ 16 $ 353
Interest income on notes 30 64
Other - 2
---- ----
Total 46 419
Other reportable segments:
Equity sales - -
Investment income 7 28
Other 7 6
---- ----
Total 14 34
---- ----
Total other revenue $ 60 $ 453
==== ====
Total Costs and Expenses
Total operating costs and expenses decreased 18 percent to $2.3
billion for the fiscal year ended September 30, 2002 from $2.8 billion for the
fiscal year ended September 30, 2001. The decrease is due to reduced leasing
costs and reduced interest expense as a result of the filing, offset by $439
million of reorganization items, including the $263 million of pre-tax charges
for the sales of electronics, laboratory and scientific and healthcare leased
equipment and Australian and New Zealand IT assets (see Note 5 of Notes to
Consolidated Financial Statements), and $369 million of charges related to the
Company's emergence from bankruptcy and the adoption of fresh-start reporting.
Additional cost and expense information for each of the business segments is
set forth below.
Total Leasing Costs and Expenses
Total leasing costs and expenses from US Leasing operations decreased
63 percent to $143 million for the fiscal year ended September 30, 2002 from
$383 million for the fiscal year ended September 30, 2001. Total leasing costs
and expenses from European IT Leasing operations decreased 9 percent to $138
million for the fiscal year ended September 30, 2002 from $151 million for the
fiscal year ended September 30, 2001. Total leasing costs and expenses from
CAM group decreased 47 percent to $202 million for the fiscal year ended
September 30, 2002 from $380 million for the fiscal year ended September 30,
2001. Total leasing costs and expenses from Ventures decreased 22 percent to
$187 million for the fiscal year ended September 30, 2002 from $241 million
for the fiscal year ended September 30, 2001. As such, total leasing costs and
expenses operations decreased 44 percent to $670 million for the fiscal year
ended September 30, 2002 from $1.2 billion for the fiscal year ended September
30, 2001.
Total leasing costs and expenses is comprised of two components: (i)
operating lease costs and expenses and (ii) sales-type lease costs and
expenses.
Operating lease costs and expenses: US Leasing operating lease costs
and expenses decreased 59 percent to $132 million for the fiscal year ended
September 30, 2002 from $320 million for the fiscal year ended September 30,
2001 reflecting the continued decrease in operating leased assets and the
related revenue from operating leased assets. European IT Leasing operating
lease costs and expenses decreased 13 percent to $125 million for the fiscal
year ended September 30, 2002 from $143 million for the fiscal year ended
September 30, 2001 primarily due to declines in total operating leased assets.
CAM group operating lease costs and expenses decreased 46 percent to $191
million for the fiscal year ended September 30, 2002 from $354 million for the
fiscal year ended September 30, 2001. Ventures operating lease costs and
expenses decreased 23 percent to $186 million for the fiscal year ended
September 30, 2002 from $241 million for the fiscal year ended September 30,
2001.
Sales-type lease costs and expenses: US Leasing sales-type lease
costs and expenses decreased 83 percent to $11 million for the fiscal year
ended September 30, 2002 from $63 million for the fiscal year ended September
30, 2001 primarily reflecting the emphasis on sales remarketing rather than
lease remarketing as noted above. European IT Leasing sales-type lease costs
and expenses increased 63 percent to $13 million for the fiscal year ended
September 30, 2002 from $8 million for the fiscal year ended September 30,
2001, primarily from its UK operations. CAM group sales-type lease costs and
expenses decreased 58 percent to $11 million for the fiscal year ended
September 30, 2002 from $26 million for the fiscal year ended September 30,
2001. Ventures sales-type lease costs and expenses were $1 million for the
fiscal year ended September 30, 2002. Ventures did not have any sales-type
lease costs and expenses during fiscal year 2001.
Sales Costs and Expenses
Sales costs and expenses increased 35 percent to $320 million for the
fiscal year ended September 30, 2002 from $237 million for the fiscal year
ended September 30, 2001. The increase in fiscal 2002 compared to fiscal 2001
is due to an increased focus on sales remarketing activities. US Leasing sales
costs and expenses increased 3 percent to $117 million for the fiscal year
ended September 30, 2002 from $114 million for the fiscal year ended September
30, 2001. Margins on those sales were twenty-four percent and seventeen
percent in the years ended September 30, 2002 and 2001, respectively. European
IT Leasing sales costs and expenses decreased 6 percent to $15 million for the
fiscal year ended September 30, 2002 from $16 million for the fiscal year
ended September 30, 2001. CAM group sales costs and expenses increased 70
percent to $175 million for the fiscal year ended September 30, 2002 from $103
million for the fiscal year ended September 30, 2001. CAM group sales are
primarily electronics equipment remarketed from inventory. 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. Ventures sales costs and
expenses increased 225 percent to $13 million for the fiscal year ended
September 30, 2002 from $4 million for the fiscal year ended September 30,
2001.
Technology Services Costs and Expenses
Services costs were $49 million and $123 million for the fiscal years
ended September 30, 2002 and 2001, respectively. The decrease reflects the
overall reduction in services revenue and the sale of IT CAP services North
America in February 2002.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 33 percent to
$204 million for the fiscal year ended September 30, 2002 from $312 million
for the fiscal year ended September 30, 2001. The following table summarizes
selling, general and administrative expenses (in millions):
2002 2001
------------- --------------
Incentive compensation $ 68 $ 91
Estimated severance payments 18 8
Other compensation and benefits 71 114
Outside professional services 48 42
Foreign exchange gain (21) -
Other expenses 20 57
------------- --------------
$ 204 $ 312
============= ==============
The reductions in incentive compensation and other compensation and
benefits, and the increase in severance payouts in the current year compared
to the year earlier period reflect the continued reduction in personnel. As of
July 16, 2001, the date Comdisco, Inc. filed bankruptcy, it had approximately
2,100 domestic employees. As of the date of emergence from bankruptcy, the
Company had approximately 400 domestic employees.
Write-down of Equity Securities
The charge for write-down of equity securities decreased 43 percent
to $73 million for the fiscal year ended September 30, 2002 from $129 million
for the fiscal year ended September 30, 2001. The decrease reflects the
overall reduction in the carrying value of the Company's equity securities.
Bad Debt Expense
Bad debt expense decreased 69 percent to $153 million for the fiscal
year ended September 30, 2002 from $489 million for the fiscal year ended
September 30, 2001 primarily due to declines in bad debt expense for Ventures.
Interest Expense
Interest expense decreased 82 percent to $62 million for the fiscal
year ended September 30, 2002 from $341 million for the fiscal year ended
September 30, 2001. Interest expense for the ten months ended July 31, 2002
primarily represents interest accrued on Comdisco, Inc.'s secured debt
obligations and debt obligations of its foreign subsidiaries. Effective August
12, 2002, the Company, along with its direct wholly-owned subsidiary,
Comdisco, Inc., co-issued variable rate senior secured notes due 2004 in the
principal amount of $400 million and 11 percent subordinated secured notes due
2005 in the principal amount of $650 million.
As of July 16, 2001, Comdisco, Inc. ceased accruing interest on the
unsecured debt obligations of the Debtors. Contractual interest on all
obligations for the ten months ended July 31, 2002 and the year ended
September 30, 2001 was $245 million, which is $198 million in excess of
recorded interest expense included in the accompanying financial statements,
and $391 million, which is $50 million in excess of recorded interest expense
included in the accompanying financial statements, respectively.
Reorganization Items
Charges for reorganization items were $439 million for the fiscal
year ended September 30, 2002 compared to $34 million for the fiscal year
ended September 30, 2001. See Note 5 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 $263 million for the sales of
electronics, laboratory and scientific and healthcare leased equipment and
Australian IT assets.
Fresh-Start Accounting Adjustments
Fresh-start accounting adjustments, which reflect the impact of
fresh-start reporting on the assets and liabilities of Comdisco, Inc. as of
July 31, 2002, totaled $369 million for the ten months ended July 31, 2002.
See Notes 3 and 6 to Consolidated Financial Statements, which are incorporated
in this section by reference, for details of the fresh-start accounting
adjustments.
Income Taxes
See Note 14 of Notes to Consolidated Financial Statements, which is
incorporated in this section by this reference, for details about the
Company's income tax provision.
Net Loss from Continuing Operations
The net loss from continuing operations was $973 million in fiscal
2002, compared to a net loss of $197 million, or $1.31 per share-diluted in
fiscal 2001. The loss in fiscal 2002 is primarily the result of losses on
asset sales during fiscal 2002 (see Note 5 of Notes to Consolidated Financial
Statements), offset by lower selling, general and administrative expenses and
lower interest expense. 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. The loss from continuing operations for the year ended September 30,
2001 was primarily a result of decreased earnings contributions from all of
the Company's business lines and it reflects reduced earnings contributions
from leasing as a result of the decline in leased assets. The loss in fiscal
2001 also reflects the following items:
o a $365 million pretax charge ($234 million after-tax) for
additions to the allowance for credit losses in the Ventures
group's portfolio;
o a $124 million pretax charge ($79 million after-tax) for
additions to allowance for credit losses in the leasing business;
o a $129 million pretax charge for equity securities written-off;
o a $8 million pretax charge for restructuring and other charges;
and
o $34 million of reorganization related expenses.
Discontinued operations
Net earnings from discontinued operations were $262 million for the
year ended September 30, 2002 compared to a net loss of $77 million for the
year ended September 30, 2001.
o International leasing: On October 18, 2002, the Company
announced that it had sold Comprendium Finance S.A., Computer
Discount GmbH and the Company's French leasing subsidiaries,
Comdisco France SA and Promodata SNC. The results of operations
of these European subsidiaries as well as the Company's
Australian and New Zealand operations ("International Leasing")
have been classified as discontinued operations and prior year
periods have been restated. Revenue from International Leasing
was $155 million and $215 million for the years ended September
30, 2002 and 2001, respectively. Costs and expenses for these
operations were $163 million for the year ended September 30,
2002 compared to $231 million for the year ended September 30,
2001. The decrease in both revenues and costs in the current
year period compared to the prior year period reflect the
reduction in operations of these subsidiaries as a result of the
declining financial condition of the Company. Net loss for
International Leasing was $39 million in the year ended
September 30, 2002, including a loss of approximately $37
million on sales of assets, compared to a loss of $14 million
in the year ended September 30, 2001. The net loss in fiscal 2001
was primarily the result of additions to the allowance for credit
losses of approximately $16 million in Comprendium Finance S.A.
o Availability Solutions: On November 15, 2001, Comdisco, Inc.
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 $487 million for the years ended September
30, 2002 and 2001, respectively. Availability Solutions costs
were $54 million and $460 million during year ended September
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 $313
million for the year ended September 30, 2002 compared to a net
loss of $13 million in the prior year period. Approximately $301
million of the net earnings within discontinued operations for
the year ended September 30, 2002 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 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
the years ended September 30, 2002 and 2001 were immaterial.
o Network Services: During the second quarter of fiscal 2001, the
network management services business of Comdisco, Inc. 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 year
ended September 30, 2001 was $32 million.
o Prism Communications: 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, Comdisco, Inc. 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, Comdisco, Inc. 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 September 30, 2002.
Through September 30, 2002, Prism has received approximately $15
million in proceeds from various sales of its equipment.
Extraordinary gain
For the ten months ended July 31, 2002, the Company recorded a $153
million extraordinary gain resulting from the discharge of indebtedness. See
Note 3 of Notes to Consolidated Financial Statements. During the two
months ended September 30, 2002, the Company recorded a $241 million
extraordinary gain related to the elimination of the excess fair value of net
assets over the reorganization value in accordance with SFAS No. 141, "Business
Combinations."
Net Loss
Net loss increased 17 percent to $317 million for the fiscal year
ended September 30, 2002 from $272 million for the fiscal year ended September
30, 2001.
Fiscal Year Ended September 30, 2001 Compared to the Fiscal Year
Ended September 30, 2000
Throughout the second half of fiscal 2001 and continuing into fiscal
2002, Comdisco, Inc. continued to seek additional liquidity through the sale
of certain of its remaining business lines, including the possible sale of
certain of its leasing assets. Comdisco, Inc.'s bankruptcy and the potential
sale of some or all of these businesses created uncertainty that had an
adverse impact on its business, ability to obtain credit, customer's confidence
and its ability to retain employees. The Company believes this uncertainty
negatively impacted its financial results for the year ended September 30,
2001.
Total Revenue
Total revenue decreased 19 percent to $2.5 billion for the fiscal
year ended September 30, 2001 from $3.1 billion for the fiscal year ended
September 30, 2000. The decrease is primarily due to decreases in leasing
revenue resulting from reductions in the re-lease of equipment, which the
Company refers to as "remarketing," and significant declines in leasing volume
as the Company liquidated its assets in an orderly manner. Additional revenue
information for each of the Company's business segments is set forth below.
Total Leasing Revenue
Total leasing revenue from US Leasing operations decreased 44 percent
to $601 million for the fiscal year ended September 30, 2001. Total leasing
revenue from European IT Leasing operations decreased 13 percent to $184
million for the fiscal year ended September 30, 2001. Total leasing revenue
from Ventures increased 49 percent to $294 million for the fiscal year ended
September 30, 2001. Total leasing revenue from CAM group decreased 4 percent
to $551 million for the year ended September 30, 2001 from $572 million for
the fiscal year ended September 30, 2000. Total leasing revenue decreased 21
percent to $1.6 billion for the fiscal year ended September 30, 2001 from $2.1
billion for the fiscal year ended September 30, 2000.
Total leasing revenue is comprised of three revenue components: (i)
operating lease revenue; (ii) direct financing lease revenue; and (iii)
sales-type lease revenue. Weakening economic conditions, the bankruptcy, 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 $2.6 billion in fiscal 2000 to $1.3
billion in fiscal 2001. Declining leased assets resulted in declines in total
lease revenue and earnings.
Operating lease revenue: US Leasing operating lease revenue decreased
40 percent to $415 million for the fiscal year ended September 30, 2001 from
$686 million for the fiscal year ended September 30, 2000. European IT Leasing
operating lease revenue decreased 18 percent to $160 million for the fiscal
year ended September 30, 2001 from $195 million for the fiscal year ended
September 30, 2000. CAM group operating lease revenue increased 10 percent to
$466 million for the fiscal year ended September 30, 2001 from $423 million
for the fiscal year ended September 30, 2000. Ventures operating lease revenue
increased 50 percent to $293 million for the fiscal year ended September 30,
2001 from $195 million for the fiscal year ended September 30, 2000.
Direct financing lease revenue: US Leasing direct financing lease
revenue decreased 13 percent to $109 million for the fiscal year ended
September 30, 2001 from $125 million for the fiscal year ended September 30,
2000. European IT Leasing direct financing lease revenue increased to $13
million for the fiscal year ended September 30, 2001 from $5 million for the
fiscal year ended September 30, 2000 primarily due to continued funding of its
commitments in Germany for its technology refresh option product. CAM group
direct financing lease revenue was $43 million for the fiscal years ended
September 30, 2001 and 2000.
Sales-type lease revenue: US Leasing sales-type lease revenue
decreased to $77 million for the fiscal year ended September 30, 2001 from
$261 million for the fiscal year ended September 30, 2000. European IT Leasing
sales-type lease revenue decreased 8 percent to $11 million for the fiscal
year ended September 30, 2001 from $12 million for the fiscal year ended
September 30, 2000. CAM group sales-type revenue decreased 60 percent to $42
million for the fiscal year ended September 30, 2001 from $106 million in the
fiscal year ended September 30, 2000. Ventures sales-type revenue decreased to
$1 million for the fiscal year ended September 30, 2001 from $2 million in the
fiscal year ended September 30, 2000.
Sales Revenue
Revenue from sales decreased 28 percent to $280 million for the
fiscal year ended September 30, 2001 from $390 million for the fiscal year
ended September 30, 2000. The decrease in fiscal 2001 compared to fiscal 2000
is due a decrease in remarketing activities. US Leasing sales revenue
decreased 38 percent to $137 million for the fiscal year ended September 30,
2001 from $222 million for the fiscal year ended September 30, 2000. European
IT Leasing sales revenue decreased 50 percent to $22 million for the fiscal
year ended September 30, 2001 from $44 million for the fiscal year ended
September 30, 2000. CAM group sales revenue decreased 3 percent to $110
million for the fiscal year ended September 30, 2001 from $113 million for the
fiscal year ended September 30, 2000. Venture sales revenue was $11 million
for both the fiscal year ended September 30, 2001 and 2000.
Technology Services Revenue
Revenue from technology services was $128 million and $119 million
for the fiscal years ended September 30, 2001 and 2000, respectively. The
increases are primarily the result of the growth in IT CAP services.
Other Revenue
Other revenue, which was primarily comprised of revenue from the sale
of equity holdings, decreased 15 percent to $453 million for the fiscal year
ended September 30, 2001 from $530 million for the fiscal year ended September
30, 2000. The decrease is primarily due to the reduced revenue from the sale
of equity holdings and other investment income. The components of other
revenue were as follows (in millions):
Years ended
------------------
2001 2000
------- -------
Ventures:
Sale of equity holdings $ 353 $ 406
Interest income on notes 64 56
Other 2 3
------- -------
Total 419 465
Other reportable segments:
Equity sales - 42
Investment income 28 16
Other 6 7
------- -------
Total 34 65
------- -------
Total other revenue $ 453 $ 530
======= =======
Total Costs and Expenses
Total costs and expenses were $2.8 billion for the fiscal year ended
September 30, 2001 and $2.8 billion for the fiscal year ended September 30,
2000. Reduced leasing and sales costs in fiscal 2001 compared to fiscal 2000
were offset by higher additions to the allowance for credit losses in the US
Leasing and European IT Leasing and the Ventures group businesses and
restructuring and reorganizational costs incurred in fiscal 2001. Additional
operating cost and expense information for each of the business segments is
set forth below.
Total Leasing Costs and Expenses
Total leasing costs and expenses from US Leasing operations decreased
49 percent to $383 million for the fiscal year ended September 30, 2001. Total
leasing costs and expenses from European IT Leasing operations decreased 16
percent to $151 million for the fiscal year ended September 30, 2001. Total
leasing costs and expenses for CAM group decreased 6 percent to $380 million
for the fiscal year ended September 30, 2001. Total leasing costs and expenses
for Ventures increased 60 percent to $241 million for the fiscal year ended
September 30, 2001. As such, total leasing costs and expenses operations
decreased 20 percent to $1.2 billion for the fiscal year ended September 30,
2001 from $1.5 billion for the fiscal year ended September 30, 2000.
Total leasing costs and expenses is comprised of two components: (i)
operating lease costs and expenses; and (ii) sales-type lease costs and
expenses. Operating lease costs decreased in fiscal 2001 compared to fiscal
2000 due to the decrease in lease volume discussed above. Remarketing
activities, including sales-type leases, also decreased in fiscal 2001
compared to fiscal 2000, primarily due to the uncertainty of the Company's
financial position and other factors as discussed above.
Operating lease costs and expenses: US Leasing operating lease costs
and expenses decreased 42 percent to $320 million for the fiscal year ended
September 30, 2001 from $551 million for the fiscal year ended September 30,
2000. European IT Leasing operating lease costs and expenses decreased 17
percent to $143 million for the fiscal year ended September 30, 2001 from $173
million for the fiscal year ended September 30, 2000. CAM group operating
lease costs and expenses increased 11 percent to $354 million for the fiscal
year ended September 30, 2001 from $320 million for fiscal year ended
September 30, 2000. Ventures operating lease costs and expenses increased 61
percent to $241 million for the fiscal year ended September 30, 2001 from $150
million for fiscal year ended September 30, 2000.
Sales-type lease costs and expenses: US Leasing sales-type lease
costs and expenses decreased 68 percent to $63 million for the fiscal year
ended September 30, 2001 from $195 million for the fiscal year ended September
30, 2000. European IT Leasing sales-type lease costs and expenses increased 33
percent to $8 million for the fiscal year ended September 30, 2001 from $6
million for the fiscal year ended September 30, 2000 primarily due to
remarketing of lower margin equipment. CAM group sales-type lease costs and
expenses decreased 69 percent to $26 million for the fiscal year ended
September 30, 2001 from $83 million for the fiscal year ended September 30,
2000. Ventures sales-type lease costs and expenses were $1 million for the
fiscal year ended September 30, 2000.
Sales Costs and Expenses
Sales costs and expenses decreased 23 percent to $237 million for the
fiscal year ended September 30, 2001 from $308 million for the fiscal year
ended September 30, 2001. The decrease in fiscal 2001 compared to fiscal 2000
is due to a decrease in remarketing activities. US Leasing sales costs and
expenses increased 32 percent to $114 million for the fiscal year ended
September 30, 2001 from $167 million for the fiscal year ended September 30,
2000. Margins on those sales were 17 percent and 24 percent in the years ended
September 30, 2001 and 2000, respectively. Margins on remarketing activities
in fiscal 2001 reflected a decrease in the market for high technology
equipment. European IT Leasing sales costs and expenses decreased 64 percent
to $16 million for the fiscal year ended September 30, 2002 from $44 million
for the fiscal year ended September 30, 2001. CAM group sales costs and
expenses increased 17 percent to $103 million for the fiscal year ended
September 30, 2001 from $88 million for the fiscal year ended September 30,
2001. CAM group sales are primarily electronics equipment remarketed from
inventory. Ventures sales costs and expenses decreased 56 percent to $4
million for the fiscal year ended September 30, 2001 from $9 million for the
fiscal year ended September 30, 2001.
Technology Services Costs and Expenses
Services costs were $123 million and $119 million for the fiscal
years ended September 30, 2001 and 2000, respectively. The increases were due
to higher personnel costs and an increase in customer base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 14 percent to
$312 million for the fiscal year ended September 30, 2001 from $362 million
for the fiscal year ended September 30, 2000. The decrease is primarily the
result of reduced compensation and outside professional services (excludes
professional services related to reorganization). The following table
summarizes selling, general and administrative expenses (in millions):
2001 2000
------- ------
Incentive compensation $ 91 $134
Estimated severance payments 8 -
Other compensation and benefits 114 121
Outside professional services 42 58
Other expenses 57 49
------- ------
$312 $362
======= ======
Write-down of Equity Securities
The charge for write-down of equity securities totaled $129 million
for the fiscal year ended September 30, 2001 compared to $7 million for the
fiscal year ended September 30, 2000. The increase in fiscal 2001 compared to
fiscal 2000 was primarily due to the rapid deterioration in the Ventures
portfolio as well as continued declines in the markets for equity securities.
Bad Debt Expense
Bad debt expense increased 247 percent to $489 million for the fiscal
year ended September 30, 2001 from $141 million for the fiscal year ended
September 30, 2000 primarily due to the rapid deterioration in the Ventures
group portfolio as well as provisions needed for US Leasing and European IT
Leasing.
Interest Expense
Interest expense was $341 million and $340 million for the fiscal
years ended September 30, 2001 and 2000, respectively. As of July 16, 2001,
Comdisco, Inc. ceased accruing interest on the senior notes and borrowings by
the Debtors under Comdisco, Inc.'s lines of credit. Contractual interest on
these obligations for the year ended September 30, 2001 was $391 million,
which is $50 million in excess of recorded interest expense included in the
accompanying financial statements. The increase in contractual interest in
fiscal 2001 compared to fiscal 2000 interest expense results primarily from
borrowings associated with Comdisco, Inc.'s discontinued operations (see
discussion on Prism following) and higher interest costs due to credit ratings
downgrades in the first quarter of fiscal 2001.
Reorganization Items
Charges for reorganization items were $34 million for the fiscal year
ended September 30, 2001. See Note 6 of Notes to Consolidated Financial
Statements, which is incorporated in this section by reference, for a
discussion of reorganization items.
Income Taxes
See Note 14 of Notes to Consolidated Financial Statements, which is
incorporated in this section by this reference, for details about the
Company's income tax provision.
Net Loss from Continuing Operations
The net loss from continuing operations was $197 million, or $1.31
per share-diluted, in fiscal 2001, compared to net earnings of $216 million, or
$1.34 per share-diluted, in fiscal 2000. The loss from continuing operations
for the year ended September 30, 2001 was primarily a result of decreased
earnings contributions from all of the Company's business lines and it
reflects decreases in remarketing activities and reduced earnings
contributions from leasing as a result of the decline in leased assets. It
also reflects the following items:
o a $365 million pretax charge ($234 million after-tax) for
additions to the allowance for credit losses in the Ventures
group's portfolio (compared to after-tax charges of $67 million
in fiscal 2000);
o a $124 million pretax charge ($79 million after-tax) for
additions to allowance for credit losses in the leasing business
(compared to after-tax charges of $23 million in fiscal 2000);
o a $129 million pretax charge for equity securities written-off
(compared to $7 million in fiscal 2000);
o a $8 million pretax charge for restructuring and other charges;
and
o a $34 million of reorganization related expenses.
Discontinued operations
Net loss from discontinued operations was $77 million for the year
ended September 30, 2001 compared to a net loss of $283 million for the year
ended September 30, 2000.
o International leasing: On October 18, 2002, the Company
announced that it had sold Comprendium Finance S.A., Computer
Discount GmbH and the Company's French leasing subsidiaries,
Comdisco France SA and Promodata SNC. The results of operations
of these European subsidiaries as well as the Company's
Australian and New Zealand operations ("International leasing")
have been classified as discontinued operations and the prior
year periods have been restated. Revenue from International
leasing was $215 million and $264 million for the years ended
September 30, 2001 and 2002, respectively. Costs and expenses
for these operations were $231 million for the year ended
September 30, 2001 compared to $263 million for the year ended
September 30, 2000. The decrease in both revenues and costs in
the current year period compared to the prior year period
reflect the reduction in operations of these subsidiaries as a
result of the declining financial condition of the Company. Net
loss for these European subsidiaries was $14 million in the year
ended September 30, 2001 compared to net earnings of $0 in the
year ended September 30, 2000. The net loss in fiscal 2001 was
primarily the result of additions to the allowance for credit
losses of approximately $16 million in Comprendium Finance S.A.
o 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 $487 million and $480 million for the years ended September
30, 2001 and 2000, respectively. The increase in revenue was
primarily due to the growth in products and services.
Availability solutions costs were $460 million and $405 million
during year ended September 30, 2001 and 2000, respectively. The
increase in costs was due to higher personnel costs and
continued investment in new service development.
Net loss of the availability solutions business were $13 million
for the year ended September 30, 2001 compared to net earnings
of $48 million in the prior year period.
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 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
years ended September 30, 2001 and 2000 were immaterial.
o 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 year
ended September 30, 2001 was $32 million compared to a $9
million loss in the prior period.
o Prism Communications: On October 2, 2000, Comdisco, Inc. decided
to cease funding ongoing operations of Prism Communication
Services, Inc. ("Prism"), a wholly-owned subsidiary. Prism
decided to cease operations and pursue the immediate sale of
Prism's assets. Comdisco, Inc.'s fourth quarter results for
fiscal 2000 reflected after tax charges of $238 million, or
$1.49 per share diluted, for the expected loss on disposal as
well as the operating losses on the discontinued operations
during the quarter. The estimated loss on disposal represented
the Company's estimate of operational losses to be incurred and
the expected losses from the disposition of the assets. Due to
unfavorable conditions in the telecommunications market, 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,
Comdisco, Inc. 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 estimated
fair market value. During the fourth quarter of fiscal 2001,
Prism reduced its estimated proceeds from the sale of assets
from $13 million at June 30, 2001 to $6 million at September 30,
2001. The estimated wind-down costs were also reduced by $7
million. Loss from discontinued operations of Prism for the year
ended September 30, 2000 was $322 million, or $1.99 per common
share.
Liquidity and Capital Resources
On September 30, 2002, in accordance with the Plan, the Company made
an initial distribution to the holders of certain Allowed Claims against the
Comdisco, Inc. bankruptcy estate. As part of that initial distribution, the
Company, along with its direct wholly-owned subsidiary, Comdisco, Inc.,
co-issued the Senior Notes in the principal amount of $400 million and the
Subordinated Notes in the principal amount of $650 million.
The Senior Notes were issued pursuant to an indenture dated as of
August 12, 2002 and amended as of October 7, 2002 (the "Senior Note
Indenture"). Similarly, the Subordinated Notes were issued pursuant to an
indenture dated as of August 12, 2002 and amended as of October 7, 2002 (the
"Subordinated Note Indenture"). The Company's obligations with respect to
payment of interest and principal under the Senior Notes and the Subordinated
Notes have been secured by a first-priority security interest in all the
capital stock of Comdisco Global Holding Company, Inc., Comdisco, Inc.,
Comdisco Domestic Holding Company, Inc. and Comdisco Ventures, Inc. and
certain other property that may be acquired by the Company in the future.
Because the Company's investments in its subsidiaries are pledged to secure
the obligations under the Senior Notes and the Subordinated Notes, Comdisco
Holding's ability to obtain additional or alternate financing is severely
restricted. Accordingly, the Company must rely on cash generated from the
orderly sale and run-off of its assets to meet its liquidity needs.
Permitted uses of cash are specified in the Senior Note Indenture,
the Subordinated Note Indenture and the Plan. Generally, the Company is
permitted to use cash only to fund its operating reserve, pay operating
expenses, and make certain payments under its management incentive plan and
stay-bonus plan. All cash in excess of amounts necessary to satisfy those
obligations must be used to redeem Senior Notes and Subordinated Notes in
accordance with their respective indentures. The Company is not permitted to
make distributions with respect to its Common Stock or Contingent
Distribution Rights until all debt evidenced by the Senior Notes and the
Subordinated Notes is extinguished.
On October 21, 2002, the Company voluntarily redeemed the entire $400
million outstanding principal amount of its Senior Notes at a price equal to
100 percent of their principal amount plus accrued and unpaid interest from
August 12, 2002 to the redemption date. On November 14, 2002 pursuant to its
mandatory redemption obligations under the Subordinated Note Indenture, the
Company made a partial redemption of $65 million of the outstanding principal
amount of its Subordinated Notes at a price equal to 100 percent of their
principal amount plus accrued and unpaid interest from August 12, 2002 to the
redemption date. On December 23, 2002, the Company made a voluntary partial
redemption of $200 million of the outstanding principal amount of its
Subordinated Notes at a price equal to 100 percent of their principal amount
plus accrued and unpaid interest from August 12, 2002 to the redemption date.
On December 31, 2002, the Company made an approximately $16 million interest
payment with respect to the Subordinated Notes. In addition, on January 9,
2003, the Company made a voluntary partial redemption of $100 million of the
outstanding principal amount of its Subordinated Notes at a price equal to 100
percent of their principal amount plus accrued and unpaid interest to the
redemption date. After the January 9, 2003 redemption, the outstanding
principal balance of Subordinated Notes is $285 million.
The Company continually evaluates opportunities for the orderly sale
and run-off of its remaining assets, including the sale of one or more of its
leasing asset portfolios. Comdisco, Inc.'s bankruptcy filing and the potential
sale of some or all of these 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 employees' performance in
future periods. The Company believes this uncertainty negatively impacted the
Company's financial results for the year ended September 30, 2002.
Furthermore, due to the Company's limited business purpose, there can be no
assurance that this uncertainty will not continue to have an impact on the
Company's operations and its ability to develop, implement and execute the
Plan. See the Risk Factors contained in this Item 7, below, for additional
risks associated with the bankruptcy filing and the Company's future results
of operations.
At September 30, 2002, the Company had unrestricted cash and cash
equivalents of approximately $575 million, an increase of approximately $29
million compared to September 30, 2001. Net cash provided by operating
activities for the year ended September 30, 2002 was $3.6 billion. Net cash
used in investing activities was $391 million in the year ended September 30,
2002. Funds provided by secured non-recourse debt during the year ended
September 30, 2002 totaled $10 million compared to $589 million in the year
earlier period.
The Company's operating activities during the year ended September
30, 2002, including capital expenditures, were funded primarily by cash flows
from operations (primarily lease receipts), including the realization of
residual values through remarketing activities. The Company's liquidity has
typically been augmented by the realization of cash from the future
remarketing of leased equipment. Liquidity from remarketing in fiscal 2002
decreased compared to fiscal 2001 and this trend is expected to continue for
fiscal 2003. See the Risk Factor entitled "Remarketing Results Are Uncertain"
in this Item 7, below, for information regarding remarketing.
The Company's current and future liquidity depends on cash on hand,
cash provided by operating activities and asset sales. As of January 9, 2003,
the Company's unrestricted cash balances exceeded $100 million. The Company
expects its cash on hand and cash flow from operations to be sufficient to
fund operating expenses, interest payments and debt obligations for the
foreseeable future.
Net cash provided by operating activities was $3.6 billion in fiscal
2002, $3.3 billion in fiscal 2001 and $3.2 billion in fiscal 2000.
The Company's cash flow from operating activities is dependent on a
number of variables, including, but not limited to, the ability of the Company
to implement its reorganization plan, timely payment by its customers, global
economic conditions and controlling operating costs and expenses.
Contingent Distribution Rights
As previously discussed, all shares of Comdisco, Inc. common stock
were cancelled on August 12, 2002. Holders of Comdisco, Inc. common stock
meeting certain requirements may exchange their shares for Contingent
Distribution Rights. More information on the Contingent Distribution Rights
can be found in a Registration Statement on Form 8-A filed by the Company on
August 12, 2002 with the Securities and Exchange Commission.
Pursuant to the terms of the Contingent Distribution Rights
distributed in accordance with the Plan, the Company agreed to provide
information regarding the present value of distributions to certain former
creditors of Comdisco, Inc. in its annual and quarterly reports. As the
present value of distributions to those 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 and further clarified in the Comdisco
Contingent Equity Distribution Agreement. As of January 9, 2003, the present
value of the distributions to creditors holding Class C-4 Claims that have
been allowed was approximately $2.6 billion and the aggregate amount of Class
C-4 Claims that have been allowed was $3.6 billion. Accordingly, the
percentage recovery of creditors holding Class C-4 Claims that have been
allowed is approximately seventy-two percent as of January 9, 2003. The
present value of distributions to creditors includes the initial distribution
on September 30, 2002, the optional redemption of the Senior Notes on October
21, 2002, the mandatory redemption of $65 million of Subordinated Notes on
November 14, 2002, the optional partial redemption of $200 million of
Subordinated Notes on December 23, 2002, the $16 million interest payment with
respect to the Subordinated Notes on December 31, 2002 and the optional
partial redemption of $100 million of Subordinated Notes on January 9, 2003,
in each case net of cash amounts contributed to the Disputed Claims Reserve.
Cash contributed to the Disputed Claims Reserve in respect of claims that have
not been allowed through January 9, 2003 totaled approximately $333 million.
The first scheduled distribution from the Disputed Claims Reserve to allowed
claimholders, if any, will be on or about February 14, 2003 as required in the
Plan.
Recently Issued Professional Accounting Standards
During 2001, FASB issued SFAS No. 141, "Business Combinations," No.
142, "Goodwill and Other Intangible Assets," No. 143, "Accounting for Asset
Retirement Obligations," and No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 143 establishes accounting standards
for recognition and measurement of a liability for an asset retirement
obligation and associated asset retirement costs. SFAS No. 144 supercedes SFAS
No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets To Be Disposed Of," and APB Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," and amends ARB No. 51, "Consolidated Financial Statements." In
conjunction with the Company's reorganization and Fresh- Start Reporting,
Comdisco adopted the provisions of SFAS Nos. 141, 142, 143 and 144, the
effects of which are included in the results of operations and financial
position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS 145 requires that gains and losses from
extinguishment of debt be classified as extraordinary items only if they meet
the criteria in Accounting Principles Board Opinion No. 30. Applying the
provisions of Opinion No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual and infrequent and
meet the criteria for classification as an extraordinary item. Management does
not believe the adoption of SFAS No. 145 has had a significant impact on the
Company's consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Management does not believe the adoption of SFAS No. 146 has had a significant
impact on the Company's consolidated financial statements.
Risk Factors Relating to the Company
The following risk factors and other information included in this
Annual Report on Form 10-K 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 the implementation of the Plan. If any of the following risks actually
occurs, the Company's business, financial condition, operating results and the
implementation of the Plan could be materially adversely affected.
Uncertainties Relating to the Bankruptcy Plan
The results of the Company's operations may be affected 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 retain employees; (iii) limitations imposed by the Plan's focus on the
orderly run-off or sale of assets; and (iv) third party competitive pressures.
In addition, the Company has incurred and will continue to incur
significant costs associated with its reorganization and implementation of the
Plan. 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 post-bankruptcy business plan is limited to an orderly
run-off or sale of its remaining assets. Pursuant to the Plan and restrictions
contained in its certificate of incorporation, the Company is specifically
prohibited from engaging in any business activities inconsistent with its
limited business plan. 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 effectively implement this business plan is inherently uncertain.
In addition, unanticipated events and circumstances occurring subsequent to
the date of this Annual Report 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 and political conditions, control of
operating costs and expenses and the ability of the Company to dispose of its
assets. In addition, the Company continues to honor its existing lease funding
obligations, including significant obligations related to its Technology
Refresh Option product within European IT Leasing. If the technology refresh
option assets are not sold in the near term, the continued funding
requirement could have a negative impact on liquidity. Any inability of the
Company to fund such commitments could have a negative impact on the
realization of value from these assets.
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 may have a negative impact on
equipment values and remarketing results. There can be no assurance that the
Company's current financial condition and emergence from bankruptcy will not
continue to have a negative impact on the ability of the Company to sell its
remaining assets.
The Company is Affected By Product and Market Development
The markets for the Company's principal products are characterized by
rapidly changing technology, frequent new product announcements and
enhancements, evolving industry standards and customer demands and declining
prices. These rapidly changing market conditions could adversely affect the
Company's business, including its leasing and remarketing revenue and earnings
contributions.
The Company's Investments in Certain Industries May Cause Business
and Broader Financial Results to Suffer
The Company has significant exposures to companies engaged in the
telecommunications, electronics and other high-technology industries that have
been severely negatively impacted by the recent economic downturn. To the
extent that these companies are unable to meet their business plans, or are
unable to obtain funding at reasonable rates to execute their business plans,
there could be an increase in the Company's credit losses. There can be no
assurance that the economic and operating environment for these industries
will rebound to levels seen prior to the economic downturn, nor that the
environment for these industries will not continue to deteriorate.
Current Economic Conditions Have Made It Difficult for Ventures. to
Timely Realize on its Investments and Have Adversely Affected the Ability of
Ventures Customers to Timely Meet Their Obligations to the Company
Ventures, through Comdisco, Inc.'s former Ventures group, leased
equipment to, made loans to and equity investments in various privately held
companies. The Company's Ventures operations are now directed by Comdisco
Ventures, Inc., a wholly-owned subsidiary of Comdisco, Inc. Prior to the
bankruptcy filing, the companies in which Ventures invested were typically in
an early stage of development with limited operating histories and limited or
no revenues and expectations of substantial losses. 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 Ventures provided venture financing prior to the
bankruptcy filing 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 fair market value of the Company's equity
instruments and credit risk on its debt instruments. 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 year 2002 indicate that there is an increasing number of
companies in the Ventures' 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 portfolio review process intended to
identify problem companies within the Ventures' financing portfolio. To the
extent there are revisions in management's estimates requiring additional bad
debt provisions, the Company's operating results and financial condition could
be materially adversely affected.
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 Ventures' 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, Ventures 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 may
continue to be offered by companies in the Ventures 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 Ventures equity and
warrant holdings. For those securities without a public trading market, the
realizable value of Ventures' interests may prove to be lower than the
carrying value currently reflected in the financial statements.
Company Exposed to Customer Concentration Risk
The Company's customer concentrations expose the Company to
additional risk in that the failure of any single customer, which represents a
concentration in the Company's existing portfolio of assets, to meet its
obligations to the Company could significantly negatively impact the Company's
revenues and cash flows (see Item 1, "Customers," for examples of significant
customer concentrations).
Impact of Interest Rates and Foreign Exchanges 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 US dollar value of the Company's assets and a
strengthening of the dollar would negatively impact the value of our net
foreign assets.
Discontinued Operations and the Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Limited Public Market for Common Stock
There is currently a limited public market for the Company's Common
Stock. Holders of the Company's Common Stock may, therefore, have difficulty
selling their Common Stock, should they decide to do so. In addition, there
can be no assurances that such markets will continue or that any shares of
Common Stock which may be purchased may be sold without incurring a loss. Any
such market price of the Common Stock may not necessarily bear any
relationship to the Company's book value, assets, past operating results,
financial condition or any other established criteria of value, and may not be
indicative of the market price for the Common Stock in the future. Further,
the market price of the Common Stock may be volatile depending on a number of
factors, including the status of the Company's business performance, industry
dynamics, news announcements or changes in general economic conditions.
Limited Public Market for Contingent Distribution Rights
There is currently a limited public market for the Company's
Contingent Distribution Rights. Holders of the Company's Contingent
Distribution Rights may, therefore, have difficulty selling their Contingent
Distribution Rights, should they decide to do so. In addition, there can be no
assurances that such markets will continue or that any Contingent Distribution
Rights which may be purchased may be sold without incurring a loss. Any such
market price of the Contingent Distribution Rights may not necessarily bear
any relationship to the Company's book value, assets, past operating results,
financial condition or any other established criteria of value, and may not be
indicative of the market price for the Contingent Distribution Rights in the
future. Further, the market price of the Contingent Distribution Rights may be
volatile depending on a number of factors, including the status of the
Company's business performance, industry dynamics, news announcements or
changes in general economic conditions.
Other
Other uncertainties include general business conditions, ability to
sell assets, reductions in technology budgets and related spending plans and
the impact of workforce reductions on the Company's operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposures are interest rate risk,
primarily related to the Company's interest-bearing obligations, equity
security price risk and foreign exchange rate risk.
Interest Rate Risk and Market Risk
Presently, the Company invests its cash and cash equivalents in money
market and other interest bearing accounts. Such cash and cash equivalents are
essentially the only floating rate assets held by the Company. The Company
does not expect to hold or invest any significant amounts of cash as it is
required to distribute cash in accordance with the Plan and the terms of the
Subordinated Notes. The primary investment objective is to ensure capital
preservation of its invested principal funds by limiting default and market
risk. Currently, the Company does not use derivative financial instruments in
its investment portfolio.
The Company is subject to interest rate risk on the Senior Notes and
the term notes (the term notes are more fully described in Note 11 to the
Consolidated Financial Statements). On October 21, 2002, the Company
voluntarily redeemed the entire $400 million outstanding principal amount of
its Senior Notes at a price equal to 100 percent of their principal amount
plus accrued and unpaid interests from August 12, 2002 to the redemption date,
thereby significantly reducing the Company's outstanding floating rate debt
and the related exposure to changes in interest rates.
The table below presents principal amounts and related
weighted-average interest rates by year of maturity for the Company's
Subordinated Notes, Senior Notes and term notes as of September 30, 2002.
2003 2004 2005
--------- --------- -------
Notes Payable:
Subordinated Notes:
Fixed rate $ - $ - $650
Interest rate 11.00%
Senior Notes:
Floating interest rate $ - $ 400 $ -
Interest rate at September 30, 2002 4.74%
Term Notes:
Floating interest rate $35 $ - $ -
Interest rate at September 30, 2002 2.19%
The Company's investment in marketable equity securities is subject
to market price risk. A ten percent decrease in market values would not have a
material impact on the Company. Many of these equity securities are highly
volatile stocks.
Foreign Exchange Risk
The Company is exposed to the risk of future currency exchange rate
fluctuations, which is accounted for as an adjustment to stockholders' equity.
Therefore, changes from reporting period to reporting period in the exchange
rates between various foreign currencies and the U.S. Dollar have had and will
continue to have an impact on the accumulated other comprehensive loss
component of stockholders' equity reported by the company, and such effect may
be material in any individual reporting period. In order to reduce the
uncertainty of foreign exchange rate movements on transactions denominated in
foreign currencies, the Company enters into derivative financial instruments
with major international financial institutions.
Risk Management
The Company uses derivatives in certain identifiable situations to
manage risk. The Company does not speculate on interest rates or foreign
exchange rates, but rather manages its portfolio of assets and liabilities to
mitigate the impact of interest rate and foreign exchange rate fluctuations.
The Company does not use derivatives for trading purposes. See Note 11 of
Notes to Consolidated Financial Statements, which is incorporated in this
section by this reference, for information on the Company's average daily
borrowings, effective interest rates and the Company's derivative financial
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Reports of Independent Accountants............................................................ 41
Consolidated Statements of Earnings (Loss) for the two-month period ended
September 30, 2002 (Successor), the ten-month period ended July 31, 2002
and each of the years ended September 30, 2001 (Successor) and 2000
(Predecessor)................................................................................. 42
Consolidated Balance Sheets as of September 30, 2002 (Successor) and 2001
(Predecessor)................................................................................. 44
Consolidated Statements of Stockholders' Equity:
For the ten-month period ended July 31, 2002 and the years ended
September 30, 2001 and 2000 (Predecessor)................................................ 45
For the two-month period ended September 30, 2002 (Successor)............................ 46
Consolidated Statements of Cash Flows for the two-month period ended
September 30, 2002 (Successor), the ten-month period ended July 31, 2002
and each of the years ended September 30, 2001 and 2000 (Predecessor)......................... 47
Notes to Consolidated Financial Statements................................................... 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Comdisco Holding Company, Inc.:
We have audited the accompanying consolidated balance sheet of Comdisco
Holding Company, Inc. and subsidiaries as of September 30, 2002 (the Successor),
and of Comdisco, Inc. as of September 30, 2001 (the Predecessor) and the
related consolidated statement of earnings (loss), stockholders' equity,
and cash flows for the period from August 1, 2002 to September 30, 2002 (the
Successor), the period from October 1, 2001 to July 31, 2002 (the Predecessor)
and each of the two years in the period ended September 30, 2001 (the
Predecessor). These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in note 1 to the consolidated financial statements, on July 16,
2001, the Predecessor and fifty of its domestic U.S. subsidiaries filed
voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code from which it emerged on August 12, 2002. Accordingly, the
accompanying consolidated financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "Financial Reporting for
Entities in Reorganization Under the Bankruptcy Code," for the Successor as a
new entity with assets, liabilities, and a capital structure having carrying
values not comparable with prior periods as described in note 2.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Comdisco Holding Company, Inc. at September 30, 2002 and Comdisco, Inc. at
September 30, 2001, and the consolidated results of operations and their cash
flows for the period from August 1, 2002 to September 30, 2002, the period
from October 1, 2001 to July 31, 2002, and each of the two years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Chicago, IL
January 14, 2003
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(in millions except per share data)
SUCCESSOR | PREDECESSOR
Two months | Ten months
ended | ended Years ended
September 30, | July 31, September 30,
------------- | ----------- ------------------
2002 | 2002 2001 2000
------------- | ----------- ------------------
Revenue |
Leasing |
Operating $ 79 | $ 704 $ 1,334 $ 1,499
Direct financing 14 | 88 165 173
Sales-type 5 | 38 131 381
------------- | ----------- ------- --------
Total leasing 98 | 830 1,630 2,053
|
Sales 50 | 297 280 390
Technology services 10 | 70 128 119
Other 12 | 48 453 530
------------- | ----------- ------- --------
Total revenue 170 | 1,245 2,491 3,092
------------- | ----------- ------- --------
|
Costs and expenses |
Leasing |
Operating 75 | 559 1,058 1,194
Sales-type 2 | 34 97 285
------------- | ----------- ------- --------
Total leasing 77 | 593 1,155 1,479
|
Sales 31 | 289 237 308
Technology services 10 | 39 123 119
Selling, general and administrative 34 | 170 312 362
Write-down of equity securities 3 | 70 129 7
Bad debt expense 4 | 149 489 141
Interest (total Predecessor contractual interest 2002 - $260; 2001 - $391) 15 | 47 341 340
Reorganization items - | 439 34 -
Fresh-start accounting adjustments - | 369 - -
------------- | ----------- ------- --------
Total costs and expenses 174 | 2,165 2,820 2,756
------------- | ----------- ------- --------
|
Earnings (loss) from continuing operations before income |
taxes (benefit), extraordinary items and cumulative |
effect of change in accounting principle (4) | (920) (329) 336
Income taxes (benefit) 4 | 45 (132) 120
------------- | ----------- ------- --------
Earnings (loss) from continuing operations before |
extraordinary items and cumulative effect of change |
in accounting principle (8) | (965) (197) 216
Earnings (loss) from discontinued operations, net of tax (9) | 271 (77) (283)
------------- | ----------- ------- --------
Earnings (loss) before extraordinary items and cumulative |
effect of change in accounting principle (17) | (694) (274) (67)
Extraordinary gain - debt discharge, net of tax - | 153 - -
Extraordinary gain - recognition of excess of fair value |
net assets over reorganization value, net of tax 241 | - - -
------------- | ----------- ------- --------
Earnings (loss) before cumulative effect of change in |
accounting principle 224 | (541) (274) (67)
Cumulative effect of change in accounting principle, net of tax - | - 2 -
------------- | ----------- ------- --------
Net earnings (loss) $ 224 | $ (541) $ (272) $ (67)
============= | =========== ======= ========
|
Basic earnings (loss) per common share: |
Earnings (loss) from continuing operations $ (1.81) | $ (6.41) $ (1.31) $ 1.42
Earnings (loss) from discontinued operations (2.20) | 1.80 (0.50) (1.86)
Earnings (loss) from extraordinary items 57.38 | 1.02 - -
Cumulative effect of change in accounting principle - | - 0.01 -
------------- | ----------- -------- --------
Net earnings (loss) $ 53.37 | $ (3.59) $ (1.80) $ (0.44)
============= | =========== ======== ========
Diluted earnings (loss) per common share: |
Earnings (loss) from continuing operations $ (1.81) | $ (6.41) $ (1.31) $ 1.34
Earnings (loss) from discontinued operations (2.20) | 1.80 (0.50) (1.75)
Earnings (loss) from extraordinary items 57.38 | 1.02 - -
Cumulative effect of change in accounting principle - | - 0.01 -
------------- | ----------- -------- --------
Net earnings (loss) $ 53.37 | $ (3.59) $ (1.80) $ (0.41)
============= | =========== ======== ========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except number of shares and per share data)
SUCCESSOR | PREDECESSOR
September 30, | September 30,
2002 | 2001
----------------- | ------------------
ASSETS |
Cash and cash equivalents $ 575 | $ 546
Cash - legally restricted 18 | 54
Receivables, net 127 | 592
Inventory of equipment 24 | 84
Leased assets: |
Direct financing and sales-type 1,016 | 1,850
Operating (net of accumulated depreciation) 296 | 1,919
----------------- | ------------------
Net leased assets 1,312 | 3,769
Property, plant and equipment, net - | 59
Equity securities 36 | 138
Assets of discontinued operations 155 | 747
Other assets 94 | 213
----------------- | ------------------
$ 2,341 | $ 6,202
================= | ==================
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
Liabilities not subject to compromise |
Term notes payable $ 35 | $ 360
Discounted lease rentals 262 | 964
Notes payable 1,050 | 179
Accounts payable 36 | 105
Income taxes: |
Current 2 | 10
Deferred 80 | 25
Liabilities related to assets of discontinued operations 29 | 93
Deferred income 34 | 153
Other liabilities 172 | 175
----------------- | ------------------
1,700 | 2,064
|
Liabilities subject to compromise |
Notes payable - | 917
Senior notes - | 2,639
Accounts payable - | 22
Other liabilities - | 113
----------------- | ------------------
- | 3,691
----------------- | ------------------
Stockholders' equity: |
Old Preferred stock $.10 par value. |
Authorized 100,000,000 shares (none issued); Series C and Series D - | -
Old Common stock $.10 par value. Authorized 750,000,000 shares; |
issued 225,555,293 at September 30, 2001 - | 23
New Comdisco stock $.01 par value. Authorized 10,000,000 shares; |
issued 4,200,000 shares. - | -
Old Comdisco Ventures group stock $.10 par value. |
Authorized 750,000,000 shares (none issued) - | -
Additional paid-in capital 413 | 365
Accumulated other comprehensive income (loss) 4 | (93)
Retained earnings 224 | 772
----------------- | ------------------
641 | 1,067
Old Common stock held in treasury, at cost; |
(74,996,351 in 2001) - | (620)
| ------------------
----------------- |
Total stockholders' equity 641 | 447
----------------- | ------------------
$ 2,341 | $ 6,202
================= | ==================
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions except per share data)
PREDECESSOR
Accumulated
Additional other Common
Common paid-in comprehensive Retained stock in
stock capital income earnings treasury Total
--------- ----------- ------------- ---------- ---------- --------
Balance at September 30, 1999 $ 22 $ 302 $ 58 $ 1,134 $ (456) $ 1,060
Net loss (67) (67)
Translation adjustment (64) (64)
Change in unrealized gain 323 323
-------
Total comprehensive income 192
Cash dividends-Old Common stock ($.10 (16) (16)
per share)
Stock options exercised 1 26 10 37
Purchase of Old Common stock (91) (91)
Income tax benefits resulting from the
exercise of non-qualified stock
options 32 32
--------- ----------- ------------- ---------- ---------- --------
Balance at September 30, 2000 23 360 317 1,051 (537) 1,214
Net loss (272) (272)
Translation adjustment 1 1
Change in unrealized gain (411) (411)
-------
Total comprehensive income (loss) (682)
Cash dividends-Old Common stock ($.05
per share) (7) (7)
Stock options exercised 3 1 4
Purchase of Old Common stock (84) (84)
Income tax benefits resulting from the
exercise of non-qualified stock
options 2 2
--------- ----------- ------------- ---------- ---------- --------
Balance at September 30, 2001 23 365 (93) 772 (620) 447
Net loss for the ten months ended (541) (541)
July 31, 2002
Translation adjustment 24 24
Change in unrealized gain (1) (1)
-------
Total comprehensive income (loss) (518)
Extinguishment of stockholders' equity
in connection with reorganization (23) (365) 70 (231) 620 71
--------- ----------- ------------- ---------- ---------- --------
Balance at July 31, 2002 $ - $ - $ - $ - $ - $ -
========= =========== ============= ========== ========== ========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions)
SUCCESSOR
Additional Accumulated
Common paid-in other compre- Retained
stock capital hensive income earnings Total
------------------------------------------------------------------------
Balance at July 31, 2002 $ - $ - $ - $ - $ -
Issuance of New Common stock - 384 384
Tax effect of fresh-start accounting - 29 - - 29
Net earnings for the two months ended
September 30, 2002 224 224
Translation adjustment 4 4
Change in unrealized gain - -
-------
Total comprehensive income 228
---------------------------------------------------------------------
Balance at September 30, 2002 $ - $ 413 $ 4 $ 224 $ 641
=====================================================================
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
SUCCESSOR | PREDECESSOR
Two months | Ten months
ended | ended Years ended
September 30, | July 31, September 30,
------------- | ----------- ---------------------------
2002 | 2002 2001 2000
------------- | ----------- ---------------------------
|
Cash flows from operating activities: |
Operating lease and other leasing receipts $ 176 | $ 1,543 $ 2,534 $ 2,657
Leasing costs, primarily rentals paid - | (8) (15) (10)
Sale of portfolios 22 | 348 - -
Sales of equipment 61 | 266 265 438
Sales costs (1) | (8) (45) (115)
Technology services receipts 4 | 44 155 110
Technology services costs (1) | (18) (111) (110)
Notes receivable receipts 33 | 201 323 272
Warrant proceeds - | 29 456 470
Other revenue 13 | 43 51 11
Selling, general and administrative expenses (40) | (131) (318) (364)
Interest (2) | (54) (294) (339)
Income taxes (6) | 32 (1) (56)
------------- | ----------- ------------- ------------
Net cash provided by continuing operations 259 | 2,287 3,000 2,964
Net cash provided by discontinued operations 29 | 1,008 281 254
------------- | ----------- ------------- ------------
Net cash provided by operating activities |
before reorganization items 288 | 3,295 3,281 3,218
------------- | ----------- ------------- ------------
Operating cash flows from reorganization items: |
Interest received on cash accumulated because |
of Chapter 11 proceeding - | 26 3 -
Professional fees paid for services rendered |
in connection with Chapter 11 |
proceeding - | (42) (33) -
------------- | ----------- ------------- ------------
Net cash used by reorganization items - | (16) (30) -
------------- | ----------- ------------- ------------
Net cash provided by operating activities 288 | 3,279 3,251 3,218
------------- | ----------- ------------- ------------
Cash flows from investing activities: |
Equipment purchased for leasing (46) | (254) (1,204) (2,306)
Investment in service facilities - | - 3 (32)
Notes receivable - | (18) (232) (626)
Equity investments - | (1) (56) (176)
Capital expenditures on discontinued operations (14) | (56) (285) (685)
Other (3) | 1 42 (25)
------------- | ----------- ------------- ------------
Net cash used in investing activities (63) | (328) (1,732) (3,850)
------------- | ----------- ------------- ------------
Cash flows from financing activities: |
Discounted lease proceeds - | 10 589 619
Net increase (decrease) in notes and term |
notes payable (33) | (462) (489) 683
Issuance of senior notes - | - - 802
Initial cash distribution to creditors - | (1,983) - -
Cash portion of disputed claims reserve - | (248) - -
Maturities and repurchases of senior notes - | - (813) (1,036)
Principal payments on secured debt (42) | (378) (419) (339)
Old Common stock purchased and placed in |
treasury - | - (84) (91)
Dividends paid on Old Common stock - | - (7) (16)
Issuance of Prism Communication Services |
common stock - | - - 11
Decrease (increase) in legally restricted cash 40 | (5) - (8)
Cash used to finance discontinued operations (6) | (9) (64) (47)
Other (13) | (18) (1) 8
------------- | ----------- ------------- ----------
Net cash provided by (used in) financing |
activities (54) | (3,093) (1,288) 586
------------- | ----------- ------------- ----------
Net increase (decrease) in cash and cash |
equivalents 171 | (142) 231 (46)
Cash and cash equivalents at beginning of period 404 | 546 315 361
------------- | ----------- ----------- ----------
Cash and cash equivalents at end of period $ 575 | $ 404 $ 546 $ 315
============= | =========== =========== ==========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
SUCCESSOR | PREDECESSOR
|
Two months | Ten months
ended | ended Years ended
September 30, | July 31, September 30,
2002 | 2002 2001 2000
-------------- | -------------- ---------- ----------
Reconciliation of earnings (losses) from continuing |
operations to net cash provided by operating activities: |
|
Earnings (losses) from continuing operations $ (8) | $ (965) $ (197) $ 216
|
Adjustments to reconcile earnings (losses) from continuing |
operations to net cash provided by operating activities |
|
Leasing costs, primarily |
depreciation and amortization 77 | 585 1,140 1,470
Leasing revenue, primarily principal portion of |
direct financing and sales-type lease rentals 78 | 713 905 603
Cost of sales 30 | 281 192 193
Technology services costs, primarily |
depreciation and amortization 9 | 21 12 9
Interest 13 | (7) 47 1
Income taxes (2) | 77 (133) 64
Principal portion of notes receivable 23 | 175 248 205
Selling, general, and administrative expenses 1 | 258 612 146
Warrant proceeds in excess of income - | 13 103 22
Income tax benefit resulting from the exercise of |
non-qualified stock options - | 2 32
Fresh-start accounting adjustments - | 369 - -
Reorganization items - | 771 4 -
Lease portfolio sales 22 | - - -
Other, net 16 | (20) 35 3
-------------- | -------------- ----------- ----------
Net cash provided by continuing operations 259 | 2,271 2,970 2,964
Net cash provided by discontinued operations 29 | 1,008 281 254
-------------- | -------------- ----------- ----------
Net cash provided by operating activities $ 288 | $ 3,279 $ 3,251 $ 3,218
============== | ============== =========== ==========
|
Supplemental Schedule of Non-cash Financing Activities: |
Reduction of discounted lease rentals in lease portfolio sales $ - | $ 292 $ - $ -
============== | ============== =========== ==========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
Note 1 - Reorganization
On July 30, 2002, the First Amended Joint Plan of Reorganization was
confirmed by the bankruptcy court (the "Plan") and, on August 12, 2002 (the
"Effective Date"), the Company emerged from Chapter 11. For financial
reporting purposes, the effective date for implementation of fresh-start
reporting is July 31, 2002.
Implementation of the Plan resulted in the reorganization of
Comdisco, Inc. and its domestic and foreign subsidiaries into Comdisco Holding
Company, Inc. and three new primary subsidiaries: (i) Comdisco Global Holding
Company, Inc. (a direct wholly-owned subsidiary of Comdisco Holding Company,
Inc.), which manages the sale and run-off of the Company's reorganized
European IT Leasing operations and assets; (ii) Comdisco, Inc. (a direct
wholly-owned subsidiary of Comdisco Holding Company, Inc.), which manages the
sale and run-off of the Company's reorganized US Leasing operations and
assets; and (iii) Comdisco Ventures, Inc. (a direct wholly-owned subsidiary of
Comdisco, Inc.), which manages the sale and run-off of the Company's venture
financing operations and assets ("Ventures"). The Company's Corporate Asset
Management, or CAM group is responsible for the sale and run-off certain
assets held by Comdisco Global Holding Company, Inc., Comdisco, Inc. and their
subsidiaries that remained after certain pre-emergence bankruptcy asset sales.
The CAM group's operations are managed through Comdisco, Inc. Implementation
of the Plan also resulted in the reorganization of Prism Communication
Services, Inc. and its subsidiaries ("Prism"); as a consequence, Prism is now
a direct wholly-owned subsidiary of Comdisco Domestic Holding Company, Inc.,
which is itself a direct wholly-owned subsidiary of Comdisco, Inc.
Comdisco Holding Company, Inc. (Successor) was formed on August 8,
2002 for the purpose of selling, collecting or otherwise reducing to money in
a orderly manner the remaining assets of the Company and all of its direct and
indirect subsidiaries, including Comdisco, Inc. (Predecessor). As more fully
described in the Plan, the Company's business purpose is limited to the
orderly sale or run-off of all its remaining assets. Pursuant to the Plan and
restrictions contained in its certificate of incorporation, the Company is
specifically prohibited from engaging in any business activities inconsistent
with its limited business purpose.
Consummation of the Plan resulted in (i) the distribution of cash
totaling $2.2 billion; (ii) the issuance of variable rate senior secured notes
due 2004 in the principal amount of $400 million; (iii) the issuance of 11
percent subordinated secured notes due 2005 in the principal amount of $650
million; (iv) the issuance of 4.2 million shares of New Common stock; (v) the
issuance of Contingent Distribution Rights to holders of the Company's Old
Common stock; and (vi) the cancellation of the Company's Old Senior Notes, Old
Notes Payable, Old Common stock and Old Stock Options.
Consummation of the Plan resulted in the election of a new Board of
Directors for the Company (the "Board"). As of the Effective Date, the Board
is comprised of five members. The management director is Ronald C. Mishler,
Chief Executive Officer. The four additional members of the Board are: Jeffrey
A. Brodsky, Robert M. Chefitz, William A. McIntosh and Randolph I. Thornton.
All references to the "the Company" throughout these notes to
consolidated financial statements for disclosures related to periods prior to
and including July 31, 2002 refer to Comdisco, Inc., the Predecessor, and
disclosures related to periods subsequent to July 31, 2002 refer to Comdisco
Holding Company, Inc., the Successor.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
Due to the reorganization and implementation of fresh-start
reporting, the consolidated financial statements for the Successor Company
(period starting July 31, 2002) are not comparable to those of the Predecessor
Company. For financial reporting purposes, the effective date of the emergence
from bankruptcy is considered to be the close of business on July 31, 2002.
Nature of Operations
Comdisco Holding Company, Inc. was formed on August 8, 2002 for the
purpose of selling, collecting or otherwise reducing to money in an orderly
manner the remaining assets of the Company and all of its direct and indirect
subsidiaries, including Comdisco, Inc. Prior to the bankruptcy, Comdisco, Inc.
provided technology services worldwide to help its customers maximize
technology functionality, predictability, and availability, while freeing them
from the complexity of managing their technology. Comdisco, Inc. offered
leasing to key vertical industries, including semiconductor manufacturing and
electronic assembly, healthcare, telecommunications, pharmaceutical,
biotechnology and manufacturing. Through its Comdisco Ventures group,
Comdisco, Inc. provided equipment leasing and other financing and services to
venture capital-backed companies.
Use of Estimates
The preparation of the consolidated 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 and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Intercompany accounts and
transactions have been eliminated.
Translation Adjustments
All assets and liabilities denominated in foreign currencies are
translated at the exchange rate on the balance sheet date. Revenues, costs and
expenses are translated at average rates of exchange prevailing during the
period. Translation adjustments are deferred as a separate component of
stockholders' equity. Gains and losses resulting from foreign currency
transactions are included in the consolidated statements of earnings (loss).
Income Taxes
The Company uses the asset and liability method to account for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits of which future realization is
not more likely than not.
Lease Accounting
See Notes 7, 8, and 9 of Notes to Consolidated Financial Statements
for a description of lease accounting policies, lease revenue recognition and
related costs.
Technology Services
Revenue from Availability Solutions' contracts is recognized monthly
as subscription fees become due. Revenue from Availability Solutions
continuity contracts is recognized over the terms of the related contracts or
as the service is provided. Revenue from continuity contracts is reported in
discontinued operations.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid debt
instruments with original maturities of 90 days or less.
Allowance for Credit Losses
See Note 13 of Notes to Consolidated Financial Statements for a
description of the policy for reserving for credit losses.
Cash--Legally Restricted
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 assets sales.
Legally restricted cash is comprised of the following at September 30, 2002
and September 30, 2001 (in millions):
SUCCESSOR | PREDECESSOR
2002 | 2001
--------- | -----------
SunGard escrow $ 2 | $ -
Professional fee escrow 7 | -
Letters of credit 3 | 26
Cash received on non-owned leases 6 | 28
--------- | -----------
$ 18 | $ 54
========= | ===========
Inventory of Equipment
Inventory of equipment is stated at the lower of cost or market by
categories of similar equipment.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation of
property, plant and equipment is calculated on the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful life of the asset.
The carrying value of property, plant and equipment is assessed annually
and/or when factors indicating an impairment are present. If an impairment is
present, the assets are reported at the lower cost of carrying value or fair
value. As result of fresh-start accounting adjustments, $27 million of excess
fair value of net assets over reorganization value was allocated as a
reduction to property, plant and equipment in accordance with AICPA Statement
of Position ("SOP") 90-7 and Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations." Accordingly, the net book value of
property, plant and equipment as of September 30, 2002 was zero. See Note 3 of
Notes to Consolidated Financial Statements.
Investment in Equity Securities
The Company determines the appropriate classification of marketable
securities at the time of acquisition and reevaluates such designation at each
balance sheet date. Marketable securities classified as available-for-sale are
carried at fair value, based on quoted market prices, net of estimated
commission expenses, with unrealized gains and losses excluded from earnings
(loss) and reported in accumulated other comprehensive income (loss). Equity
investments for which there is no readily determinable fair value are carried
at the lower of cost or estimated fair market value.
Warrants
The Company's investments in warrants (received in connection with
its lease or other financings) are initially recorded at zero cost and carried
in the consolidated financial statements as follows:
o Warrants that meet the criteria for classification as
available-for-sale are carried at fair value based on quoted
market prices with unrealized gains excluded from earnings
(loss) and reported in accumulated other comprehensive income
(loss).
o Warrants that do not meet the criteria for classification as
available-for-sale are carried at zero value.
The proceeds received from the sale or liquidation are recorded as income on
the trade date.
Earnings (Loss) Per Common Share
Earnings (loss) per common share-basic are computed by dividing the
net earnings (loss) to common stockholders by the weighted average number of
common shares outstanding for the period. Earnings (loss) per common
share-diluted reflect the maximum dilution that would have resulted from the
exercise of stock options. Earnings (loss) per common share-diluted are
computed by dividing the net earnings (loss) to common stockholders by the
weighted average number of common shares outstanding and all dilutive stock
options (dilutive stock options are based on the treasury stock method).
Stock-Based Compensation
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations including FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" issued in March 2000, to account for its fixed plan stock
options. Under this method, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair value-based
method of accounting for stock-based employee compensation plans. As allowed
by SFAS No. 123, the Company has elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123. As result of the confirmation of the
Plan and the emergence from bankruptcy, all stock option plans were terminated
and all outstanding stock options were cancelled.
Reclassifications
Certain reclassifications have been made in the 2000 and 2001
consolidated financial statements to conform to the 2002 presentation.
Cumulative Effect of Change in Accounting Principle
Comdisco, Inc. adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," on October 1, 2000. In accordance with
the transition provisions of SFAS No. 133, Comdisco, Inc. recorded a
net-of-tax cumulative-effect adjustment of $2 million in current earnings to
recognize at fair value all derivatives that were designated as cash-flow
hedging instruments. For the year ended September 30, 2000, prior to the
adoption of SFAS No. 133, Comdisco, Inc. entered into interest rate swap
agreements to reduce its exposure to market risks from changing interest
rates. For interest rate swaps, the differential to be paid or received was
accrued and recognized in interest expense.
Neither the Company, nor Comdisco, Inc. use derivatives for trading
purposes. The Company's derivative financial instruments at September 30, 2002
are recorded at fair value.
Note 3 - Fresh-Start Reporting
The Company adopted fresh start reporting because, as a result of
implementation of the Plan, holders of the Company's existing common stock
immediately before filing and confirmation of the Plan retained less than 50%
of the common stock of the emerging entity and the Company's reorganization
value at emergence was less than its' post-petition liabilities and allowed
claims.
Under Fresh Start Reporting, the reorganization value of the Company
is allocated to estimated fair value of the emerging Company's net assets. The
Company's reorganization value was based on the consideration of many factors
and various valuation methodologies, primarily discounted cash flows, believed
by the Company's management and its financial advisors to be representative of
the Company's business and industry. The allocation of the Company's
reorganization value to the estimated fair value of the net assets of the
emerging company was determined in a manner similar to the accounting
provisions applied for business combinations under Statement of Financial
Accounting Standards No. 141 (SFAS 141) which consisted primarily of
discounted cash flows for leased assets, amounts to be paid discounted at
current rates for liabilities and recording of deferred taxes in accordance
with generally accepted accounting principles.
The Company's reorganization value was less than the fair value of
the emerging Company's net assets as estimated by the Company. In accordance
with SFAS 141, the excess of the fair value of the net assets over the
reorganization value was used to reduce the value of certain assets (primarily
long-lived non-financial assets) to zero. The remaining excess was held as a
contra asset on the balance sheet of the Company as of July 31, 2002 (see
adjustment (h) below). The Company recognized an extraordinary gain of $241
million, net of tax, in the Successor consolidated financial statements to
recognize the excess which remained after reducing property, plant and
equipment to zero. The excess of the estimated fair value of the net assets of
the emerging Company over the reorganization value primarily relates to three
factors: (1) the Company's European IT Leasing business performing better than
expected; (2) the strengthening of the Euro from the time of estimation of the
reorganization value as disclosed in the Plan; and (3) the reorganization
value considered future operating expenses, whereas the estimated fair value
of the net assets of the emerging company did not. All future operating
expenses will be expensed as incurred in accordance with generally accepted
accounting principles.
The reorganization value and the related allocation to the estimated
fair value of the net assets of the emerging Company is based upon a variety
of estimates and assumptions about future circumstances and events. Such
estimates and assumptions are inherently subject to significant uncertainties.
The reorganization and the adoption of fresh-start reporting resulted
in the following adjustments to the Predecessor's consolidated balance sheet
for the period ended July 31, 2002:
ASSETS
Reorganization and |
PREDECESSOR Fresh-Start Adjustments | SUCCESSOR
July 31, 2002 Debit Credit | July 31, 2002
--------------------------------------------------------| ----------------
ASSETS |
Cash and equivalents $ 2,635 $ $ 1,983 (a) | $ 404
248 (a)
Cash, legally restricted 59 | 59
Receivables, net 237 2 (e) | 239
Inventory 50 10 (e) | 40
Leased assets: |
Direct financing and sales-type 967 55 (e) | 1,022
Operating, net of |
accumulated depreciation 476 39 (e) | 437
--------------- | ------------
Net leased assets 1,443 | 1,459
Property, plant and equipment, net 39 12 (e) | -
27 (h) |
Equity securities 58 16 (e) | 42
Assets of discontinued operations 191 3 (h) | 188
Other 137 1 (c) | 101
35 (e) |
Excess fair value of net assets |
over reorganization value 241 (h) | (241)
--------------- | ------------
|
$ 4,849 | $ 2,291
=============== | ============
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
Notes payable $ 916 916 (b) 1,050 (a) | $ 1,050
Term notes payable 67 | 67
Senior notes 2,640 2,640 (b) | -
Accounts payable 116 20 (b) | 96
Income taxes 137 29 (f) | 108
Liabilities related to |
assets of discontinued operations 31 | 31
Deferred income 94 | 94
Other liabilities 361 160 (b) 10 (e) | 128
83 (b) |
| -
|
Discounted lease rentals 304 | 304
--------------- | ------------
4,666 | 1,878
--------------- | ------------
|
Stockholders' equity: |
Common stock 22 22 (d) - (a) | -
Additional paid-in capital 365 365 (d) 384 (a) | 413
29 (d) |
Accumulated other comprehensive income (70) 70 (d) | -
Retained earnings 486 332 (d) 29 (f) | -
271 (h) |
65 (e) 153 (g) |
--------------- | ------------
803 | 413
Common stock held in treasury, at cost (620) 620 (d) | -
--------------- | ------------
Total Stockholders' Equity 183 | 413
--------------- | ------------
$ 4,849 $ 4,960 $ 4,960 | $ 2,291
=============== ================= ================| ============
|
Explanations of adjustment columns of the balance sheet are as follows:
(a) To record initial distribution under the Plan, including distribution
for Disputed Claims Reserve. Distribution included cash, the issuance
of New Debt and New Common Stock (4.2 million shares, par value $.01).
(b) To reflect the cancellation of the old debt, including related
accrued interest, and cancellation of other prepetition obligations
subject to compromise.
(c) To write-off the remaining debt issuance costs.
(d) To reflect the cancellation of stockholders' equity of the Predecessor.
(e) To adjust assets to fair value and accrue a liability related to the
Contingent Distribution Rights.
(f) Tax effect of adjusting assets to fair value.
(g) To reflect the extraordinary gain resulting from discharge of
indebtedness. The extraordinary credit is calculated as follows (in
thousands):
Historical carrying value of old debt securities $ 3,556
Historical value of related accrued interest 83
Unamortized portion of deferred debt issuance costs (1)
Prepetition accounts payable and estimated liability
related to disputed claims 180
Plan New Debt (1,050)
Plan Cash Distribution (1,983)
Plan New Common Stock (384)
Disputed Claims Reserve (cash) (248)
----------------
153
Tax provision -
----------------
Gain on extinguishment of debt $ 153
================
Reconciliation of reorganization value:
Reorganization value per Plan $ 384
Tax effect of fresh start accounting 29
----------------
Reorganization value per financials $ 413
================
(h) Record excess fair value of net assets over Plan reorganization value
and adjust long-lived assets in accordance with SOP 90-7 and SFAS No.
141.
Note 4 - Discontinued Operations
Network Services
During the second quarter of fiscal 2001, the network consulting
business of the Company was discontinued. The network management services
segment of the business was transferred to a new provider during the third
quarter of fiscal 2001. Network customers purchased bundled consulting,
network management and leasing. Even though the consulting and network
management services have been discontinued, the leasing element was not
discontinued.
Prism Communication Services, Inc.
The Company acquired Prism Communication Services, Inc. ("Prism"), a
provider of dedicated high-speed connectivity, on February 28, 1999, for a
cash purchase of approximately $53 million, of which approximately $45 million
was paid in fiscal 1999. From the date of acquisition through September 30,
2001, the Company provided Prism with cash totaling $531 million for the
expansion of its network and for its operating costs and wind-down costs.
On October 2, 2000, the Company ceased funding ongoing operations of
Prism. As a result of this decision, Prism ceased operations and pursued the
immediate sale of its assets.
Availability Solutions
The Company's technology services business was offered for sale in
the third quarter of fiscal 2001 with the sale completed in the first quarter
of fiscal 2002 (see Note 5 of Notes to Consolidated Financial Statements). The
estimated loss on disposal for the Availability Solutions business includes
wind-down costs and asset write downs associated with the Company's German and
Spanish subsidiaries which were excluded from the sale to SunGard discussed in
Note 5, as well as wind-down costs and asset write downs associated with the
Company's Web-Availability Solutions business.
International Leasing
On April 9, 2002, the Company announced that it had agreed to sell
substantially all of its information technology ("IT") leasing assets in
Australia and New Zealand to Allco, an Australian Company specializing in
equipment and infrastructure finance and leasing. Results of operations for
all periods are included in the statements of earnings (loss) as discontinued
operations.
On October 18, 2002, the Company announced that it had entered into
an agreement for the sale of its French operations, Comdisco France SA and
Promodata SNC, to Belgium-based computer services provider, Econocom Group.
The Company received approximately $70 million from the sale of its French
operations on December 23, 2002. In accordance with SFAS No. 144, "Accounting
for the Impairment of Long Lived Assets or Disposal of Long-Lived Assets,",
during July 2002, the Company recorded a pre-tax charge of $35 million to
reduce cost in excess of fair value to reflect the difference between carrying
value and estimated proceeds from the sale. For financial reporting purposes,
the assets of the French operations are included in the balance sheet as
assets of discontinued operations and in the statement of earnings (loss)
as discontinued operations.
On October 18, 2002, the Company announced that it had sold its Swiss
and Austrian-based operations. These transactions closed on October 10, 2002
and August 14, 2002, respectively. During July 2002, the Company recorded a $1
million pre-tax loss on the sale of its Swiss and Austrian-based operations.
Results of operations for its Swiss and Austrian-based operations for all
periods are included in the statement of earnings (loss) as discontinued
operations.
Each of the transactions resulted from an extensive offering and
competitive bidding process run by the Company's independent investment
banking firm.
As a result of the discontinuance of Network Services and Prism and
the sale of Availability Solutions, and the sale of the Company's French,
Switzerland, Austrian, Australian and New Zealand-based operations
(collectively referred to as "International Leasing" in the following table)
amounts in the consolidated financial statements and related notes for all
periods shown have been restated to account for these operations as
discontinued.
Following is summary financial information for the Company's
discontinued operations. In addition to the businesses sold to SunGard, the
Availability Solutions information included below also includes the results
from the Company's Availability Solutions businesses in Germany and Spain (in
millions):
SUCCESSOR
Two months
ended
September 30, 2002
International Leasing
----------------------------
Revenue $ 22
============
Loss from discontinued operations:
Before income taxes $ (8)
Income taxes 1
------------
Net loss $ (9)
============
PREDECESSOR
Ten months ended July 31, 2002
Availability Network International
Solutions Services Leasing Prism Total
--------------- ------------- ------------- ------------ --------------
Revenue $ 67 $ - $ 133 $ - $ 200
=========== ========= ========== ========= ===========
---------- --------- --------- ---------- ------------
Gain on sale $ 326 $ - - - $ 326
=========== ========= ========== ========= ===========
Income from discontinued operations:
Before income taxes $ 339 $ - $ - $ (3) $ 336
Income taxes 26 - 2 - 28
--------------- ------------- ------------- ------------ --------------
Net earnings (loss) 313 - (2) (3) 308
Estimated loss on disposal
Before income tax benefit - - (37) - (37)
Income tax benefit - - - - -
--------------- ------------- ------------- ------------ --------------
Net loss - - (37) - (37)
--------------- ------------- ------------- ------------ --------------
Total $ 313 $ - $ (39) $ (3) $ 271
=============== ============= ============= ============ ==============
Fiscal year ended September 30, 2001
Availability Network International
Solutions Services Leasing Prism Total
--------------- ------------- ------------- ------------ --------------
Revenue $ 487 $ 9 $ 215 $ - $ 711
============= ========= ========= ======= ===========
Income (loss) from discontinued
operations:
Before income taxes (benefit) $ 27 $ (14) $ (16) $ - $ (3)
Income taxes (benefit) 13 (5) (2) - 6
-----------------------------------------------------------------------
Net earnings (loss) 14 (9) (14) - (9)
Estimated loss on disposal
Before income tax benefit (38) (38) - (30) (106)
Income tax benefit (11) (15) - (12) (38)
------------------------------------------------------------------------
Net loss (27) (23) - (18) (68)
------------------------------------------------------------------------
Total $ (13) $ (32) $ (14) $ (18) $ (77)
========================================================================
Fiscal year ended September 30, 2000
Availability Network International
Solutions Services Leasing Prism Total
--------------- ------------- ------------- ------------ --------------
Revenue $ 480 $ 31 $ 264 $ 4 $ 779
============= =========== =========== =========== ==========
Income (loss) from discontinued operations:
Before income taxes (benefit) $ 75 $ (14) $ 1 $ (196) $ (134)
Income taxes (benefit) 27 (5) 1 (76) (53)
-----------------------------------------------------------------------
Net earnings (loss) 48 (9) - (120) (81)
Estimated loss on disposal
Before income tax benefit - - - (331) (331)
Income tax benefit - - - (129) (129)
-----------------------------------------------------------------------
Net loss - - - (202) (202)
-----------------------------------------------------------------------
Total $ 48 $ (9) $ - $ (322) $ (283)
=======================================================================
Interest expense charged to the discontinued operations of Prism was
$29 million in 2000. Interest expense for the period subsequent to the
measurement date included in the 2000 estimated loss on disposal of $9 million
was calculated based on debt attributed to the Prism operations.
The estimated loss on disposal before income taxes of the
discontinued operations includes the following (in millions):
PREDECESSOR
Ten months
ended
July 31, 2002
International Leasing
----------------------
Carrying value of net assets in excess of anticipated proceeds $ 37
Expenses of asset disposal and anticipated operating loss from the
discontinued date through the date of disposal -
Loss on disposal before income taxes $ 37
PREDECESSOR
Fiscal year ended September 30, 2001
Availability Network
Solutions Services Prism Total
--------------- ------------- ------------ -------------
Carrying value of net assets in excess of $ 33 $ 25 $ 30 $ 88
anticipated proceeds
Expenses of asset disposal and anticipated
operating loss from the discontinued
date through the date of disposal 5 13 - 18
------------- ----------- ---------- ----------
Loss on disposal before income taxes $ 38 $ 38 $ 30 $ 106
============ ========== ========== ===========
Fiscal year ended September 30, 2000
Availability Network
Solutions Services Prism Total
--------------- ------------- ------------ -------------
Carrying value of net assets in excess of $ - $ - $ 256 $ 256
anticipated proceeds
Expenses of asset disposal and anticipated
operating loss from the discontinued
date through the date of disposal - - 75 75
------------- ----------- --------- -----------
Loss on disposal before income taxes $ - $ - $ 331 $ 331
============ =========== ========= ==========
Goodwill related to Prism written off in fiscal 2000, included in the
estimated loss on disposal, totaled $52 million.
Expenses of asset disposal and anticipated operating losses represent
the Company's estimate of operational losses to be incurred and the expected
losses from disposition of the operations. Actual losses could differ from
those estimates and will be reflected as adjustments in future financial
statements. No assurances can be given that the recorded losses will be
sufficient to cover the actual operational losses and losses incurred upon
asset disposition or winding down of the discontinued operations.
Note 5 - Sale of Assets
Sale of Assets
Leasing
-------
On April 18, 2002, the court approved the sale of the Company's
Healthcare leasing assets to GE Capital Corporation. In accordance with the
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 No. 121"), the Company recorded a pre-tax charge of $15 million 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. The
purchase price for both closings is subject to adjustment based upon the
completion of a post-closing review of the purchase price calculations. A
portion of the purchase price was held back at each closing pending the
resolution of that review. Certain Healthcare assets were not purchased by GE
Capital due to documentation, credit, or other issues. The Company, through
its CAM group, continues to manage the sale or run-off of these assets.
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 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 percent 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. The purchase price for both closings is subject to adjustment
based upon the completion of a post-closing review of the purchase price
calculation. A portion of the purchase price was held back at each closing
pending the resolution of that review. Certain assets were not purchased by GE
Capital due to documentation, credit or other issues. The Company, through its
CAM group, continues to manage the sale or run-off of these assets.
International Leasing
---------------------
On October 18, 2002, the Company announced that it, along with
Comdisco Global Holdings Company, Inc., had entered into an agreement for the
sale of the stock of the Company's French leasing subsidiaries, Comdisco
France SA and Promodata SNC, to Econocom Group SA/NV. Comdisco France S.A. was
a wholly-owned subsidiary of Comdisco Global Holding Company, Inc. and
Promodata SNC was a wholly-owned subsidiary of Comdisco France S.A. The sale
of the leasing assets closed on December 23, 2002 and proceeds in the amount
of approximately (euro) 69 million were received. These proceeds were
converted into $70 million and repatriated by the Company. In accordance with
SFAS No. 121, the Company recorded a pre-tax charge of $35 million in the
fourth 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. For financial reporting purposes, the assets of the French operations
are included in the balance sheet as assets of discontinued operations and in
the statement of earnings as discontinued operations.
On October 18, 2002, the Company announced that it had sold its Swiss
and Austrian-based operations. These transactions closed on October 10, 2002
and August 14, 2002, respectively. During the quarter ended September 30,
2002, the Company recorded a $1 million pre-tax loss on the sale of its Swiss
and Austrian-based operations. For financial reporting purposes, the assets of
the Swiss and Austrian-based operations are included in the balance sheet as
assets of discontinued operations and in the statement of earnings (loss) as
discontinued operations.
On April 9, 2002, Comdisco, Inc. announced that it had agreed to sell
substantially all of its information technology (IT) leasing assets in
Australia and New Zealand to Allco, an Australian company specializing in
equipment and infrastructure finance and leasing. The bankruptcy court
approved the sale on April 18, 2002. Under the terms of the sale agreement,
Allco agreed to hire all of the Comdisco Australia and New Zealand employees
and purchase most of its assets in Australia and New Zealand in a series of
closings. On June 28, 2002, the Company and Allco completed the first closing
on the sale of leased assets in Australia and New Zealand. Comdisco, Inc.
received approximately $8 million for the sale of these assets. Comdisco, Inc.
has received $24 million for the assets sold through November 2002 and the
final closing is expected to occur during the second fiscal quarter of 2003.
In accordance with SFAS 121, the Company recorded pre-tax charges of $6
million in the third quarter of fiscal 2002 and $2 million in the one month
ended July 31, 2002 to reduce cost in excess of fair value to reflect the
difference between carrying value and estimated proceeds from the sale. For
financial reporting purposes, the assets of the Australia operations are
included in the balance sheet as assets of discontinued operations and in the
statement of earnings (loss) as discontinued operations.
Each of the transactions resulted from an extensive offering and
competitive bidding process run by the Company's independent investment
banking firm.
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). At closing, $45
million of the purchase price was put into escrow to satisfy any post-closing
indemnity claims and $15 million was put into escrow to satisfy any closing
date working capital shortfalls. Of the $45 million put into escrow,
approximately $2 million continues to be held in escrow pending resolution of
disputed matters. During the second quarter of fiscal 2002, the Company
returned the entire $15 million working capital escrow 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 has
exited the Availability Solutions businesses in Germany and Spain.
Note 6 - Reorganization Items, Restructuring Costs and Fresh-Start
Accounting Adjustments
Reorganization Items
In accordance with SOP 90-7, expenses and income of the Predecessor
Company 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 ten months ended July 31, 2002 and for the year ended
September 30, 2001 are as follows (in millions):
PREDECESSOR
2002 2001
------------- -------------
Estimated loss on sale of leased assets $ 263 $ -
Loss on IT CAP sale 3 -
DIP financing fee 8 -
Disputed Claims 127 -
Other asset write-downs 22 -
Professional fees 42 37
Interest income (26) (3)
------------- -------------
$ 439 $ 34
============= =============
In accordance with SOP 90-7 and SFAS No. 5 "Accounting for
Contingencies," in addition to liabilities previously accrued, Comdisco, Inc.,
the Predecessor Company, recorded in its statement of earnings (loss) for the
ten months ended July 31, 2002, an additional liability of $127 million
related to the Disputed Claims.
Professional fees relates to legal, investment advisory and other
professional services.
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
As a result of work-force 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 $26
million has been paid and charged against the accrued liability through
September 30, 2002. Cost and expenses associated with the restructuring cost
are included in selling, general and administrative expenses.
Fresh-Start Accounting Adjustments
The major components of fresh-start accounting adjustments for the
ten months ended July 31, 2002 are as follows (in millions):
PREDECESSOR
2002
--------------
Fair value adjustment to assets $ 65
Excess fair value of net assets over
reorganization value 271
Recognition of accumulated other comprehensive loss 70
--------------
406
Charges related to assets in
discontinued operations (37)
--------------
Total fresh-start accounting adjustments $ 369
==============
Leasing
Note 7 - Lease Accounting Policies
SFAS No. 13, "Accounting for Leases," requires that a lessor account
for each lease by either the direct financing, sales-type or operating method.
Leased Assets
Direct financing and sales-type leased assets consist of the present
value of the future minimum lease payments plus the present value of the
residual (collectively referred to as the net investment). Residual is the
estimated fair market value of the equipment on lease at lease termination. In
estimating the equipment's fair value at lease termination, the Company relies
on historical experience by equipment type and manufacturer and, where
available, valuations by independent appraisers, adjusted for known trends.
The Company's estimates are reviewed continuously to ensure reasonableness;
however, the amounts the Company will ultimately realize could differ from the
estimated amounts.
Operating leased assets consist of the equipment cost, less the
amount depreciated to date.
Revenue, Costs and Expenses
o Direct financing leases: Revenue consists of interest earned on
the present value of the lease payments and residual. Revenue
is recognized periodically over the lease term as a constant
percentage return on the net investment. There are no costs and
expenses related to direct financing leases since leasing
revenue is recorded on a net basis.
o Sales-type leases: Revenue consists of the present value of the
total contractual lease payments which is recognized at lease
inception. Costs and expenses consist of the equipment's net
book value at lease inception, less the present value of the
residual. Interest earned on the present value of the lease
payments and residual, which is recognized periodically over
the lease term as a constant percentage return on the net
investment, is included in direct financing lease revenue in
the statement of earnings (loss).
o Operating leases: Revenue consists of the contractual lease
payments and is recognized on a straight-line basis over the
lease term. Costs and expenses are principally depreciation of
the equipment. Depreciation is recognized on a straight-line
basis over the lease term to the Company's estimate of the
equipment's fair market value at lease termination, also
commonly referred to as "residual" value. In estimating the
equipment's fair value at lease termination, the Company relies
on historical experience by equipment type and manufacturer
and, where available, valuations by independent appraisers,
adjusted for known trends. The Company's estimates are reviewed
continuously to ensure reasonableness, however the amounts the
Company will ultimately realize could differ from the amounts
assumed in determining depreciation on the equipment in the
operating lease portfolio at September 30, 2002.
Initial direct costs related to operating and direct financing
leases, including salespersons' commissions, are capitalized and amortized
over the lease term into leasing costs and expenses. As a result of
fresh-start accounting adjustment, all indirect costs have been recognized in
the statement of earnings (loss).
Note 8 - Leased Assets
The components of the net investment in direct financing and
sales-type leases as of September 30 are as follows (in millions):
SUCCESSOR | PREDECESSOR
2002 | 2001
------------- | -------------
Minimum lease payments receivable $ 1,072 | $ 1,941
Estimated residual values 102 | 171
Less: unearned revenue (158) | (262)
------------- | ------------
Net investment in direct financing |
and sales-type leases $ 1,016 | $ 1,850
============= | =============
Unearned revenue is recorded as leasing revenue over the lease terms.
Operating leased assets include the following as of September 30 (in
millions):
SUCCESSOR | PREDECESSOR
2002 | 2001
------------- | -------------
Operating leased assets $ 836 | $ 3,541
Less: accumulated depreciation |
and amortization (540) | (1,622)
------------- | ------------
Net operating leased assets $ 296 | $ 1,919
============= | ============
Note 9 - Lease Portfolio Information
The size of the Company's lease portfolio can be measured by the cost
of leased assets at the date of lease inception. Cost at lease inception
represents either the equipment's original cost or its net book value at
termination of a prior lease. The following table summarizes by year of
projected lease termination, the cost at lease inception for all leased assets
recorded at September 30, 2002 (in millions):
SUCCESSOR
Total
cost at
Projected year of lease termination lease
2003 2004 2005 2006 2007 + inception
---------------------------------------------------------------------
$ 1,389 $ 1,048 $ 495 $ 157 $ 162 $ 3,251
The following table summarizes the estimated net book value at lease
termination, or the residual value, for all leased assets recorded at
September 30, 2002. (in millions):
SUCCESSOR
Total
net book
value at
Projected year of lease termination lease
2003 2004 2005 2006 2007 + termination
---------------------------------------------------------------------
$ 129 $ 61 $ 16 $ 1 $ 3 $ 210
Note 10 - Future Contractual Cash Flows
The summary presents cash in-flows due in accordance with
the contractual terms in existence as of September 30, 2002 (in millions):
SUCCESSOR
Years ending September 30,
2003 2004 2005 2006 2007+ Total
---------------------------------------------------------------------------------
Contractual cash in-flows:
Leases-US Leasing, Europe,
and CAM $ 631 $ 383 $ 252 $ 52 $ 34 $ 1,352
Leases-Ventures 138 53 7 - - 198
Notes receivable-Ventures 101 29 6 - - 136
Leases-discontinued operations 60 33 15 4 - 112
---------------------------------------------------------------------------------
Total $ 930 $ 498 $ 280 $ 56 $ 34 $ 1,798
=================================================================================
Note 11 - Interest-Bearing Liabilities
On April 3, 2001, Comdisco, Inc. 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 include the $550 million global credit
facility and the $525 million multi-option facility.
In connection with the Filing, Comdisco, Inc. 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, Comdisco, Inc. paid an
arrangement and structuring fee of $9 million or 2 percent 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 6 of Notes to
Consolidated Financial Statements).
As a result of the bankruptcy 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. Non-debtor
subsidiaries continued to make principal and interest payments on their debt
obligations under these facilities and the Non-debtor obligations under these
facilities were retired during July 2002.
Upon emergence, the Company's general unsecured creditors received,
and the Disputed Claims Reserve was funded with, their pro-rata share of an
initial cash distribution of approximately $2.2 billion. In addition, general
unsecured claim holders received, and the Disputed Claims Reserve was funded
with, their pro-rata share of two separate note issuances: variable rate
senior secured notes due 2004 (the "Senior Notes") in the face amount of $400
million with an interest rate of three month LIBOR plus 3 percent and
subordinated secured notes due 2005 (the "Subordinated Notes") in the face
amount of $650 million with an interest rate of 11 percent. General unsecured
claimholders also received, and the Disputed Claims Reserve also was funded
with, their pro rata share of 100 percent of the New Common stock of the
reorganized Company.
Interest rates noted below for fiscal year 2001 were calculated based
upon contractual interest owed. Interest rates noted below for fiscal year
2002 were calculated based upon debt outstanding subsequent to the emergence
date. Interest-bearing liabilities include the following (in millions):
SUCCESSOR
At September 30, 2002 Average
------------------------------ ------------------------
Balance Rate Balance Rate
------- ---- ------- ----
Notes payable $ 1,050 8.62% $ 1,050 8.62%
Term notes 35 2.19% 52 2.08%
Discounted lease rentals 262 6.36% 283 5.97%
--------- --------- --------- --------
$ 1,347 8.01% $ 1,385 7.83%
========= ========= ========= ========
PREDECESSOR
At September 30, 2001 Average
------------------------------ ------------------------
Balance Rate Balance Rate
------- ---- ------- ----
Notes payable:
Credit lines and loan
participation contracts $ 1,068 5.78% $ 797 5.95%
Commercial paper 28 5.01% 454 6.17%
Term notes 360 3.82% 585 6.03%
Senior notes 2,639 7.00% 2,924 7.21%
Discounted lease rentals 964 6.86% 991 7.58%
--------- --------- --------- --------
$ 5,059 6.48% $ 5,751 7.06%
========= ========= ========= ========
The changes in financing activities were as follows (notes payable
changes are shown net; in millions):
SUCCESSOR
2002
Maturities Outstanding
Outstanding and end
July 31, 2002 Issuances repurchases of year
------------- ------------- ------------- ------------
Notes payable $ - $ 1,050 $ - $ 1,050
Term notes 68 - (33) 35
Discounted lease rentals 304 - (42) 262
------------- ------------- ------------- ------------
$ 372 $ 1,050 $ (75) $ 1,347
============= ============== ============= ============
PREDECESSOR
2002
Outstanding Maturities Outstanding
beginning and Discharge of end
of year Issuances repurchases Other indebtedness July 31, 2002
----------- --------- ----------- ----- -------------- -------------
Notes payable:
Credit lines and loan
participation contracts $ 1,068 $ - $ (179) $ - $ (889) $ -
Commercial paper 28 - - - (28) -
Term notes 360 - (292) - - 68
Senior notes 2,639 - - - (2,639) -
Discounted lease rentals 964 10 (378) (292) - 304
-------- -------- ----------- -------- ----------- --------
$ 5,059 $ 10 $ (849) $ (292) $ (3,556) $ 372
======== ======== ============ ======== =========== ========
2001
Outstanding Maturities Outstanding
beginning and end
of year Issuances repurchases of year
------- --------- ----------- -------
Notes payable:
Credit lines and loan
participation contracts $ 729 $ 339 $ - $ 1,068
Commercial paper 585 - (557) 28
Term notes 695 - (335) 360
Senior notes 3,452 - (813) 2,639
Discounted lease rentals 794 589 (419) 964
------- --------- ----------- ---------
$ 6,255 $ 928 $ (2,124) $ 5,059
======= ========= ---------- =========
The annual maturities of all interest-bearing liabilities at
September 30, 2002 are shown in the table below (amounts in millions):
SUCCESSOR
2003 2004 2005 2006 2007 Total
------ ------ ------ ------ ------ ------
Notes payable $ - $ 400 $ 650 $ - $ - $ 1,050
Term notes 35 - - - - 35
Discounted lease rentals 199 56 5 1 1 262
------ ------ ------ ------ ------ ------
$ 234 $ 456 $ 655 $ 1 $ 1 $ 1,347
====== ====== ====== ====== ====== ======
On October 21, 2002, the Company redeemed the entire $400 million
outstanding principal amount of its Senior Notes. The Senior Notes were
redeemed at 100 percent of their principal amount plus accrued and unpaid
interest from August 12, 2002 to the redemption date. Following the redemption
of the Senior Notes, the Company will make cash interest payments on the
Subordinated Notes. The terms of the Subordinated Notes provided for the
interest to be paid-in-kind through the issuance of additional Subordinated
Notes while the Senior Notes were outstanding. The initial interest payment
date for the Subordinated Notes was December 31, 2002 and, because the Senior
Notes were no longer outstanding, the interest payment was in cash on such
date to registered holders of the Subordinated Notes at the close of business
on December 15, 2002.
On November 14, 2002, pursuant to its mandatory redemption
obligations under the Subordinated Notes, the Company made a partial
redemption of $65 million of the outstanding principal amount of its
Subordinated Notes. On December 23, 2002, the Company made an optional partial
redemption of $200 million principal amount of its Subordinated Notes. On
January 9, 2003, the Company made an optional partial redemption of $100
million principal amount of its Subordinated Notes. The total outstanding
principal amount of the Subordinated Notes subsequent to the January 9, 2003
redemption is $285 million. Each of these payoffs of the Subordinated Notes
were redeemed at a price equal to 100 percent of their principal amount plus
accrued and unpaid interest to the redemption date.
Notes Payable -Predecessor
As a result of the bankruptcy filing, principal and interest payments
on outstanding unsecured debt obligations of the Debtors were stayed, which
nonpayment, in turn, resulted in a default under its credit lines. Non-debtor
subsidiaries continued to make principal and interest payments on their debt
obligations under these facilities. The Predecessor had the following
unsecured bank lines outstanding in the United States and foreign countries at
September 30, 2001 (amounts in millions):
PREDECESSOR
2001
-----------
Total credit lines:
Committed 1,071
Uncommitted 8
-----------
1,079
Utilized at September 30:
Committed 1,071
Uncommitted 8
-----------
Total credit lines 1,079
-----------
Loan participation contracts and
other bank borrowings 17
-----------
Total notes payable 1,096
===========
Credit lines available at
September 30 -
===========
Maximum amount outstanding at any
month end 1,288
===========
Committed Lines: There were no compensating balance requirements on
any of the committed lines.
The multi-option revolving credit agreements and the global revolving
credit agreements (collectively, the "Facilities") permitted the Predecessor
Company to borrow in U.S. dollars or in other currencies, on a revolving
credit basis. Interest rates on debt outstanding under the Facilities were
determined at the time of the borrowings. The Facilities called for the
Predecessor Company to pay a weighted average annual fee of ten basis points
per annum on the total committed amount.
Uncommitted Lines and Loan Participation Contracts: In addition to
the committed lines, the Predecessor maintained various domestic and
international lines of credit for short-term debt with banks under which the
Predecessor could borrow on an unsecured basis on such terms as the
Company and banks may mutually agreed. The majority of these arrangements did
not have maturity dates, and could be withdrawn at the banks' option. There
were no fees or compensating balances associated with either the uncommitted
lines or the loan participation contracts.
Term Notes
At September 30, 2002, the Company had $35 million of floating rate
receivable-backed debt obligations.
Discounted Lease Rentals
The Company utilizes its lease rentals receivable and underlying
equipment in leasing transactions as collateral to borrow from financial
institutions at fixed rates on a nonrecourse basis. In return for this secured
interest, the Company receives a discounted cash payment. In the event of a
default by a lessee, the financial institution has a first lien on the
underlying leased equipment, with no further recourse against the Company.
Proceeds from discounting are recorded on the balance sheet as discounted
lease rentals; as lessees make payments, lease revenue (i.e., interest income
on direct financing and sales-type leases and rental revenue on operating
leases) and interest expense are recorded. Discounted lease rentals are
accounted for using the interest method.
Future minimum lease payments and interest expense on leases that
have been discounted as of September 30, 2002 are as follows (in millions):
SUCCESSOR
Discounted
Years ending Rentals to lease Interest
September 30, be received rentals expense
------------- ----------- ---------- ---------
2003 $ 209 $ 199 $ 10
2004 58 56 2
2005 6 5 1
2006 1 1 -
2007 1 1 -
----------- ---------- ---------
$ 275 $ 262 $ 13
Interest expense on discounted lease rentals was $3 million and $39
million for the two months ended September 30, 2002 and ten months ended July
31, 2002, respectively. During fiscal year 2001 and 2000, interest expense on
discounted lease rentals was $75 million and $32 million, respectively.
Interest Rate Swap Agreements and Other Derivative Financial Instruments
The Company entered into interest rate and cross-currency interest
rate swap agreements and other financial instruments in order to limit its
exposure to adverse fluctuations in foreign currency exchange and interest
rates. Interest rate swap contracts generally represent the contractual
exchange of fixed and floating rate payments of a single currency.
Cross-currency interest rate swap contracts generally involve the exchange of
payments which are based on the interest reference rates available at the
inception of the contract on two different currency notional balances that are
exchanged. The principal balances are re-exchanged at an agreed upon rate at a
specified future date. Credit and market risk exist with respect to these
instruments.
The following table presents the contract or notional (face) amounts
outstanding and the fair value of the contracts based generally on their
termination values at September 30 (amounts in millions):
SUCCESSOR | PREDECESSOR
2002 | 2001
Notional Fair | Notional Fair
amount Value | amount value
------ ----- | ------ -----
Interest rate swap |
agreements $ 68 $ 2 | $ 97 $ -
Forwards - - | 8 2
The impact of these contracts for the two months ended September 30,
2002 was a decrease of $1 million to interest expense. The impact of these
contracts for the ten months ended July 31, 2002 was a decrease of $4 million
to interest expense and an increase of $4 million to foreign currency losses.
The $4 million foreign currency loss is included within selling, general and
administrative expenses. For fiscal 2001, the impact was a decrease of $9
million to interest expense. The impact of these contracts on interest expense
for fiscal year 2000 was immaterial. The average notional amount outstanding
of the floating rate to fixed rate contracts in fiscal 2002 was $27 million,
with an average pay rate of 5.32 percent and an average receive rate of 3.61
percent. The average notional amount outstanding of the fixed rate to floating
rate contracts in fiscal 2001 was $56 million, with an average pay rate of
6.55 percent and an average receive rate of 6.10 percent. The Company is
exposed to credit loss in the event of non-performance by the other parties to
the interest rate swap agreements. Although contract or notional amounts
provide one measure of the volume of these transactions, they do not represent
the amount of the Company's exposure to credit risk. The amounts subject to
credit risk (arising from the possible inability of the counterparties to meet
the terms of their contracts) are generally limited to the amounts, if any, by
which the counterparties' obligation(s) exceed the obligation(s) of the
Company. The Company attempts to limit credit risk through credit approvals,
limits and monitoring procedures. Note 19 of Notes to Consolidated Financial
Statements below provides details about the fair value of the Company's
financial instruments.
The Company has issued letters of credit totaling $3 million at
September 30, 2002 to the landlords of the Company's customers, principally
Comdisco Ventures group, for the guarantee of their leases. The letters of
credit are collateralized by restricted cash.
Note 12 - Liabilities Subject to Compromise
The principal categories of liabilities classified as subject to
compromise under reorganization proceedings as of September 30, 2001 are
listed below (in millions):
PREDECESSOR
2001
------------
Notes payable $ 917
Senior notes 2,639
Accounts payable 22
Other liabilities
Accrued interest 83
Other accrued expenses 30
------------
$ 3,691
============
Notes Payable
Notes payable subject to compromise included $28 million of
commercial paper, $880 million of committed loan facilities which the Company
drew down on April 3, 2001 and $9 million of other bank borrowings.
Senior Notes
Senior notes subject to compromise included the following at
September 30, 2001 (amounts in millions):
PREDECESSOR
2001
-----------
Medium term notes (6.20% to 9.50%) $ 505
6.130% Senior Notes due 2001 267
6.375% Senior Notes due 2002 250
6.000% senior Notes due 2002 345
5.950% Senior Notes due 2002 345
7.250% Senior Notes due 2002 257
6.125% Senior Notes due 2003 194
9.500% Senior Notes due 2003 476
-----------
Total senior notes $ 2,639
===========
During fiscal 2001, Comdisco, Inc.'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 a $10 million obligation to the remarketing agent
associated with the call.
As a result of the reorganization proceedings, no principal or
interest payments were made on unsecured pre-petition debt. Therefore,
interest on the Predecessor Company's pre-petition unsecured debt was not
accrued after the Petition Date. Contractual interest not recorded on
unsecured pre-petition debt totaled $198 million for the ten months ended July
31, 2002 and $50 million for the year ended September 30, 2001.
Other Financial Information
Note 13 - Receivables
Receivables include the following as of September 30 (in millions):
SUCCESSOR | PREDECESSOR
2002 | 2001
------------- | --------------
Notes $ 118 | $ 463
Accounts 140 | 290
Income taxes - | 36
Other 83 | 105
------------- | --------------
Total receivables 341 | 894
Allowance for credit losses (214) | (302)
------------- | --------------
Total $ 127 | $ 592
============= | ==============
Notes
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 were generally
structured as equipment loans or subordinated loans. Substantially all of the
loans were made by Comdisco Ventures Group.
At September 30, 2002 and 2001, Comdisco Ventures group had notes
receivable of approximately $117 million and $432 million, respectively. As
part of a Ventures note transaction, the Company received warrants to purchase
an equity interest in its 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.
Contractual maturities, including interest, of total note
receivables as of September 30, 2002, were as follows: 2003--$101 million;
2004--$29 million; 2005--$6 million. Actual cash flows will vary from
contractual maturities due to prepayments and charge-offs.
Allowance
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 September 30, 2002,
including estimated losses on future non-cancelable 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 year ended September 30 were as follows (in
millions):
SUCCESSOR
Comdisco
Consolidated Ventures Group
2002 2002
------------ --------------
Balance July 31, 2002 $ 266 $ 128
Provision for credit losses 4 3
Net credit losses (56) (21)
------------ --------------
Balance at end of year $ 214 $ 110
============ ==============
PREDECESSOR
Consolidated Comdisco Ventures Group
---------------------------------- ----------------------------------
2002 2001 2000 2002 2001 2000
--------- --------- ---------- ---------- --------- ----------
Balance at beginning of year $ 302 $ 119 $ 38 $ 202 $ 95 $ 17
Provision for credit losses 149 489 141 118 365 105
Fresh-start adjustment (15) - - (15) - -
Net credit losses (170) (306) (60) (177) (258) (27)
--------- --------- ---------- ---------- --------- ----------
Balance at end of year
(July 31, 2002 for current year) $ 266 $ 302 $ 119 $ 128 $ 202 $ 95
========= ========= ========== ========= ========= ==========
Note 14 - Income Taxes
The geographical sources of earnings (loss) from continuing
operations before income taxes were as follows (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
months | months
ended | ended Year ended
September 30, 2002 | July 31, 2002 2001 2000
------------------- | --------------- ----------- ---------
United States $ (11) | (857) (354) 268
Outside United States 7 | (63) 25 68
------------------- | --------------- ----------- ---------
$ (4) | (920) (329) 336
=================== | =============== ============ =========
No income taxes have been provided for the Company's unremitted
foreign earnings as management believes that available tax planning strategies
will allow it to dispose of these subsidiaries in a manner in which income
taxes will not be imposed. Unremitted foreign earnings of the Company were $94
million as of September 30, 2002.
Income taxes (benefit) included in the consolidated statements of
earnings (loss) were as follows (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
months | months
ended | ended Year ended
September 30, 2002 | July 31, 2002 2001 2000
------------------- | --------------- ----------- ---------
Continuing operations $ 4 | $ 45 $ (132) $ 120
Discontinued operations 1 | 28 (32) (182)
------------------- | --------------- ----------- ---------
$ 5 | $ 73 $ (164) $ (62)
=================== | =============== ============ =========
The components of the income tax provision (benefit) charged
(credited) to continuing operations were as follows (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
months | months
ended | ended Year ended
September 30, 2002 | July 31, 2002 2001 2000
------------------- | --------------- ----------- ---------
Current: |
Inside United States $ - | $ 2 $ (25) $ 87
Outside United States 4 | 7 18 5
------------------- | --------------- ----------- ---------
4 | 9 (7) 92
Deferred: |
Inside United States - | 36 (115) 11
Outside United States - | - (10) 17
------------------- | --------------- ----------- ---------
- | 36 (125) 28
------------------- | --------------- ----------- ---------
$ 4 | $ 45 $ (132) $ 120
=================== | =============== ============ =========
The reasons for the difference between the U.S. federal income tax
rate and the effective income tax rate for earnings (loss) were as follows:
SUCCESSOR | PREDECESSOR
Two | Ten
months | months
ended | ended Year ended
September 30, 2002 | July 31, 2002 2001 2000
------------------- | --------------- ----------- ---------
|
U.S. federal income |
tax rate - tax (benefit) (35.0)% | (35.0)% (35.0)% 35.0%
Increase (reduction) resulting from: |
State income taxes, net |
of U.S. federal tax benefit - | 0.1 (4.0) 3.2
Foreign income tax rate |
differential 92.0 | 3.2 1.4 0.9
Non-deductible goodwill - | 9.2 - -
Non-deductible legal fees 50.0 | 0.8 - -
Tax effect of foreign |
losses utilized - | - (0.6) (1.1)
Change in valuation allowance - | 24.2 - -
Other, net (7.0) | 2.4 (0.7) (2.0)
------------------- | --------------- ----------- ---------
100.0% | 4.9% (38.9)% 36.0%
-================== | =============== =========== ==========
Deferred tax assets and liabilities at September 30, 2002 and 2001
were as follows (in millions):
SUCCESSOR | PREDECESSOR
2002 | 2001
---------------| -----------------
Deferred tax assets (liabilities): |
|
Foreign loss carryforwards $ 5 | $ 12
U.S. net operating loss |
carryforwards 511 | 228
AMT credit carryforwards 74 | 113
Deferred income 24 | 50
Deferred expenses 96 | 141
Other, net 36 | 66
Lease accounting (545) | (577)
Other comprehensive income - | (2)
Foreign (47) | (33)
--------- | ---------
Gross deferred tax assets |
(liabilities) 154 | (2)
Less: valuation allowance (234) | (23)
---------- | ---------
Net deferred tax liabilities $ (80) | (25)
========== | =========
In connection with fresh-start accounting, Comdisco, Inc.'s assets
and liabilities were recorded at their respective fair market values. Deferred
tax assets and liabilities were recognized for the tax effects of the
differences between the fair values and the tax bases of the Company's assets
and liabilities. In addition, deferred tax assets were recognized for future
use of the company's net operating losses and other tax credits.
To the extent that management believes the pre-emergence net deferred
tax asset will more likely than not be realized, a reduction in the valuation
allowance established in fresh-start accounting will be recorded. The
reduction in this valuation allowance (if any) will increase additional
paid-in capital. At September 30, 2002, the Company had not made such a
determination.
In connection with the reorganization, the Company realized a gain
from the extinguishment of certain indebtedness. This gain will not be taxable
since the gain resulted from the reorganization under the Bankruptcy Code.
However, the Company will be required, as of the beginning of its 2003 taxable
year, to reduce certain of its tax attributes. Management believes that net
operating loss carryforwards will be the only tax attribute which must be
reduced.
The reorganization of the Company on the Effective Date constituted
an ownership change under section 382 of the Internal Revenue Code and the use
of any of the Company's NOLs and tax credits generated prior to the ownership
change, that are not reduced pursuant to the provisions discussed above, will
be subject to an overall annual limitation of approximately $18 million.
For financial reporting purposes, the Company has approximately $15
million of foreign net operating loss carryforwards, most of which have no
expiration date. The Company has recognized a valuation allowance of $5
million to offset this deferred tax asset. At September 30, 2002, the Company
has available for U.S. federal income tax purposes, the following
carryforwards (in millions):
SUCCESSOR
Year scheduled to expire Net operating loss
------------------------ ------------------
2006 $ 2
2013 47
2014 22
2020 21
2021 410
2022 247
----------
$ 749
==========
For U.S. federal income tax purposes, the Company has approximately
$74 million of alternative minimum tax ("AMT") credit carryforwards available
to reduce regular taxes in future years. AMT credit carryforwards do not have
an expiration date. The use of the Company's alternative minimum tax credits
will be subject to the section 382 limitation discussed above.
The Company is currently undergoing a routine audit by the Internal
Revenue Service (the "Service") for fiscal years 1996 through 2000. The
Company also undergoes audits by foreign, state and local tax jurisdictions.
As of September 30, 2002, no material assessments have been made by these tax
authorities.
Note 15 - Equity Securities
Comdisco, Inc. 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. Included in the fresh-start
accounting adjustment (see Note 3 of Notes to Consolidated Financial
Statements) is $16 million related to the write-down of equity securities to
fair value. For the two months ended September 30, 2002 and for the ten months
ended July 31, 2002, impairments in equity securities totaled $3 million and
$70 million, respectively. Impairments in equity securities totaled $129
million and $7 million during fiscal 2001 and fiscal 2000, 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.
Ventures publicly-traded security holdings were as follows (in
millions):
Gross Gross
unrealized unrealized Market
Cost gains losses value
------- ---------- ---------- --------
SUCCESSOR
September 30, 2002 $ 1 $ - $ - $ 1
- -------------------------------------------------------------------------------
PREDECESSOR
September 30, 2001 $ 1 $ 1 $ - $ 2
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). For the two months ended
September 30, 2002, net realized gains from the sale of equity investments
were immaterial. For the ten months ended July 31, 2002, net realized gains
from the sale of equity investments were $2 million. Net realized gains from
the sale of equity investments were $99 million and $233 million in fiscal
2001 and 2000, respectively. For the two months ended September 30, 2002,
gross realized gains from the sale of equity investments were immaterial. For
the ten months ended July 31, 2002, gross realized gains from the sale of
equity investments were $5 million. Gross realized gains from the sale of
equity securities were $101 million and $252 million in fiscal years 2001 and
2000, respectively. Net realized gains are included in other revenue in the
consolidated statements of earnings (loss).
The Company records the proceeds received from the sale or
liquidation of warrants received in conjunction with its lease or other
financings as income on the trade date. For the two months ended September 30,
2002 these gains were immaterial. For the ten months ended July 31, 2002,
these gains totaled $14 million. These gains were $254 million and $215
million in fiscal 2001 and 2000, respectively. These amounts are included in
other revenue in the consolidated statements of earnings (loss).
Note 16 - Preferred Stock
At a special meeting of stockholders on April 20, 2000, the Company's
stockholders authorized the Company to amend and restate its current
certificate of incorporation. The Amended and Restated Certificate of
Incorporation designated 200,000 shares of the authorized and unissued shares
of preferred stock as Series C Junior Participating Preferred Stock and an
additional 200,000 shares of the authorized and unissued shares of preferred
stock as Series D Junior Participating Preferred Stock. Both of these series
were cancelled as part of the reorganization. See Note 17 for further detail
of the special meeting of stockholders on April 20, 2000.
As part of the Company's emergence from bankruptcy, the preferred
stock was cancelled. Prior to the emergence, there were 100,000,000 authorized
shares of preferred stock at $.10 par value, of which none were outstanding.
Note 17 - Common Stock and Other Comprehensive Income
Comdisco's Old Common Stock was cancelled on August 12, 2002. Former
common shareholders are entitled to distributions of Contingent Distribution
Rights under the Plan. In order to be eligible to receive any distribution of
Contingent Distribution Rights, former common shareholders must properly
complete a transmittal form and surrender all shares of Old Common stock to
Mellon Investors Services LLC prior to August 12, 2003.
Any payments to Contingent Distribution Right holders are based upon
the Present Value of Distributions to Creditors as a percentage of Class C-4
Claims in accordance with the Comdisco Contingent Equity Distribution
Agreement. The Company has estimated the liability for Contingent Distribution
Rights to be $10 million at September 30, 2002. The accrual of this liability
is recorded as an operating expense in the consolidated statement of earnings
(loss).
On May 2, 2001, the Board of Directors voted to suspend the payment
of quarterly dividends on the Company's Old Common stock.
At a special meeting of stockholders on April 20, 2000, the Old
Common stockholders approved the tracking stock proposal, which authorized
Comdisco, Inc. to amend and restate its current certificate of incorporation
to increase the total authorized shares of common stock from 750,000,000 to
1,800,000,000 shares; authorized the Board of Directors to issue common stock
in multiple series, with the initial two series of common stock being Comdisco
stock and Comdisco Ventures group stock; and reclassified each outstanding
share of existing common stock as one share of Comdisco stock. Both of these
series were cancelled as part of the reorganization. No Comdisco Ventures
stock was issued.
The Company's stock share amounts for basic and diluted earnings
(loss) per share calculations were as follows (in thousands):
SUCCESSOR | PREDECESSOR
Two | Ten
months | months Years ended
ended | ended September 30,
September 30, 2002 | July 31, 2002 2001 2000
------------------- | --------------- ----------- ---------
|
Average common shares issued $ 4,200 | 225,555 225,366 224,259
|
Average common shares held in treasury - | (74,996) (74,120) (72,374)
---------- | ---------- --------- ---------
Basic common shares outstanding 4,200 | 150,559 151,246 151,885
|
Stock options - | - - 9,897
---------- | ---------- --------- ---------
|
Diluted common shares outstanding 4,200 | 150,559 51,246 161,782
========== | ========== ========= =========
For the ten months ended July 31, 2002 and for the fiscal year ended
2001, options on 18,179,186 and 15,256,845 shares, respectively, were not
included in the calculation of the diluted shares outstanding because their
effects would be antidilutive.
There are no adjustments to net earnings to common stockholders for
basic and diluted earnings per share calculations for either the two months
ended September 30, 2002, the ten months ended July 31, 2002 or the years
ended September 30, 2001 and 2000.
During fiscal 2001 and 2000, Comdisco, Inc. entered into a series of
forward purchase transactions on its Old Common stock. These transactions were
settled by paying cash for the forward purchase amount and receiving the
underlying shares of stock. Information on these forward transactions is as
follows (in millions except per share data):
SUCCESSOR | PREDECESSOR
2002 | 2001
---- | ----
Average |
forward | Average
price | forward price
Amount Shares per share | Amount Shares per share
------ ------ --------- | ------ ------ ---------
Transaction in place at $ - - $ - | $ - - $ -
September 30 |
|
Settlements during the fiscal - - - | 84 3 29.89
year |
Components of other comprehensive earnings (loss) consists of the
following (in millions):
SUCCESSOR | PREDECESSOR
|
Two Ten months |
months ended ended | Years Ended
September 30, July 31, | September 30,
| --------------------------
2002 2002 | 2001 2000
------------ ------------ | -------- ---------
Foreign currency translation adjustments $ 4 $ 24 | $ 1 $ (64)
|
Unrealized gains (losses) on derivative |
instruments - (2) | 4 -
|
Unrealized gains (losses) on securities: |
|
Unrealized holding gains (losses) |
arising during the period - 18 | (295) 945
|
Reclassification adjustment for gains |
included in earnings before income taxes |
(benefit) - (16) | (353) (448)
------------ ------------ | -------- ---------
Net unrealized gains (losses) on securities, before |
income taxes (benefit) - 2 | (648) 497
|
Income taxes (benefit) - 1 | (233) 174
------------ ------------ | -------- ---------
|
Net unrealized gains (losses) on securities - 1 | (415) 323
------------ ------------ | -------- ---------
|
Other comprehensive income (loss) 4 23 | (410) 259
|
Net earnings (loss) 224 (541) | (272) (67)
------------ ------------ | -------- ---------
|
Total comprehensive income (loss) $ 228 $ (518) | $ (682) $ 192
============ ============ | ======== =========
Accumulated other comprehensive income (loss) presented below and in
the accompanying balance sheets consists of the following (in millions):
Unrealized Unrealized Accumulated
Foreign currency gain on gain on other
translation available-for-sale derivative comprehensive
SUCCESSOR adjustment securities instruments income (loss)
------------ ---------- ----------- -------------
Balance at July 31, 2002 $ - $ - $ - $ -
Pretax amount 4 - - 4
Income taxes - - - -
------------ ---------- ----------- -------------
Balance at September 30, 2002 $ 4 - - 4
============ ========== =========== =============
PREDECESSOR
Balance at September 30, 1999 $ (34) $ 92 $ - $ 58
Pretax amount (64) 497 - 433
Income taxes (benefit) - 174 - 174
------------ ---------- ----------- -------------
Balance at September 30, 2000 (98) 415 - 317
Pretax amount 1 (648) 6 (641)
Income taxes (benefit) - (233) 2 (231)
------------ ---------- ----------- -------------
Balance at September 30, 2001 $ (97) $ - $ 4 $ (93)
Pretax amount 24 2 (3) 23
Income taxes (benefit) - 1 (1) -
Extinguishment of stockholders'
equity in connection with
reorganization 73 (1) (2) 70
------------ ---------- ----------- -------------
Balance at July 31, 2002 $ - $ - $ - $ -
============ ========== =========== ==============
In February 1998, the SIP Participants purchased over six million
shares of Comdisco, Inc.'s common stock for approximately $109 million. Under
the SIP, the SIP Participants took out full recourse, personal loans to
purchase the shares. Comdisco, Inc. provided a Guaranty to the SIP Lenders.
The SIP Lenders filed a proof of claim in the amount of $133 million ("SIP
Guaranty Claim"). On July 29, 2002, Comdisco, Inc. filed an objection to
the SIP Guaranty Claim. By this objection, Comdisco, Inc. sought an entry of
an Order pursuant to U.S.C. ss.ss. 102(1), 105(a), and 502(b) and Rule 3007 of
the Federal Rules of Bankruptcy Procedure, disallowing the SIP Guaranty Claim
filed by the SIP Lenders and expunging the claims therein. The SIP Guaranty
Claim is a Disputed Claim, which solely for Disputed Claim Reserve purposes
was estimated at its face amount.
Based on Federal Reserve Board interpretations and case law, the Company
believes that the underlying SIP obligation of the SIP Participants to the SIP
Lenders, as well as the related Guaranty 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 SIP Guaranty Claim
will not be allowed and no obligation under the Guaranty will be borne by the
bankruptcy estate of Comdisco, Inc.. 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
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."
In accordance with the Plan and as directed by the bankruptcy court,
a Disputed Claims Reserve was funded with a distribution of cash, notes and
stock at the time of the initial distribution to Allowed Claims. In accordance
with the Plan, to the extent any Disputed Claim becomes an Allowed Claim, it
will receive the same recovery as the other Allowed Claims. Comdisco Holding,
as the Successor, has no liability for Disputed Claims beyond the Disputed
Claims Reserve.
Note 18 - Employee Benefit Plans
All stock option plans, the Employee Stock Ownership Plan, the
Non-Employee Directors' stock option plan and the 1996 Deferred Fee Option
Plan were cancelled effective July 31, 2002.
The Company had a profit sharing plan which, together with the
Employee Stock Ownership Plan (the "Plans"), covered substantially all
domestic employees. Company contributions to the Plans were based on a
percentage of employees' compensation. Benefits were accumulated on an
individual employee basis.
Comdisco, Inc.'s stock option plans provided for the granting of
incentive stock options and/or nonqualified options to employees and agents to
purchase shares of common stock.
Additionally, under the 1999 Non-Employee Directors' Stock Option
Plan, each October 1, each individual who was a Non-Employee Director during
the fiscal year was automatically granted an option for 9,450 shares of the
Old Common stock at the then fair market value. None were granted during
fiscal year 2002.
Under the 1996 Deferred Fee Option Plan, each Non-Employee Director
received options for 2,898 shares of Old Common stock on October 1, 2000 at an
option price of $1.00.
Comdisco, Inc. applies APB Opinion No. 25 and related Interpretations
in accounting for its plans. Had compensation cost for Comdisco, Inc.'s stock
option plans been determined consistent with SFAS No. 123, Comdisco, Inc.'s
net earnings (loss) available to common stockholders and earnings (loss) per
common and common equivalent share would have been reduced to the pro forma
amounts indicated below (in millions except per share data):
PREDECESSOR
Ten months Year ended
ended September 30,
July 31, ----------------
2002 2001 2000
-------- ------- --------
Net earnings (loss) to
common stockholders
As reported $ (541) $ (272) $ (67)
Pro Forma (546) (280) (76)
Earnings (loss) per
Common share:
As reported-basic $ (3.59) (1.80) (.44)
Pro forma-basic (3.63) (1.85) (.50)
As reported-diluted (3.59) (1.80) (.41)
Pro forma-diluted (3.63) (1.85) (.47)
Generally, under the stock option plans, the exercise price of each
option equaled the market price of the Old Common stock on the date of grant.
For purposes of calculating the compensation cost consistent with SFAS 123,
the fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 2001 and 2000, respectively: dividend
yield of 1.0 percent and 1.0 percent; expected volatility of 49 percent and 40
percent; risk free interest rates of 5.51 percent and 5.26 percent; and
expected lives of five years. As a result of the reorganization of the
Company, all outstanding stock options were canceled effective July 31, 2002.
Additional information on common shares subject to options is as
follows (in thousands except weighted-average exercise price):
PREDECESSOR
2002 2001 2000
------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
average average average
Number exercise Number exercise Number exercise
of shares price of shares price of shares price
----------- --------- ---------- --------- --------- ---------
Outstanding at beginning of year 18,524 $13 15,618 $12 16,977 $10
Granted - - 7,675 16 3,839 18
Exercised - - (838) 6 (4,254) 8
Forfeited (18,524) 13 (3,931) 15 (944) 10
----------- --------- ---------- --------- --------- ---------
Outstanding at the end of the year - $ - 18,524 $13 15,618 $12
=========== ========= ========== ========= ========== =========
(July 31, 2002 for current period)
Options exercisable at year-end - $ - 12,478 $12 11,207 $10
=========== ========= ========== ========= ========== =========
Weighted-average fair value of
options granted during the year $- $13.22 $8.35
=========== ========= ========== ========= ========== =========
Note 19 - Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments are
as follows (in millions):
SUCCESSOR | PREDECESSOR
2002 | 2001
---- | ----
Assets: Carrying Fair | Carrying Fair
amount value | amount value
------ ----- | ------ -----
Cash and cash equivalents $ 575 $ 575 | $ 546 $ 546
Equity securities 36 36 | 138 138
Notes receivable 118 118 | 463 463
|
Liabilities not subject to compromise: |
Notes payable 1,050 1,050 | 179 179
Terms notes, senior notes and discounted lease 297 297 | 1,324 1,350
rentals |
|
Liabilities subject to compromise: |
Notes payable - - | 917 N/A
Senior notes - - | 2,639 N/A
|
Derivative Financial instruments: |
Forwards 2 2 | 2 2
Fair values were determined as follows:
The carrying amounts of cash and cash equivalents, and notes payable,
not subject to compromise, approximates fair value because of the short-term
maturity of these instruments.
Equity instruments are based on quoted market prices for
available-for-sale securities, and, for non-quoted equity instruments, based
on the lower of management's estimates of fair value or cost. The Company's
investment in warrants of public companies were valued at the bid quotation.
Notes receivable are estimated by discounting future cash flows using
the current rates at which similar loans would be made to borrowers with
similar business profiles.
The fair value of term notes, senior notes and discounted lease
rentals, not subject to compromise, was estimated based generally on quoted
market prices for the same or similar instruments or on current rates offered
the Company for similar debt of the same maturity.
For liabilities subject to compromise, it was not practicable to
estimate the fair value due to the bankruptcy filing.
The fair value of financial derivative instruments was estimated by
obtaining quotes from brokers.
Note 20 - Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the fiscal years ended
September 30, 2002 and 2001, are as follows (in millions except per share data):
PREDECESSOR
Quarter ended One month
---------------------------------------------------------------------------------- ended
December 31, March 31, June 30, September 30, July 31,
2001 2000 2002 2001 2002 2001 2001 2002
---------- -------- ---------- --------- --------- --------- -------------- ---------
Total revenue $ 454 $ 735 $ 404 $ 774 $ 288 $ 529 $ 453 $ 99
Earnings (loss) from continuing $ (218) $ 87 $ (96) $ (12) $ (89) $ (166) $ (106) $ (562)
Earnings (loss) from discontinued
operations 206 (1) 2 (42) (8) 2 (36) 71
Extraordinary gain - - - - - - - 153
Cumulative effect of change in
accounting principle - 2 - - - - - -
----------- -------- ---------- ---------- ---------- ---------- -------------------------
Net earnings (loss) to common
stockholders $ (12) $ 88 $ (94) $ (54) $ (97) $ (164) $ (142) $ (338)
=========== ======== ========== ========== ========== ========== =========================
Earnings (loss) from continuing
operations- diluted $ (1.45) $ 0.55 $ (0.64) $ (0.08) $ (0.59) $ (1.09) $ (0.70) $(3.73)
Earnings (loss) from discontinued
operations 1.37 - 0.02 (0.27) (0.05) 0.01 (0.24) 0.46
Extraordinary gain - - - - - - - 1.02
Cumulative effect of change in
accounting principle - 0.01 - - - - - -
----------- -------- ---------- ---------- ---------- ---------- -------------------------
Net earnings (loss) per common
share-diluted $ (0.08) $ 0.56 $ (0.62) $ (0.35) $ (0.64) $ (1.08) $ (0.94) $(2.25)
=========== ======== ========== ========== ========== ========== =========================
SUCCESSOR
Two months
ended
September
30,
2002
------------
Total revenue $ 170
Loss from continuing operations $ (8)
Loss from discontinued operations (9)
Extraordinary gain 241
------------
Net earnings to common stockholders $ 224
============
Loss from continuing operations--diluted $ (1.81)
Loss from discontinued operations (2.20)
Extraordinary gain 57.38
------------
Net income per common share--diluted $ 53.37
============
Note 21 - Industry Segment and Operations by Geographic Areas
Following Comdisco, Inc.'s emergence from bankruptcy on August 12,
2002, the Company's operations were reorganized into four reportable business
groups. These business groups are: (i) US Leasing, which includes leasing
operations in the US and Canada and is managed by Comdisco, Inc.; (ii)
European IT Leasing, which is managed by Comdisco Global Holdings Company,
Inc.; (iii) Ventures, which is managed by Comdisco Ventures, Inc.; and (iv)
the Corporate Asset Management, or CAM, group. For business segment reporting
purposes, the CAM group includes various corporate assets and liabilities
managed by corporate staff.
The Company evaluates the performance of its operating segments based
on earnings (loss) before income taxes. Intersegment sales are not
significant. The information for 2001 and 2000 has been restated from the
prior year's presentation in order to conform to the 2002 presentation.
Summarized financial information (excluding the gain (loss) from discontinued
operations, the extraordinary gain and the cumulative effect of change in
accounting principle) (in millions):
SUCCESSOR
Two months ended September 30, 2002 US Leasing IT Europe CAM Ventures Total
- ----------------------------------- ------------ ------------ ---------- ----------- ------------
Revenues $ 79 $ 37 $ 15 $ 39 $ 170
Segment profit (loss) 21 12 ( 26) (11) (4)
PREDECESSOR
Ten months ended July 31, 2002 US Leasing IT Europe CAM Ventures Total
- ------------------------------ -------------- ------------ ------------ ------------- ------------
Revenues $ 346 $ 200 $ 455 $ 244 $ 1,245
Segment profit (loss) (49) 25 (728) (168) (920)
PREDECESSOR
2001 US Leasing IT Europe CAM Ventures Total
- ---- -------------- ------------ ------------ ------------- ------------
Revenues $ 746 $ 226 $ 795 $ 724 $ 2,491
Segment profit (loss) 8 9 (196) (150) (329)
PREDECESSOR
2000 US Leasing IT Europe CAM Ventures Total
- ---- -------------- ------------ ------------ ------------- ------------
Revenues $ 1,465 $ 271 $ 683 $ 673 $ 3,092
Segment profit 115 12 (37) 246 336
The following table presents revenue by geographic location based on
the location of the Company's local office (in millions):
SUCCESSOR | PREDECESSOR
Two months ended | Ten months ended Years ended
September 30, 2002 | July 31, 2002 2001 2000
------------------- | -------------- ---- ----
|
North America $ 118 | $ 851 $ 2,053 $ 2,612
Europe 43 | 274 282 345
Pacific Rim 9 | 120 156 135
------------ | ---------- ---------- ------------
Total: $ 170 | $ 1,245 $ 2,491 $ 3,092
============ | ========== ========== =============
The following table presents total assets by geographic location
based on the location of the asset at September 30 (in millions):
SUCCESSOR | PREDECESSOR
2002 | 2001
----------- | ---------
|
North America $ 1,265 | 4,377
Europe 1,022 | 1,314
Pacific Rim 54 | 511
----------- | ---------
Total 2,341 | 6,202
=========== | =========
The following table presents total assets for each of the Company's
reportable segments at September 30 (in millions):
SUCCESSOR | PREDECESSOR
2002 | 2001
----------- | -----------
|
US Leasing $ 549 | $ 1,543
|
IT Europe 797 | 792
|
CAM 599 | 2,220
|
Ventures 241 | 900
Assets of discontinued |
operations 155 | 747
----------- | ---------
|
Total $ 2,341 | $ 6,202
=========== | =========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
Ronald C. Mishler (Age 42 - Director since August 2002)
Mr. Mishler was appointed Chairman, Chief Executive Officer and
President of Comdisco, Inc. in August 2002 and, pursuant to the Plan, now
holds those same positions with the Company. He had been serving as senior
vice president and chief financial officer since September 2001. Mr. Mishler
joined Comdisco, Inc. in July 2001 as senior vice president and treasurer.
Prior to working for Comdisco, Inc. he served as senior vice president and
treasurer of Old Kent Financial Corporation from 1998 to 2001. From 1996 to
1998 he was vice president and treasurer of USF&G Corporation. From 1984 to
1996, he held various financial analysis and management positions at Heller
International Corporation.
Jeffrey A. Brodsky (Age 44 - Director since August 2002)
Mr. Brodsky is a Managing Director of Quest Turnaround Advisors,
L.L.C. and Chairman and CEO of NTL Europe, Inc. Prior to Quest, Mr. Brodsky
provided his services as an independent crisis management consultant and
worked with Jay Alix & Associates and Alvarez & Marsal, Inc. Previously, Mr.
Brodsky was a member of Senior Management of Integrated Resources, Inc.,
responsible for Integrated's equipment leasing business, leverage buyout
business and was actively involved in all aspects of Integrated's
reorganization under Chapter 11.
Robert M. Chefitz (Age 43 - Director since August 2002)
Mr. Chefitz has been a General Partner with NJTC Venture Fund since
2002. Previously Mr. Chefitz was General Partner of Apax Partners, Managing
Director at Patricof and Co. Ventures and Senior Associate at Golder Thoma
Cressey and Company. Mr. Chefitz is a Director of World Links, a
philanthropic, non-governmental agency and President of New York Venture
Capital Forum.
William A. McIntosh (Age 63 - Director since August 2002)
Mr. McIntosh is an adjunct faculty member at Howard University in
Washington, DC and a consultant to financial institutions. Previously Mr.
McIntosh was a General Partner and a member of the Executive Committee of
Salomon Brothers. He held various positions during this 34-year career with
the firm including US Fixed Income Division Head and National Sales Manager.
He is a member of the Board of Directors of MGIC Investment Corp., The Mason
Street Mutual Funds, Fairfield University, the Archdiocesan Finance Council of
Chicago and the Big Shoulders Fund in Chicago.
Randolph I. Thornton (Age 57 - Director since August 2002)
Mr. Thornton is a Managing Director and Senior Credit Officer of
Citigroup where he has managed corporate reorganizations and has held various
positions for over thirty years. Mr. Thornton has served as a past member of
the Board of Directors of Mohasco Corporation and Edison Brothers Stores.
Executive Officers
The following table sets forth certain information with respect to
the executive officers of the Company:
Name Age Position
- ---- --- --------
Ronald C. Mishler 42 Chairman, Chief Executive Officer and President; Chief
Executive Officer and President of Comdisco Domestic Holding
Company, Inc., a direct wholly-owned subsidiary of Comdisco,
Inc.
Robert E. T. Lackey 54 Executive Vice President, Chief Legal Officer and Secretary;
Chief Executive Officer and President of Comdisco Ventures,
Inc., a direct wholly-owned subsidiary of Comdisco, Inc.
Nazneen Razi 49 Executive Vice President and Chief Administrative Officer
Gregory D. Sabatello 42 Executive Vice President and Chief Information Officer
Francis J. Cirone 44 Executive Vice President; Chief Executive Officer and
President of Comdisco, Inc., a direct wholly-owned
subsidiary of Comdisco Holding
John R. McNally, Jr. 42 Executive Vice President
Robert E. Koe 57 Executive Vice President; Chief Executive Officer and
President of Comdisco Global Holding Company, Inc., a direct
wholly-owned subsidiary of Comdisco Holding
David S. Reynolds 49 Senior Vice President and Controller
Caroline Walters 42 Senior Vice President and Treasurer
Lloyd Cochran 33 Senior Vice President, Financial Planning and Analysis
Mr. Mishler also is a director of the Company. Please refer to the "Directors"
section immediately above for his biographical information.
Robert E. T. Lackey
Robert E. T. Lackey was named Executive Vice President, Chief Legal
Officer and Secretary of the Company in August 2002. In August 2002, he was
named Executive Vice President of Comdisco, Inc. He joined Comdisco in June
2001 as senior vice president, chief legal officer and secretary. Mr. Lackey
served as vice president, secretary and general counsel of Burns International
Services Corporation, since 1997. From 1991 to 1995, he was the vice
president, secretary and general counsel for Transamerica Commercial Finance
Corporation and, from 1985 to 1991, he worked in various legal and management
positions for Heller Financial, Inc. Mr. Lackey also serves as the Chief
Executive Officer and President of Comdisco Ventures, Inc., a direct
wholly-owned subsidiary of Comdisco, Inc.
Nazneen Razi
Nazneen Razi was promoted to Executive Vice President and Chief
Administrative Officer of the Company in April 2002. She joined Comdisco, Inc.
as Senior Vice President, Human Resources in November 2000. She previously
held various positions within CNA Insurance Companies, including senior vice
president and senior human resources officer for CNA Risk Management.
Gregory D. Sabatello
Gregory D. Sabatello was promoted to Executive Vice President of the
Company and retained his position of Chief Information officer in April 2002.
He had been Senior Vice President since October 1998 and Chief Information
Officer since October 1997. He was Vice President of Comdisco from July 1994
through November 1998 and Comdisco's Business Systems Manager from October
1993 through July 1994.
Francis J. Cirone
Francis J. Cirone was named Executive Vice President of the Company
in August 2002. He holds the position of Chief Executive Officer and President
of Comdisco, Inc. since August 2002 and is responsible for leading the US
Leasing business. Prior to this assignment, Mr. Cirone was CEO and President
of Comdisco's Ventures Division. Mr. Cirone joined Comdisco, Inc. in 1984,
performing various corporate finance management roles for the Company's US,
European and Pacific Rim operations. Subsequently, he served as Senior Vice
President of IT Leasing and Market Development and as Group President of
Comdisco's Telecommunications and Laboratory and Scientific business groups.
Before joining Comdisco, Inc., he worked in public accounting for Arthur Young
& Co.
John R. McNally, Jr.
John R. McNally was named Executive Vice President of the Company in
August 2002. He has held the position of Senior Vice President and President
of the CAM group of Comdisco, Inc. since April 2002. Mr. McNally has also been
an Executive Vice President of Comdisco Global Holding Company, Inc., a
wholly-owned subsidiary of the Company, and of Comdisco Domestic Holding
Company, Inc. and Comdisco Ventures, Inc., both wholly-owned subsidiaries of
Comdisco, Inc., since August 2002. Mr. McNally joined Comdisco in 1988 and has
held various positions in Comdisco's Tax Department and Leasing Operations.
Before coming to Comdisco, he worked at Amoco Corporation from 1983 to 1988.
Robert E. Koe
Robert E. Koe has served as the Executive Vice President of the
Company since August 2002. In March 2002, he became the President and Chief
Executive Officer, Comdisco Europe for Comdisco, Inc. Before joining Comdisco,
Mr. Koe served as Managing Director, International Operations, for Ocwen
Financial Corporation, where he had previously served as Managing Director
from July 1996 to May 1998. He has been a Director of Ocwen Federal Bank FSB
since January 1994. From 1990 to 1996, Mr. Koe was Chairman, President and
Chief Executive Officer of United States Leather, Inc. ("USL"). Prior to
joining USL, Mr. Koe was Vice Chairman of Heller Financial, Inc. and had
served as a member of the board of its parent company, Heller International
Corp., as well as Heller Overseas Corp. Mr. Koe also serves as the Chief
Executive Officer and President of Comdisco Global Holding Company, Inc., a
direct wholly-owned subsidiary of the Company.
David S. Reynolds
David S. Reynolds was appointed Senior Vice President and Controller
of the Company in August 2002. He also holds the position of Controller for
Comdisco Global Holding Company, Inc., a wholly-owned subsidiary of Comdisco
Holding Company, Inc. and for Comdisco Domestic Holding Company, Inc., a
wholly-owned subsidiary of Comdisco, Inc. Mr. Reynolds also serves as the
Senior Vice President and Controller of Comdisco, Inc.
Caroline Walters
Caroline Walters was appointed Senior Vice President and Treasurer of
the Company in August 2002. She has also served in that position with
Comdisco, Inc. and as Treasurer of Comdisco Global Holding Company Inc. since
August 2002; both are wholly-owned subsidiaries of the Company. She is also
the Treasurer of Comdisco Ventures, Inc., a wholly-owned subsidiary of
Comdisco, Inc. Caroline Walters joined the Company in 1986 and was involved in
the development of the Treasury department. Prior to joining Comdisco, she was
Director of Communications for Rayan Inc. and a high school teacher.
Lloyd Cochran
Lloyd Cochran was named Senior Vice President of the Company in
August 2002 and has led the Financial Planning and Analysis department since
January 2002. He also holds that position with Comdisco, Inc., a wholly-owned
subsidiary of the Company. Mr. Cochran joined Comdisco in September 1999 as
Vice President of Finance for Comdisco Healthcare Group. Prior to working for
Comdisco, he worked in public accounting from 1991 to 1999, most recently for
KPMG from 1994 to 1999 where he served in various positions, including senior
manager from 1997 to 1999.
Directors, Executive Officers, and Greater-than-10 percent Stockholders
Compliance with Section 16(a) Beneficial Ownership Reporting in Fiscal 2002
Section 16(a) of the Securities and Exchange Act of 1934 requires our
directors, certain officers and greater-than-10 percent stockholders to file
reports of their initial ownership of our Common Stock and any changes in that
ownership with the SEC. Based solely on our review of copies of the reports
filed with the SEC and on written representations of our directors and
officers, we believe all persons subject to Section 16(a) reporting filed the
required reports on time in fiscal year 2002.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
This table shows the compensation paid to (i) Ronald C. Mishler, our
Chairman, Chief Executive Officer and President, (ii) our four other most
highly compensated executive officers serving as of September 30, 2002, (iii)
Norman P. Blake, Jr., who served as Chairman and Chief Executive Officer from
February 2001 through August 2002, (iv) Michael A. Fazio, who served as
President, Chief Operating Officer and Chief Executive Officer Europe from
September 2001 through February 2002 and (v) Michael F. Herman, who served as
Senior Vice President from January 1996 through February 2002. The persons
named in this table and in this section are referred to as the "named
executive officers."
Annual Compensation Long-Term Compensation
------------------------------------- -------------------------
Awards Payouts
------------ ------------
Securities
Other Underlying Long-term
Name and Principal Annual Options Incentive All Other
Position Year Salary Bonus Compensation (shares) Payouts Compensation
- -------------------- ------ ---------- ---------- ------------ ---------- --------- ------------
Ronald C. Mishler 2002 343,750 545,000 (1) 5,500 (3) - 1,635 (7)
Chairman, Chief 2001 58,814 192,500 1,323 (3) - - -
Executive Officer, 2000 - - - - - -
President
Francis J. Cirone 2002 309,583 363,750 (2) 3,400 (3) - 211,846 (8)
Executive Vice 2001 239,583 386,250 4,800 (3) - - 233,910 (9)
President 2000 176,875 275,000 1,400 (3) - - 6,289 (7)
Robert E. T. Lackey 2002 288,542 410,000 (1) - - 635 (7)
Executive Vice 2001 67,868 160,000 - - - -
President, Chief 2000 - - - - - -
Legal Officer and
Secretary
Gregory D. Sabatello 2002 236,458 505,625 (2) - - 271,847 (10)
Executive Vice 2001 224,375 228,750 - 25,000 - 201,660 (11)
President and Chief 2000 209,167 110,000 - 23,809 - 6,289 (7)
Information Officer
John R. McNally, Jr. 2002 215,048 335,000 (1) - - 106,847 (12)
Executive Vice 2001 131,250 65,000 267 (4) - - 116,410 (13)
President 2000 120,000 105,000 3,816 (4) - - 6,289 (7)
Norman P. Blake, Jr. 2002 695,063 3,054,314 297,538 (5) - - 4,200,776 (14)
Chairman and Chief 2001 384,551 2,000,000 116,081 (6) - - 34 (7)
Executive Officer 2000 - - - - - -
Michael A. Fazio 2002 246,914 248,265 - - - 1,000,000 (15)
President, Chief 2001 96,794 250,000 - - - 500,000
Operating Officer 2000 - - - - - -
and Chief Executive
Officer Europe
Michael F. Herman 2002 191,537 - 1,892 (3) - - 880,000 (16)
Senior Vice 2001 342,375 366,000 4,800 (3) 150,000 - 699,410 (17)
President 2000 217,333 385,150 4,800 (3) 47,833 53,150 6,289 (7)
(1) Includes quarterly amounts under the annual incentive plans, commission
plans and the chairman's discretionary fund plans which were in place prior to
April 1, 2002. Also includes amounts under the Semiannual Bonus Plan component
of the Management Incentive Plan (as described below in the section entitled
Bankruptcy Court-Approved Compensation Plans) for the period April 1, 2002
through September 30, 2002. Under the terms and conditions of the Semiannual
Bonus Plan, participants were paid half their earned amount for the period and
half was deferred until job elimination. Deferred payments will be forfeited
if the participant voluntarily resigns or is terminated for cause.
(2) Includes quarterly amounts under the annual incentive plans, commission
plans and the chairman's discretionary fund plans which were in place prior to
April 1, 2002. Also includes amounts under the Semiannual Bonus Plan component
of the Management Incentive Plan (as described below in the section entitled
Bankruptcy Court-Approved Compensation Plans) for the period April 1, 2002
through September 30, 2002. As approved by the bankruptcy court and described
in the terms and conditions of the SIP Relief program described in Item 1,
above, participants were paid half their earned amount for the period. The
remaining half will be deferred until job elimination and applied to the
balance of their SIP payment obligation. Deferred amounts will be forfeited
and not applied to the balance of SIP payment obligation if the participant
voluntarily resigns or is terminated for cause.
(3) Amounts reflect car allowance payments.
(4) Amounts include taxable income from Employee Stock Purchase Plan.
(5) Amount reflects payments made per employment contract for personal use of
aviation services paid for by the Company for fiscal 2001 and fiscal 2002. The
amounts also reflect tax gross-up payments with respect to provision of such
aviation/transportation services.
(6) Amount reflects a one-time payment for the reimbursement of relocation
costs.
(7) Amounts include contributions by the Company to the 401(k) Retirement Plan
for the benefit of the named executive officer.
(8) Includes $210,000 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were cash bonus plans designed to
aid the company in achieving specifically identified business objectives for
the period from May 2001 through April 2002 and $1,846 in contributions made
by the Company to Mr. Cirone's 401(k) Retirement Plan.
(9) Includes $222,500 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were cash bonus plans designed to
aid the company in achieving specifically identified business objectives for
the period from May 2001 through April 2002 and $1,410 in contributions made
by the Company to Mr. Cirone's 401(k) Retirement Plan.
(10) Includes $270,000 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were cash bonus plans designed to
aid the company in achieving specifically identified business objectives for
the period from May 2001 through April 2002 and $1,847 in contributions made
by the Company to Mr. Sabatello's 401(k) Retirement Plan.
(11) Includes $200,250 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were cash bonus plans designed to
aid the company in achieving specifically identified business objectives for
the period from May 2001 through April 2002 and $1,410 in contributions made
by the Company to Mr. Sabatello's 401(k) Retirement Plan.
(12) Includes $105,000 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were cash bonus plans designed to
aid the company in achieving specifically identified business objectives for
the period from May 2001 through April 2002 and $1,847 in contributions made
by the Company to Mr. McNally's 401(k) Retirement Plan.
(13) Includes $115,000 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were cash bonus plans designed to
aid the company in achieving specifically identified business objectives for
the period from May 2001 through April 2002 and $1,410 in contributions made
by the Company to Mr. McNally's 401(k) Retirement Plan.
(14) Includes $4,200,000 paid as a one time severance payment. See information
on Employment Contracts. Also includes $776 in contributions made by the
Company to Mr. Blake's 401(k) Retirement Plan.
(15) Amount includes a one time severance payment. See information on
Employment Contracts.
(16) Amount reflects a one time severance payment made upon job elimination
according to the bankruptcy court approved Executive Severance Plan.
(17) Includes $698,000 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were cash bonus plans designed to
aid the company in achieving specifically identified business objectives for
the period from May 2001 through April 2002 and $1,410 in contributions made
by the Company to Mr. Herman's 401(k) Retirement Plan.
Option/SAR Grants/Exercises in the Last Fiscal Year
No stock options or stock appreciation rights ("SARs") were
outstanding nor were any granted to or exercised by the named executive
officers in fiscal 2002. The Company does not plan to issue any options or
SARs in the foreseeable future.
Aggregated Option/SAR Exercise and Fiscal Year-End Options/SAR Values
No stock options or SARs were outstanding as of September 30, 2002.
The Company does not plan to issue any options or SARs in the foreseeable
future.
Bankruptcy Court-Approved Compensation Plans: Management Incentive and
Stay Bonus Plans
In order to maximize recoveries under the Plan, it is essential that
critical employees be retained and remain motivated to execute the Company's
post-emergence run-off strategies. Specifically, management and the Board of
Directors of Comdisco, Inc. (in conjunction with the statutory committees)
believed that value can be maximized in connection with the run-off or sale of
various segments of the business by leveraging the long-standing relationships
that Comdisco's current employees have in the marketplace. Thus, prior to
emergence from bankruptcy, Comdisco developed a comprehensive compensation
program that includes the Management Incentive Plan (the "MIP"), which is
designed to retain key employees and give them incentive to maximize the value
of the assets; and the Stay Bonus Plan, which is designed to retain essential
support and professional staff. These compensation plans were heavily
negotiated with the Creditors' Committee and approved by the bankruptcy court
on June 18, 2002, with a retroactive effective date of April 1, 2002. (The MIP
and Stay Bonus plans comprise the "Compensation Plans," which are more fully
described in Exhibits 10.1, 10.2 and 10.3, filed herewith.)
For fiscal 2002, participants in the MIP earned $6.5 million in
non-base earnings, and participants in the Stay Bonus Plan earned $5.0 million
in non-base earnings. These plans are described below.
The Company's MIP covers key managers and employees directly
responsible for the overall direction of a particular business unit and the
results achieved within that business unit. Additionally, the MIP covers key
corporate employees whose services are required to facilitate business
operations and to administer claims and related bankruptcy matters. The MIP
replaces any prior bonus/incentive/commission compensation programs for which
such employees may have been eligible. Employees who voluntarily terminate
their employment prior to their respective payment dates under the MIP or who
are terminated for cause are not eligible for any payments from these plans
that have not already been paid, with the exception of any payments with
respect to previously approved retention programs and payments from the
previously approved chairman's discretionary fund.
The MIP is tailored to provide appropriate levels of compensation to
key employees in each of the Company's business units - US Leasing, European
IT Leasing, Ventures and CAM - as well as at the corporate level. While the
award opportunities differ for each of these units, the MIP as a whole is
intended to provide adequate compensation for retention of key employees
within a unit as that unit moves toward its post-emergence business targets
and to provide additional performance-based reward opportunities if those
targets are exceeded.
The MIP establishes varying levels of incentive compensation
depending upon whether a given business unit reaches its "threshold target" or
"business plan target." A threshold target and a higher business plan target
have been established for each of the business units. For purposes of
measuring achievement relative to threshold or plan, cash flows will be
discounted using rates specified for each business unit.
Each of the business unit's management teams participate in the MIP.
The MIP includes two components: Semiannual Performance Bonuses ("SAB") and
Upside Sharing opportunities for specified employees. For US Leasing, there
are 32 participants in the SAB component with a total maximum cost of
approximately $9.0 million; and there are 22 participants in the Upside
Sharing component with a $10.7 million incentive sharing pool upon reaching
plan target recoveries. For Ventures, there are 25 participants in the SAB
component with a total maximum cost of approximately $4.0 million; and there
are 25 participants in the Upside Sharing component with a $5.2 million
incentive sharing pool upon reaching plan target recoveries. For CAM group,
there are 5 participants in the SAB component with a total maximum cost of
approximately $1.4 million; there are 5 participants in the Upside Sharing
component with a $1.2 million incentive sharing pool upon reaching plan target
recoveries. For Consolidated Corporate, there are 17 participants in the SAB
component with a total maximum cost of approximately $9.9 million; 2
participants in the Upside Sharing component with a $1.6 million incentive
sharing pool upon reaching plan target recoveries; and 8 participants in a
$0.6 million Upside Sharing component based on reducing off-balance sheet
claims and tax claims below a certain threshold.
The MIP for European IT Leasing has three components: SAB, core
country (Germany and France) portfolio sale/liquidation bonuses and non-core
country portfolio sale/liquidation bonuses. There are 2 participants in the
MIP plans for European IT Leasing with a total maximum cost of approximately
$1.7 million.
The Stay Bonus Plan is a retention program which covered
approximately 382 U.S. employees and is designed to retain essential support
and professional personnel who assist managers and key employees most directly
responsible for the success of the Plan. Eligible participants under this
compensation plan will accrue one week's salary for each two weeks of work
after April 1, 2002. One-half of such accrued benefits will be paid in
semiannual installments to be paid each year on or about May 15 and November
15 (with the first such payment made on November 15, 2002). The remaining
one-half will be paid upon job termination other than for cause or voluntary
resignation. The total cost of the Stay Bonus Plan is expected to be
approximately $18.5 million. Employees eligible for the Stay Bonus Plan are
not eligible to participate in the MIP. The Stay Bonus Plan for U.S. employees
replaces any prior bonus/incentive/commission compensation programs for which
such employees may have been eligible, with the exception of any payments with
respect to previously approved retention programs and payments from previously
approved and made from the chairman's discretionary fund.
Long-Term Incentive Plans
The table below contains information on the Upside Sharing plan for
the named executive officers:
Performance Estimated Future Payouts Under
Number Of or Other Non-Stock Price-Based Plans (1)
Shares, Units Period Until -------------------------------------------------------
or Other Maturation 10% Above
Name Rights Or Payout Threshold Target Target Maximum
---- ------------ ---------- --------- ------ ---------- -------
Ronald C. Mishler - - - $900,000 $2,100,000 -
Francis J. Cirone - - - 845,000 1,885,000 -
Robert E. T. Lackey - - - 418,663 1,217,811 -
Gregory D. Sabatello - - - - - -
John R. McNally, Jr. - - - 261,192 602,592 -
Norman P. Blake, Jr. - - - - - -
Michael A. Fazio - - - - - -
Michael F. Herman - - - - - -
(1) There are no maximum payouts under the Upside Sharing plan component of
the MIP (as more fully described in Exhibits 10.1, 10.2 and 10.3 "Compensation
Plans" filed herewith). The Upside Sharing plan includes pre-established
present value recovery Threshold and Targets, each defined in the Compensation
Plans, for each business unit and on a consolidated corporate basis. No
payments are made in the Upside Sharing plan until the applicable Threshold is
exceeded. Amounts reflected are net of any applicable severance payment amount
as described in the Compensation Plans.
Directors' Compensation
Employee directors receive no additional compensation for serving on the board
of directors or its committees. Non-employee directors are paid a quarterly
retainer of $6,000, a board meeting fee of $2,000 plus expenses, and a
committee meeting fee of $1,000 plus expenses if the committee meeting is not
held on the same day as a board of directors meeting. Directors are reimbursed
for customary and usual travel expenses. In fiscal 2002 the Board of Directors
of Comdisco, Inc. met thirty-four times and the Board of Directors of Comdisco
Holding Company, Inc. met five times.
Employment Contracts and Termination of Employment and
Change-In-Control Arrangements
Norman P. Blake, Jr.
On February 27, 2001, Comdisco, Inc. entered into an agreement to
employ Mr. Blake as the Company's Chairman of the Board of Directors,
President and Chief Executive Officer for a period of three years with
automatic one-year extensions unless either party gives notice of non-renewal.
The agreement provided for an annual base salary of $700,000 with annual
reviews by the Board of Directors to determine if increases were appropriate;
annual bonuses of up to a maximum of 200 percent of base salary based on
performance goals established by the Board of Directors, and the grant of
stock options for 1,006,500 shares on the commencement of employment and for
500,000 shares on the first and second anniversaries of Mr. Blake's employment
with the Company. Mr. Blake's employment agreement provided for the use of
aviation services for commuting to his residence in Carmel, Indiana. The
agreement also provided Mr. Blake reimbursement of relocation costs associated
with his move from his prior residence in Colorado Springs, Colorado to his
residence in Carmel, Indiana.
Mr. Blake's employment agreement was amended on April 13, 2001 and
again on June 4, 2001. Under the amended agreement, in lieu of an annual bonus
for 2001, Mr. Blake received a lump sum cash payment of $2 million that he was
required to repay to the Company if he voluntarily terminated employment with
the Company without good reason or if his employment with the Company was
terminated for cause, in either case before the earlier of July 31, 2001 or
the occurrence of one of a number of specific strategic transactions. The
April 13, 2001 amendment also provided for the immediate grant of the stock
options that were scheduled to have been granted on the first and second
anniversaries of employment under the original agreement. However, the June 4,
2001 amendment provided that, in exchange for the cancellation of all stock
options granted to Mr. Blake prior to June 4, 2001, and any stock options to
be awarded to him by virtue of the original terms of his employment agreement,
the Company would make certain contributions to foundations and charities that
Mr. Blake specified. The amount of the contributions was to be based on the
degree to which Mr. Blake achieved specified and objective financial goals
relating to the sale of the assets of the Company's Services and US Leasing
and European IT Leasing operations and was not to exceed a total of $9.6
million. In addition, Mr. Blake was to receive an equity incentive equal in
value to 2 percent of the equity value remaining or created for the Company's
current stockholders upon the Company's emergence from bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code or liquidation, whichever occurred
first. The value of the equity incentive was to be based upon the value of any
assets allocated or remaining to the current shareholders in connection with a
plan of reorganization or liquidation, as determined by the bankruptcy court.
This equity incentive was to be paid to Mr. Blake either in cash or in kind,
at the Company's election. Finally, the June 4, 2001 amendment required the
Company to issue a $5 million letter of credit to secure Mr. Blake's rights to
payments under his employment agreement. Notwithstanding the express
provisions of Mr. Blake's employment agreement, pursuant to a March 14, 2002
order of the United States District Court for the Northern District of
Illinois (Eastern Division), docket number 01-C-7255, the total maximum
compensation that Mr. Blake was permitted to receive under both the incentive
and severance provisions of his employment agreement was capped at $7.25
million in the aggregate.
In the event that Mr. Blake was deemed to be discharged without cause
or terminated employment with good reason (as defined in his employment
agreement), he was entitled to receive a lump sum payment equal to his salary
and certain specified annual bonus payments that he would be deemed to have
received if he had remained employed by the Company until the later of the
third anniversary of his commencement of employment or the second anniversary
of the date his employment was terminated. However, if Mr. Blake was deemed to
be discharged without cause in anticipation of a change in control, or
discharged without cause, or constructively discharged, within two years
following a change in control, he was entitled to a lump sum payment equal to
the salary and specified annual bonus payments that he would be deemed to have
received for the three years following his date of termination. In addition,
to the extent that any payments made in connection with a change in control of
the Company would be subject to certain excise taxes, the Company was to make
an additional payment to Mr. Blake to offset the effect of those excise taxes.
In order to receive these post-termination benefits, Mr. Blake signed a
release of claims against the Company. Mr. Blake also agreed to certain
confidentiality, non-disclosure, non-competition and non-solicitation
provisions.
Michael Fazio
On July 5, 2001, Comdisco, Inc. entered into an agreement to employ
Mr. Fazio in the position of Executive Vice President and Chief Financial
Officer, or a more senior position, for a period of two years. Under the terms
of the agreement, Mr. Fazio also served on Comdisco, Inc.'s Board of
Directors. The employment agreement provided for an annual base salary of at
least $500,000 and a signing bonus of $500,000. The agreement also provided
that Mr. Fazio was eligible for an annual bonus of up to 100 percent of his
annual salary based on performance goals established by the Comdisco, Inc.'s
Board of Directors. However, for his first year of employment, he was entitled
to a guaranteed bonus of 100 percent of his base salary, which would have
offset any annual bonus payments for the 2001 and 2002 fiscal years and which
would have been payable in quarterly installments beginning on September 30,
2001 provided he was employed on the installment payment dates. Mr. Fazio was
eligible for a special bonus of $1 million if Comdisco, Inc.'s Chapter 11 plan
of reorganization provided for the emergence and reorganization of at least
one of the principal businesses in which Comdisco, Inc. was engaged on the
date of his employment agreement and Mr. Fazio remained in the employ of the
Company and met reasonable performance criteria established by the Chief
Executive Officer and Comdisco Inc.'s Board of Directors.
In the event that Mr. Fazio was discharged without cause or
terminated employment with good reason (as defined in his employment
agreement), he was entitled to receive a lump sum payment equal to the salary
and certain specified annual bonus payments that he would be deemed to have
received if he had remained employed by Comdisco, Inc. until the one year
anniversary of his date of termination. In order to receive these
post-termination benefits, Mr. Fazio signed a release of claims against
Comdisco, Inc. Mr. Fazio also agreed to certain confidentiality,
non-disclosure, non-competition, and non-solicitation provisions.
Gregory D. Sabatello
The Company's Management Incentive Plan provides for an employment
agreement with Mr. Gregory D. Sabatello. In addition to being eligible for the
Management Incentive Plan beginning April 1, 2002, Mr. Sabatello's employment
agreement includes, without limitation, the following: (a) participation in
the semiannual bonus plan component of the MIP (at three times his base salary
each year or $750,000 annually); (b) a guaranteed two-year term; and (c) if
terminated prior to April 1, 2004, receipt of semiannual bonus and base salary
payment for the period between the termination date and April 1, 2004. Mr.
Sabatello's employment agreement was executed upon his acceptance of the SIP
Relief program described in Item 1.
Additional Information with Respect to Compensation Committee Interlocks
and Insider Participation in Compensation Decisions
Mr. McIntosh, Mr. Chefitz, and Mr. Thornton are the three members of
the Compensation Committee of the board. Mr. McIntosh is the Chairperson of
the Compensation Committee. No member of the Compensation Committee was at any
time an officer or employee of the Company or its subsidiaries. There is no
director or executive officer who is, or during the last fiscal year was, a
member of any other company, partnership or other entity's compensation
committee or similar committee or otherwise was involved in making decisions
regarding compensation of other entities' executives.
Randolph I. Thornton, who has been a member of the Company's Board of
Directors since August 2002, also is a Managing Director within the
Institutional Recovery Management Department within Citigroup, Inc.
("Citigroup"). Citigroup was a creditor of Comdisco, Inc. and Mr. Thornton was
a co-chair of the Creditors' Committee. On September 30, 2002, as part of the
initial distribution to holders of allowed Class C-4 Claims conducted in
accordance with the Plan, Citigroup received $35.3 million in cash, $6.3
million and $10.3 million of Senior Notes and Subordinated Notes,
respectively, and approximately 66,521 shares of the Company's Common Stock.
Since that time, Citigroup has adopted certain procedures to govern
disclosure by Mr. Thornton of the Company's confidential information.
The Compensation Committee has met twice, on November 11, 2002 and
December 12, 2002, since the Board of Directors of the Company was formed in
August 2002. The purpose of the Compensation Committee is to ensure that the
senior executives, the management and employees of the Company and its
wholly-owned subsidiaries are compensated effectively in a manner consistent
with the stated compensation strategy of the Company in furtherance of its
Plan of Reorganization and requirements of the appropriate regulatory bodies.
The committee's charter states that the Compensation Committee shall be
composed of at least three independent directors. The members are designated
annually by the Board of Directors upon the recommendations of the Chairman of
the Board. The duties and responsibilities of the committee include (but are
not limited to): (a) reviewing the Company's compensation strategy, (b)
reviewing and determining the individual elements of total compensation for
the CEO, (c) reviewing and approving appropriate discretionary bonus
recommendations by the CEO for managers and officers, (d) reviewing and
approving disposition of forfeited monies as a result of voluntary resignation
or for-cause termination for the Management Incentive and Stay Bonus Plans,
and (e) reviewing employee benefit plans of the Company.
The Compensation Committee approved the compensation plan for the
Chief Executive Officer. As Chief Executive Officer, Ronald C. Mishler had a
compensation package for fiscal 2002 which was negotiated with the Creditors'
Committee and approved by the bankruptcy court. Mr. Mishler's compensation
package provided for an annual base salary of $400,000. Mr. Mishler is also
eligible for the MIP. The semiannual bonus component of the MIP is 0.75 times
his base salary (or $600,000 annually); one-half of the semiannual bonus is
paid every 6 months, and one-half is paid upon job termination other than for
cause or voluntary resignation. In fiscal 2002, Mr. Mishler received one
payment of $150,000 under this component of the MIP; $150,000 was deferred
until job termination under the terms and conditions of the plan. The other
MIP component in which Mr. Mishler participates is a consolidated corporate
Upside Sharing plan. Upon achievement of plan target, Mr. Mishler is eligible
to receive a payment of $1.1 million, less any applicable severance payment
amount as described in the Compensation Plans (Exhibits 10.1, 10.2 and 10.3
filed herewith).
The Board of Directors engaged independent legal counsel to assist
the Board in determining that the Compensation Plans complied with the
Creditors' Committee approval and the bankruptcy court approval. All open
issues identified in this summary were discussed with and satisfactorily
resolved by management, the Compensation Committee and the Board of Directors.
The Board of Directors also engaged KPMG to assist the Company in
evaluating the amounts accrued, paid and deferred by Comdisco in accordance
with the provisions of the MIP and the Stay Bonus Plan for each semiannual
period. KPMG will apply agreed-upon procedures performed in accordance with
standards established by the American Institute of Certified Public
Accountants in their evaluations.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Common Stock Owned by Certain Beneficial Owners
The following table reflects the number of shares of Common Stock
beneficially owned on January 6, 2003 by all persons whom we know to be
beneficial owners of 5 percent or more of our Common Stock, based on a review
of public filings.
Stockholders Owning at Least 5 percent of the Company's Common Stock
Shares Beneficially Percent of
Name Owned Class
Berkshire Hathaway, Inc. (1) 1,452,548 34.58%
1440 Kiewit Plaza
Omaha, Nebraska 68131
Angelo, Gordon & Co., LP (2) 257,968 6.14%
245 Park Avenue
New York, New York 10167
Davidson Kemper Partners (3) 377,594 9.00%
883 Third Avenue, Suite 3300
New York, New York 1002
(1) The information with respect to 1,452,548 shares of Common Stock
beneficially owned by Berkshire Hathaway, Inc. is based on a
Report on Schedule 13D dated October 1, 2002 and filed with the
SEC on October 11, 2002, as amended by a Report on Schedule 13D
dated October 1, 2002 and filed with the SEC on October 21,
2002.
(2) The information with respect to 257,968 shares of Common Stock
beneficially owned by Angelo, Gordon & Co., LP is based on a
Report on Schedule 13G dated October 1, 2002 and filed with the
SEC on November 19, 2002.
(3) The information with respect to 377,594 shares of Common Stock
beneficially owned by Davidson Kempner Partners is based on a
Report on Schedule 13G dated October 1, 2002 and filed with the
SEC on October 11, 2002.
Common Stock Owned by Directors and Executive Officers
The following table reflects the number of shares of Common Stock
beneficially owned on January 6, 2003 by (i) each director of the Company,
(ii) each of the executive officers as set forth above in the Summary
Compensation Table, (iii) all directors and executive officers as set forth
above in the Summary Compensation Table as a group and (iv) all directors and
current executive officers as a group. The address of each director and
executive officer is c/o Comdisco Holding Company, Inc., 6111 North River
Road, Rosemont, Illinois 60018.
Common Stock Owned by Directors and Executive Officers
Shares Beneficially Owned on
Name January 6, 2003 Percent of Class
Ronald C. Mishler 0 *
Jeffrey A. Brodsky 0 *
Robert M. Chefitz 0 *
William A. McIntosh 0 *
Randolph I. Thornton 0 *
Francis J. Cirone 0 (1) *
Robert E. T. Lackey 0 (2) *
Gregory J. Sabatello 0 (3) *
John R. McNally 0 (4) *
Norman P. Blake, Jr. 0 *
Michael A. Fazio 0 *
Michael F. Herman 0 (5) *
All Directors and Current Named 0 (6) *
Executive Officers as a Group:
All Directors and Current 0 (7) *
Executive Officers as a Group:
--------------------
* Indicates holdings
of less than one
percent
(1) Does not include 41,368 Contingent Distribution Rights beneficially owned
by Mr. Cirone.
(2) Does not include 500 Contingent Distribution Rights beneficially owned by
Mr. Lackey.
(3) Does not include 155,282 Contingent Distribution Rights beneficially
owned by Mr. Sabatello.
(4) Does not include 1,066 Contingent Distribution Rights beneficially owned
by Mr. McNally.
(5) Does not include 59,988 Contingent Distribution Rights beneficially owned
by Mr. Herman.
(6) Does not include 258,204 Contingent Distribution Rights beneficially
owned by all directors and current named executive officers as a group.
(7) Does not include 198,660 Contingent Distribution Rights beneficially
owned by all directors and current executive officers as a group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Randolph I. Thornton, who has been a member of the Company's Board of
Directors since August 2002, also is a Managing Director within the
Institutional Recovery Management Department within Citigroup. Citigroup was a
creditor of Comdisco, Inc. and Mr. Thornton was a co-chair of the Creditors'
Committee. On September 30, 2002, as part of the initial distribution to
holders of allowed Class C-4 Claims conducted in accordance with the Plan,
Citigroup received approximately $35.3 million in cash, $6.3 million and $10.3
million of Senior Notes and Subordinated Notes, respectively, and 66,521
shares of the Company's Common Stock. Since that time, Citigroup has adopted
certain procedures to govern disclosure by Mr. Thornton of the Company's
confidential information.
ITEM 14. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The disclosure controls and procedures of the Company are designed to
ensure that information required to be disclosed by the Company in the reports
that it files under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within required time periods. In addition,
the Company has formed a Disclosure Control Committee. Our chief executive
officer, our principal financial officer and the Disclosure Control Committee
have evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within ninety days prior to the filing date of this
report. Based on that evaluation, our chief executive officer and our
principal financial officer have concluded that the Company's controls and
procedures were effective as of a date within ninety days prior to the filing
date of this report at ensuring that required information will be disclosed on
a timely basis in our reports filed under the Exchange Act.
Change in Internal Controls
We maintain a system of internal accounting controls that is designed
to provide reasonable assurance that our books and records accurately reflect
our transactions and that our established policies and procedures are
carefully followed. For the fiscal year ended September 30, 2002 and to
support our emergence from bankruptcy, our internal controls were further
enhanced by the implementation of a Disclosure Control Committee, an Asset
Divestiture and Credit Committee, a Related Party Transaction Policy and a
Conflict of Interest Questionnaire which was completed by 102 managers of the
Company. Otherwise, there were no significant changes to our internal
controls, or in other factors that could significantly affect our internal
controls, and we have not identified any significant deficiencies or material
weaknesses in our internal controls.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements
See Index to Financial Statements contained in Item 8, Financial
Statements and Supplementary Data, above.
Financial Statement Schedules
All Financial Statement Schedules have been omitted because (i) the
required information is not present in amounts sufficient to require
submission of the schedule, (ii) the information required is included in the
Financial Statements or the Notes thereto or (iii) the information required in
the schedules is not applicable to the Company.
Exhibits
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Commission:
Exhibit No. Description of Exhibit
- ----------- ----------------------
2.1 Joint Plan of Reorganization of Comdisco, Inc. and its
Affiliated Debtors and Debtors in Possession (Incorporated by
reference to Exhibit 99.3 filed with Comdisco, Inc.'s Current
Report on Form 8-K dated April 26, 2002, as filed with the
Commission on May 10, 2002, File No. 1-7725).
2.2 First Amended Joint Plan of Reorganization of Comdisco, Inc.
and its Affiliated Debtors and Debtors in Possession
(Incorporated by reference to Exhibit 2.2 filed with
Comdisco, Inc.'s Current Report on Form 8-K dated
July 30, 2002, as filed with the Commission on August 9, 2002,
File No. 1-7725).
2.3 Findings of Fact, Conclusions of Law, and Order Under 11
U.S.C.ss.ss.1129(a) and (b) and Fed. R. Bankr. P. 3020
Confirming the First Amendment Plan of Reorganization of
Comdisco, Inc. and its Affiliated Debtors and Debtors in
Possession (Incorporated by reference to Exhibit 2.1 filed
with Comdisco, Inc.'s Current Report on Form 8-K dated July
30, 2002, as filed with the Commission on August 9, 2002,
File No. 1-7725).
3.1 Certificate of Incorporation of Registrant, dated August 8,
2002 (Filed herewith).
3.2 By-Laws of Registrant, adopted as of August 9, 2002
(Filed herewith).
4.1 Indenture Agreement between Registrant, Comdisco, Inc. and
Wells Fargo Bank Minnesota, N.A., as Trustee, dated as of
August 12, 2002 (said Indenture defines certain rights of
Senior Note holders)(Filed herewith).
4.2 First Supplemental Indenture Agreement between Registrant,
Comdisco, Inc. and Wells Fargo Bank Minnesota, N.A., as
Trustee, dated as of October 7, 2002 (said Indenture defines
certain rights of Senior Note holders)(Filed herewith).
4.3 Indenture Agreement between Registrant, Comdisco, Inc. and
Wells Fargo Bank Minnesota, N.A., as Trustee, dated as of
August 12, 2002 (said Indenture defines certain rights of
Subordinated Note holders)(Filed herewith).
4.4 First Supplemental Indenture Agreement between Registrant,
Comdisco, Inc. and Wells Fargo Bank Minnesota, N.A., as
Trustee, dated as of October 7, 2002 (said Indenture defines
certain rights of Subordinated Note holders)(Filed herewith).
4.5 Rights Agent Agreement between Registrant and Mellon Investor
Services, L.L.C., as Rights Agent, dated as of August 12,
2002 (Filed herewith).
4.6 Pledge Agreement between Registrant, Comdisco, Inc. and Well
Fargo Bank Minnesota, N.A., as Trustee, dated as of August
12, 2002 (Filed herewith).
10.1 Motion, dated May 24, 2002, and Order, dated as of June 18,
2002, Pursuant to 11 U.S.C. ss.ss. 105(a) and 363(b)(1)
Approving and Authorizing the Debtors' Stay Bonus Plan and
Management Incentive Plan, dated June 18, 2002 (Filed
herewith).
10.2 First Letter from Ronald C. Mishler to the Official Committee
of Unsecured Creditors of Comdisco, Inc., dated May 29, 2002
(Filed herewith).
10.3 Second Letter from Ronald C. Mishler to the Official
Committee of Unsecured Creditors of Comdisco, Inc., dated
July 3, 2002 (Filed herewith).
10.4 Employment Agreement of Norman P. Blake, Jr., dated February
27, 2001, as amended on April 13, 2001 and as amended and
restated June 4, 2001 (Incorporated by reference to Exhibits
10.10 and 10.20 filed with Comdisco, Inc.'s Quarterly Report
on Form 10-Q for the Quarterly Period ended March 31, 2001
and Exhibit 10.10 filed with Comdisco, Inc.'s Quarterly
Report on Form 10-Q for the Quarterly Period ended June 30,
2001, File No. 1-7725).
10.5 Agreed Motion for Dismissal With Prejudice, dated March 7,
2002, and Agreed Order for Dismissal with Prejudice dated
March 14, 2002 (Filed herewith).
10.6 Employment Agreement of Michael Fazio, dated as of July 5,
2001 (Filed herewith).
10.7 Employment Agreement of Gregory D. Sabatello, dated as of
September 9, 2002 (Filed herewith).
10.8 Acquisition Agreement, dated effective July 15, 2001, and
executed as of October 12, 2001, between Comdisco, Inc. and
SunGard Data Systems, Inc. (Incorporated by reference to
Exhibit 99.1 filed with Comdisco, Inc.'s Current Report on
Form 8-K dated November 15, 2001, as filed with the
Commission on December 3, 2001).
10.9 Amended and Restated Asset Purchase Agreement (Electronics),
dated as of April 10, 2002 but effective as of January 23,
2002, between Comdisco, Inc. and General Electric Capital
Corporation (Incorporated by reference to Exhibit 99.1 filed
with Comdisco, Inc.'s Current Report on Form 8-K dated April
24, 2002, as filed with the Commission on May 9, 2002, File
No. 1-7725).
10.10 First Amendment to the Amended and Restated Asset Purchase
Agreement (Electronics), dated as of April 24, 2002, by and
between Comdisco, Inc. and General Electric Capital
Corporation (Incorporated by reference to Exhibit 99.2 filed
with Comdisco, Inc.'s Current Report on Form 8-K dated April
24, 2002, as filed with the Commission on May 9, 2002, File
No. 1-7725).
10.11 Amended and Restated Asset Purchase Agreement (Lab and
Scientific), dated as of April 10, 2002 but effective as of
January 23, 2002, between Comdisco, Inc. and General Electric
Capital Corporation (Incorporated by reference to Exhibit
99.3 filed with Comdisco, Inc.'s Current Report on Form 8-K
dated April 24, 2002, as filed with the Commission on May 9,
2002, File No. 1-7725).
10.12 First Amendment to the Amended and Restated Asset Purchase
Agreement (Lab and Scientific), dated as of April 24, 2002,
by and between Comdisco, Inc. and General Electric Capital
Corporation (Incorporated by reference to Exhibit 99.4 filed
with Comdisco, Inc.'s Current Report on Form 8-K dated April
24, 2002, as filed with the Commission on May 9, 2002, File
No. 1-7725).
10.13 Asset Acquisition Agreement, dated as of January 31, 2002,
between Comdisco, Inc. and T-Systems Inc. (Filed herewith).
10.14 Amendment to Asset Acquisition Agreement, dated as of
February 13, 2002, between Comdisco, Inc. and T-Systems Inc.
(Filed herewith).
10.15 Second Amendment to Asset Acquisition Agreement, dated as of
February 27, 2002, between Comdisco, Inc. and T-Systems Inc.
(Filed herewith).
10.16 Asset Purchase Agreement (Healthcare), dated as of April 2,
2002, between General Electric Capital Corporation, Comdisco,
Inc. and Comdisco Healthcare Group, Inc. (Filed herewith).
10.17 Asset Sale Agreement, dated as of April 8, 2002, between
Comdisco Australia Pty Limited, Comdisco New Zealand, Nadlo
Pty Limited, Codis Limited and Rellim Pty Limited (Filed
herewith).
10.18 Share Purchase Agreement, dated as of August 14, 2002,
between Comdisco, Inc. and PH Holding GmbH (Filed herewith).
10.19 Share Purchase Agreement, dated as of October 10, 2002,
between Comdisco Global Holding Company, Inc. and Comprendium
Investment S.A. (Filed herewith).
10.20 Share Purchase Agreement relating to the Acquisition of
Comdisco France SA and Promodata SNC, dated October 1, 2002,
between Econocom Group SA/NV, Comdisco Global Holding
Company, Inc. and Comdisco Holding Company, Inc. (Filed
herewith).
11.1 Statement re computation of per share earnings.
21.1 Subsidiaries of the registrant.
99.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Filed herewith).
99.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Filed herewith).
Reports on Form 8-K
Since the beginning of the fourth quarter of fiscal 2002, the Company
filed the following current reports on Form 8-K which have not been previously
reported:
On August 19, 2002, the Company filed a Current Report on Form 8-K,
dated August 19, 2002. Pursuant to Item 7, the Report added two exhibits
entitled Statement Under Oath of Principal Executive Officer and Statement
Under Oath of Principal Financial Officer.
On August 20, 2002, the Company filed a Current Report on Form 8-K,
dated August 19, 2002. Pursuant to Item 7, the Report added exhibits entitled
Statement Under Oath of Principal Executive Officer and Statement Under Oath
of Principal Financial Officer that had been omitted from the Report filed on
August 19, 2002.
On August 21, 2002, the Company filed a Current Report on Form 8-K,
dated August 12, 2002. Pursuant to Item 5 of its Report, the Company disclosed
that it would issue Contingent Distribution Rights to the former holders of
Comdisco, Inc. common stock. On August 12, 2002, the Company filed a
Registration Statement on Form 8-A describing the terms and conditions of the
Contingent Distribution Rights.
On October 17, 2002, the Company filed a Current Report on Form 8-K,
dated September 30, 2002. Pursuant to Item 5 of its Report, the Company
reported that it issued a press release on October 1, 2002 announcing that the
initial distribution to holders of allowed claims commenced on September 30,
2002. The Company also issued a press release on October 9, 2002 announcing
the redemption of the entire $400 million outstanding principal amount of the
Variable Rate Senior Secured Notes due 2004. Prism Communication Services,
Inc. issued a press release on October 10, 2002 announcing that it had
commenced its initial distribution to holders of allowed claims. Finally, the
Report added the press releases as exhibits pursuant to Item 7.
On October 18, 2002, the Company filed a Current Report on Form 8-K,
dated October 18, 2002. Pursuant to Item 5 of its Report, the Company reported
that it issued a press release on October 18, 2002 announcing that it had
entered into an agreement for the sale of its French operations to Econocom
Group SA/NV. In addition, it announced that it had sold its Swiss and
Austrian-based operations. The Report added the press release as an exhibit
pursuant to Item 7.
On October 28, 2002, the Company filed a Current Report on Form 8-K,
dated October 21, 2002. Pursuant to Item 5 of its Report, the Company reported
that it issued a press release on October 12, 2002 announcing that it had
redeemed the entire $400 million outstanding principal amount of its Variable
Rate Senior Secured Notes due 2004. The Report added the press release as an
exhibit pursuant to Item 7.
On October 30, 2002, the Company filed a Current Report on Form 8-K,
dated October 29, 2002. Pursuant to Item 5 of its Report, the Company reported
that it issued a press release on October 29, 2002 announcing the mandatory
partial redemption of $65 million of the outstanding principal amount of its
11 percent Subordinated Secured Notes due 2005. The Report added the press
release as an exhibit pursuant to Item 7.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: January 14, 2003 By: /s/ Ronald C. Mishler
---------------------
Name: Ronald C. Mishler
Title: Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on January 14, 2003.
SIGNATURE DATE
/s/ David S. Reynolds January 14, 2003
- ----------------------------
Name: David S. Reynolds
Title: Senior Vice President and Controller
(Principal Financial and Accounting Officer)
/s/ Jeffrey A. Brodsky January 14, 2003
- ----------------------------
Name: Jeffrey A. Brodsky
Title: Director
/s/ Robert M. Chefitz January 14, 2003
- ----------------------------
Name: Robert M. Chefitz
Title: Director
/s/ William A. McIntosh January 14, 2003
- ----------------------------
Name: William A. McIntosh
Title: Director
/s/ Randolph I. Thornton January 14, 2003
- ----------------------------
Name: Randolph I. Thornton
Title: Director
CERTIFICATION
-------------
Certification of Principal Executive Officer
I, Ronald C. Mishler, Chairman, Chief Executive Officer and President,
certify that:
1. I have reviewed this annual report on Form 10-K of Comdisco Holding
Company, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: January 14, 2003 By: /s/ Ronald C. Mishler
------------------------
Name: Ronald C. Mishler
Title: Chairman, Chief Executive
Officer and President
CERTIFICATION
-------------
Certification of Principal Financial Officer
I, David S. Reynolds, Senior Vice President and Controller, certify that:
1. I have reviewed this annual report on Form 10-K of Comdisco Holding
Company, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: January 14, 2003 By: /s/ David S. Reynolds
---------------------
Name: David S. Reynolds
Title: Senior Vice President
and Controller