SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003
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 its 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
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes |X| No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No |X|
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 issuer's
classes of common stock, as of the latest practicable date: 4,197,100 shares
of the registrant's Common Stock, $0.01 par value per share, were outstanding
on May 14, 2003.
COMDISCO HOLDING COMPANY, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION...........................................1
Item 1. Financial Statements
Consolidated Statements of Earnings (Loss) (Unaudited)-Three
and six months ended March 31, 2003 (Successor) and the three
and six months ended March 31, 2002 (Predecessor)........................2
Consolidated Balance Sheets (Unaudited) March 31, 2003
(Successor) and September 30, 2002 (Successor)...........................3
Consolidated Statements of Cash Flows (Unaudited)-Six months
ended March 31, 2003 (Successor) and the six months ended
March 31, 2002 (Predecessor).............................................4
Notes to Consolidated Financial Statements (Unaudited)...................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................25
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....40
Item 4. Controls and Procedures........................................40
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................42
Item 2. Changes in Securities and Use of Proceeds......................42
Item 3. Defaults Upon Senior Securities................................42
Item 4. Submission of Matters to a Vote of Security Holders............42
Item 5. Other Information..............................................42
Item 6. Exhibits and Reports on Form 8-K...............................42
SIGNATURES.................................................................43
CERTIFICATIONS.............................................................44
PART I
FINANCIAL INFORMATION
---------------------
Forward-Looking Statements
This quarterly report on Form 10-Q 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 importance.
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 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations, 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. FINANCIAL STATEMENTS
Comdisco Holding Company, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED)
(in millions except per share data)
Three months ended, Six months ended,
March 31, March 31,
SUCCESSOR PREDECESSOR SUCCESSOR PREDECESSOR
--------------- ------------- -------------- -------------
2003 | 2002 2003 | 2002
--------------- | ------------- -------------- | -------------
| |
Revenue | |
Leasing | |
Operating $ 55 | $ 217 $ 135 | $ 467
Direct financing 6 | 21 16 | 48
Sales-type 2 | 14 4 | 23
--------------- | ------------- --------------| -------------
Total leasing 63 | 252 155 | 538
| |
Sales 41 | 72 87 | 165
Technology services 5 | 13 10 | 26
Other 12 | 16 31 | 28
--------------- | ------------- --------------| -------------
Total revenue 121 | 353 283 | 757
--------------- | ------------- --------------| -------------
| |
Costs and expenses | |
Leasing | |
Operating 39 | 164 101 | 357
Sales-type 1 | 12 2 | 20
--------------- | ------------- --------------| -------------
Total leasing 40 | 176 103 | 377
| |
Sales 45 | 82 73 | 163
Technology services 2 | 8 6 | 19
Selling, general and administrative 45 | 66 88 | 124
Write-down of equity securities 1 | 10 8 | 43
Bad debt expense (55) | 72 (60)| 110
Interest (total Predecessor contractual | |
interest 2002 - $72 and $144) 6 | 13 22 | 25
Reorganization items - | 21 - | 288
--------------- | ------------- --------------| -------------
Total costs and expenses 84 | 448 240 | 1,149
--------------- | ------------- --------------| -------------
| |
Earnings (loss) from continuing operations | |
before income taxes (benefit) 37 | (95) 43 | (392)
Income taxes (benefit) - | 1 - | (70)
--------------- | ------------- --------------| -------------
Earnings (loss) from continuing operations 37 | (96) 43 | (322)
Earnings (loss) from discontinued operations, net of tax - | 2 2 | 216
--------------- | ------------- --------------| -------------
Net earnings (loss) $ 37 | $ (94) $ 45 | $ (106)
=============== | ============= ==============| =============
| |
Basic earnings (loss) per common share: | |
Earnings (loss) from continuing operations $ 8.70 | $ (0.64) $ 10.32 | $ (2.14)
Earnings (loss) from discontinued operations (0.03) | 0.02 0.44 | 1.44
--------------- | ------------- --------------| -------------
Net earnings (loss) $ 8.67 | $ (0.62) $ 10.76 | $ (0.70)
=============== | ============= ==============| =============
Diluted earnings (loss) per common share: | |
Earnings (loss) from continuing operations $ 8.70 | $ (0.64) $ 10.32 | $ (2.14)
Earnings (loss) from discontinued operations (0.03) | 0.02 0.44 | 1.44
--------------- | ------------- --------------| -------------
Net earnings (loss) $ 8.67 | $ (0.62) $ 10.76 | $ (0.70)
=============== ============= ============== =============
See accompanying notes to consolidated financial statements.
Comdisco Holding Company, Inc.
CONSOLIDATED BALANCE SHEETS
(in millions except share data)
Unaudited Audited
March 31, September 30,
2003 2002
--------------- ---------------
ASSETS
Cash and cash equivalents $ 157 $ 546
Cash - legally restricted 12 18
Receivables, net 68 117
Inventory of equipment 24 23
Leased assets:
Direct financing and sales-type 251 508
Operating (net of accumulated depreciation) 164 324
--------------- ---------------
Net leased assets 415 832
Equity securities 25 36
Assets of discontinued operations 541 687
Other assets 69 82
--------------- ---------------
$ 1,311 $ 2,341
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Term notes payable $ - $ 35
Discounted lease rentals 45 90
Notes payable 160 1,050
Accounts payable 12 27
Income taxes 30 49
Liabilities related to assets of discontinued operations 177 261
Deferred income 43 28
Other liabilities 124 160
--------------- ---------------
591 1,700
Stockholders' equity:
Common stock $.01 par value. Authorized 10,000,000 shares;
issued and outstanding 4,200,000 shares. - -
Additional paid-in capital 413 413
Accumulated other comprehensive income 38 4
Retained earnings 269 224
--------------- ---------------
Total stockholders' equity 720 641
--------------- ---------------
$ 1,311 $ 2,341
=============== ===============
See accompanying notes to consolidated financial statements.
Comdisco Holding Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in millions)
For the six months ended March 31, 2003 and 2002
SUCCESSOR | PREDECESSOR
2003 | 2002
--------------- | -----------------
Cash flows from operating activities: |
Operating lease and other leasing receipts $ 427 | $ 898
Leasing costs, primarily rentals paid (3) | (4)
Lease portfolio sales 7 | -
Sales of equipment 89 | 194
Sales costs (2) | (6)
Technology services receipts 11 | 32
Technology services costs (1) | (14)
Note receivable receipts 58 | 144
Warrant proceeds 2 | 17
Other revenue 20 | 24
Selling, general and administrative expenses (51) | (89)
Interest (39) | (33)
Income taxes (20) | 4
--------------- | -----------------
Net cash provided by continuing operations 498 | 1,167
Net cash provided by discontinued operations 229 | 1,050
--------------- | -----------------
Net cash provided by operating activities before reorganization items 727 | 2,217
--------------- | -----------------
Operating cash flows from reorganization items: |
Interest received on cash accumulated because of Chapter 11 |
proceeding - | 12
Professional fees paid for services rendered in connection with |
the Chapter 11 proceeding - | (27)
--------------- | -----------------
Net cash used by reorganization items - | (15)
--------------- | -----------------
Net cash provided by operating activities 727 | 2,202
--------------- | -----------------
Cash flows from investing activities: |
Equipment purchased for leasing (6) | (57)
Notes receivable (1) | (6)
Equity investments - | (1)
Equipment purchased for leasing by discontinued operations (25) | (150)
Other - | 3
--------------- | -----------------
Net cash used in investing activities (32) | (211)
--------------- | -----------------
Cash flows from financing activities: |
Cash used by discontinued operations (97) | (48)
Net decrease in notes and term notes payable (925) | (219)
Principal payments on secured debt (47) | (242)
Decrease (increase) in legally restricted cash 6 | (20)
Other (21) | 10
--------------- | -----------------
Net cash used in financing activities (1,084) | (519)
--------------- | -----------------
|
Net increase (decrease) in cash and cash equivalents (389) | 1,472
Cash and cash equivalents at beginning of period 546 | 515
--------------- | -----------------
Cash and cash equivalents at end of period $ 157 | $ 1,987
=============== =================
See accompanying notes to consolidated financial statements.
Comdisco Holding Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED (in millions)
For the six months ended March 31, 2003 and 2002
SUCCESSOR PREDECESSOR
2003 2002
------------- | --------------
|
Reconciliation of earnings (losses) from continuing operations to net cash |
provided by operating activities: |
|
Earnings (losses) from continuing operations $ 43 | $ (322)
|
Adjustments to reconcile earnings (losses) from continuing |
operations to net cash provided by operating activities |
|
Leasing costs, primarily |
depreciation and amortization 100 | 373
Leasing revenue, primarily principal portion of |
direct financing and sales-type lease rentals 272 | 360
Cost of sales 71 | 157
Technology services costs, primarily |
depreciation and amortization 5 | 5
Interest (17) | (8)
Income taxes (20) | (66)
Principal portion of notes receivable 53 | 127
Selling, general, and administrative expenses (15) | 190
Warrant proceeds in excess of income 1 | 9
Reorganization items - | 273
Lease portfolio sales 7 | -
Other, net (2) | 54
------------- | --------------
Net cash provided by continuing operations 498 | 1,152
Net cash provided by discontinued operations 229 | 1,050
------------- | --------------
Net cash provided by operating activities $ 727 | $ 2,202
============= | ==============
|
Supplemental schedule of non-cash financing activities: |
Increase in discounted lease rentals attributable to exchange rate |
gain $ 2 | $ -
============= | ==============
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003 and 2002
1. Reorganization
On July 16, 2001, Comdisco, Inc. ("Predecessor") and 50 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) (the
"Filing"). Comdisco Holding Company, Inc., as the successor company
("Successor") 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 (the "Effective Date"). For
financial reporting purposes only, however, the effective date for
implementation of fresh-start reporting was 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 group ("CAM group"), is responsible for the sale and run-off of
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. For
business segment reporting purposes, the CAM group also includes various
corporate assets and liabilities managed by Comdisco Holding Company, Inc.
corporate staff. 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. 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 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. 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, telecommunication, pharmaceutical, biotechnology and
manufacturing. Through its Comdisco Ventures group, Comdisco, Inc. provided
equipment leasing and other financing and services to venture capital-backed
companies.
Consummation of the Plan resulted in (i) the distribution of cash
totaling approximately $2.2 billion; (ii) the issuance of variable rate senior
secured notes due 2004 in aggregate principal amount of $400 million (the
"Senior Notes"); (iii) the issuance of 11% subordinated secured notes due 2005
in aggregate principal amount of $650 million (the "Subordinated Notes"); (iv)
the issuance of 4.2 million shares of new common stock ("Common Stock"); (v)
the issuance of Contingent Distribution Rights (the "Contingent Distribution
Rights") to holders of the Predecessor company's common stock; and (vi) the
cancellation of the Predecessor company's notes, notes payable, common stock
and stock options.
Consummation of the Plan resulted in the election of a new Board of
Directors for the Company (the "Board"). The Board is comprised of five
members. The management director and Chairman 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.
2. Basis of Presentation
In this quarterly report on Form 10-Q, 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. 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.
Due to the Company's reorganization and implementation of
fresh-start reporting, the consolidated financial statements for the Successor
company are not comparable to those of the Predecessor company.
A black line has been drawn on the accompanying consolidated
financial statements to distinguish between the Successor company and the
Predecessor company.
Certain reclassifications, including those for discontinued
operations, have been made in the 2002 financial statements to conform to the
2003 presentation.
On April 30, 2003, the Company announced that it had completed the
sale of the stock of its leasing subsidiary in Germany (See Note 3 of Notes to
Consolidated Financial Statements). Unaudited pro forma consolidated results
after giving effect to the sale are presented in Note 4 of Notes to
Consolidated Financial Statements.
Legally restricted cash is comprised of the following at March 31,
2003 and September 30, 2002 (in millions):
March 31, September 30,
2003 2002
-------------- --------------
SunGard escrow $ 2 $ 2
Professional fee escrow - 7
Letters of credit 3 3
Incentive compensation escrow 5 -
Cash received on non-owned leases - 6
Other 2 -
-------------- --------------
$ 12 $ 18
============== ==============
3. Discontinued Operations
German Leasing Subsidiary: On April 30, 2003, the Company announced
that it had completed the sale of the stock of its leasing subsidiary in
Germany to Munich-based Comprendium Investment (Deutschland) GmbH, which is
owned by Comprendium Investment SA, a Swiss corporation. Comprendium
Investment SA is controlled by Thomas Flohr, who until January 2001 served as
president of Comdisco Europe, a division of Comdisco, Inc. Under the terms of
the Amended Share Purchase Agreement, Comdisco received approximately
(euro)285 million (approximately $316 million) at closing, and will receive
four additional payments totaling up to approximately (euro)38 million
(approximately $42 million) over the next 42 months, contingent upon specific
portfolio performance criteria. The four additional payments are subject to
reduction if certain customers exercise contractual termination provisions,
the probability of which the Company believes is remote. The U.S. dollar
equivalents were calculated using the average exchange rate of the foreign
exchange transactions completed by the Company on April 30, 2003. The
transaction resulted from an extensive offering and bidding process run by the
Company's independent investment banking firm.
For financial reporting purposes, the assets and liabilities of the
Company's Germany leasing subsidiary as of March 31, 2003 are included in the
balance sheet as assets of discontinued operations and liabilities related to
discontinued operations and the results of operations of the Company's German
leasing subsidiary are included in the statement of earnings (loss) as
discontinued operations. An adjustment to the estimated fair value of the
stock sold was recognized in conjunction with the adoption of fresh-start
reporting as of July 31, 2002. The Company expects to realize a gain on the
sale of approximately $3 million in the third quarter of fiscal 2003.
International Leasing: "International Leasing" refers to the
Company's French, Swiss, Austrian, Australian and New Zealand leasing
operations. The Company sold the stock of its French, Swiss and
Austrian subsidiaries and sold the assets of its Australian and New Zealand
operations.
On October 18, 2002, the Company announced that it had sold its
Swiss and Austrian-based operations to Comprendium Investment SA and to PH
Holding GmbH, respectively. The Company received approximately $20 million
from the sales. 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.
On December 23, 2002, the Company completed the sale of its French
operations, Comdisco France SA and Promodata SNC, to Belgium-based computer
services provider, Econocom Group and the Company received approximately $70
million from such sale. The sale was effective as of August 31, 2002. In
accordance with SFAS No. 144, "Accounting for the Impairment 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.
The Company also has sold 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 purchase most of the 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 March 2003 and the final closing is expected to close
during the third fiscal quarter of 2003. In accordance with Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed" ("SFAS No. 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.
Availability Solutions: The Company's Availability Solutions
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 4 of Notes to
Consolidated Financial Statements). The gain for the Availability Solutions
business is net of estimated 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 4, as well as wind-down costs and asset
write downs associated with the Company's Web-Availability Solutions business.
Each of the aforementioned transactions resulted from an extensive
offering and competitive bidding process run by the Company's independent
investment banking firm. In the case of Availability Solutions, the sale also
resulted from a bankruptcy court-supervised auction process.
As a result of the sale of the stock of its leasing subsidiary in
Germany, the sales of its International Leasing operations and the sale of
Availability Solutions, 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 for the three and six months ended March 31, 2003 and
2002. The Availability Solutions information below includes the results from
the Company's Availability Solutions businesses sold to SunGard as well as the
Availability Solutions operations discontinued in Germany and Spain (in
millions):
SUCCESSOR Three months ended March 31, 2003
Availability International German Leasing
Solutions Leasing Subsidiary Total
-------------- -------------- --------------- ------------
Revenue $ - $ - $ 35 $ 35
============== ============== =============== ============
Gain (loss) on sale $ - $ - $ - $ -
============== ============== =============== ============
Loss from discontinued operations:
Before income taxes $ - $ - $ 1 $ 1
Income taxes - - 1 1
-------------- -------------- --------------- ------------
Net loss $ - $ - $ - $ -
============== ============== =============== ============
PREDECESSOR
Three months ended March 31, 2002
Availability International German Leasing
Solutions Leasing Subsidiary Total
-------------- -------------- --------------- -------------
Revenue $ - $ 40 $ 48 $ 88
============== ============== =============== =============
Gain (loss) on sale $ - $ - $ - $ -
============== ============== =============== =============
Earnings from discontinued operations:
Before income taxes $ - $ 3 $ 5 $ 8
Income taxes - 1 5 6
-------------- -------------- --------------- -------------
Net earnings $ - $ 2 $ - $ 2
============== ============== =============== =============
SUCCESSOR
Six months ended March 31, 2003
Availability International German Leasing
Solutions Leasing Subsidiary Total
-------------- -------------- --------------- -------------
Revenue $ - $ - $ 75 $ 75
============== ============== =============== =============
Gain (loss) on sale $ - $ - $ - $ -
============== ============== =============== =============
Loss from discontinued operations:
Before income taxes $ - $ - $ 5 $ 5
Income taxes - - 3 3
-------------- -------------- --------------- ------------
Net loss $ - $ - $ 2 $ 2
============== ============== =============== =============
PREDECESSOR
Six months ended March 31, 2002
Availability International German Leasing
Solutions Leasing Subsidiary Total
-------------- -------------- --------------- -------------
Revenue $ 67 $ 81 $ 98 $ 246
============== ============== =============== =============
Gain (loss) on sale $ 326 $ - $ - $ 326
============== ============== =============== =============
Earnings from discontinued operations:
Before income taxes $ 334 $ 5 $ 14 $ 353
Income taxes 130 2 5 137
-------------- -------------- --------------- -------------
Net earnings $ 204 $ 3 $ 9 $ 216
============== ============== =============== =============
4. Sale of Assets
Leasing
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 Corporation ("GE Capital"). In
accordance with SFAS No. 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 GE Capital completed a first
closing on the sale of approximately $794 million of assets, or approximately
81% of the Company's Electronics and Laboratory and Scientific net leased
assets at March 31, 2002. The Company received approximately $548 million for
the sale of those assets, which included the assumption of approximately $258
million of related secured debt and other obligations. On May 31, 2002, the
Company and GE Capital 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 those 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 certain of its leasing business
units (North American Information Technology Leasing ("North American IT"),
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 April 18, 2002, the court approved the sale of the Company's
Healthcare leasing assets to GE Capital. In accordance with 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 those 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 those assets.
International Leasing
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
and liabilities of the Swiss and Austrian-based operations are included in the
balance sheet as assets of discontinued operations and liabilities related to
assets of discontinued operations and the results of these operations are
included in the statement of earnings (loss) as discontinued operations.
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. The sale was effective as of
August 31, 2002. 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 and liabilities of the French operations are included in the balance
sheet as assets of discontinued operations and liabilities related to assets
of discontinued operations and the results of these operations are included in
the statement of earnings (loss) as discontinued operations.
The Company also has sold 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 purchase most of the 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 March 31, 2003 and the final closing is expected to occur
during the third fiscal quarter of 2003. In accordance with SFAS No. 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
and liabilities of the Australian and New Zealand operations not sold as of
March 31, 2003 are included in the balance sheet as assets and liabilities of
discontinued operations and in the statement of earnings (loss) as
discontinued operations.
German Leasing Subsidiary
On April 30, 2003, the Company announced that it had completed the
sale of the stock of its leasing subsidiary in Germany to Munich-based
Comprendium Investment (Deutschland) GmbH, which is owned by Comprendium
Investment SA, a Swiss corporation. Comprendium Investment SA is controlled by
Thomas Flohr, who until January 2001 served as president of Comdisco Europe, a
division of Comdisco, Inc. Under the terms of the Amended Share Purchase
Agreement, Comdisco received approximately (euro)285 million (approximately
$316 million) at closing, and will receive four additional payments totaling
up to approximately (euro)38 million (approximately $42 million) over the next
42 months, contingent upon specific portfolio performance criteria. The four
additional payments are subject to reduction if certain customers exercise
contractual termination provisions, the probability of which the Company
believes is remote. The U.S. dollar equivalents were calculated using the
average exchange rate of the foreign exchange transactions completed by the
Company on April 30, 2003.
For financial reporting purposes, the assets and liabilities of the
Company's Germany leasing subsidiary as of March 31, 2003 are included in the
balance sheet as assets of discontinued operations and liabilities related to
discontinued operations and the results of operations are included in the
statement of earnings (loss) as discontinued operations. The German subsidiary
sold to Comprendium comprised a majority of the Company's European assets. An
adjustment to the estimated fair value of the stock sold was recognized in
conjunction with the adoption of fresh-start reporting on July 31, 2002. The
Company expects to realize a gain on the sale of approximately $3 million in
the third quarter of fiscal 2003.
The following unaudited pro forma financial information reflects
adjustments to the historical consolidated balance sheet and statements of
earnings (loss) of the Company to give effect to the sale of the stock of its
leasing subsidiary in Germany. The unaudited pro forma consolidated statements
of earnings (loss) for the year ended September 30, 2002 and for the six-month
period ended March 31, 2003 give pro forma effect to the sale and related pro
forma accounting adjustments as if the sale had occurred on October 1, 2001,
the beginning of the Company's fiscal year 2002, and on October 1, 2002, the
beginning of the Company's fiscal year 2003, respectively. The unaudited pro
forma consolidated balance sheet as of March 31, 2003 gives pro forma effect
to the sale and related pro forma accounting adjustments as if the sale had
occurred on March 31, 2003.
The following unaudited pro forma financial information has been
prepared based upon available information that the Company believes is
reasonable in the circumstances. This unaudited pro forma consolidated
financial information should be read in conjunction with the consolidated
financial statements and related footnotes included in the Company's Annual
Report on Form 10-K for the year ended September 30, 2002, and the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 2002. The
following unaudited pro forma financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have been obtained had the sale
actually occurred on the dates assumed, nor is it necessarily indicative of
the future financial position or future operating results of the Company.
Unaudited Pro Forma Consolidated Statement of Operations
For The Year Ended September 30, 2002
(in millions except per share data)
SUCCESSOR | PREDECESSOR
Two Months Ended | Ten Months Ended
September 30, 2002 | July 31, 2002
|
Historical |
Comdisco Eliminate | Historical Eliminate
Holding Revenue and As | Comdisco, Revenue and As
Company Expenses Adjusted | Inc. Expenses Adjusted
-------------------------------- | ---------------------------------
Revenue |
Leasing |
Operating $ 79 $ (13) $ 66 | $ 704 $ (90) $ 614
Direct financing 14 (4) 10 | 88 (21) 67
Sales-type 5 - 5 | 38 - 38
-------------------------------- | ---------------------------------
Total leasing 98 (17) 81 | 830 (111) 719
-------------------------------- | ---------------------------------
Equipment sales 50 (7) 43 | 297 (21) 276
Technology services 10 (6) 4 | 70 (33) 37
Other 12 12 | 69 (2) 67
-------------------------------- | ---------------------------------
Total revenue 170 (30) 140 | 1,266 (167) 1,099
-------------------------------- | ---------------------------------
|
Costs and expenses |
Leasing |
Operating 75 (16) 59 | 559 (97) 462
Sales-type 2 - 2 | 34 34
-------------------------------- | ---------------------------------
Total leasing 77 (16) 61 | 593 (97) 496
Equipment sales 31 (2) 29 | 289 (9) 280
Technology services 10 (4) 6 | 39 (12) 27
Selling, general and adminstrative 41 2 43 | 410 (4) 406
Interest 15 (4) 11 | 47 (17) 30
Reorganization items - - - | 439 - 439
Fresh-start accounting adjustments - - - | 369 - 369
-------------------------------- | ---------------------------------
Total costs and expenses 174 (24) 150 | 2,186 (139) 2,047
-------------------------------- | ---------------------------------
|
Earnings from continuing operations |
before income taxes (4) (6) (10) | (920) (28) (948)
Income taxes (benefit) 4 (2) 2 | 45 (6) 39
-------------------------------- | ---------------------------------
Earnings (loss) from |
continuing operations $ (8) $ (4) $ (12) | $ (965) $ (22) $ (987)
================================ | =================================
|
Basic earnings (loss) per |
common share: |
Loss from continuing operation $ (1.81) $ (2.76) | $ (6.41) $ (6.56)
|
Diluted earnings (loss) per |
common share: |
Loss from continuing operations (1.81) (2.76) | (6.41) (6.56)
|
Average shares outstanding-- |
basic end diluted 4.2 4.2 | 151 151
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended March 31, 2003
(in millions except per share data)
For financial reporting purposes, the results of operations of the
Company's Germany leasing subsidiary for the six months ended March 31,
2003 are included in the statement of earnings (loss) as discontinued
operations. The only pro forma adjustments are to discontinued
operations. Accordingly, there are no pro forma adjustments for the six
months ended March 31, 2003 to earnings from continuing operations.
Unaudited Pro Forma Consolidated Balance Sheet
As of March 31, 2003
(in millions except number of shares)
Historical
Comdisco Pro
Holding forma As
Company Adjustments Adjusted
--------------- --------------- --------------
ASSETS
Cash and cash equivalents $ 157 $ 316 (a) $ 473
Cash - legally restricted 12 - 12
Receivables, net 68 39 (a) 107
Inventory of equipment 24 24
Leased assets:
Direct financing and sales-type 251 - 251
Operating (net of accumulated depreciation) 164 - 164
--------------- --------------- --------------
Net leased assets 415 - 415
Equity securities 25 - 25
Assets of discontinued operations held for sale 541 (527) (b) 14
Other assets 69 - 69
--------------- --------------- --------------
$ 1,311 $ (172) $ 1,139
=============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Discounted lease rentals $ 45 $ - $ 45
Notes payable 160 - 160
Accounts payable 12 - 12
Income taxes 30 - 30
Liabilities related to assets of discontinued operations 177 (175) (b) 2
Deferred income 43 - 43
Other liabilities 124 - 124
--------------- --------------- --------------
591 (175) 416
Stockholders' equity:
Common stock $.01 par value. Authorized 10,000,000 shares: issued
and outstanding 4,200,000 shares. - - -
Additional paid-in capital 413 - 413
Accumulated other comprehensive income 38 (29) 9
Retained earnings 269 32 301
--------------- --------------- --------------
Total stockholders' equity 720 3 723
--------------- --------------- --------------
$ 1,311 $ (172) $ 1,139
=============== =============== ==============
Notes to Unaudited Balance Sheet -
(a) To record proceeds from the disposition, including
approximately $42 million to be paid over 42
months contingent upon specific portfolio
performance criteria ($39 million on a present
value basis). The four additional payments are
subject to reduction if certain customers exercise
contractual termination provisions, the
probability of which the Company believes is remote.
(b) To record the sale of assets and liabilities arising from
the stock sale
Services
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, the
Company has received approximately $43 million and 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.
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. ("T-Systems") 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.
5. Reorganization
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 three
and six months ended March 31, 2002 are as follows (in millions):
PREDECESSOR
Three months Six months
ended March 31,
2002 2002
-------------- --------------
Estimated loss on sale of leased assets $ 12 $ 262
Professional fees 13 27
DIP fees - 8
Loss on IT CAP sale 3 3
Interest income (7) (12)
-------------- --------------
$ 21 $ 288
============== ==============
Professional fees relate to legal, investment advisory and other
professional services. DIP facility fees relate to the write-off of previously
capitalized arrangement and structuring fees the Company incurred in
connection with the Debtor-In-Possession (DIP) facility (see Note 6 of Notes
to Consolidated Financial Statements). Interest income includes interest
earned on the Company's unrestricted cash balance that would not have been
earned if the Company had not filed for Chapter 11 protection.
6. Interest-Bearing Liabilities
In connection with the Filing, the Company obtained a two-year,
$450 million senior secured Debtor-In-Possession financing facility ("DIP
facility"). During the second quarter of fiscal 2002, the Company terminated
the DIP facility, without ever drawing down upon it.
In connection with the DIP facility, the Company paid an
arrangement and structuring fee of $9 million or 2% of the credit line. The
Company was also required to pay a 50 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 5 of Notes to Consolidated
Financial Statements).
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 creditors received, and the Disputed Claims Reserve was funded with,
their pro-rata share of two separate note issuances: the Senior Notes in
aggregate principal amount of $400 million with an interest rate of three
month LIBOR plus 3% and the Subordinated Notes in aggregate principal amount
of $650 million with an interest rate of 11%. General unsecured creditors also
received, and the Disputed Claims Reserve also was funded with, their pro rata
share of 100% of the Common Stock of the reorganized Company.
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% 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 was required to 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.
On November 14, 2002, pursuant to its obligations under the
Subordinated Notes, the Company made a mandatory 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 December 31, 2002, the
Company made an approximately $16 million interest payment with respect to the
Subordinated Notes. On January 9, 2003, the Company made an optional partial
redemption of $100 million principal amount of its Subordinated Notes. On
February 10, 2003, the Company made an optional partial redemption of $50
million principal amount of its Subordinated Notes. On March 4, 2003, the
Company made an optional partial redemption of $75 million principal amount of
its Subordinated Notes. On April 2, 2003, the Company made an optional partial
redemption of $75 million principal amount of its Subordinated Notes. On April
28, 2003, the Company made the final redemption of $85 million principal
amount of its Subordinated Notes. Each of these partial redemptions of the
Subordinated Notes were redeemed at a price equal to 100% of their principal
amount plus accrued and unpaid interest to the redemption date.
The average daily borrowings outstanding during the six months
ended March 31, 2003 were approximately $695 million, with a related
contractual weighted average interest rate of 8.87%. This compares to average
daily borrowings during the six months ended March 31, 2002 of approximately
$4.8 billion, with a contractual related weighted average interest rate of
6.63%. A significant portion of the contractual interest for the six months
ended March 31, 2002 was not paid due to the Company's bankruptcy proceedings.
The Company had contractual letters of credit outstanding totaling
$3 million at March 31, 2003 to landlords of the Company's customers,
principally Ventures' customers, for the guarantee of their office space
leases in the event of default by the Company's customer. The Company believes
that $3 million, which is held in restricted cash, is the maximum potential
amount of undiscounted future payments for which the Company would be required
to remit under these guarantees. The Company has estimated a liability of
approximately $2 million related to these guarantees which is included in
other liabilities in the accompanying consolidated balance sheet.
7. Receivables
Receivables include the following as of March 31, 2003 and
September 30, 2002 (in millions):
March 31, September 30,
2003 2002
----------------- ------------------
Notes $ 46 $ 118
Accounts 88 130
Other 62 83
----------------- ------------------
Total receivables 196 331
Allowance for credit losses (128) (214)
----------------- ------------------
Total $ 68 $ 117
================= ==================
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 Ventures.
At March 31, 2003 and September 30, 2002, Ventures had notes
receivable of approximately $45 million and $117 million, respectively. As
part of a Ventures note transaction, the Company customarily 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.
Accounts
Accounts receivable represent lease rentals, notes receivable and
equipment sales proceeds due but unpaid as of the balance sheet date.
Other
This amount is primarily comprised of the portions of the purchase
price of leased assets acquired by GE Capital which were held back at each
closing pending resolution of a post-closing review (see Note 4 of Notes to
Consolidated Financial Statements.)
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, 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 for the six months ended
March 31, 2003 and 2002 were as follows (in millions):
Consolidated Ventures
----------------------------------- ------------------------------------
SUCCESSOR | PREDECESSOR SUCCESSOR | PREDECESSOR
March 31, | March 31, March 31, | March 31,
2003 | 2002 2003 | 2002
---------------- |----------------- ---------------- |------------------
| |
Balance at beginning of period $ 214 | $ 302 $ 110 | $ 202
Provision for credit losses (60) | 110 (33) | 102
Net credit losses (26) | (158) (17) | (138)
---------------- |----------------- ---------------- |------------------
Balance at end of period $ 128 | $ 254 $ 60 | $ 166
================ ================= ================ ==================
The negative provision for the six months ended March 31, 2003 is
due to better than anticipated collection results on the Company's assets and
management's estimate of the reserves necessary for the Company's existing
assets as of March 31, 2003.
8. Equity Securities
The Company provided financing to privately held companies, in
networking, optical networking, software, communications, Internet-based and
other industries through the purchase of equity securities. Substantially all
of these investments were made by the Company's 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. Impairments in equity securities
totaled $8 million and $43 million during the six months ended March 31, 2003
and 2002, respectively. The Company's publicly traded security holdings were
immaterial at March 31, 2003 and September 30, 2002.
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). Gross realized gains from the
sale of equity investments were $4 million during the first six months of
fiscal 2002. Net realized gains from the sale of equity investments were $3
million during the six months ended March 31, 2002. There were no net or gross
realized gains during the six months ended March 31, 2003. Net realized gains
would be 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. Warrant sale proceeds, which are
included in other revenue in the consolidated statements of earnings (loss),
were $1 million and $5 million for the six months ended March 31, 2003 and
2002, respectively.
9. Stockholders' Equity
When the Company emerged from bankruptcy, 4.2 million shares of new
common stock were issued.
The Predecessor company's common stock was cancelled on August 12,
2002. The Predecessor company's 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, those
former common shareholders must properly complete a transmittal form and
surrender all of their shares of the Predecessor company's common stock to
Mellon Investors Services LLC prior to August 12, 2003.
When the present value of distributions to certain former creditors
of Comdisco, Inc. reaches a threshold level of percentage recovery established
pursuant to the Plan, holders of Contingent Distribution Rights are entitled
to receive payments from the Company on the terms set forth in the Plan and
further clarified in the Contingent Distribution Rights Agreement and in two
bankruptcy court orders recently entered (filed herewith as Exhibits 99.3 and
99.4). The Company had approximately 152.8 million Contingent Distribution
Rights outstanding at March 31, 2003. The Company has estimated the liability
for Contingent Distribution Rights to be $26 million at March 31, 2003.
Management's estimate of the liability has increased from prior periods
consistent with the distributions made in accordance with the Plan and the
increase in stockholders' equity.
Total comprehensive income (loss) consists of the following (in
millions):
SUCCESSOR PREDECESSOR SUCCESSOR PREDECESSOR
Three months Six months
ended March 31, ended March 31,
2003 | 2002 2003 | 2002
--------------- | --------------- --------------- | ----------------
| |
Foreign currency translation adjustments $ 15 | $ (7) $ 34 | $ (12)
Unrealized losses on derivative instruments - | - - | (2)
Unrealized gains (losses) on securities: | |
Unrealized holding gains arising | |
during the period 1 | 3 1 | 16
Reclassification adjustment for gains | |
included in earnings before | |
income taxes (benefit) (1) | (8) (1) | (8)
--------------- | --------------- --------------- | ----------------
Net unrealized gains (losses), before | |
income taxes (benefit) - | (5) - | 8
Income taxes (benefit) - | (3) - | 3
--------------- | --------------- --------------- | ----------------
Net unrealized gains (losses) - | (2) - | 5
--------------- | --------------- --------------- | ----------------
Other comprehensive income (loss) 15 | (9) 34 | (9)
Net earnings (loss) 37 | (94) 45 | (106)
--------------- | --------------- --------------- | ----------------
Total comprehensive income (loss) $ 52 | $ (103) $ 79 | $ (115)
=============== =============== =============== -===============
Accumulated other comprehensive income presented below and in the
accompanying balance sheets consists of the following (in millions):
Foreign
Currency
Translation
Adjustment
----------------
Balance at September 30, 2002 $ 4
Current period change, net 34
----------------
Balance at March 31, 2003 $ 38
================
10. Other Financial Information
Other liabilities at March 31, 2003 consisted primarily of accrued
compensation ($35 million), customer advances and deposits ($37 million),
Contingent Distribution Rights ($26 million) and taxes other than income taxes
($11 million).
11. Financial Information by Business Segment and Geographic Area
Following the Company'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 group. The Company's CAM group is responsible
for the sale and run-off of 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. For business segment reporting purposes, the
CAM group also includes various corporate assets and liabilities managed by
Comdisco Holding Company, Inc. corporate staff.
The Company evaluates the performance of its operating segments
based on cash flow from operations, revenues and earnings (loss) before income
taxes. Intersegment sales are not significant and all intersegment balances
have been eliminated in the summarized financial information presented below.
The information for 2002 has been restated from the prior year's presentation
in order to conform to the 2003 presentation. Cash flow from operations for
2002 are not available.
The following table presents cash flow from operations (in
millions):
SUCCESSOR SUCCESSOR
Three months Six months
ended ended
March 31, March 31,
2003 2003
---------------- -----------------
US Leasing $ 209 $ 325
European IT Leasing (5) (10)
CAM group (4) 8
Ventures 85 175
Discontinued operations 147 229
---------------- -----------------
Total $ 432 $ 727
================ =================
The following table presents segment revenues and earnings (loss)
before income taxes (in millions):
SUCCESSOR PREDECESSOR
Three months ended
March 31,
2003 2002
------------------ | -------------------
REVENUES: |
|
US Leasing $ 54 | $ 92
European IT Leasing 10 | 7
CAM group 21 | 174
Ventures 36 | 80
------------------ | -------------------
$ 121 | $ 353
================== | ===================
|
SEGMENT EARNINGS (LOSS): |
US Leasing $ 7 | $ (31)
European IT Leasing - | (3)
CAM group 2 | 4
Ventures 28 | (65)
------------------ | -------------------
$ 37 | $ (95)
================== ===================
SUCCESSOR PREDECESSOR
Six months ended
March 31,
2003 2002
------------------ | -------------------
|
REVENUES: |
US Leasing $ 130 | $ 207
European IT Leasing 24 | 18
CAM group 45 | 373
Ventures 84 | 159
------------------ | -------------------
$ 283 | $ 757
================== | ===================
|
SEGMENT EARNINGS (LOSS): |
US Leasing $ 14 | $ (27)
European IT Leasing 1 | (6)
CAM group 3 | (226)
Ventures 25 | (133)
------------------ | -------------------
$ 43 | $ (392)
================== ===================
The following table presents total assets for each of the Company's
reportable segments (in millions):
March 31, September 30,
2003 2002
------------------ -----------------
US Leasing $ 290 $ 549
European IT Leasing 43 42
CAM group 327 822
Ventures 110 241
Assets of discontinued
operations held for sale 541 687
------------------ -----------------
Total $ 1,311 $ 2,341
================== =================
The following table presents revenue by geographic location based
on the location of the Company's local offices (in millions):
SUCCESSOR PREDECESSOR
For the three months ended
March 31,
2003 | 2002
--------------- | ----------------
|
North America $ 101 | $ 286
Europe 18 | 23
Pacific Rim 2 | 44
--------------- | ----------------
Total $ 121 | $ 353
=============== | ================
SUCCESSOR PREDECESSOR
For the six months ended
March 31,
2003 | 2002
--------------- | ----------------
North America $ 240 | $ 591
Europe 40 | 52
Pacific Rim 3 | 114
--------------- | ----------------
Total $ 283 | $ 757
=============== ================
The following table presents total assets by geographic location
based on the location of the Company's local offices (in millions):
March 31, September 30,
2003 2002
--------------------- --------------------
North America $ 642 $ 1,490
Europe 626 799
Pacific Rim 43 52
--------------------- --------------------
Total $ 1,311 $ 2,341
===================== ====================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS 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. 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
Overview
On July 16, 2001, Comdisco, Inc. and 50 of its domestic
subsidiaries voluntarily filed for bankruptcy. Prior to bankruptcy, the
Company 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 was 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 groups of business:
US Leasing, European IT Leasing; the Corporate Asset Management group ("CAM
group"); and Ventures.
Since the Company 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.
All funds generated from the Company's remaining asset portfolios
are required by the Plan to be used to satisfy liabilities of the Company and,
to the extent funds are available, to pay dividends on the Company's Common
Stock and to 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, the Company expects to
generate funds from the sale or run-off of its asset portfolios at a
decreasing rate over time.
The Company has material restrictions on its ability, and does not
expect, to make significant investments in new or additional assets. 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. Accordingly, within the next few years, it is anticipated
that the Company will have reduced all of its assets to cash and made
distributions of all available cash to its Common Stock and Contingent
Distribution Rights holders in the manner and priorities set forth in the
Plan. At that point, it is expected that the Company will cease operations as
a going concern and that no further distributions will be made.
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.
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 the Company 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" ("FRR 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 amount of
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 periodically 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 provided in the Company's
Annual Report on Form 10-K for the year ended September 30, 2002.
Basis of Presentation
The Company and 50 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 March 31, 2003 and September 30,
2002, the consolidated balances as of those dates are 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 May 2, 2003, the Company announced that its Board of Directors
had declared a cash dividend of $73.33 per share on the outstanding shares of
its common stock, payable on May 22, 2003 to common stockholders of record on
May 12, 2003. As of May 14, 2003, the Company had 4,197,100 million shares of
common stock outstanding. Mellon Investor Services will serve as paying agent
for the dividend to common stockholders. Comdisco intends to treat this
distribution for income tax purposes as the first in a series of liquidating
distributions in complete liquidation of the Company.
The Company also announced on May 2, 2003 that it will make a cash
payment of $0.01793 per right on the Contingent Distribution Rights, payable
on May 22, 2003 to Contingent Distribution Rights holders of record on May 12,
2003. The aggregate cash payment to a particular holder of record of
Contingent Distribution Rights will be rounded to the nearest $0.01 (up or
down), with $0.005 being rounded down. Comdisco Holding Company has
approximately 152.8 million Contingent Distribution Rights outstanding. Mellon
Investor Services will serve as paying agent for the payment to holders of
Contingent Distribution Rights.
On April 30, 2003, the Company announced that it had completed the
sale of the stock of its leasing subsidiary in Germany to Munich-based
Comprendium Investment (Deutschland) GmbH, which is owned by Comprendium
Investment SA, a Swiss corporation. Comprendium Investment SA is controlled by
Thomas Flohr, who until January 2001 served as president of Comdisco Europe, a
division of Comdisco, Inc. Under the terms of the Amended Share Purchase
Agreement, Comdisco received approximately (euro)285 million (approximately
$316 million) at closing, and will receive four additional payments totaling
up to approximately (euro)38 million (approximately $42 million) over the next
42 months, contingent upon specific portfolio performance criteria. The four
additional payments are subject to reduction if certain customers exercise
contractual termination provisions, the probability of which the Company
believes is remote. The U.S. dollar equivalents were calculated using the
average exchange rate of the foreign exchange transactions completed by the
Company on April 30, 2003. The transaction resulted from an extensive offering
and bidding process run by the Company's independent investment banking firm.
The German subsidiary sold to Comprendium comprised a majority of the
Company's European assets.
For financial reporting purposes, the assets and liabilities of the
Company's German leasing subsidiary as of March 31, 2003 are included in the
balance sheet as assets of discontinued operations and liabilities related to
discontinued operations and the results of operations of the Company's German
leasing subsidiary are included in the statement of earnings (loss) as
discontinued operations. An adjustment to the estimated fair value of the
stock sold was recognized in conjunction with the adoption of fresh-start
reporting on July 31, 2002. The Company expects to realize a gain on the sale
of approximately $3 million in the third quarter of fiscal 2003.
On April 2, 2003, the Company made an optional partial redemption
of $75 million principal amount of its Subordinated Notes. On April 28, 2003,
the Company made a final redemption of $85 million principal amount of its
Subordinated Notes. Each of these partial redemptions of the Subordinated
Notes were redeemed at a price equal to 100% of their principal amount plus
accrued and unpaid interest to the redemption date. See Note 6 of Notes to
Consolidated Financial Statements for information regarding mandatory and
optional redemptions of the Subordinated Notes.
Results of Operations
Certain reclassifications have been made to the prior period
financial statements to conform to the presentation used in the March 31, 2003
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 reporting pursuant to SOP
90-7, the Company's results of operations for the three and six months ended
March 31, 2003 are not comparable to the results of operations for the three
and six months ended March 31, 2002. The information in this section should be
read in conjunction with the consolidated financial statements and the related
notes thereto.
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Total Revenue
Total revenue decreased 66 percent to $121 million for the three
months ended March 31, 2003 from $353 million for the three months ended March
31, 2002. The decrease is due to lower revenues from all of the Company's
operations. Since March 31, 2002, the Company has sold a substantial amount of
assets (portfolio sales, sales of stock in subsidiaries (see Note 4 of Notes
to Consolidated Financial Statements) and mid-term off-lease sales to existing
customers). As a result of these sales, the Company has significantly less
revenue producing assets. Furthermore, the Company's business purpose is
limited to selling and collecting or otherwise reducing to money in an orderly
manner the remaining assets of the Company. The decrease in total revenue in
the current year period compared to the year ago period reflects the declining
assets of the Company and the Company expects this trend to continue.
Additional revenue information for each of the Company's current
four business segments, US Leasing, European IT Leasing, Ventures and CAM
group, is set forth below.
Total Leasing Revenue
Total leasing revenue decreased 75 percent to $63 million for the
three months ended March 31, 2003 from $252 million for the three months ended
March 31, 2002. The decrease in total leasing revenue is primarily due to the
continued orderly run-off of the lease base, the absence of significant new
business volume and the sale of leasing assets rather than the extension of
existing leases or the re-leasing of the Company's inventory of equipment.
Total leasing revenue from the Company's US Leasing operations decreased 69
percent to $23 million for the three months ended March 31, 2003. Total
leasing revenue from the Company's European IT Leasing operations decreased 50
percent to $3 million for the three months ended March 31, 2003. Ventures
total leasing revenue decreased 53 percent to $27 million for the three months
ended March 31, 2003. Total leasing revenue from the Company's CAM group
decreased 91 percent to $10 million for the three months ended March 31, 2003.
The decrease in total leasing revenue from the Company's CAM group is
primarily due to the leased asset sales to GE Capital and other organizations
discussed in Note 4 of Notes to Consolidated Financial Statements.
Sales Revenue
The Company generates sales from two sources: (a) the sale of used
equipment from its inventory and (b) the sale 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. Given the
Company's limited business purpose, it conducts these types of sales
transactions rather than extending existing leases or releasing its inventory
of equipment. Revenue from sales decreased 43 percent to $41 million for the
three months ended March 31, 2003 from $72 million for the three months ended
March 31, 2002. This decrease is due primarily to the declining lease base and
the related declines in equipment available for sale. In addition, generally
declining values for electronics equipment in inventory has also resulted in
lower revenues on these sales. US Leasing sales revenue increased 25 percent
to $25 million for the three months ended March 31, 2003. European IT Leasing
sales revenue increased 300 percent to $4 million for the three months ended
March 31, 2003 as a result of one significant mid-term lease buyout. Ventures
sales revenue increased 40 percent to $7 million for the three months ended
March 31, 2003 primarily due to a number of mid-term lease buyouts in the
current year quarter. CAM group sales revenue decreased 89 percent to $5
million for the three months ended March 31, 2003.
Technology Service Revenue
Revenue from technology services decreased 62 percent to $5
million for the three months ended March 31, 2003 from $13 million for the
three months ended March 31, 2002. The decrease is primarily the result of the
sale of the North American portion of the IT CAP Services business in
February, 2002, and the continued wind down of the Company's remaining network
services business.
Other Revenue
Other revenue decreased 25 percent to $12 million for the three
months ended March 31, 2003 from $16 million for the three months ended March
31, 2002. Interest income on notes decreased 78 percent to $2 million for the
three months ended March 31, 2003 from $9 million for the three months ended
March 31, 2002. Foreign exchange gain is due to the strengthening of the Euro
compared to the U.S dollar during the three months ended March 31, 2003. These
transaction gains and losses arise from the impact of exchange rate
fluctuations on transactions denominated in a currency other than the
functional currency. The components of other revenue were as follows (in
millions):
For the three months ended
March 31,
2003 2002
--------------- ---------------
Sale of equity holdings $ 1 $ 8
Interest income on notes 2 9
Foreign exchange gain (loss) 8 (2)
Other 1 1
--------------- --------------
Total other revenue $ 12 $ 16
=============== ==============
Total Costs and Expenses
Total operating costs and expenses decreased 81 percent to $84
million for the three months ended March 31, 2003 from $448 million for the
three months ended March 31, 2002. Additional cost and expense information for
each of the Company's current business segments is set forth below.
Total Leasing Costs and Expenses
Total leasing costs and expenses decreased 77 percent to $40
million for the three months ended March 31, 2003 from $176 million for the
three months ended March 31, 2002. The decrease in total leasing costs and
expenses is primarily due to the continued orderly run-off of the lease base,
the absence of significant new business volume and the sale of leasing assets
rather than the extension of existing leases or the re-leasing of the
Company's inventory of equipment. Total leasing costs and expenses from the
Company's US Leasing operations decreased 77 percent to $10 million for the
three months ended March 31, 2003. Total leasing costs and expenses from the
Company's European IT Leasing operations decreased 67 percent to $2 million
for the three months ended March 31, 2003. Ventures total leasing costs and
expenses decreased 55 percent to $21 million for the three months ended March
31, 2003. Total leasing costs and expense from the Company's CAM group
decreased 91 percent to $7 million for the three months ended March 31, 2003.
The decrease in total leasing costs and expenses from the Company's CAM group
is primarily due to the leased asset sales to GE Capital and other
organizations discussed in Note 4 of Notes to Consolidated Financial
Statements.
Sales Costs and Expenses
Sales costs and expenses decreased 45 percent to $45 million for
the three months ended March 31, 2003 from $82 million for the three months
ended March 31, 2002. The decrease in the three months ended March 31, 2003
compared to the three months ended March 31, 2002 reflects reductions in the
volume of sales due to continued reductions in assets available for sale.
Generally declining fair market values for electronics equipment has resulted
in losses on sales of such equipment. Equipment inventory is carried at the
lower of net book value at lease term or fair value. US Leasing sales costs
and expenses increased 11 percent to $21 million for the three months ended
March 31, 2003. Margins on those sales were 16 percent and 5 percent in the
three months ended March 31, 2003 and 2002, respectively. European IT Leasing
sales costs and expenses increased to $5 million for the three months ended
March 31, 2003 from $0 million during the three months ended March 31, 2002.
Ventures sales costs and expenses decreased 20 percent to $4 million for the
three months ended March 31, 2003. CAM group sales costs and expenses
decreased 74 percent to $15 million for the three months ended March 31, 2003.
CAM group sales in the current quarter are primarily electronics equipment
remarketed from inventory. Declines in electronics equipment inventory fair
value at March 31, 2003 negatively impacted the CAM group's sales cost and
expenses.
Technology Services Costs and Expenses
Technology services costs and expenses decreased 75 percent to $2
million for the three months ended March 31, 2003 from $8 million for the
three months ended March 31, 2002. The decrease is primarily the result of the
sale of the North American portion of the IT CAP Services business in February
2002, and the continued wind down of the Company's remaining network services
business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 32 percent
to $45 million for the three months ended March 31, 2003 from $66 million for
the three months ended March 31, 2002. The following table summarizes selling,
general and administrative expenses (in millions):
SUCCESSOR PREDECESSOR
For the three months ended
March 31,
2003 2002
------------------ | -----------------
|
Incentive compensation $ 13 | $ 15
Other compensation and benefits 10 | 32
Outside professional services 7 | 10
Contingent Distribution Rights 10 | -
Other expenses 5 | 9
------------------ | -----------------
$ 45 | $ 66
================== | =================
The decreases in compensation and benefits in the current year
compared to the year earlier period reflect the continued reduction in
personnel. As of July 16, 2001, the date the Company filed bankruptcy, the
Company had approximately 2,100 domestic employees. As of the date of
emergence from bankruptcy, the Company had approximately 400 domestic
employees. As of March 31, 2003, the Company had approximately 300 domestic
employees.
Included in selling, general and administrative expenses for the
three months ended March 31, 2003 is $10 million related to the increase in
the estimated liability for Contingent Distribution Rights as of March 31,
2003. Management's estimate of the liability has increased consistent with the
distributions made in accordance with the Plan and the increase in
stockholders' equity in the three months ended March 31, 2003.
Write-down of Equity Securities
The charge for write-down of equity securities was $1 million for
the three months ended March 31, 2003 compared to $10 million for the three
months ended March 31, 2002. The decrease reflects the overall reduction in
the carrying value of the Company's equity securities, market conditions and
management's assessment of the ability of the portfolio companies to meet
their business plans.
Bad Debt Expense
Bad debt expense decreased to $(55) million for the three months
ended March 31, 2003 from $72 million for the three months ended March 31,
2002. The decrease is primarily due to better than anticipated collection
results in the three months ended March 31, 2003 on the Company's assets and
management's estimate of the reserves necessary for the Company's existing
assets as of March 31, 2003 (See Note 7 of Notes to Consolidated Financial
Statements).
Interest Expense
Interest expense decreased 54 percent to $6 million for the three
months ended March 31, 2003 from $13 million for the three months ended March
31, 2002. The decrease in the current year period compared to the year earlier
period is primarily due to continued reductions in secured debt. Interest
expense on the Company's Subordinated Notes was minimal during the three
months ended March 31, 2003 due to the redemptions of its Subordinated Notes
(see Note 7 of Notes to Consolidated Financial Statements and "Financial
Condition" for a discussion of the Subordinated Notes).
As of July 16, 2001, the Predecessor company ceased accruing
interest on its unsecured debt obligations. Contractual interest on all
obligations for the three months ended March 31, 2002 was $59 million in
excess of recorded interest expense included in the accompanying financial
statements.
Reorganization Items
Charges for reorganization items were $21 million for the three
months ended March 31, 2002. See Note 5 of Notes to Consolidated Financial
Statements, which is incorporated in this section by reference, for a
discussion of reorganization items.
Net Earnings (Loss) from Continuing Operations
Net earnings from continuing operations were $37 million in the
three months ended March 31, 2003, or $8.70 per common share, compared to a
net loss of $96 million or $0.64 per share in the three months ended March 31,
2002. The net earnings from continuing operations in the three months ended
March 31, 2003 is primarily the result of a reduced provision for credit
losses, offset by accruals for the Company's Contingent Distribution Rights
liability.
Discontinued Operations
Net earnings from discontinued operations were immaterial for the
three months ended March 31, 2003 compared to net earnings from discontinued
operations of $2 million for the three months ended March 31, 2002.
o German leasing subsidiary: On April 30, 2003, the Company announced
that it had completed the sale of the stock of its leasing
subsidiary in Germany. The results of operations for this
subsidiary have been classified as discontinued operations and
prior year periods have been restated. Revenue was $35 million
during the three months ended March 31, 2003 compared to $48
million during the three months ended March 31, 2002. Costs and
expenses for these operations were $34 million during the three
months ended March 31, 2003 compared to $43 million during the
three months ended March 31, 2002. Net earnings were immaterial
during the three months ended March 31, 2003 and 2002.
o International Leasing: Revenue from discontinued International
Leasing operations was $40 million during the three months ended
March 31, 2002. Costs and expenses for there operations were $37
million during the three months ended March 31, 2002. Revenues and
expenses from International Leasing were immaterial for the three
months ended March 31, 2003. The decrease in both revenue and costs
in the current year period compared to the prior year period is a
result of the sales. Net earnings for International Leasing were $2
million during the three months ended March 31, 2002.
Net Earnings (Loss)
Net earnings for the three months ended March 31, 2003 were $37
million compared to a net loss of $(94) million for the three months ended
March 31, 2002.
Six Months Ended March 31, 2003 Compared to Six Months Ended March 31, 2002
Total Revenue
Total revenue decreased 63 percent to $283 million for the six
months ended March 31, 2003 from $757 million for the six months ended March
31, 2002. The decrease is due to lower revenues from all of the Company's
operations. Since March 31, 2002, the Company has sold a substantial amount of
assets (portfolio sales, sales of stock in subsidiaries (see Note 4 of Notes
to Consolidated Financial Statements) and mid-term off-lease sales to existing
customers). As a result of these sales, the Company has significantly less
revenue producing assets. Furthermore, the Company's business purpose is
limited to selling and collecting or otherwise reducing to money in an orderly
manner the remaining assets of the Company. The decrease in total revenue in
the current year period compared to the year ago period reflects the declining
assets of the Company and the Company expects this trend to continue.
Additional revenue information for each of the Company's current
four business segments, US Leasing, European IT Leasing, Ventures and CAM
group, is set forth below.
Total Leasing Revenue
Total leasing revenue decreased 71 percent to $155 million for the
six months ended March 31, 2003 from $538 million for the six months ended
March 31, 2002. The decrease in total leasing revenue is primarily due to the
continued orderly run-off of the lease base, the absence of significant new
business volume and the sale of leasing assets rather than the extension of
existing leases or the re-leasing of the Company's inventory of equipment.
Total leasing revenue from the Company's US Leasing operations decreased 63
percent to $60 million for the six months ended March 31, 2003. Total leasing
revenue from the Company's European IT Leasing operations decreased 53 percent
to $7 million for the six months ended March 31, 2003. Ventures total leasing
revenue decreased 47 percent to $66 million for the six months ended March 31,
2003. Total leasing revenue from the Company's CAM group decreased 91 percent
to $22 million for the six months ended March 31, 2003. The decrease in total
leasing revenue from the Company's CAM group is primarily due to the leased
asset sales to GE Capital and other organizations discussed in Note 4 of Notes
to Consolidated Financial Statements.
Sales Revenue
Revenue from sales decreased 47 percent to $87 million for the six
months ended March 31, 2003 from $165 million for the six months ended March
31, 2002. This decrease is due primarily to the declining lease base and the
completion of a sale to a single customer in the CAM group, which generated
$38 million of sales revenue during the six months ended March 31, 2002. US
Leasing sales revenue increased 15 percent to $55 million for the six months
ended March 31, 2003. European IT Leasing sales revenue increased 350 percent
to $9 million for the six months ended March 31, 2003 primarily due to one
significant mid-term lease buyout in the second quarter of fiscal 2003.
Ventures sales revenue increased 22 percent to $11 million for the six months
ended March 31, 2003 primarily due to an increase in the number of mid-term
lease buyouts in the current year period compared to the prior year period.
CAM group sales revenue decreased 89 percent to $12 million for the six months
ended March 31, 2003.
Technology Service Revenue
Revenue from technology services decreased 62 percent to $10
million for the six months ended March 31, 2003 from $26 million for the six
months ended March 31, 2002. The decrease is primarily the result of the sale
of the North American portion of the IT CAP Services business in February
2002, and the continued wind down of the Company's remaining network services
business.
Other Revenue
Other revenue increased 11 percent to $31 million for the six
months ended March 31, 2003 from $28 million for the six months ended March
31, 2002. Interest income on notes decreased 61 percent to $7 million for the
six months ended March 31, 2003 from $18 million for the six months ended
March 31, 2002. Foreign exchange gain is due to the strengthening of the Euro
compared to the U.S dollar during the six months ended March 31, 2003. These
transaction gains and losses arise from the impact of exchange rate
fluctuations on transactions denominated in a currency other than the
functional currency. The components of other revenue were as follows (in
millions):
SUCCESSOR PREDECESSOR
For the six months ended
March 31,
2003 2002
------------------ | -----------------
|
Sale of equity holdings $ 1 | $ 8
Interest income on notes 7 | 18
Foreign exchange gain (loss) 21 | (2)
Other 2 | 4
------------------ | -----------------
Total other revenue $ 31 | $ 28
================== | =================
Total Costs and Expenses
Total operating costs and expenses decreased 79 percent to $240
million for the six months ended March 31, 2003 from $1.1 billion for the six
months ended March 31, 2002. In the six months ended March 31, 2002, the
Company recorded $288 million of reorganization items, including the $262
million of pre-tax charges for the sales of electronics, laboratory and
scientific leased asset portfolios discussed in Note 4 of Notes to
Consolidated Financial Statements. Additional cost and expense information for
each of the Company's current business segments is set forth below.
Total Leasing Costs and Expenses
Total leasing costs and expenses decreased 73 percent to $103
million for the six months ended March 31, 2003 from $377 million for the six
months ended March 31, 2002. The decrease in total leasing costs and expenses
is primarily due to the continued orderly run-off of the lease base, the
absence of significant new business volume and the sale of leasing assets
rather than the extension of existing leases or the re-leasing of the
Company's inventory of equipment. Total leasing costs and expenses from the
Company's US Leasing operations decreased 76 percent to $23 million for the
six months ended March 31, 2003. Total leasing costs and expenses from the
Company's European IT Leasing operations decreased 62 percent to $5 million
for the six months ended March 31, 2003. Ventures total leasing costs and
expenses decreased 41 percent to $59 million for the six months ended March
31, 2003. Total leasing costs and expenses from the Company's CAM group
decreased 90 percent to $16 million for the six months ended March 31, 2003.
The decrease in total leasing costs and expenses from the Company's CAM group
is primarily due to the leased asset sales to GE Capital and other
organizations discussed in Note 4 of Notes to Consolidated Financial
Statements.
Sales Costs and Expenses
Sales costs and expenses decreased 55 percent to $73 million for
the six months ended March 31, 2003 from $163 million for the six months ended
March 31, 2002. The decrease in the six months ended March 31, 2003 compared
to the six months ended March 31, 2002 reflects reductions in the volume of
sales due to continued reductions in assets available for sale. US Leasing
sales costs and expenses decreased 5 percent to $38 million for the six months
ended March 31, 2003. Margins on those sales were 31 percent and 17 percent in
the six months ended March 31, 2003 and 2002, respectively. European IT
Leasing sales costs and expenses increased 167 percent to $8 million for the
six months ended March 31, 2003. Ventures sales costs and expenses increased
17 percent to $5 million for the six months ended March 31, 2003 compared to
$6 million for the six months ended March 31, 2002. CAM group sales costs and
expenses decreased 81 percent to $22 million for the six months ended March
31, 2003. CAM group sales in the current quarter are primarily electronics
equipment remarketed from inventory. Declining fair market values for
electronics equipment has resulted in losses on sales of such equipment and
has negatively impacted the carrying value of the CAM group inventory.
Technology Services Costs and Expenses
Technology services costs and expenses decreased 68 percent to $6
million for the six months ended March 31, 2003 from $19 million for the six
months ended March 31, 2002. The decrease is primarily the result of the sale
of the North American portion of the IT CAP Services business in February
2002, and the continued wind down of the Company's remaining network services
business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 29 percent
to $88 million for the six months ended March 31, 2003 from $124 million for
the six months ended March 31, 2002. The following table summarizes selling,
general and administrative expenses (in millions):
SUCCESSOR PREDECESSOR
For the six months ended
March 31,
2003 2002
------------------ | -----------------
|
Incentive compensation $ 24 | $ 30
Other compensation and benefits 20 | 52
Outside professional services 21 | 18
Contingent Distribution Rights 16 | -
Other expenses 7 | 24
------------------ | -----------------
$ 88 | $ 124
================== =================
The decreases in compensation and benefits in the current year
compared to the year earlier period reflect the continued reduction in
personnel. As of July 16, 2001, the date the Company filed bankruptcy, the
Company had approximately 2,100 domestic employees. As of the date of
emergence from bankruptcy, the Company had approximately 400 domestic
employees. As of March 31, 2003, the Company had approximately 300 domestic
employees.
Included in selling, general and administrative expenses for the
six months ended March 31, 2003 is $16 million related to the increase in the
estimated liability for Contingent Distribution Rights as of March 31, 2003.
Management's estimate of the liability has increased consistent with the
distributions made in accordance with the Plan and the increase in
stockholders' equity in the six months ended March 31, 2003.
Write-down of Equity Securities
The charge for write-down of equity securities decreased 81 percent
to $8 million for the six months ended March 31, 2003 from $43 million for the
six months ended March 31, 2002. The decrease reflects the overall reduction
in the carrying value of the Company's equity securities, market conditions
and management's assessment of the ability of the portfolio companies to meet
their business plans.
Bad Debt Expense
Bad debt expense decreased to $(60) million for the six months ended
March 31, 2003 from $110 million for the six months ended March 31, 2002. The
decrease is primarily due to better than anticipated collection results in the
six months ended March 31, 2003 on the Company's assets and management's
estimate of the reserves necessary for the Company's assets as of March 31,
2003 (See Note 7 of Notes to Consolidated Financial Statements).
Interest Expense
Interest expense decreased 12 percent to $22 million for the six
months ended March 31, 2003 from $25 million for the six months ended March
31, 2002. The decrease in the current year period compared to the year earlier
period is primarily due to continued reductions in secured debt, offset by
interest expense incurred on the Company's Subordinated Notes.
As of July 16, 2001, the Predecessor company ceased accruing
interest on its unsecured debt obligations. Contractual interest on all
obligations for the six months ended March 31, 2002 was $119 million in excess
of recorded interest expense included in the accompanying financial
statements.
Reorganization Items
Charges for reorganization items were $288 million for the six
months ended March 31, 2002. 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
$262 million of pre-tax charges for the sales of electronics, laboratory and
scientific leased asset portfolios.
Net Earnings (Loss) from Continuing Operations
Net earnings from continuing operations were $43 million in the six
months ended March 31, 2003, or $10.32 per common share, compared to a net
loss of $322 million or $2.14 per share in the six months ended March 31,
2002. The net loss from continuing operations in the six months ended March
31, 2002 is primarily the result of reorganization items.
Discontinued operations
Net earnings from discontinued operations were $2 million for the
six months ended March 31, 2003 compared to net earnings from discontinued
operations of $216 million for the six months ended March 31, 2002.
o German leasing subsidiary: The results for this subsidiary have
been classified as discontinued operations and prior year periods
have been restated. Revenue for these operations were $75 million
during the six months ended March 31, 2003 compared to $98 million
during the six months ended March 31, 2002. Costs and expenses for
these operations were $70 million during the six months ended March
31, 2003 compared to $84 million during the six months ended March
31, 2002. Net earnings were $2 million and $9 million during the
six months ended March 31, 2003 and 2002, respectively.
o International Leasing: Revenue from these operations was immaterial
during the six months ended March 31, 2003 compared to $81 million
during the six months ended March 31, 2002. Costs and expenses for
these operations were immaterial during the six months ended March
31, 2003 compared to $76 million during the six months ended March
31, 2002. The decrease in both revenue and costs in the current
year period compared to the prior year period is a result of the
sales. Net earnings were $3 million during the six months ended
March 31, 2002.
o Availability Solutions: 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 for the six months ended March 31, 2002. Availability
solutions costs were $59 million for the six months ended March 31,
2002.
Net earnings of the availability solutions business were $204
million for the six months ended March 31, 2002. Approximately $199
million of the net earnings within discontinued operations for the
six months ended March 31, 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 operations as
discontinued operations. Revenue and expense for the Company's
operations in Germany and Spain for the six months ended March 31,
2002 were immaterial.
Net Earnings (Loss)
Net earnings for the six months ended March 31, 2003 were $45
million compared to a net loss of $106 million for the six months ended March
31, 2002.
Financial Condition
On September 30, 2002, in accordance with the Plan, the Company
made an initial distribution to the holders of certain Allowed Claims (as
defined in the Plan) 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 aggregate principal
amount of $400 million and the Subordinated Notes in aggregate 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"). 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% of their principal amount plus accrued and
unpaid interest from August 12, 2002 to the redemption date. On November 14,
2002, pursuant to its obligations under the Subordinated Notes, the Company
made a mandatory 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 December 31, 2002, the Company made an interest payment
of approximately $16 million with respect to the Subordinated Notes. On
January 9, 2003, the Company made an optional partial redemption of $100
million principal amount of its Subordinated Notes. On February 10, 2003, the
Company made an optional partial redemption of $50 million principal amount of
its Subordinated Notes. On March 4, 2003, the Company made an optional partial
redemption of $75 million principal amount of its Subordinated Notes. On April
2, 2003, the Company made an optional partial redemption of $75 million
principal amount of its Subordinated Notes. On April 28, 2003, the Company
made the final redemption of $85 million principal amount of its Subordinated
Notes. Each of these partial redemptions of the Subordinated Notes were
redeemed at a price equal to 100% of their principal amount plus accrued and
unpaid interest to the redemption date.
Prior to the final redemption of the Subordinated Notes on April
28, 2003, the Company's obligations with respect to payment of interest and
principal under the Subordinated Notes were 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. Because the Company's investments in its subsidiaries were
pledged to secure the obligations under the Subordinated Notes, Comdisco
Holding's ability to obtain additional or alternate financing was restricted.
The Company must rely on cash generated from the orderly sale and
run-off of its assets to meet its liquidity needs. All funds generated from
the Company's remaining asset portfolios are required by the Plan to be used
to satisfy liabilities of the Company and, to the extent funds are available,
to pay dividends on the Company's Common Stock and to 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, the Company expects to generate funds from the sale or run-off of
its asset portfolios at a decreasing rate over time.
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. The Company believes this
uncertainty negatively impacted the Company's financial results for the six
months ended March 31, 2003. Furthermore, and in addition to the uncertainty
created by the Company's limited business purpose, this uncertainty will
continue to have an impact on the Company's operations and its ability to
implement the Plan. See Risk Factors below for additional risks associated
with the bankruptcy filing and the Company's future results of operations.
At March 31, 2003, the Company had unrestricted cash and cash
equivalents of approximately $157 million, a decrease of approximately $389
million compared to September 30, 2002. Net cash provided by operating
activities for the six months ended March 31, 2003 was $727 million. Net cash
used in investing activities was $32 million for the six months ended March
31, 2003.
The Company's operating activities during the six months ended
March 31, 2003, 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 remarketing of
leased equipment. Liquidity from remarketing during the six months ended March
31, 2003 decreased compared to the year earlier period and this trend is
expected to continue as the Company's asset base decreases and is reduced to
cash. See the risk factor entitled "Remarketing Results Are Uncertain" in Risk
Factors Relating to the Company, 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 May 12, 2003, the
Company's unrestricted cash balances exceeded $380 million, of which
approximately $310 million represents the aggregate amount of the dividend and
distribution to be paid by the Company with respect to its Common Stock and
Contingent Distribution Rights on May 22, 2003. The Company expects its cash on
hand and cash flow from operations to be sufficient to fund operations and to
meet its obligations under the Plan for the foreseeable future.
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 the Predecessor company's
common stock were cancelled on August 12, 2002. Holders of the Predecessor
company's 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 in its annual and quarterly reports regarding the present value of
distributions made to certain former creditors of Comdisco, Inc. As the
present value of distributions to those creditors reaches a threshold level of
percentage recovery established pursuant to the Plan, holders of Contingent
Distribution Rights are entitled to receive payments from the Company on the
terms set forth in the Plan and further clarified in the Contingent
Distribution Rights Agreement and in two bankruptcy court orders recently
entered (filed herewith as Exhibits 99.3 and 99.4). As of May 14, 2003, after
giving effect to all prior distributions made to the relevant creditors and
the payment on May 22, 2003 of the common stock dividend declared by the
Company on May 2, 2003, the present value of distributions to such creditors
will be approximately $3.164 billion and their percentage recovery will be
approximately 87.2 percent. Because the percentage recovery will exceed the
threshold level of percentage recovery, the Company announced on May 2, 2003 a
cash payment of $0.01793 per right, payable on May 22, 2003 to Contingent
Distribution Rights holders of record on May 12, 2003.
Claims remaining in the Disputed Claim Reserve (as defined in the
Plan) as of May 14, 2003, which claims have not been allowed or otherwise
resolved, were estimated by the Company in the amount of $375.2 million
pursuant to bankruptcy court authority. As these claims are allowed or
otherwise resolved, distributions may be made to the former creditors of
Comdisco, Inc. that would entitle holders of Contingent Distribution Rights to
receive a payment as described above. Payments by the Company in respect of
Contingent Distribution Rights are made from cash on hand and not from funds
released from the Disputed Claim Reserve. Accordingly, the Company expects to
maintain cash reserves sufficient to make any required payment on the
Contingent Distribution Rights resulting from the distribution of funds
released from the Disputed Claim Reserve. The next scheduled payment of funds
released from the Disputed Claim Reserve will be made on or about May 15, 2003
as required by the Plan. This scheduled payment of funds released from the
Disputed Claim Reserve, however, was not considered in the calculation of the
present value of distributions to certain former creditors of Comdisco, Inc.,
or the percentage recovery of such creditors, as of May 14, 2003 or the amount
of the payment on Contingent Distribution Rights to be made by the Company on
May 22, 2003. The Company expects to announce a payment on the Contingent
Distribution Rights corresponding to this scheduled payment of funds released
from the Disputed Claim Reserve subsequent to the payment on Contingent
Distribution Rights to be made on May 22, 2003.
Risk Factors Relating to the Company
The following risk factors and other information included in this
quarterly report on Form 10-Q should be carefully considered. The risks and
uncertainties described below are not the only ones the Company confronts.
Additional risks and uncertainties not presently known to it or that it
currently deems immaterial also may impair the Company's business operations
and 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 quarterly report may affect the actual
financial results of the Company's operations.
The Payment of Dividends and Distributions
All funds generated from the Company's remaining asset portfolios
are required by the Plan to be used to satisfy liabilities of the Company and,
to the extent funds are available, to pay dividends on the Company's Common
Stock and to 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, the Company expects to
generate funds from the sale or run-off of its asset portfolios at a
decreasing rate over time. The Company has material restrictions on its
ability, and does not expect, to make significant investments in new or
additional assets. Accordingly, the amount of funds potentially available to
pay dividends on the Company's Common Stock and to make distributions with
respect to the Contingent Distribution Rights is limited to the funds (in
excess of the Company's liabilities) that may be generated from the remaining
asset portfolios.
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 expense and the ability of the Company to dispose of its
assets. The Company's remaining lease funding obligations are immaterial.
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
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
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 Venture 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 than 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 Venture 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.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The local currency of the Company's German leasing subsidiary was
Euros and represented a significant portion of the Company's exposure to
foreign exchange rate fluctuations. Therefore, the sale and subsequent
repatriation of the proceeds from the sale of the stock of its German leasing
subsidiary significantly reduces the Company's foreign exchange risk in future
periods. Otherwise, there has been no material change during the first six
months ended March 31, 2003 from the disclosures about market risk provided in
the Company's Annual Report on Form 10-K for the year ended September 30,
2002.
ITEM 4. 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 Controls Committee. The Company's chief
executive officer, the Company's principal financial officer and the
Disclosure Controls 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, the
Company's chief executive officer and the Company's principal financial
officer have concluded that the Company's controls and procedures were
effective as of a date within 90 days prior to the filing date of this report
at ensuring that required information will be disclosed on a timely basis in
the Company's 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 the Company's books and records
accurately reflect the Company's transactions and that the Company's
established policies and procedures are carefully followed. There were no
significant changes to the Company's internal controls, or in other factors
that could significantly affect the Company's internal controls, and the
Company has not identified any significant deficiencies or material weaknesses
in its internal controls.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Certificate of Incorporation of Registrant, dated August
8, 2002 (Incorporated by reference to Exhibit 3.1 filed
with the Company's Annual Report of Form 10-K dated
September 30, 2002, as filed with the Commission on
January 14, 2003, File No. 000-499-68).
3.2 By-Laws of Registrant, adopted as of August 9, 2002
(Incorporated by reference to Exhibit 3.2 filed with the
Company's Annual Report of Form 10-K dated September 30,
2002, as filed with the Commission on January 14, 2003,
File No. 000-499-68).
10.1 Amended Share Purchase Agreement, dated as of April 29,
2003, between Comdisco Factoring (Nederland) B.V. and
Comprendium Investment (Deutschland) GmbH (Filed
herewith).
11.1 Statement re: computation of per share earnings (Filed
herewith).
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 Principal 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).
99.3 Order, dated March 27, 2003, (A) Estimating the Amounts
of Disputed C-5A Interests and C-5B Subordinated Claims
for Purposes of Establishing a Disputed Interests Reserve
as Provided in the Debtors' Plan of Reorganization and
(B) Granting Certain Related Relief (Filed herewith).
99.4 Order, dated April 17, 2003, Approving Manner in Which
Contingent Equity Distributions Shall Be Made to Holders
of Contingent Distribution Rights (Filed herewith).
Reports on Form 8-K
On April 28, 2003, the Company filed a Current Report on Form 8-K,
dated April 28, 2003. Pursuant to Item 5 of its Report, the Company
reported that it issued a press release on April 28, 2003
announcing that it had completed the redemption of the remaining
$85 million in aggregate principal amount of its 11% Subordinated
Secured Notes due 2005. The Report added the press release as an
exhibit pursuant to Item 7.
On May 2, 2003, the Company filed a Current Report on Form 8-K,
dated May 2, 2003. Pursuant to Item 5 of its Report, the Company
reported that it had issued a press release on May 2, 2003
announcing that its Board of Directors had declared a cash dividend
of $73.33 per share on the outstanding shares of the Company's
common stock, payable on May 22, 2003 to common stockholders of
record on May 12, 2003. In addition, the Company announced a cash
payment of $0.01793 per right on its Contingent Distribution Rights
on May 22, 2003 to Contingent Distribution Rights holders of record
on May 12, 2003. The Report added the press release as an exhibit
pursuant to Item 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COMDISCO HOLDING COMPANY, INC.
Dated: May 14, 2003 By: /s/ David S. Reynolds
---------------------------------
Name: David S. Reynolds
Title: Senior Vice President and
Controller (Principal
Financial and Accounting Officer)
CERTIFICATION
Certification of Principal Executive Officer
I, Ronald C. Mishler, Chairman, Chief Executive Officer and
President, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Comdisco Holding Company, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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
quarterly 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 we 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 quarterly
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 quarterly
report (the "Evaluation Date"); and
(c) Presented in this quarterly 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 function):
(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 quarterly report whether or not 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: May 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 quarterly report on Form 10-Q of
Comdisco Holding Company, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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
quarterly 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 we 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 quarterly
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 quarterly
report (the "Evaluation Date"); and
(c) Presented in this quarterly 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 function):
(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 quarterly report whether or not 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: May 14, 2003 By: /s/ David S. Reynolds
--------------------------
Name: David S. Reynolds
Title: Senior Vice President
and Controller