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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
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Common Stock, par value $0.01 per share
Contingent Distribution Rights
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes |X| No |_|
The aggregate market value of common stock held by non-affiliates of
the registrant was approximately $325 million based on its closing price per
share of $134.65 on March 31, 2003. On March 31, 2003, there were 4,200,000
shares of common stock outstanding. Shares of common stock held by each
officer and director and each shareholder who owned 5 percent or more of the
outstanding common stock at that time have been excluded in that such persons
may be deemed affiliates. The determination of affiliate status is not
necessarily a conclusive determination for other purposes.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |X| No |_|
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title of Each Class Number of Shares Outstanding at December 1, 2003
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Common Stock, par value 4,197,100
$0.01 per share
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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COMDISCO HOLDING COMPANY, INC.
2003 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. BUSINESS........................................................2
ITEM 2. PROPERTIES.....................................................12
ITEM 3. LEGAL PROCEEDINGS..............................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................14
ITEM 6. SELECTED FINANCIAL DATA........................................16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.......................................86
ITEM 9A. CONTROLS AND PROCEDURES........................................86
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............87
ITEM 11. EXECUTIVE COMPENSATION.........................................91
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................................97
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................98
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.........................98
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K......................................................101
SIGNATURES................................................................106
COMDISCO HOLDING COMPANY, INC.
2003 ANNUAL REPORT ON FORM 10-K
PART I
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Disclosure Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains, and our periodic filings
with the Securities and Exchange Commission (the "SEC") 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
(the "Securities Act") and Section 21E of the Securities Exchange Act of 1934
(the "Exchange Act"), and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These
forward-looking statements are not historical facts, but rather are
predictions and generally can be identified by use of statements that include
phrases such as "believe," "expect," "anticipate," "estimate," "intend,"
"plan," "foresee," "looking ahead," "is confident," "should be," "will,"
"predicted," "likely" or other words or phrases of similar import. Similarly,
statements that describe or contain information related to matters such as our
intent, belief, or expectation with respect to financial performance, claims
resolution under the Plan (as defined below), cash availability and
cost-cutting measures are forward-looking statements. These forward-looking
statements often reflect a number of assumptions and involve known and unknown
risks, uncertainties and other factors that could cause our actual results to
differ materially from those currently anticipated in these forward-looking
statements. In light of these risks and uncertainties, the forward-looking
events might or might not occur, which may affect the accuracy of
forward-looking statements and cause the actual results of the Company to be
materially different from any future results expressed or implied by such
forward-looking statements.
Important factors that could cause actual results to differ
materially from those suggested by these written or oral forward-looking
statements, and could adversely affect our future financial performance,
include the risk factors discussed in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operation, below. Many of the
risk factors that could affect the results of the Company's operations are
beyond our ability to control or predict.
Available Information
The Company's website address is www.comdisco.com. The Company makes
available through its website its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those
reports, as soon as reasonably practicable after such material is
electronically filed with the SEC. The Company also makes available through
the website its press releases, the Senior Executives Code of Conduct, the
Employee Code of Conduct, the Audit Committee Charter and the Compensation
Committee Charter, as well as contact information for the Audit Committee and
an employee hotline number. Information contained on the Company's website is
not intended to be part of this Annual Report on Form 10-K.
ITEM 1. BUSINESS
THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST
12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE
TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION.
PURSUANT TO THE COMPANY'S PLAN OF REORGANIZATION AND RESTRICTIONS CONTAINED IN
THE COMPANY'S CERTIFICATE OF INCORPORATION, THE COMPANY IS SPECIFICALLY
PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS
LIMITED BUSINESS PURPOSE. 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 HOLDERS OF ITS COMMON STOCK AND
CONTINGENT DISTRIBUTION RIGHTS IN THE MANNER AND PRIORITIES SET FORTH IN THE
PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS AND NO FURTHER
DISTRIBUTIONS WILL BE MADE.
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.
In this Annual Report on Form 10-K, references to "the Company,"
"Comdisco Holding," "we," "us" "our" and "Successor" mean Comdisco Holding
Company, Inc., its consolidated subsidiaries, including Comdisco Global
Holding Company, Inc., Comdisco, Inc., Comdisco Domestic Holding Company, Inc.
and Comdisco Ventures, Inc., and its predecessors, except in each case where
the context indicates otherwise. All references to "Comdisco, Inc." and
"Predecessor" 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.
General Development of Business
Wind-Down of Operations
Since emerging from bankruptcy proceedings on August 12, 2002, the
Company has, pursuant to the Plan (as defined below), focused on the
monetization of its remaining assets. The Company's asset base has decreased
by approximately 84 percent to $373 million at September 30, 2003 from $2.341
billion at September 30, 2002. Total revenue and net cash flow from operations
have decreased by 62 percent and 60 percent, respectively, in fiscal year 2003
compared to fiscal year 2002. The Company expects total revenue and cash flow
from operations to continue to decrease until the wind-down of its operations
is complete; however, the Company cannot accurately predict the net amount to
be realized, or the timing of such realization, from the continued
monetization of its assets. Therefore, comparisons of quarter-to-quarter or
year-to-year results of operations should not be relied upon as an indication
of the Company's future performance.
The Company has reduced, and expects to continue to reduce, the size
and complexity of its organizational and systems infrastructure concurrently
with the monetization of its assets. As of December 18, 2003, the Company had
a total of 108 employees, a decrease of approximately 82 percent from
approximately 600 employees upon emergence from bankruptcy proceedings on
August 12, 2002. On November 26, 2003, the Company filed a motion with the
Bankruptcy Court (as defined below) seeking authority for the Company to
migrate from its current legacy mainframe-based information system to a
simplified, alternative information system during fiscal 2004. Further, the
Company plans to consolidate its management structure into a single business
unit during fiscal 2004. The Company currently is evaluating other
alternatives that it expects will improve the efficiency of its operations
during the wind-down including, but not limited to, the appointment of a
disbursing agent to assume those duties assigned to the Company's directors
and officers pursuant to the Plan. The Company may seek Bankruptcy Court
approval prior to the implementation of any such alternatives.
Reorganized Corporate History
On July 16, 2001, Comdisco, Inc. and fifty of its domestic
subsidiaries filed voluntary petitions for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Illinois Eastern Division (the "Bankruptcy Court")
(consolidated case number 01-24795). Comdisco Holding Company, Inc., as the
successor company to Comdisco, Inc., emerged from bankruptcy under a confirmed
plan of reorganization (the First Amended Joint Plan of Reorganization (the
"Plan")) that became effective on August 12, 2002. Prior to the effective date
of the Plan, Comdisco, Inc. formed Comdisco Holding Company, Inc., a Delaware
corporation (the "Company" or "Comdisco Holding"), and Comdisco Holding, in
turn, formed Comdisco Leasing Merger Subsidiary, Inc., a Delaware corporation
and a wholly-owned subsidiary of Comdisco Holding. On August 12, 2002, in
accordance with the Plan, Comdisco Leasing Merger Subsidiary, Inc. merged with
and into Comdisco, Inc. such that Comdisco, Inc. emerged as the surviving
corporation of the merger and a wholly-owned subsidiary of Comdisco Holding.
As a result of that merger, Comdisco Holding became the successor to Comdisco,
Inc. A copy of the Plan for Comdisco, Inc., as well as other information
related to distributions of cash and securities pursuant to the Plan, can be
found in a Current Report on Form 8-K filed on August 9, 2002 with the SEC by
Comdisco, Inc. A copy of the Plan was filed as an exhibit thereto.
Prior to the bankruptcy, Comdisco, Inc. provided technology services
worldwide to help its customers maximize technology functionality,
predictability and availability, while freeing them from the complexity of
managing their technology. Comdisco, Inc. leased information technology
equipment to a variety of industries and more specialized equipment to key
vertical industries, including semiconductor manufacturing and electronic
assembly, healthcare, telecommunications, pharmaceutical, biotechnology and
manufacturing. Through its Ventures (as defined below) group, Comdisco, Inc.
provided equipment leasing and other financing and services to venture
capital-backed companies.
Implementation of the Plan resulted in the reorganization of
Comdisco, Inc. and its domestic and foreign subsidiaries into Comdisco Holding
and three new primary subsidiaries: (i) Comdisco Global Holding Company, Inc.
(a direct wholly-owned subsidiary of Comdisco Holding), which manages the sale
and run-off of the Company's reorganized European IT Leasing operations and
assets; (ii) Comdisco, Inc. (a direct wholly-owned subsidiary of Comdisco
Holding), which manages the sale and run-off of the Company's reorganized US
Leasing operations and assets (information technology and telecommunications
leasing operations in the US and Canada); and (iii) Comdisco Ventures, Inc. (a
direct wholly-owned subsidiary of Comdisco, Inc.), which manages the sale and
run-off of the Company's venture financing operations and assets ("Ventures").
The Company's Corporate Asset Management, or CAM, group is responsible for the
sale and run-off of certain corporate and leasing assets held by Comdisco
Global Holding Company, Inc., Comdisco, Inc. and their subsidiaries that
remained after certain pre-emergence bankruptcy asset sales. The CAM group's
operations are managed through Comdisco, Inc. Implementation of the Plan also
resulted in the reorganization of Prism Communication Services, Inc. and its
subsidiaries ("Prism"); as a consequence, Prism is now a direct wholly-owned
subsidiary of Comdisco Domestic Holding Company, Inc., which is itself a
direct wholly-owned subsidiary of Comdisco, Inc.
General Terms of the Plan of Reorganization
As more fully described in the Plan, the Company's business purpose
is limited to the orderly sale or run-off of all of its remaining assets.
Pursuant to the Plan and restrictions contained in its certificate of
incorporation, the Company is specifically prohibited from engaging in any
business activities inconsistent with its limited business purpose.
Approximately $10.745 billion in claims were initially filed in the
Comdisco, Inc. bankruptcy case. By the date of the initial distribution under
the Plan on September 30, 2002, the claims amount was reduced to approximately
$4.4 billion. The $4.4 billion claims amount consisted of $3.9 billion in
Allowed Claims (as defined below), of which $3.630 billion were Allowed Class
C-3 Claims and Allowed Class C-4 Claims, $285 million were Allowed Class C-1
Claims and $450 million was the estimated amount of claims that were
unresolved (the "Disputed Claims"). A claim is deemed allowed by the
Bankruptcy Court when it is resolved and settled pursuant to the Plan or court
order (an "Allowed Claim").
From the initial distribution through the date of this filing,
Allowed Claims increased by $61 million from $3.630 billion to $3.691 billion
due to additional Class C-3 and C-4 claims being allowed subsequent to the
initial distribution. No additional Class C-1 claims have been allowed. From
the initial distribution through the date of this filing, Disputed Claims
have, through the allowance of $61 million and the disallowance of $99
million, decreased to approximately $290 million. Two groups of Disputed
Claims (related to the SIP (as defined below) and a Ventures compensation plan
dispute) represent more than 75 percent of the aggregate remaining estimated
amount. At December 12, 2003, the Disputed Claims Reserve (as defined below)
consisted of approximately $284 million in cash and approximately 306,000
shares of Common Stock.
In very general terms, the Plan contemplates six different classes of
claims against the Comdisco, Inc. bankruptcy estate:
o "Class C-1" Claims. This class is comprised of secured
claims against Comdisco, Inc.
o "Class C-2" Claims. This class is comprised of certain
priority claims against Comdisco, Inc., but does not include
Administrative Claims or Priority Tax Claims (as each are
defined in the Plan) although such claims do have the same
priority as Class C-2 Claims.
o "Class C-3" Claims. This class is comprised of general
unsecured convenience claims against Comdisco, Inc. that
were $15,000 or less and claims in excess of $15,000, but
whose holder elected to reduce his or her claims to $15,000
in the aggregate and have the reduced single claim
reclassified as a general unsecured convenience claim.
o "Class C-4" Claims. The largest class of claims against the
Comdisco, Inc. bankruptcy estate, this class is comprised of
general unsecured claims other than Class C-3 Claims and
includes holders of Comdisco, Inc. notes, bonds, credit
lines and other trade debt.
o "Class C-5A" Claims. This class is comprised of equity
claims, consisting of holders of shares of Comdisco, Inc.
common stock and other "Interests" as defined in the Plan.
All shares of common stock of Comdisco, Inc. were cancelled
on August 12, 2002 in accordance with the Plan.
o "Class C-5B" Claims. This class is comprised of subordinated
claims against Comdisco, Inc.
The Plan provides that holders of Allowed Class C-1 Claims, Allowed
Class C-2 Claims, Administrative Claims and Priority Tax Claims will be
unimpaired. Class C-1 Claims primarily relate to discounted lease rentals
where the Company generated cash proceeds by selling the future rental
payments for specific domestic lease contracts on a non-recourse basis. As
these rental payments are collected from our customers, they are remitted to
holders of claims related to the discounted lease rentals in the ordinary
course of business. As of the date of this filing, Class C-2 Claims,
Administrative Claims and Priority Tax Claims were approximately $1.9 million,
which, if and when allowed, will be paid in cash from operations of the
Company.
On August 12, 2002, pursuant to the Plan, the Company, along with its
direct wholly-owned subsidiary, Comdisco, Inc., co-issued variable rate senior
secured notes due 2004 (the "Senior Notes") in the principal amount of $400
million and 11 percent subordinated secured notes due 2005 (the "Subordinated
Notes") in the principal amount of $650 million. Further, on September 30,
2002, the Company issued 4.2 million shares of common stock, $0.01 par value
per share (the "Common Stock").
On September 30, 2002, the Company made an initial distribution to
holders of Allowed Class C-3 and Class C-4 Claims based upon an aggregate
allowed amount of approximately $2 million and $3.628 billion, respectively.
As part of the initial distribution, Allowed Claims for Class C-3 creditors
were paid in cash at the rate of approximately 89.8 percent of the allowed
amount of their claims. Allowed Claims for Class C-4 creditors received a
distribution valued on the date of initial distribution at 89.8 percent of the
allowed amount of their claims comprised of cash equal to approximately 55
percent of their Allowed Claims, and pro rata shares of the Senior Notes,
Subordinated Notes, new Common Stock of the Company and rights to the Trust
Assets (as defined below). In addition, Allowed Claims for Class C-5A received
contingent distribution rights ("CDRs") that entitle holders to share at
increasing percentages in the proceeds realized from the monetization of the
Company's assets based upon the present value of distributions made to the
general unsecured creditors in the bankruptcy estate of Comdisco, Inc. If and
when any Class C-5B claims are allowed, holders of such Allowed Claims also
will receive CDRs. Pursuant to a Bankruptcy Court order dated March 17, 2003,
approximately 8.1 million CDRs, and any distributions relating to these
rights, are being held by the Company's transfer agent pending resolution of
the Class C-5A and the Class C-5B claims. No Class C-5B claims have been
allowed to date. Additional information on the CDRs can be found in a
Registration Statement on Form 8-A filed by the Company on August 12, 2002
with the SEC and in the section Contingent Distribution Rights in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Approximately $1.347 billion of outstanding claims as of the initial
distribution were Disputed Claims. Pursuant to the Plan, the Company
established a reserve for Disputed Claims in the amount of $450 million (the
"Disputed Claims Reserve"), which was funded based upon a Bankruptcy Court
order granting authority to Comdisco, Inc. to estimate certain claims. The
Disputed Claims Reserve was established to fund a claim once the claim is
deemed an Allowed Claim so long as funds are available in the Disputed Claims
Reserve. The process of resolving the Disputed Claims is ongoing. If a
Disputed Claim is not settled consensually, it will ultimately be heard and
determined by the Bankruptcy Court. The Company cannot predict with accuracy
when the claims resolution process will be completed or what the total amount
of Allowed Claims will be upon completion. Payments and distributions from the
Disputed Claims Reserve have been made as appropriate to the holder of any
Disputed Claim that has become an Allowed Claim, on the next Quarterly
Distribution Date (as defined in the Plan) after the date the Disputed Claim
becomes an Allowed Claim. Such distributions are based upon the cumulative
distributions that would have been made to the holder of such a claim under
the Plan if the Disputed Claim had been allowed on the Effective Date (as
defined by the Plan) and are not limited by the Disputed Claim amounts
previously reserved with respect to such Disputed Claim to the extent that
additional amounts are available in the Disputed Claims Reserve. On each
Quarterly Distribution Date, the Disputed Claims Reserve is reduced by an
amount equal to the amount reserved with respect to each Disputed Claim that
has been resolved during the period. To the extent the amount reserved for the
Disputed Claim exceeds the allowed amount, if any, of the claim, the remainder
shall be distributed to holders of Class C-4 Claims that have been allowed in
accordance with the provisions of the Plan.
The Plan further provides that, under certain circumstances,
subrogation rights that the Company may have against senior managers (the "SIP
Participants") who participated in Comdisco, Inc.'s Shared Investment Plan
("SIP") be placed in a trust for the benefit of creditors (the "Trust
Assets"). In February 1998, pursuant to the SIP, the SIP Participants took out
full recourse, personal loans to purchase approximately six million shares of
Comdisco, Inc.'s common stock. In connection therewith, Comdisco, Inc.
executed a guaranty dated February 2, 1998 (the "Guaranty") providing a
guaranty of the loans in the event of default by the SIP Participants to the
lenders under the SIP (the "SIP Lenders"). On November 29, 2001, the SIP
Lenders filed a master proof of claim in the Comdisco, Inc. bankruptcy in the
amount of $133 million ("SIP Guaranty Claim"). The SIP Guaranty Claim is a
Disputed Claim. On July 29, 2002, the Company filed an objection to the SIP
Guaranty Claim asserting various arguments in support of its defense against
the SIP Guaranty Claim. On November 20, 2003, the Bankruptcy Court entered a
Final Order allowing the SIP Guaranty Claim for $104 million in principal, $26
million in pre-petition interest, $2 million in breakage losses and legal fees
in an amount to be determined. The Bankruptcy Court had previously ruled that
the Company did not have the appropriate legal standing to assert a regulatory
margin violation. The Company has appealed the Final Order and the ruling and
the SIP Guaranty Claim remains a Disputed Claim.
To the extent that the Company makes a payment or distribution to the
SIP Lenders, and as a result thereof obtains subrogation rights, whether by
operation of law, by agreement with the SIP Lenders or otherwise, such
subrogation rights may become part of the Trust Assets. Pursuant to the Plan,
the Company was authorized to provide various levels of relief (the "SIP
Relief") to the SIP Participants on account of any subrogation claims which
the Company may have against the SIP Participants. On November 27, 2002, the
Bankruptcy Court approved the offering by the Company of enhanced SIP Relief
of 70 percent to seventy-two terminated employees and 80 percent to
twenty-three go-forward employees who remained with the Company following its
emergence from bankruptcy, provided that such employees executed waivers and
releases in favor of the Company, made irrevocable and unconditional
agreements to pay their unreleased SIP Subrogation Claims (as defined in the
Plan) and fulfilled certain other conditions. The enhanced SIP Relief offer
generally expired on December 31, 2002 and five of seventy-two terminated
employees and twenty-one of twenty-three go-forward employees have executed
such waivers and releases, agreements to pay and provided additional
documentation in support of the fulfillment of certain other conditions.
In regard to Prism and its subsidiaries, Comdisco, Inc. had
intercompany secured claims against Prism that exceeded the value of the
assets of Prism. Pursuant to the Plan, Comdisco, Inc. reduced its Allowed
Claims against the Prism entities to no more than one-third of the total
distribution to Prism creditors. The assets of the Prism entities have been
liquidated and the proceeds realized from such liquidation were distributed to
creditors of Prism in accordance with the Plan.
Changes in Management
On August 12, 2002, Ronald C. Mishler, 43, was appointed chairman,
chief executive officer and president of the reorganized Company. Mishler, who
joined Comdisco, Inc. in July 2001 as senior vice president and treasurer, had
been serving as president and chief operating officer of Comdisco, Inc. since
April 26, 2002. Pursuant to the Plan, Mishler replaced Norman P. Blake, who
had been serving as chairman and chief executive officer of Comdisco, Inc.
since he joined Comdisco, Inc. in February 2001.
In addition, the following individuals were named to serve for
two-year terms on the board of directors of the reorganized Company: Ronald C.
Mishler (chairman), Jeffrey A. Brodsky, Robert M. Chefitz, William A. McIntosh
and Randolph I. Thornton. See Item 10, Directors and Executive Officers of the
Registrant, below, for biographical information for each member of the
Company's board of directors. On August 12, 2002, these individuals succeeded
all of the former directors of Comdisco, Inc. to serve on the board of
directors of Comdisco Holding as set forth in the Plan.
Fresh-Start Reporting
Upon its emergence from bankruptcy on August 12, 2002, the Company
adopted fresh-start reporting in accordance with Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7") effective as of July 31, 2002 for financial reporting purposes.
SOP 90-7 requires the Company to allocate the reorganization value of the
reorganized Company to its assets, and to state liabilities existing at the
Plan confirmation date at present values of amounts to be paid determined at
appropriate current interest rates. As a result, the adjustments made in
accordance with SOP 90-7 have materially impacted the financial statements of
the Company.
For financial reporting purposes only, the "effective date" of the
emergence from bankruptcy was selected as the close of business on July 31,
2002. Accordingly, the effects of the adjustments on the reported amounts of
individual assets and liabilities resulting from the adoption of fresh-start
reporting are reflected in the Company's financial statements as of July 31,
2002. As a result of the reorganization and the recording of the restructuring
transaction and the implementation of fresh-start reporting pursuant to SOP
90-7, the Company's results of operations after July 31, 2002 are not
comparable to results reported in prior periods for Comdisco, Inc.
Basis of Presentation
Comdisco, Inc. and fifty of its domestic subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code in
the Bankruptcy Court 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 Bankruptcy Court. The reorganized Company
adopted fresh-start reporting and gave effect to its emergence from bankruptcy
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 sheets as of September 30, 2003 and 2002,
the consolidated balance sheets 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.
A black line has been drawn on the accompanying consolidated
financial statements to distinguish between Comdisco Holding Company, Inc.
(occasionally referred to herein as the "Successor company") and Comdisco,
Inc. (occasionally referred to herein as the "Predecessor company").
Sales of Assets
See Note 5 of Notes to Consolidated Financial Statements for
information on the sale of assets by the Company during the three-year period
ended September 30, 2003. See section Narrative Description of Business
(below), for a discussion of the Company's principal business segments after
emergence.
Discontinued Operations
As a result of the asset sales described in Note 5 of Notes to
Consolidated Financial Statements, the Australian, New Zealand, Austrian,
French and Swiss (collectively, "International Leasing"), German ("German
Leasing Subsidiary") and US Leasing operations have been accounted for as
discontinued operations, and accordingly, amounts in the financial statements
and related notes for all historical periods shown have been restated to
reflect the International Leasing, German Leasing Subsidiary and US leasing
operations as discontinued operations.
Comdisco, Inc.'s Availability Solutions business was offered for sale
in the third quarter of fiscal 2001 and the sale was completed in the first
quarter of fiscal 2002. As a result of the sale, the Availability Solutions
segment has been accounted for as a discontinued operation, and accordingly,
amounts in the financial statements and related notes for all historical
periods shown have been restated to reflect Availability Solutions as a
discontinued operation.
During the second quarter of fiscal 2001, the network management
services segment of Comdisco, Inc. was discontinued and was subsequently
transferred to a new provider. As a result of the transfer, the network
management segment has been accounted for as a discontinued operation, and
accordingly, amounts in the financial statements and related notes for all
historical periods shown have been restated to reflect network management as a
discontinued operation.
On October 1, 2000, Comdisco, Inc. ceased funding Prism and, as a
result, Prism began winding down its operations. The assets of the Prism
entities have been liquidated and the proceeds realized from such liquidation
were distributed to creditors of Prism in accordance with the Plan. As a
result, Prism has been accounted for as a discontinued operation, and
accordingly, amounts in the financial statements and related notes for all
historical periods shown have been restated to reflect Prism as a discontinued
operation.
Financial Information about Segments
See Note 20 of Notes to Consolidated Financial Statements, which is
incorporated in this section by reference, for financial information about the
Company's reportable business segments. The Company has restated the
corresponding items of segment information for earlier periods to reflect the
post-emergence reorganization changes made to its reportable segments and to
reflect the discontinuance of operations (see Note 5 of Notes to Consolidated
Financial Statements).
Narrative Description of Business
General
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. Since emerging from
bankruptcy, the Company has not engaged in any new leasing or financing
activities, except for previously existing customer commitments and to
restructure existing equipment leases and loans to maximize the value of the
Company's assets.
Principal Business Segments
Following the Company's emergence from bankruptcy on August 12, 2002,
the Company's operations were reorganized into four reportable business
segments: (i) US Leasing, which included the information technology and
telecommunications leasing operations in the US and Canada and was managed by
Comdisco, Inc.; (ii) European IT Leasing, which is managed by Comdisco Global
Holding Company, Inc.; (iii) Ventures, which is managed by Comdisco Ventures,
Inc.; and (iv) the Corporate Asset Management, or CAM, group. The Company's
Services business was substantially discontinued prior to emergence. As a
result of the sale of US Leasing to Bay4 Capital Partners, LLC ("Bay4") and
the sale of the Company's Canadian leasing assets to Bay4 Capital Partners,
Inc. in September 2003 (see Note 5 of Notes to Consolidated Financial
Statements), the US Leasing segment has been classified as a discontinued
operation at September 30, 2003. For business segment reporting purposes, the
CAM group includes various corporate assets and liabilities managed by
corporate staff.
The Company's operations are primarily conducted through its
principal office in Rosemont, Illinois. Until the sale of assets to Bay4 and
Bay4 Capital Partners, Inc., the US Leasing operations maintained various
sales offices located in North America. The assets remaining in Europe are
managed through two regional offices located in the Netherlands and the United
Kingdom. All of the Company's business segments had their own management
teams, account management operations and customer support personnel. Overall
corporate control and coordination has been achieved through centralized
policies and procedures, financial reporting, cash management, legal services,
additional customer support and strategic planning. The Company expects to
consolidate its management structure into one business unit as part of its
ongoing wind-down process during fiscal 2004.
The following is a narrative description of the US Leasing (which,
for financial reporting purposes, has been classified as discontinued
operations at September 30, 2003), European IT Leasing, Ventures and CAM
business segments as operated in fiscal year 2003. See Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
below, for recent developments relating to the Company's reportable business
segments.
US Leasing
----------
The Company's post-bankruptcy business purpose is limited to the
orderly sale or run-off of all of its remaining asset portfolios, including
those in the US Leasing portfolio. Pursuant to the Plan and restrictions
contained in its certificate of incorporation, the Company is specifically
prohibited from engaging in any business activities inconsistent with its
limited business purpose.
Prior to the bankruptcy, the Company provided a variety of leasing
products and related services to its customers. These services included
acquisition management, expenditure tracking, asset tracking and reselling of
third party services. The rate and all other transaction terms were
individually negotiated with customers. The leased equipment was owned by the
Company, which purchased the equipment from a variety of manufacturers.
Substantially all equipment leases that the Company originated had
specified non-cancelable initial terms ranging from two to five years. The
general terms and conditions of all of its leases were substantially similar
and were embodied in a master lease agreement. For each lessee, the lease
term, rent interval, lease rate factor and other specific terms for each piece
of leased equipment were set forth on equipment schedules, which incorporated
the terms and conditions of its master lease agreement.
The Company bought, sold, leased and remarketed technology equipment
made by most of the leading manufacturers. Specifically, the Company leased
PCs, point of sale, server, enterprise, network, telecommunications and other
equipment. The Company's strategy for the distributed systems market was to
provide financing, asset management, reconditioning services and software
tools to its customers.
The Company offered a variety of leasing products to the marketplace
and often the leases were enhanced with service products for its customers.
The Company differentiated itself from competitors through a number of service
offerings tied into the assets on lease. For example, the Company's asset
management services included procurement, tracking, help desk and break/fix
services for the assets on lease.
The Company's telecommunications group, which was part of the
Company's US Leasing operations, provided leasing and remarketing, asset
management and reconditioning services for telecommunications equipment. The
Company focused on helping carriers competitively respond to network capacity
requirements through customized financing, reconditioned equipment options and
other services for various switches, routers and other telecommunications
equipment.
The assets of its US information technology leasing business were
sold to Bay4 and Canadian leasing assets were sold to Bay4 Capital Partners,
Inc. prior to September 30, 2003 and a number of employees of the former US
Leasing segment were hired by the acquiring companies and/or their affiliates.
All remaining employees of the US Leasing segment have been terminated,
primarily in September and October 2003.
European IT Leasing
-------------------
The Company's post-bankruptcy business purpose is limited to the
orderly sale or run-off of all of its remaining asset portfolios, including
those in the European IT Leasing portfolio. Pursuant to the Plan and
restrictions contained in its certificate of incorporation, the Company is
specifically prohibited from engaging in any business activities inconsistent
with its limited business purpose.
The European IT Leasing segment's operations, assets and business
strategy were substantially similar to those of the US Leasing segment.
However, the European IT Leasing segment offered a different variety of
leasing products to the marketplace than those of US Leasing. For example, the
technology refresh option product, offered primarily in Europe, involves
long-term funding commitments and allowed customers to reduce technology risk
while maintaining a predictable spending pattern.
Prior to bankruptcy, the Company's European IT Leasing operations
were conducted through its subsidiaries with multiple operations centers
across Europe. Today, European IT Leasing has substantially consolidated its
operations into two small offices located in the United Kingdom and in the
Netherlands.
See Note 5 of Notes to Consolidated Financial Statements for
information regarding the sale of certain European IT Leasing assets and
subsidiaries.
Ventures
--------
The Company's post-bankruptcy business purpose is limited to the
orderly sale or run-off of all of its remaining asset portfolios, including
those in the Ventures business segment. Pursuant to the Plan and restrictions
contained in its certificate of incorporation, the Company is specifically
prohibited from engaging in any business activities inconsistent with its
limited business purpose.
Prior to bankruptcy, the Ventures group structured financial
relationships specific to a company's needs and provided services specific to
the company's stage of development. The Ventures group served as a strategic
financing source to complement venture capital and commercial banking
relationships and provided a means for leveraging the equity capital invested.
The Ventures group invested in various stages of companies from seed
stage to pre-IPO companies and offered financing products that included
leasing, subordinated debt, secured debt (e.g., lines of credit, working
capital), bridge loans, expansion loans, acquisition financing, landlord
guarantees, convertible debt and equity. The Ventures group also offered value
added services of the Company, such as discounted purchasing of new equipment
and access to reconditioned equipment.
The Ventures group provided venture leases, venture debt and direct
equity financing to venture capital-backed companies. Venture leases were
leases with warrants that were intended to compensate the Ventures group for
providing equipment leases with terms having lower periodic cash costs than
leases without warrants. Similarly, venture debt was a high-risk loan with
warrants or a conversion-to-equity feature with more flexible terms than more
traditional debt financing. Direct equity financings involved the Ventures
group's purchase of convertible preferred stock and common stock from its
customers.
The Ventures group provided financing to companies providing Internet
services, and in industries that included software and computer services,
communications and networking, hardware, semiconductors, biotechnology and
medical devices, and others. Although Comdisco, Inc. funded the Ventures
group's contractual financing commitments in place as of July 16, 2001, the
Company has not made new venture debt or equity financing commitments since
the second quarter of fiscal 2001.
On the Effective Date of the Plan, the assets of the Ventures group
were transferred to Comdisco Ventures, Inc., which is responsible for the
orderly sale or run-off of the remaining assets in the portfolio. During
fiscal 2003, all Ventures group regional offices were closed and personnel in
the Rosemont office assumed the management of the Ventures portfolio.
The Corporate Asset Management ("CAM") Group
--------------------------------------------
CAM group was established as a separate business unit pursuant to the
Plan, operating as a division of Comdisco, Inc. CAM group's business purpose
is limited to the orderly sale or run-off of all of the remaining assets that
it manages. For business segment reporting purposes, the CAM group includes
various corporate assets and liabilities managed by corporate staff. CAM
manages a diverse set of assets located globally including:
o management of the amounts due from buyers on certain
portfolio sales including performance based payments;
o management of the remaining assets for industry specific
leasing portfolios including assets located in North
America, Europe and the Pacific Rim;
o disposition of various corporate assets including real
estate and equity positions;
o the orderly liquidation of the network leasing portfolio;
and
o the orderly liquidation of the Japanese and Mexican IT
portfolios.
Substantially all equipment leases managed by the CAM group have
specified non-cancelable initial terms ranging from two to five years. The
general terms and conditions of all of its leases were substantially similar
and were embodied in a master lease agreement. For each lessee, the lease
term, rent interval, lease rate factor and other specific terms for each piece
of leased equipment were set forth on equipment schedules, which incorporated
the terms and conditions of its master lease agreement.
Prior to the bankruptcy proceeding, the Company provided leasing and
remarketing, asset management and reconditioning services for industry
specific equipment including the following leasing groups:
o Electronics Group: The Company leased new and used
electronic manufacturing, testing and monitoring equipment,
including semiconductor production equipment, automated test
equipment and assembly equipment to customers globally.
Additionally, the Company maintained a dedicated
refurbishing and sales facility in the Silicon Valley area.
CAM continues to manage the sale or run-off of the
electronics assets remaining after the sale to General
Electric Capital Corporation ("GE Capital").
o Healthcare Group: The Company leased medical and other high
technology equipment to healthcare providers, including used
reconditioned medical equipment. The Company's portfolio
included angiography, MRI systems, CT scanners, nuclear
imaging devices, test equipment such as oscilloscopes,
analyzers and testers and other medical equipment. CAM
continues to manage the sale or run-off of the healthcare
assets remaining after the sale to GE Capital.
o Laboratory and Scientific Group: The Company assisted
organizations in the pharmaceutical, chemical, research,
healthcare and biotechnology industries through the
implementation of an equipment life-cycle management
strategy for various laboratory and scientific equipment.
CAM continues to manage the sale or run-off of the
laboratory and scientific assets remaining after the sale to
GE Capital.
Services
Prior to its sale to SunGard, the Company's Availability Solutions
business provided web-hosting, including production hosting, for both primary
and alternate sites. These services included multi-site protection of a
customer's data, servers, network and applications. The Company's Availability
Solutions business offered continuous web-availability to ensure a continuous
web presence. Availability Solutions also addressed the challenges of managing
through peak demand periods via a shared infrastructure service.
Prior to its sale to T-Systems Inc., the Company's IT CAP Services
business provided strategic solutions for desktop management services to its
customers to assist them in managing their information technology assets with
the objective of increasing productivity and reducing technology cost and
risk. The Company's integrated desktop management software tools allowed
customers to order, track and manage their inventory of distributed systems
equipment.
During the second quarter of fiscal 2001, the network management
services segment of Comdisco, Inc. was discontinued and was subsequently
transferred to a new provider. As a result of the transfer, the network
management segment has been accounted for as a discontinued operation, and
accordingly, amounts in the financial statements and related notes for all
historical periods shown have been restated to reflect network management as a
discontinued operation.
Customers
Due to the Company's limited business purpose, the Company does not
expect to be dependent upon a single customer or group of customers to
generate future investment or revenue opportunities. However, the Company
currently has a concentration of its assets in a few customers and obligors
such as the following:
o The Company has four payments totaling up to approximately
Euro 38 million due from Comprendium Investments S.A.
resulting from the sale of the stock of its German Leasing
Subsidiary, due over the next thirty-six months. The
payments due are included in the assets of discontinued
operations at September 30, 2003.
o The Company has a residual note due from Bay4 from the sale
of US Leasing totaling approximately $40 million, which will
be paid, provided the leased equipment residuals perform.
The residual note is included in the assets of discontinued
operations at September 30, 2003.
o The Company has approximately $26 million due from its
participation interest in certain lease rental payments from
Agere Systems, Inc. ("Agere") as a result of the settlement
of future contingent payment obligations from the sale of
the electronics equipment leasing business (see Notes 5 and
12 of Notes to Consolidated Financial Statements). The
payments due from Agere are included in the balance sheet in
Receivables (at the present value of the minimum lease
payments) and, in a like amount, in Deferred Income. As
payments are received, the Company records earnings in an
amount equal to the payments received.
o The Company's European IT Leasing has remaining payments of
approximately 9.1 million GBP through 2008 due from a
subsidiary of Cable & Wireless Plc. The remaining lease
payments are reflected in Leased Assets at September 30,
2003.
Competition
The Company's post-bankruptcy business purpose is limited to the
orderly sale or run-off of all of its remaining asset portfolios. Pursuant to
the Plan and restrictions contained in its certificate of incorporation, the
Company is specifically prohibited from engaging in any business activities
inconsistent with its limited business purpose. However, the Company may
experience competition as part of its ongoing remarketing operations. Such
competition may come from manufacturers and other financing sources attempting
to replace the Company's existing leased equipment with updated equipment or
with similar equipment on more favorable terms.
Employees
On September 30, 2003, the Company had approximately 121 U.S.
employees and 7 non-U.S. employees, for a total of 128 employees. No employees
are represented by a labor union. As of December 18, 2003, the Company had 101
U.S. employees and 7 non-U.S. employees, for a total of 108 employees. The
Company anticipates further reductions in its workforce to coincide with
future sales and run-off of its remaining asset portfolios, its anticipated
conversion from its current legacy mainframe-based information system to a
simplified, alternative information system and further consolidation of its
business segment management structure.
Other
The Company does not own any patents, trademarks, licenses,
franchises or concessions that it considers to be material to the Company's
businesses.
The Company's businesses are not seasonal; however,
quarter-to-quarter results from operations can vary significantly.
Because of the nature of the Company's business, the Company is not
required to carry significant amounts of inventory either for delivery
requirements or to assure continuous availability of goods from suppliers.
Financial Information about Geographic Areas
See Note 20 of Notes to Consolidated Financial Statements, which is
incorporated in this section by reference, for information about foreign and
domestic operations.
ITEM 2. PROPERTIES
Properties Sold in Fiscal 2003
On September 26, 2003, the Company announced the sale of its 287,000
square-foot headquarters building located at 6111 N. River Road in Rosemont,
Illinois for $19.3 million. The sale closed on September 25, 2003. The Company
will remain as a tenant in the building and has leased 50,000 square feet
through March 31, 2004, declining to approximately 25,000 square feet through
October 2004. The building serves as the headquarters for all of the Company's
business segments.
On August 15, 2003, the Company closed the sale of its 250,000
square-foot warehouse facility located at 800 Albion Way in Schaumburg,
Illinois for approximately $3.7 million. This facility had been used primarily
for refurbishing, maintenance and storage of equipment held for lease or sale,
primarily to customers of US Leasing.
Owned Properties
The Company owned a 75,000 square foot data center in Carlstadt, New
Jersey, and owns a 36,000 square foot data center in Eching, Germany, both of
which were utilized by the Company's Availability Solutions business segment,
and owns an 11,500 square foot day care facility in Rosemont adjacent to its
headquarters. The Company completed the sale of the Carlstadt facility in
November 2003 for approximately $2.2 million, of which approximately $1.5
million is in escrow pending resolution of an unrelated New Jersey state tax
issue as of the date of this filing. The property in Eching and the day care
facility in Rosemont are offered for sale by the Company at this time. The
sale process, which is being managed by the CAM group, is expected to generate
cash of less than $4 million.
Leased Properties
The Company leases office space for all of its operations in
Rosemont, Illinois (50,000 square feet declining to approximately 25,000
square feet through October 2004). The Company has prepaid its Rosemont,
Illinois leasing obligations through October 2004. The Company will continue
to lease warehouse space in Hayward, California (112,800 square feet) through
January 2004 for its electronics operations and small offices in the
Netherlands and the United Kingdom to manage the runoff of its European IT
Leasing and CAM group assets.
ITEM 3. LEGAL PROCEEDINGS
Bankruptcy Proceeding
On July 16, 2001, Comdisco, Inc. and fifty of its domestic
subsidiaries filed voluntary petitions for relief under Chapter 11 of the
United States Bankruptcy Code in the Bankruptcy Court to facilitate the
restructuring of Comdisco, Inc.'s debt, trade and other obligations. Comdisco,
Inc. continued to operate its business and manage its property as a
debtor-in-possession subject to the Bankruptcy Court's supervision and orders
until the Plan was confirmed on July 30, 2002 and became effective on August
12, 2002. The provisions of the Plan are further described under Item 1,
Business, of this Report and in a Current Report on Form 8-K filed on August
9, 2002 with the SEC by Comdisco, Inc. A copy of the Plan is also available on
the Company's website. Since emerging from bankruptcy, the Company has filed a
number of motions with and obtained orders from the Bankruptcy Court,
including, but not limited to, motions and orders relating to payments due
under the CDRs, the administration of the Disputed Claims Reserve and
administration of the claims resolution process.
Securities Litigation
On February 7, 2001, a purported class action complaint was filed in
the United States District Court for the Northern District of Illinois against
Comdisco, Inc., Nicholas K. Pontikes, and John J. Vosicky, alleging violations
of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, as
amended. See Blitzer v. Comdisco, et al., No. 01-C-0874. Nicholas K. Pontikes
is a former chief executive officer and director of Comdisco, Inc.; John J.
Vosicky formerly served as a director, executive vice president, and chief
financial officer of Comdisco, Inc. In addition, fourteen other similar
purported class action lawsuits were filed against Comdisco, Inc., Nicholas K.
Pontikes, and John J. Vosicky in the United States District Court for the
Northern District of Illinois. Those individual class action lawsuits, along
with the first-filed Blitzer case, were dismissed and the complaints were
combined into a single action, captioned In re: Comdisco Securities
Litigation, No. 01-C-2110.
In connection with the confirmation process for the Plan for
Comdisco, Inc., the lead plaintiff in the consolidated action agreed to
dismiss the action with respect to Comdisco, Inc., but maintained all rights,
if any, against Nicholas K. Pontikes, John Vosicky, and any person not
released from liability by the Plan. This resolution was made effective
pursuant to a stipulation and agreed order dated June 13, 2002.
On November 15, 2002, the lead plaintiff in the consolidated lawsuit
filed an Amended Class Action Complaint in the United States District Court
for the Northern District of Illinois, Eastern Division, Master File No. 01 C
2110 ("Amended Complaint"). Neither the Company nor Comdisco, Inc. was named
as a defendant in the Amended Complaint, which included claims against only
Nicholas K. Pontikes and John J. Vosicky. On December 10, 2002, Messrs.
Pontikes and Vosicky filed a motion to dismiss the Amended Complaint. The
court denied that motion on March 31, 2003. Since that time, the parties have
been engaged in discovery.
On October 27, 2003, counsel for the lead plaintiff filed a motion
for leave to intervene on behalf of a different individual seeking to serve as
the class representative in the litigation. The court denied that motion on
November 17, 2003. As yet, no class has been certified in this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the three months ended September 30, 2003.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to Comdisco, Inc.'s bankruptcy proceedings, the common stock of
Comdisco, Inc. was traded on the New York Stock Exchange ("NYSE") under the
symbol "CDO." On April 11, 2002, the NYSE announced that it would suspend
trading and move to delist Comdisco, Inc.'s common stock because the common
stock had traded below $1.00 per share for more than 30 consecutive trading
days. As a result, the common stock of Comdisco, Inc. began to be traded on
the Over-the-Counter Bulletin Board system under the symbol "CDSOQ." On August
12, 2002, in conjunction with the effective date of the Plan, all shares of
common stock of Comdisco, Inc. were cancelled.
In connection with the September 30, 2002 initial distribution under
the Plan, the Company issued approximately 3.74 million shares of Common Stock
to holders of Allowed Claims in Class C-4. Approximately 460,000 additional
shares of Common Stock were deposited in the Disputed Claims Reserve for
future distribution pending the outcome of Disputed Claims (approximately
306,000 shares remain in the Disputed Claims Reserve as of November 14, 2003).
The Company's Common Stock currently trades on the Over-the-Counter Bulletin
Board system under the symbol "CDCO." In addition, the CDRs currently trade on
the Over-the-Counter Bulletin Board system under the symbol "CDCOR."
Over-the-Counter Bulletin Board quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
The Plan authorizes, but does not require, the issuance of additional
shares of the Company's Common Stock to make distributions to holders of CDRs.
The Company has chosen to distribute cash to holders of CDRs in lieu of shares
of Common Stock (see discussion following for distributions made to holders of
CDRs). More information on distributions to holders of CDRs can be found in a
Registration Statement on Form 8-A filed by the Company on August 12, 2002
with the SEC and in the section Contingent Distribution Rights in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Common Stock
As of December 1, 2003, there were 201 shareholders of record of the
Company's Common Stock. The following tables set forth the high and low sales
prices for the common stock of Comdisco, Inc. for fiscal 2001 and from October
1, 2001 through August 12, 2002. Between August 13, 2002 and September 30,
2002, Comdisco Holding had no shares of Common Stock outstanding; as such, the
Company does not have information on trading that may have occurred during
that time. On September 30, 2002, Comdisco Holding made an initial
distribution of Common Stock to its creditors in accordance with the Plan. The
first day that trading information is available for the shares of Common Stock
is October 3, 2002. Due to the bankruptcy proceedings and the reorganization
transactions, share prices for the Common Stock are not comparable to those
reported in prior periods for Comdisco, Inc.
Comdisco, Inc. Stock Price
October 1, 2001 Comdisco Holding Stock Price
to August 12, 2002 (2) Fiscal Year 2003
QUARTER High Low Dividends QUARTER High Low Dividends
- ------- ---- --- --------- ------- ---- --- ---------
First $0.94 $0.27 - First $ 80.00 $ 46.00 $ -
Second 1.14 0.29 - Second 137.00 76.50 -
Third 0.41 0.01 - Third 172.00 89.00 87.63
Fourth(1) 0.08 0.01 - Fourth 130.00 70.00 47.60
(1) July 1, 2002 to August 12, 2002
(2) In accordance with the Plan, all shares of common stock of Comdisco, Inc.
were cancelled on August 12, 2002.
The Company's transfer agent and registrar is Mellon Investor
Services, L.L.C., P.O. Box 3312, South Hackensack, New Jersey, 07606. The
shareholder relations telephone number is (800) 851-9677 and the internet
address is http://www.melloninvestor.com.
From February 1979 to March 2001, Comdisco, Inc. paid quarterly
dividends to shareholders of record in the prior calendar quarter. In the
first and second quarters of fiscal 2001, Comdisco, Inc. paid out dividends in
the amount of $0.025 per share. In May 2001, Comdisco, Inc. suspended the
payment of quarterly dividends.
In May 2003, the Company distributed approximately $308 million to
stockholders in the form of a dividend paid on the Company's Common Stock. In
June 2003, the Company distributed approximately $60 million to stockholders
in the form of a dividend paid on the Company's Common Stock. In September
2003, the Company distributed approximately $200 million to stockholders in
the form of a dividend paid on the Company's Common Stock. On November 20,
2003, the Company declared a cash dividend of $12 per share (an aggregate
distribution of approximately $50 million) on the outstanding shares of its
Common Stock, paid on December 11, 2003, to stockholders of record on December
1, 2003. Comdisco intends to treat the dividend distributions for federal
income tax purposes as part of a series of liquidating distributions in
complete liquidation of the Company.
Contingent Distribution Rights
For financial reporting purposes, the Company records CDRs as a
liability and as an operating expense although the CDRs trade
over-the-counter.
The Plan entitles holders of CDRs to share at increasing percentages
in the proceeds realized from the Company's assets based upon the present
value of distributions made to the general unsecured creditors in the
bankruptcy estate of Comdisco, Inc. As of December 1, 2003, there were 2,221
holders of record of the Company's CDRs and there were 152,272,188 outstanding
CDRs.
In May 2003, the Company made a $2.7 million distribution with
respect to the CDRs. Two additional CDR distributions of approximately $2.5
million and $13.4 million were made in June 2003 and September 2003,
respectively. On November 20, 2003, the Company declared a cash payment of
$.0514 per CDR (an aggregate distribution of approximately $7.8 million) paid
on December 11, 2003 to CDR holders of record on December 1, 2003.
On December 16, 2003, the Company filed a Current Report on Form
8-K/A announcing the present value of distributions to the initially allowed
general unsecured creditors in the bankruptcy estate of Comdisco, Inc. was
approximately $3.461 billion (not the $3.449 billion as previously reported
and as utilized in determining the cash payment of $.0514 per CDR paid on
December 11, 2003). This increase in the present value of distributions to the
initially allowed general unsecured creditors in the bankruptcy estate of
Comdisco, Inc. entitles holders of CDRs to receive an incremental cash payment
of approximately $2.8 million, or approximately $0.018 per CDR. The Company
expects to make such incremental distribution in conjunction with its next
payment to holders of CDRs. The next payment to holders of CDRs is expected to
occur shortly after the next Quarterly Distribution (as defined in the Plan)
from the Disputed Claims Reserve, which is scheduled for February 14, 2004.
See Critical Accounting Policies and Contingent Distribution Rights
in Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations for information on the CDR liability and the impact of
the Disputed Claims Reserve on the operations of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data of the Company for the year
ended September 30, 2003, the two months from August 1, 2002 to September 30,
2002 and for Comdisco, Inc. for the ten months from October 1, 2001 to July
31, 2002 and the years ended September 30, 2001, 2000 and 1999, has been
derived from the Company's and/or Comdisco, Inc.'s audited consolidated
financial statements. This information should be read in conjunction with the
consolidated financial statements and the related notes thereto appearing
elsewhere in this Report and in conjunction with Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Certain reclassifications have been made to the prior period financial
statements to conform to the presentation used in the September 30, 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 after July 31, 2002 are not
comparable to results reported in prior periods for Comdisco, Inc.
SUCCESSOR | PREDECESSOR
|
Two Months | Ten Months
Year ended ended | ended
September 30, September 30, | July 31, Years ended September 30,
(in millions except per share data) 2003 2002 | 2002 2001 2000 1999
------------ ------------- | ------------- ----------- ---------- ----------
Consolidated summary of earnings (losses) |
Revenue |
Leasing $ 135 $ 44 | $ 484 $ 881 $ 786 $ 816
Sales 91 1 | 164 126 141 66
Mainframe, medical and vendor portfolio sale - - | - - - 18
Technology services 15 3 | 37 95 105 75
Other 62 11 | 60 453 524 110
------------ ------------- | ------------- ----------- ---------- ----------
Total revenue 303 59 | 745 1,555 1,556 1,085
Costs and expenses |
Leasing 109 46 | 368 648 563 621
Sales 80 3 | 189 111 115 67
Mainframe, medical and vendor portfolio sale - - | - - - 18
Technology services 8 5 | 27 110 115 71
Selling, general and administrative 77 10 | 85 185 258 144
Contingent distribution rights 52 10 | - - - -
Write-down of equity securities 25 3 | 70 129 7 -
Bad debt expense (92) 3 | 115 390 113 27
Interest 25 12 | 16 294 314 301
Reorganization items - - | 439 34 - -
Fresh-start reporting adjustments - - | 369 - - -
Other - - | - - - 30
------------ ------------- | ------------- ----------- ---------- ----------
Total costs and expenses 284 92 | 1,678 1,901 1,485 1,279
Earnings (loss) from continuing operations |
before income taxes (benefit), extraordinary |
gain and cumulative effect of change in |
accounting principle 19 (33) | (933) (346) 71 (194)
Income taxes (benefit) (1) 2 | 48 (138) 24 (72)
------------ ------------- | ------------- ----------- ---------- ----------
Earnings (loss) from continuing operations |
before extraordinary gain and cumulative |
effect of change in accounting principle 20 (35) | (981) (208) 47 (122)
Earnings (loss) from discontinued operations, |
net of income tax 80 18 | 287 (66) (114) 170
Extraordinary gain - 241 | 153 - - -
Cumulative effect of change in accounting |
principle, net of income tax - - | - 2 - -
------------ ------------- | ------------- ----------- ---------- ----------
Net earnings (loss) to common stockholders $ 100 $ 224 | $ (541) $ (272) $ (67) $ 48
============ ============= | ============= =========== ========== ==========
Per common share data: |
Earnings (loss) from continuing |
operations-diluted $ 4.80 $ (8.28) | $ (6.52) $ (1.37) $ 0.28 $ (0.75)
Earnings (loss) from discontinued |
operations-diluted 19.11 4.27 | 1.91 (0.44) (0.69) 1.05
|
Earnings from extraordinary gain-diluted - 57.38 | 1.02 - - -
Cumulative effect of change in accounting |
principle - - | - 0.01 - -
------------ ------------- | ------------- ----------- ---------- ----------
Net earnings (loss) to common |
stockholders-diluted $ 23.91 $ 53.37 | $ (3.59) $ (1.80) $ (0.41) $ 0.30
============ ============= | ============= =========== ========== ==========
Cash dividends paid on common stock |
(per share) $135.23 $ - | $ - $ 0.05 $ .10 $ .10
Average common shares (in thousands)-diluted 4,199 4,200 | 150,559 151,246 161,782 161,787
|
Financial position: |
Total assets $ 373 $ 2,341 | $ 2,291 $ 6,202 $ 8,697 $ 7,807
Notes payable - 1,050 | 1,050 1,096 1,314 820
Total long-term debt - 1,113 | 1,123 2,999 4,147 4,236
Discounted lease rentals - 262 | 304 964 794 515
Stockholders' equity 182 641 | 413 447 1,214 1,060
|
Other data: |
|
Total rents of new leases $ 6 $ 69 | $ 241 $ 1,500 $ 2,800 $ 3,100
Future leasing contractual cash flows 148 1,798 | N/A 5,397 7,063 6,731
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST
12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE
TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION.
PURSUANT TO THE COMPANY'S PLAN OF REORGANIZATION AND RESTRICTIONS CONTAINED IN
THE COMPANY'S CERTIFICATE OF INCORPORATION, THE COMPANY IS SPECIFICALLY
PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS
LIMITED BUSINESS PURPOSE. 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 HOLDERS OF ITS COMMON STOCK AND
CONTINGENT DISTRIBUTION RIGHTS IN THE MANNER AND PRIORITIES SET FORTH IN THE
PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS AND NO FURTHER
DISTRIBUTIONS WILL BE MADE.
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
Wind-Down of Operations
Since emerging from bankruptcy proceedings on August 12, 2002, the
Company has, pursuant to the Plan, focused on the monetization of its
remaining assets. The Company's asset base has decreased by approximately 84
percent to $373 million at September 30, 2003 from $2.341 billion at September
30, 2002. Total revenue and cash flow from operations have decreased by 62
percent and 60 percent, respectively, in fiscal year 2003 compared to fiscal
year 2002. The Company expects total revenue and net cash flow from operations
to continue to decrease until the wind-down of its operations is completed;
however, the Company cannot accurately predict the net amount to be realized,
or the timing of such realization, from the continued monetization of its
assets. Therefore, comparisons of quarter-to-quarter or year-to-year results
of operations should not be relied upon as an indication of the Company's
future performance.
The Company has reduced, and expects to continue to reduce, the size
and complexity of its organizational and systems infrastructure concurrently
with the monetization of its assets. As of December 18, 2003, the Company had
a total of 108 employees, a decrease of approximately 82 percent from
approximately 600 employees upon emergence from bankruptcy proceedings on
August 12, 2002. On November 26, 2003, the Company filed a motion with the
Bankruptcy Court seeking authority for the Company to migrate from its current
legacy mainframe-based information system to a simplified, alternative
information system during fiscal 2004. Further, the Company plans to
consolidate its management structure into a single business unit during fiscal
2004. The Company currently is evaluating other alternatives that it expects
will improve the efficiency of its operations during the wind-down including,
but not limited to, the appointment of a disbursing agent to assume those
duties assigned to the Company's directors and officers pursuant to the Plan.
The Company may seek Bankruptcy Court approval prior to the implementation of
any such alternatives.
Overview
On July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries
voluntarily filed for bankruptcy. Prior to the bankruptcy, Comdisco, Inc.
provided technology services worldwide to help its customers maximize
technology functionality, predictability and availability, while freeing them
from the complexity of managing their technology. Comdisco, Inc. leased
information technology equipment to a variety of industries and more
specialized equipment to key vertical industries, including semiconductor
manufacturing and electronic assembly, healthcare, telecommunications,
pharmaceutical, biotechnology and manufacturing. Through its Ventures group,
Comdisco, Inc. provided equipment leasing and other financing and services to
venture capital-backed companies.
Events Leading to Bankruptcy
In February 1999, Comdisco, Inc. acquired Prism, a provider of
dedicated high-speed connectivity, for a cash purchase price of approximately
$53 million. From the date of acquisition through September 30, 2000,
Comdisco, Inc. provided Prism with cash totaling $478 million for the
expansion of its network and for its operating costs. However, Prism's
operations through September 2000 resulted in significant cash losses. On
October 1, 2000, Comdisco, Inc.'s Board of Directors voted to cease funding
the ongoing operations of Prism. On October 1, 2000, Prism's Board of
Directors voted to cease operations and pursue the immediate sale of Prism's
assets. The assets of the Prism entities have been liquidated and the proceeds
realized from such liquidation were distributed to creditors of Prism in
accordance with the Plan. The venture leases, venture debt and direct equity
financing provided by the Ventures group to venture capital-backed companies
in the technology and Internet-based industries were, by their nature, high
risk. For fiscal 2000, Ventures had net earnings of $246 million. During the
first and second calendar quarter of 2001, a market downturn in the technology
and Internet-based sectors resulted in a substantial decrease in the revenues
of Ventures, deterioration in the credit quality of the Ventures portfolio and
significant increases in bad debt expense and the write down of equity
securities. As a result of these and other factors, the Ventures operation
posted losses of $179 million and $150 million for the fiscal years ended
September 30, 2002 and 2001, respectively.
As a result of the losses associated with Prism and the Ventures
group, Comdisco, Inc.'s cash reserves, overall financial performance and
financial condition were significantly negatively impacted. As a result, in
part, of the erosion of the Ventures' business and the losses associated with
Prism, Comdisco, Inc.'s debt ratings were downgraded below investment grade
and Comdisco, Inc. lost access to the commercial paper market. In order to
retire commercial paper obligations and other scheduled debt maturities and to
finance operations, Comdisco, Inc. borrowed the remaining availability under
its prepetition credit agreements in April 2001.
Another fundamental challenge faced by Comdisco, Inc. was its debt
structure, which involved relatively short-term debt maturities and long-term
lease and financing obligations associated with their principal business
products. Accordingly, although Comdisco, Inc.'s operations generally
generated sufficient cash to meet its working capital needs, without access to
the commercial paper market, Comdisco, Inc. could not generate sufficient cash
to retire all of the debt maturities scheduled to be repaid during 2001 and
2002.
As a result of these events, on July 15, 2001, Comdisco, Inc.
concluded that filing for bankruptcy was in the best interests of all of its
stakeholders. Comdisco Inc.'s Chapter 11 bankruptcy proceeding commenced the
next day on July 16, 2001.
Emergence from Bankruptcy
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 business groups: US Leasing;
European IT Leasing; the Corporate Asset Management group ("CAM group"); and
Ventures. See Item 1, Business, above, for more details about the Company's
business operations.
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. Since emerging from
bankruptcy, 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 CDRs 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. 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 holders of its Common Stock and
CDRs in the manner and priorities set forth in the Plan. At that point, the
Company will cease operations and no further distributions will be made.
Critical Accounting Policies
The Company's consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires Comdisco to use
estimates and assumptions that affect reported amounts of assets and
liabilities, revenues and expenses and disclosure of contingent assets and
liabilities. These estimates are subject to known and unknown risks,
uncertainties and other factors that could materially impact the amounts
reported and disclosed in the consolidated financial statements.
The SEC issued Financial Reporting Release No. 60, "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies" 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 CDRs and CDR Liability: The Plan entitles holders of
Comdisco Holding's CDRs to share at increasing percentages
in the proceeds realized from the Company's assets based
upon the present value of distributions made to the general
unsecured creditors in the bankruptcy estate of Comdisco,
Inc.
The amount due to CDR holders is based on the amount and
timing of distributions made to former creditors of the
Company's predecessor, Comdisco, Inc., and is impacted by
both the value received from the orderly sale or run-off of
Comdisco Holding's assets and the resolution of Disputed
Claims still pending in the bankruptcy estate of Comdisco,
Inc.
Management has adopted a methodology for estimating the
amount due to CDR holders following the provisions of
Statement of Financial and Accounting Standards No. 5,
Accounting For Contingencies ("SFAS No. 5"). Under SFAS No.
5, a liability must be booked that is probable and
reasonably estimatable as of the balance sheet date.
The Company is not able to definitively estimate either the
ultimate value to be received for the remaining assets or
the final resolution of remaining Disputed Claims.
Accordingly, the Company does not forecast these outcomes in
calculating the liability. Instead, the liability
calculation uses the Company's equity value as the basis for
remaining asset value, reduced for estimated operating
expenses and increased for two items which did not impact
equity for financial reporting purposes at September 30,
2003: the estimated fair market value of the remaining
properties held for sale, and the participation interest in
certain lease rental payments due from Agere. See Notes 2,
5, 12 and 19 of Notes to Consolidated Financial Statements
for further discussion of these items. In addition, the
liability for CDRs is calculated as if all remaining
Disputed Claims are allowed. The amounts due to CDR holders
will be greater to the extent that Disputed Claims are
disallowed. The disallowance of a Disputed Claim results in
a distribution from the Disputed Claims Reserve to
previously allowed creditors that is entirely in excess of
the minimum percentage recovery threshold. In contrast, the
allowance of a Disputed Claim results in a distribution to a
newly allowed creditor that is only partially in excess of
the minimum percentage recovery threshold.
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 and 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 Equity Investments In Private Companies: Equity investments
in private companies consist primarily of small investments
in over two hundred private companies that are non-quoted
securities. The Company carries its common stock and
preferred stock investments at the lower of cost or
estimated fair market value in the financial statements.
Warrants in non-public companies are carried at zero value.
The Company regularly estimates the value of these
investments in private companies and adjusts carrying value
when market and customer specific events and circumstances
indicate that such assets might be impaired. All write-downs
are considered permanent impairments for financial reporting
purposes.
o Allowance for Doubtful Accounts: The Company maintains an
allowance for doubtful accounts. This allowance reflects
management's estimate of the amount of the Company's
receivables that it will be unable to collect and is based
on current trends and historical collection experience. The
estimate could require adjustments based on changing
circumstances, including changes in the economy or in the
particular circumstances of individual customers.
Accordingly, the Company may be required to increase or
decrease the allowance.
o Residual Value of Rental Equipment: Direct financing and
sales-type leased assets consist of the present value of the
future minimum lease payments plus the present value of the
residual (collectively referred to as the "Net Investment").
Residual is the estimated fair market value of the equipment
on lease at lease termination. Revenue on operating leases
consists of the contractual lease payments which is
recognized on a straight-line basis over the lease term.
Costs and expenses are principally depreciation of the
equipment. Depreciation is recognized on a straight-line
basis over the lease term to the Company's estimate of the
equipment's fair market value at lease termination, commonly
referred to as "residual value." In estimating the
equipment's fair value at lease termination, the Company
relies on historical experience by equipment type and
manufacturer and, where available, valuations by independent
appraisers, adjusted for known trends. The Company's
estimates are reviewed continuously to ensure
reasonableness; however, the amounts the Company will
ultimately realize could differ from the amounts assumed in
determining the fair market value of the equipment at lease
termination and the ultimate gain or loss on disposition of
assets.
The above listing is not intended to be a comprehensive list of all
the Company's accounting policies. Please refer to the Company's consolidated
financial statements and notes thereto which contain the Company's significant
accounting policies and other disclosures required by accounting principles
generally accepted in the United States of America.
Basis of Presentation
Comdisco, Inc. and fifty of its domestic subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code in
the Bankruptcy Court 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 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 sheets as of September 30, 2003 and 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.
A black line has been drawn on the accompanying consolidated
financial statements to distinguish between the Successor company and the
Predecessor company.
Recent Developments
In October 2003, the Company's United Kingdom subsidiary received a
tax refund of approximately GBP 15 million (approximately $26 million)
relating to the 2002 tax year. The UK Inland Revenue has one year to challenge
and propose any adjustments to this amount. The Company expects to recognize
any benefit of this refund when Inland Revenue completes its review.
In November 2003, the Company completed the sale of its property in
Carlstadt, New Jersey. The net proceeds from the sale were approximately $2.2
million, of which approximately $1.5 million is in escrow pending resolution
of an unrelated New Jersey state tax issue as of the date of this filing.
In November 2003, the Company declared a cash dividend of $12 per
share (an aggregate distribution of approximately $50 million) on the
outstanding shares of its Common Stock, paid on December 11, 2003, to
stockholders of record on December 1, 2003. The Company intends to treat the
dividend distribution for federal income tax purposes as part of a series of
liquidating distributions in complete liquidation of the Company.
In November 2003, the Company declared a cash payment of $.0514 per
CDR (an aggregate distribution of approximately $7.8 million) paid on December
11, 2003 to CDR holders of record on December 1, 2003.
On November 26, 2003, the Company filed a motion for an order in
furtherance of the Plan seeking authority to migrate from its current legacy
mainframe-based information system to a simplified, alternative information
system.
On December 16, 2003, the Company filed a Current Report on Form
8-K/A announcing the present value of distributions to the initially allowed
general unsecured creditors in the bankruptcy estate of Comdisco, Inc. was
approximately $3.461 billion (not the $3.449 billion as previously reported
and as utilized in determining the cash payment of $.0514 per CDR paid on
December 11, 2003). This increase in the present value of distributions to the
initially allowed general unsecured creditors in the bankruptcy estate of
Comdisco, Inc. entitles holders of CDRs to receive an incremental cash payment
of approximately $2.8 million, or approximately $0.018 per CDR. The Company
expects to make such incremental distribution in conjunction with its next
payment to holders of CDRs. The next payment to holders of CDRs is expected to
occur shortly after the next Quarterly Distribution (as defined in the Plan)
from the Disputed Claims Reserve, which is scheduled for February 14, 2004.
Results of Operations
For purposes of this Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, the results of operations of
the Company for the fiscal year ended September 30, 2002 are comprised of
selected consolidated financial data of the Company for the two months from
August 1, 2002 to September 30, 2002 and of Comdisco, Inc. for the ten months
from October 1, 2001 to July 31, 2002.
Certain reclassifications have been made to the prior period
financial statements to conform to the presentation used in the September 30,
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 after July 31, 2002 are not comparable to the results
reported in prior periods for Comdisco, Inc. The information in this section
should be read in conjunction with the consolidated financial statements and
the related notes thereto appearing in Item 8, Financial Statements and
Supplementary Data.
Fiscal Year Ended September 30, 2003 Compared to the Fiscal Year Ended
September 30, 2002
Total Revenue
Total revenue decreased 62 percent to $303 million for the fiscal
year ended September 30, 2003 from $804 million for the fiscal year ended
September 30, 2002. The decrease is due to lower revenues from all of the
Company's operations. Since September 30, 2002, the Company has monetized a
substantial amount of assets (portfolio sales, sales of stock in subsidiaries
(see Note 5 of Notes to Consolidated Financial Statements) and mid-term
off-lease sales to existing customers). Furthermore, the Company's business
purpose is limited to selling, collecting, or otherwise reducing to money in
an orderly manner the remaining assets of the Company. Since emerging from
bankruptcy, 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. Accordingly, the Company expects continued declines in total
revenue in fiscal 2004 as its asset base continues to decline.
Additional revenue information for each of the three remaining
business segments, European IT Leasing, Ventures and CAM group, is set forth
below (the Company's US Leasing segment was discontinued in fiscal 2003 - see
Notes 4 and 5 of Notes to Consolidated Financial Statements).
Total Leasing Revenue
Total leasing revenue is comprised of three revenue components: (i)
operating lease revenue; (ii) direct financing lease revenue; and (iii)
sales-type lease revenue. Total leasing revenue from operations decreased 74
percent to $135 million for the fiscal year ended September 30, 2003 from $528
million for the fiscal year ended September 30, 2002. Operating, direct
financing and sales-type lease revenues declined in all business segments in
the current year period compared to the year ago period, declining 73 percent,
85 percent and 87 percent, respectively. The decreases are primarily due to
the continued orderly run-off of the lease base, the absence of significant
new business volume and the sale of leased assets rather than the extension of
existing leases or the re-leasing of the Company's inventory of equipment.
Total leasing revenue from European IT Leasing operations decreased 59 percent
to $14 million for the fiscal year ended September 30, 2003. Total leasing
revenue from CAM group decreased 87 percent to $36 million for the fiscal year
ended September 30, 2003. Total leasing revenue from Ventures operations
decreased 61 percent to $85 million for the fiscal year ended September 30,
2003.
Sales Revenue
The Company generates sales from two sources: (a) the sale of
equipment from its inventory; and (b) the sale of equipment to the lessee
either at original lease termination or during the original lease. Given the
Company's limited business purpose, it conducts these types of sales
transactions rather than extending existing leases or re-leasing its inventory
of equipment. Revenue from sales decreased 45 percent to $91 million for the
fiscal year ended September 30, 2003 from $165 million for the fiscal year
ended September 30, 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 fiscal year ended
September 30, 2002. In addition, generally declining values for electronics
equipment in inventory has also resulted in lower revenues on these sales.
European IT Leasing sales revenue increased 140 percent to $12 million for the
fiscal year ended September 30, 2003 from $5 million for the fiscal year ended
September 30, 2002 primarily due to one significant mid-term lease buyout in
the second quarter of fiscal 2003. CAM group sales revenue decreased 63
percent to $52 million for the fiscal year ended September 30, 2003 from $139
million for the fiscal year ended September 30, 2002. Ventures sales revenue
increased 29 percent to $27 million for the fiscal year ended September 30,
2003 from $21 million for the fiscal year ended September 30, 2002.
Technology Services Revenue
Revenues from technology services were $15 million and $40 million
for the fiscal years ended September 30, 2003 and 2002, respectively. The
decrease in the current fiscal year compared to the prior fiscal year is
primarily the result of reduced revenues from the IT CAP services business.
The IT CAP Services North America business was sold in February 2002.
Other Revenue
Other revenue decreased 13 percent to $62 million for the fiscal year
ended September 30, 2003 from $71 million for the fiscal year ended September
30, 2002.
The components of other revenue were as follows (in millions):
Years ended
2003 2002
-------------- --------------
Sale of equity holdings $ 2 $ 16
Sale of properties 20 -
Interest income on notes 8 30
Investment income 2 7
Foreign exchange gain 22 13
GE Capital settlement gain 3 -
Other 5 5
-------------- --------------
Total other revenue $ 62 $ 71
============== ==============
Revenue from the sale of equity securities was $2 million for the
year ended September 30, 2003, compared to $16 million for the year ended
September 30, 2002. The decrease is primarily due to the declining value of
the equity securities portfolio and reductions in overall liquidity events.
On September 26, 2003, the Company announced the sale of its
headquarters building and the sale of its warehouse facility. The Company
recorded a gain in the amount of approximately $20 million, net of closing
costs, in its fiscal year 2003 fourth quarter as a result of these sales. See
Notes 2 and 5 of Notes to Consolidated Financial Statements for additional
information about the property sales.
Interest income on notes decreased 73 percent to $8 million for the
fiscal year ended September 30, 2003 from $30 million for the fiscal year
ended September 30, 2002. The decrease is primarily due to the declining
number and amount of notes receivable.
Investment income was $2 million for the year ended September 30,
2003, compared to $7 million for the year ended September 30, 2002. The
decrease is due to reduced cash balances retained by the Company.
Foreign exchange gain is due to the strengthening of the Euro and
Canadian dollar compared to the U.S. dollar during the year ended September
30, 2003 and its resulting impact on the realization of deferred translation
gains related to cash repatriations from foreign operations. Transaction gains
and losses arise from the impact of exchange rate fluctuations on transactions
denominated in a currency other than the functional currency.
On August 4, 2003, the Company announced the completion of the
post-closing review of the purchase price calculation for the sale of its
leasing portfolios to GE Capital and announced that it had agreed to a
settlement with GE Capital regarding their future contingent payment
obligations on the Electronics equipment leasing business. See Note 5 of Notes
to Consolidated Financial Statements for a description of the settlement and
the settlement amounts.
Total Costs and Expenses
Total operating costs and expenses decreased 84 percent to $284
million for the fiscal year ended September 30, 2003 from $1.77 billion for
the fiscal year ended September 30, 2002. The year ended September 30, 2002
included $439 million of reorganization items (see Note 6 of Notes to
Consolidated Financial Statements) and $369 million of charges related to the
Company's emergence from bankruptcy and the adoption of fresh-start reporting.
The Company expects expenses to continue to decline in fiscal 2004 as compared
to fiscal 2003 as a result of continued declines in assets and the
consolidation of its management structure into a single business unit.
Additional cost and expense information for each of the business
segments is set forth below.
Total Leasing Costs and Expenses
Total leasing costs and expenses decreased 74 percent to $109 million
for the fiscal year ended September 30, 2003 from $414 million for the fiscal
year ended September 30, 2002. Total leasing costs and expenses is comprised
of two components: (i) operating lease costs and expenses and (ii) sales-type
lease costs and expenses. Operating and sales-type lease costs declined in all
business segments in the current year compared to the prior year. The
decreases are 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
European IT Leasing operations decreased 64 percent to $9 million for the
fiscal year ended September 30, 2003 from $25 million for the fiscal year
ended September 30, 2002. Total leasing costs and expenses from CAM group
decreased 87 percent to $26 million for the fiscal year ended September 30,
2003 from $202 million for the fiscal year ended September 30, 2002. Total
leasing costs and expenses from Ventures decreased 60 percent to $74 million
for the fiscal year ended September 30, 2003 from $187 million for the fiscal
year ended September 30, 2002.
Sales Costs and Expenses
Sales costs and expenses decreased 58 percent to $80 million for the
fiscal year ended September 30, 2003 from $192 million for the fiscal year
ended September 30, 2002. The decrease in fiscal 2003 compared to fiscal 2002
is due to a decrease 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. European IT Leasing sales costs and expenses
increased 150 percent to $10 million for the fiscal year ended September 30,
2003 from $4 million for the fiscal year ended September 30, 2002 primarily
due to one significant mid-term lease buyout in the second quarter of fiscal
2003. CAM group sales costs and expenses decreased 66 percent to $60 million
for the fiscal year ended September 30, 2003 from $175 million for the fiscal
year ended September 30, 2002. CAM group sales 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.
Ventures sales costs and expenses decreased 23 percent to $10 million for the
fiscal year ended September 30, 2003 from $13 million for the fiscal year
ended September 30, 2002.
Technology Services Costs and Expenses
Services costs were $8 million and $32 million for the fiscal years
ended September 30, 2003 and 2002, respectively. The decrease reflects the
overall reduction in services revenue and the sale of the IT CAP Services
North America business in February 2002.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 19 percent to
$77 million for the fiscal year ended September 30, 2003 from $95 million for
the fiscal year ended September 30, 2002. The following table summarizes
selling, general and administrative expenses (in millions):
Years ended
2003 2002
------------- -------------
Compensation and benefits $ 40 $ 54
Outside professional services 29 27
Other expenses 8 14
------------- -------------
$ 77 $ 95
============= =============
The decrease in compensation and benefits in the current year
compared to the year earlier period reflect the continued reduction in
personnel, offset by the effect of compensation plans implemented in order to
maximize recoveries under the Plan (see Item 11, Bankruptcy Court-Approved
Compensation Plans: Management Incentive and Stay Bonus Plans). The increase
in outside professional service costs is attributable to the Company recording
professional service costs related to the bankruptcy in reorganization items
during the ten months ended July 31, 2002. Since emerging from bankruptcy, the
Company records professional services in selling, general and administrative
expenses.
Contingent Distribution Rights
The Company expensed $52 million and $10 million relating to the
liability for CDRs for the years ended September 30, 2003 and 2002,
respectively. See Critical Accounting Policies and Contingent Distribution
Rights for a discussion of the amounts due CDR holders.
Write-down of Equity Securities
The charge for write-down of equity securities decreased 66 percent
to $25 million for the fiscal year ended September 30, 2003 from $73 million
for the fiscal year ended September 30, 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 was $(92) million for the fiscal year ended
September 30, 2003 and $118 million for the fiscal year ended September 30,
2002. The decrease is primarily due to better than anticipated collection
results in the year ended September 30, 2003 on the Company's assets,
improving market and economic conditions (including continued low interest
rates) and management's estimate of the reserves necessary for the Company's
remaining assets as of September 30, 2003 (See Note 12 of Notes to
Consolidated Financial Statements).
Interest Expense
Interest expense decreased 11 percent to $25 million for the fiscal
year ended September 30, 2003 from $28 million for the fiscal year ended
September 30, 2002. The decrease in the current year period compared to the
year earlier period is primarily due to lower average daily borrowings during
the current year period.
As of July 16, 2001, Comdisco, Inc. ceased accruing interest on its
domestic unsecured debt obligations. Contractual interest on all obligations
for the ten months ended July 31, 2002 was $214 million, which is $198 million
in excess of the $16 million recorded interest expense included in the
accompanying financial statements for the ten months ended July 31, 2002. The
$16 million of interest expense was primarily interest on secured debt.
Interest expense for the two months ended September 30, 2002 includes
interest on secured debt and on senior and subordinated debt issued upon
emergence. See Note 11 of Notes to Consolidated Financial Statements for
information about the Company's interest-bearing liabilities.
Reorganization Items
Charges for reorganization items were $439 million for the fiscal
year ended September 30, 2002. See Note 6 of Notes to Consolidated Financial
Statements, which is incorporated in this section by reference, for a
discussion of reorganization items. Included in reorganization items is the
pre-tax charge of $263 million for the sales of electronics, laboratory and
scientific and healthcare leasing assets and Australian IT leasing assets. No
reorganization items were recorded after emergence.
Fresh-Start Reporting Adjustments
Fresh-start reporting adjustments, which reflect the impact of
fresh-start reporting on the assets and liabilities of Comdisco, Inc. as of
July 31, 2002, totaled $369 million for the ten months ended July 31, 2002.
See Notes 3 and 6 to Notes to Consolidated Financial Statements, which are
incorporated in this section by reference, for details of the fresh-start
reporting adjustments.
Income Taxes
See Note 13 of Notes to Consolidated Financial Statements, which is
incorporated in this section by reference, for details about the Company's
income tax provision.
Net Earnings (Loss) from Continuing Operations
The net earnings from continuing operations were $20 million in
fiscal 2003, or $4.80 per share-diluted in fiscal 2003, compared to a net loss
of $1.02 billion in fiscal 2002. Fiscal 2003 continuing operations compared to
the prior year reflect the lack of reorganization items and fresh-start
reporting adjustments, reduced provisions for credit losses, and a positive
margin from sales, partially offset by increased expense for the Company's
CDRs.
Discontinued Operations
Net earnings from discontinued operations were $80 million for the
year ended September 30, 2003 compared to $305 million for the year ended
September 30, 2002.
o US Leasing operations: On September 9, 2003, the Company
completed the sale of its U.S. information technology and
telecommunications leasing business to Bay4. On September
30, 2003, the Company completed the sale of its Canadian
information technology leasing business to Bay4 Capital
Partners, Inc. The results of operations for this business
segment have been classified as discontinued operations and
prior year periods have been restated. Revenue was $241
million during the fiscal year ended September 30, 2003
compared to $426 million during the fiscal year ended
September 30, 2002. Costs and expenses for US Leasing were
$215 million during the fiscal year ended September 30, 2003
compared to $430 million during fiscal year ended September
30, 2002. The decrease in revenue in the current year
compared to the prior year is due to declines in revenue
producing assets as a result of mid-term sales, leased asset
sales and the runoff of the lease portfolio. The decrease in
costs and expenses in the fiscal year ended September 30,
2003 compared to the fiscal year ended September 30, 2002 is
due to the declines in revenue producing assets, reductions
in personnel and reductions in the allowance for doubtful
accounts. Net earnings for US Leasing were $38 million in
the year ended September 30, 2003 compared to net earnings
of $5 million in the fiscal year ended September 30, 2002.
o German Leasing Subsidiary: On April 30, 2003, the Company
announced that it had completed the sale of the stock of its
German Leasing Subsidiary to Munich-based Comprendium
Investment (Deutschland) GmbH, which is owned by Comprendium
Investment SA, a Swiss corporation. Revenue was $78 million
and $200 million during the years ended September 30, 2003
and 2002, respectively. Costs and expenses for these
operations were $65 million during the year ended September
30, 2003 compared to $158 million during the year ended
September 30, 2002. In the third quarter of fiscal 2003, the
Company repatriated funds from the sale of stock of its
German Leasing Subsidiary. As a result, the Company recorded
a $24 million gain related to the realization of deferred
translation gains. Net earnings were $34 million during the
years ended September 30, 2003 and 2002.
o International Leasing: On October 18, 2002, the Company
announced that it had sold Comprendium Finance S.A.,
Computer Discount GmbH and the Company's French leasing
subsidiaries, Comdisco France SA and Promodata SNC. In
addition, the Company sold substantially all of its
information technology assets in Australia and New Zealand
to Allco pursuant to a sale approved by the Bankruptcy Court
on April 18, 2002. The financial results of these operations
have been classified as discontinued operations and prior
year periods have been restated. Revenue from International
Leasing was $5 million in the year ended September 30, 2003
compared to $159 million for the year ended September 30,
2002. The gain recognized during the year ended September
30, 2003, approximately $7 million, relates primarily to
foreign currency exchange gains. Costs and expenses for
these operations were $3 million in the year ended September
30, 2003 compared to $163 million for the year ended
September 30, 2002. Net earnings for International Leasing
were $8 million in the year ended September 30, 2003,
compared to a net loss of $44 million in the year ended
September 30, 2002, including an estimated loss on disposal
of assets of approximately $37 million.
o Availability Solutions: On November 15, 2001, Comdisco, Inc.
completed the sale of its Availability Solutions business to
SunGard. The results of operations of Availability Solutions
have been classified as discontinued operations and prior
periods have been restated. Revenue from Availability
Solutions was $67 million for the year ended September 30,
2002. Availability Solutions costs were $54 million during
year ended September 30, 2002.
Net earnings of the Availability Solutions business were
$313 million for the year ended September 30, 2002.
Approximately $301 million of the net earnings within
discontinued operations for the year ended September 30,
2002 relates to the gain on the sale of the Availability
Solutions business.
The sale excluded the purchase of the stock of subsidiaries
in Germany and Spain. However, as a result of the Company's
intention to exit the Availability Solutions businesses of
Germany and Spain (including the possible sale of assets in
either or both countries), the Company has also accounted
for these businesses as discontinued operations. Revenue and
expenses for the Company's operations in Germany and Spain
for the year ended September 30, 2002 were immaterial.
o Prism Communications: Prism ceased operations on October 1,
2000. Continued declines in the telecommunications industry
in the three months ended June 30, 2002 negatively impacted
the market for telecommunications equipment. As a result,
Comdisco, Inc. recorded a charge of $3 million in fiscal
2002 to write down these assets to fair market value. The
assets of the Prism entities have been liquidated and the
proceeds realized from such liquidation were distributed to
creditors of Prism in accordance with the Plan.
Extraordinary Gain
For the ten months ended July 31, 2002, the Company recorded a $153
million extraordinary gain resulting from the discharge of indebtedness. See
Note 3 of Notes to Consolidated Financial Statements. During the two months
ended September 30, 2002, the Company recorded a $241 million, net of tax,
extraordinary gain related to the elimination of the excess fair value of net
assets over the reorganization value in accordance with SFAS No.
141, "Business Combinations."
Net Earnings (Loss)
Net earnings were $100 million for the year ended September 30, 2003
compared to a net loss of $317 million for the fiscal year ended September 30,
2002.
Fiscal Year Ended September 30, 2002 Compared to the Fiscal Year Ended
September 30, 2001
Total Revenue
Total revenue decreased 48 percent to $804 million for the fiscal
year ended September 30, 2002 from $1.56 billion for the fiscal year ended
September 30, 2001. The decrease is due to lower revenues from all of the
Company's operations. During fiscal 2002, the Company's operations were
limited by the Company's financial constraints and the related impact on new
business volume and remarketing, general economic conditions, anticipated
asset sales and actual lease portfolio sales, significant reductions in
personnel and the impact of the filing on the business. See the Risk Factor
entitled "Uncertainties Relating to the Bankruptcy Plan" in this Item 7,
below, for more information. Additional revenue information for each of the
three remaining business segments, European IT Leasing, Ventures and CAM
group, is set forth below.
Total Leasing Revenue
Total leasing revenue is comprised of three revenue components: (i)
operating lease revenue; (ii) direct financing lease revenue; and (iii)
sales-type lease revenue. Total leasing revenue from operations decreased 40
percent to $528 million for the fiscal year ended September 30, 2002 from $881
million for the fiscal year ended September 30, 2001. Operating and direct
financing lease revenues declined in all business segments in the current year
period, declining 39 percent and 35 percent, respectively. Total revenue from
sales-type leases declined 43 percent to $30 million from the fiscal year
ended September 30, 2002 from $53 million for the fiscal year ended September
30, 2001. European IT Leasing sales-type revenue increased 40 percent to $14
million for the fiscal year ended September 30, 2002 from $10 million for the
fiscal year ended September 30, 2001 primarily from its UK operations. CAM
group declined 64 percent to $15 million for the fiscal year ended September
30, 2002 from $42 million for the fiscal year ended September 30, 2001.
Ventures sales-type revenue was $1 million in each of the fiscal years ended
September 30, 2002 and 2001. Total leasing revenue from European IT Leasing
operations decreased 6 percent to $34 million for the fiscal year ended
September 30, 2002. Total leasing revenue from CAM group decreased 50 percent
to $277 million for the fiscal year ended September 30, 2002. The decrease in
total leasing revenue from CAM group is primarily due to the leased asset
sales to GE Capital and other organizations discussed in Note 5 of Notes to
Consolidated Financial Statements. Total leasing revenue from Ventures
operations decreased 26 percent to $217 million for the fiscal year ended
September 30, 2002.
Sales Revenue
The Company generates sales from two sources: (a) the sale of
equipment from its lease portfolio; and (b) the sale or re-lease of equipment
either at original lease termination or during the original lease. Revenue
from sales increased 31 percent to $165 million for the fiscal year ended
September 30, 2002 from $126 million for the fiscal year ended September 30,
2001. The increase is due to the Company's emphasis on remarketing
transactions structured as sales rather than as leases and the overall
business purpose of the Company to sell or orderly liquidate its assets.
European IT Leasing sales were $5 million in each of the fiscal years ended
September 30, 2002 and 2001. CAM group sales revenue increased 26 percent to
$139 million for the fiscal year ended September 30, 2002 from $110 million
for the fiscal year ended September 30, 2001. Ventures sales revenue increased
91 percent to $21 million for the fiscal year ended September 30, 2002 from
$11 million for the fiscal year ended September 30, 2001.
Technology Services Revenue
Revenues from technology services were $40 million and $95 million
for the fiscal years ended September 30, 2002 and 2001, respectively. The
decrease in the current year period compared to the year earlier period is
primarily the result of reduced revenues from the IT CAP services business.
The IT CAP Services North America business was sold in February 2002.
Other Revenue
Other revenue, which was primarily comprised of revenue from the sale
of Ventures' equity investments and interest income earned on notes from
Ventures' customers, decreased 84 percent to $71 million for the fiscal year
ended September 30, 2002 from $453 million for the fiscal year ended September
30, 2001.
The components of other revenue were as follows (in millions):
Years ended
2002 2001
-------------- --------------
Sale of equity holdings $ 16 $ 353
Interest income on notes 30 64
Investment income 7 28
Foreign exchange gain 13 -
Other 5 8
-------------- --------------
Total other revenue $ 71 $ 453
============== ==============
The decrease is primarily due to reduced revenue from the sale of
equity securities. Revenue from the sale of equity securities was $16 million
for the year ended September 30, 2002, compared to $353 million for the year
ended September 30, 2001. During fiscal 2002 and the last six months of fiscal
2001, there was a significant decline in the number of public offerings and
mergers/acquisitions of companies within the Company's Ventures portfolio.
Interest income on notes decreased 53 percent to $30 million for the fiscal
year ended September 30, 2002 from $64 million for the fiscal year ended
September 30, 2001. Investment income was $7 million for the year ended
September 30, 2002, compared to $28 million for the year ended September 30,
2001. The decrease is due to interest income on the Predecessor company's
unrestricted cash balance being recorded in reorganization items from the
bankruptcy filing date on July 16, 2001 through August 12, 2002. Foreign
exchange gain is due to the strengthening of the Euro and Canadian dollar
compared to the U.S dollar during the year ended September 30, 2002 and its
resulting impact on the realization of deferred translation gains. Transaction
gains and losses arise from the impact of exchange rate fluctuations on
transactions denominated in a currency other than the functional currency.
Total Costs and Expenses
Total operating costs and expenses decreased 7 percent to $1.77
billion for the fiscal year ended September 30, 2002 from $1.90 billion for
the fiscal year ended September 30, 2001. The decrease is due to reduced
leasing costs and reduced interest expense as a result of the filing, offset
by $439 million of reorganization items, including the $263 million of pre-tax
charges for the sales of electronics, laboratory and scientific and healthcare
leased equipment and Australian and New Zealand IT assets (see Note 5 of Notes
to Consolidated Financial Statements), and $369 million of charges related to
the Company's emergence from bankruptcy and the adoption of fresh-start
reporting. Additional cost and expense information for each of the business
segments is set forth below.
Total Leasing Costs and Expenses
Total leasing costs and expenses operations decreased 36 percent to
$414 million for the fiscal year ended September 30, 2002 from $648 million
for the fiscal year ended September 30, 2001. Total leasing costs and expenses
is comprised of two components: (i) operating lease costs and expenses and
(ii) sales-type lease costs and expenses. Operating lease costs for European
IT Leasing, CAM group and Ventures decreased 37 percent, 46 percent and 23
percent, respectively, in the year ended September 30, 2002 compared to the
year ended September 30, 2001. European IT Leasing sales-type lease costs and
expenses increased 63 percent to $13 million for the fiscal year ended
September 30, 2002 from $8 million for the fiscal year ended September 30,
2001, primarily from its UK operations. CAM group sales-type lease costs and
expenses decreased 58 percent to $11 million for the fiscal year ended
September 30, 2002 from $26 million for the fiscal year ended September 30,
2001. Ventures operating lease costs and expenses decreased 23 percent to $186
million for the fiscal year ended September 30, 2002 from $241 million for the
fiscal year ended September 30, 2001. Total leasing costs and expenses from
European IT Leasing operations decreased 7 percent to $25 million for the
fiscal year ended September 30, 2002 from $27 million for the fiscal year
ended September 30, 2001. Total leasing costs and expenses from CAM group
decreased 47 percent to $202 million for the fiscal year ended September 30,
2002 from $380 million for the fiscal year ended September 30, 2001. Total
leasing costs and expenses from Ventures decreased 22 percent to $187 million
for the fiscal year ended September 30, 2002 from $241 million for the fiscal
year ended September 30, 2001.
Sales Costs and Expenses
Sales costs and expenses increased 73 percent to $192 million for the
fiscal year ended September 30, 2002 from $111 million for the fiscal year
ended September 30, 2001. The increase in fiscal 2002 compared to fiscal 2001
is due to an increased focus on sales remarketing activities. European IT
Leasing sales costs and expenses were $4 million for both of the fiscal years
ended September 30, 2002 and 2001. CAM group sales costs and expenses
increased 70 percent to $175 million for the fiscal year ended September 30,
2002 from $103 million for the fiscal year ended September 30, 2001. CAM group
sales are primarily electronics equipment remarketed from inventory. The
Company believes earnings pressures for the semiconductor and contract
manufacturers and year-to-year declines in bookings negatively impacted the
market for used electronics equipment. Ventures sales costs and expenses
increased 225 percent to $13 million for the fiscal year ended September 30,
2002 from $4 million for the fiscal year ended September 30, 2001.
Technology Services Costs and Expenses
Services costs were $32 million and $110 million for the fiscal years
ended September 30, 2002 and 2001, respectively. The decrease reflects the
overall reduction in services revenue and the sale of the IT CAP Services
North America business in February 2002.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 49 percent to
$95 million for the fiscal year ended September 30, 2002 from $185 million for
the fiscal year ended September 30, 2001. The following table summarizes
selling, general and administrative expenses (in millions):
Years ended
2002 2001
-------------- -------------
Compensation and benefits $ 54 $ 121
Outside professional services 27 32
Other expenses 14 32
-------------- --------------
$ 95 $ 185
============== ==============
The decrease in compensation and benefits for the fiscal year ended
September 30, 2002 compared to the fiscal year ended September 30, 2001
reflects the continued reduction in personnel. As of July 16, 2001, the date
that Comdisco, Inc. filed bankruptcy, Comdisco, Inc. had approximately 2,100
domestic employees. As of the date of emergence from bankruptcy on August 12,
2002, the Company had approximately 600 total employees.
The decrease in outside professional service costs is attributable to
the Company recording professional service costs related to the bankruptcy in
reorganization items from the bankruptcy filing date on July 16, 2001 through
its emergence from bankruptcy on August 12, 2002.
Contingent Distribution Rights
The Company expensed $10 million relating to the liability for CDRs
for the year ended September 30, 2002. See Critical Accounting Policies and
Contingent Distribution Rights (below) for additional information on CDRs.
Write-down of Equity Securities
The charge for write-down of equity securities decreased 43 percent
to $73 million for the fiscal year ended September 30, 2002 from $129 million
for the fiscal year ended September 30, 2001. The decrease reflects the
overall reduction in the carrying value of the Company's equity securities.
Bad Debt Expense
Bad debt expense decreased 70 percent to $118 million for the fiscal
year ended September 30, 2002 from $390 million for the fiscal year ended
September 30, 2001 primarily due to declines in bad debt expense for Ventures.
Interest Expense
Interest expense decreased 90 percent to $28 million for the fiscal
year ended September 30, 2002 from $294 million for the fiscal year ended
September 30, 2001. Interest expense for the ten months ended July 31, 2002
primarily represents interest accrued on Comdisco, Inc.'s secured debt
obligations and debt obligations of its foreign subsidiaries. Effective August
12, 2002, the Company, along with its direct wholly-owned subsidiary,
Comdisco, Inc., co-issued variable rate senior secured notes due 2004 in the
principal amount of $400 million and 11 percent subordinated secured notes due
2005 in the principal amount of $650 million.
As of July 16, 2001, Comdisco, Inc. ceased accruing interest on its
domestic unsecured debt obligations. Contractual interest on all obligations
for the ten months ended July 31, 2002 and the year ended September 30, 2001
was $214 million, which is $198 million in excess of recorded interest expense
included in the accompanying financial statements, and $344 million, which is
$50 million in excess of recorded interest expense included in the
accompanying financial statements, respectively.
Reorganization Items
Charges for reorganization items were $439 million for the fiscal
year ended September 30, 2002 compared to $34 million for the fiscal year
ended September 30, 2001. See Note 6 of Notes to Consolidated Financial
Statements, which is incorporated in this section by reference, for a
discussion of reorganization items. Included in reorganization items is the
pre-tax charge of $263 million for the sales of electronics, laboratory and
scientific and healthcare leased assets and Australian IT assets.
Fresh-Start Reporting Adjustments
Fresh-start reporting adjustments, which reflect the impact of
fresh-start reporting on the assets and liabilities of Comdisco, Inc. as of
July 31, 2002, totaled $369 million for the ten months ended July 31, 2002.
See Notes 3 and 6 to Notes to Consolidated Financial Statements, which are
incorporated in this section by reference, for details of the fresh-start
reporting adjustments.
Income Taxes
See Note 13 of Notes to Consolidated Financial Statements, which is
incorporated in this section by reference, for details about the Company's
income tax provision.
Net Loss from Continuing Operations
The net loss from continuing operations was $1.02 billion in fiscal
2002, compared to a net loss of $208 million in fiscal 2001. The increase in
the loss in fiscal 2002 compared to fiscal 2001 is primarily the result of
losses on asset sales (included in reorganization items) during fiscal 2002
(see Note 5 of Notes to Consolidated Financial Statements), offset by lower
selling, general and administrative expenses and lower interest expense
compared to the year ended September 30, 2001. As a result of the leased asset
sales, the related impact on future taxable income and continued constraints
on business expansion in the near-term, the Company established an income tax
valuation allowance totaling $23 million during the quarter ended March 31,
2002. This was based on management's assessment that it was more likely than
not that the Company would not realize its net deferred tax assets. Also, the
Company received a $36 million US tax refund as a result of enacted tax law
changes which extended the net operating loss carry back period from two to
five years. The tax refund had no impact on results of operations in fiscal
2002. The loss from continuing operations for the year ended September 30,
2001 was primarily a result of decreased earnings contributions from all of
the Company's business lines and it reflected reduced earnings contributions
from leasing as a result of the decline in leased assets. The loss in fiscal
2001 also reflected the following items:
o a $365 million pre-tax charge ($234 million after-tax) for
additions to the allowance for credit losses in the Ventures
group's portfolio;
o a $25 million pre-tax charge ($16 million after-tax) for
additions to allowance for credit losses in the leasing
business;
o a $129 million pre-tax charge for equity securities
written-off; and
o $34 million of reorganization related expenses.
Discontinued Operations
Net earnings from discontinued operations were $305 million for the
year ended September 30, 2002 compared to a net loss of $66 million for the
year ended September 30, 2001.
o US Leasing: Revenue was $426 million during the fiscal year
ended September 30, 2002 compared to $746 million during the
fiscal year ended September 30, 2001. Costs and expenses for
US Leasing were $430 million during the fiscal year ended
September 30, 2002 compared to the $746 million during
fiscal year ended September 30, 2001. The decrease in
revenue in the current year compared to the prior year is
due to declines in revenue producing assets as a result of
mid-term sales, leased asset sales and the runoff of the
lease portfolio. The decrease in costs and expenses in the
fiscal year ended September 30, 2002 compared to the fiscal
year ended September 30, 2001 is due to the declines in
revenue producing assets, reductions in personnel and
reductions in the allowance for doubtful accounts. Net
earnings for US Leasing were $5 million in the year ended
September 30, 2002. The net loss for US Leasing was
less than $1 million in the year ended September 30, 2001.
o German Leasing Subsidiary: Revenue was $200 million and $190
million during the years ended September 30, 2002 and 2001,
respectively. Costs and expenses for these operations were
$158 million during the year ended September 30, 2002
compared to $173 million during the year ended September 30,
2001. Net earnings were $34 million in the year ended
September 30, 2002 compared to $11 million in the year ended
September 30, 2001.
o International leasing: Revenue from International Leasing
was $159 million and $215 million for the years ended
September 30, 2002 and 2001, respectively. Costs and
expenses for these operations were $163 million for the year
ended September 30, 2002 compared to $231 million for the
year ended September 30, 2001. The decrease in both revenues
and costs during fiscal year 2002 as compared to the prior
year period reflect the reduction in operations of these
subsidiaries as a result of the declining financial
condition of the Company. Net loss for International Leasing
was $44 million in the year ended September 30, 2002,
including a loss of approximately $37 million on the sales
of assets, compared to a loss of $14 million in the year
ended September 30, 2001. The net loss in fiscal 2001 was
primarily the result of additions to the allowance for
credit losses of approximately $16 million in Comprendium
Finance S.A.
o Availability Solutions: On November 15, 2001, Comdisco, Inc.
completed the sale of its Availability Solutions business to
SunGard. The results of operations of Availability Solutions
have been classified as discontinued operations and prior
periods have been restated. Revenue from Availability
Solutions was $67 million and $487 million for the years
ended September 30, 2002 and 2001, respectively.
Availability Solutions costs were $54 million and $460
million during year ended September 30, 2002 and 2001,
respectively. The decreases in both revenues and costs were
due to the sale of the business effective November 15, 2001.
Net earnings of the Availability Solutions business were
$313 million for the year ended September 30, 2002 compared
to a net loss of $13 million in the prior year period.
Approximately $301 million of the net earnings within
discontinued operations for the year ended September 30,
2002 relates to the gain on the sale of the Availability
Solutions business.
The sale excluded the purchase of the stock of subsidiaries
in Germany and Spain. However, as a result of the Company's
intention to exit the Availability Solutions businesses of
Germany and Spain (including the possible sale of assets in
either or both countries), the Company has also accounted
for these businesses as discontinued operations. Revenue and
expenses for the Company's operations in Germany and Spain
for the years ended September 30, 2002 and 2001 were
immaterial.
o Network Services: During the second quarter of fiscal 2001,
the network management services business of Comdisco, Inc.
was discontinued. The network management services were
transferred to a new provider during the third quarter of
fiscal 2001. Loss from discontinued operations of network
services for the year ended September 30, 2001 was $32
million.
o Prism Communications: Due to unfavorable market conditions,
Prism reduced its estimated proceeds from the sale of assets
from $80 million at September 30, 2000 to $20 million at
March 31, 2001. Given these negative market conditions,
Prism accelerated the process of shutting down its
operations, thereby reducing operating costs by
approximately $30 million. As a result, Comdisco, Inc.
recorded in the quarter ended March 31, 2001 a noncash
pre-tax charge of $30 million, $18 million after tax, or
$.12 per common share, to write down these assets to the
estimated fair market value. Continued declines in the
telecommunications industry in the three months ended June
30, 2002 negatively impacted the market for
telecommunications equipment. As a result, Comdisco, Inc.
recorded a charge of $3 million, or $.02 per common share,
to write down these assets to estimated fair market value.
The assets of the Prism entities have been liquidated and
the proceeds realized from such liquidation were distributed
to creditors of Prism in accordance with the Plan.
Extraordinary Gain
For the ten months ended July 31, 2002, the Company recorded a $153
million extraordinary gain resulting from the discharge of indebtedness. See
Note 3 of Notes to Consolidated Financial Statements. During the two months
ended September 30, 2002, the Company recorded a $241 million extraordinary
gain related to the elimination of the excess fair value of net assets over
the reorganization value in accordance with SFAS No. 141, "Business
Combinations."
Net Loss
Net loss increased 17 percent to $317 million for the fiscal year
ended September 30, 2002 from a net loss of $272 million for the fiscal year
ended September 30, 2001.
Off-Balance Sheet Arrangements
The Company does not maintain any off-balance sheet arrangements,
transactions, obligations or other relationships with unconsolidated entities
that would be expected to have a material current or future effect upon the
Company's financial condition or results of operations.
Liquidity and Capital Resources
On September 30, 2002, in accordance with the Plan, the Company made
an initial distribution to the holders of certain Allowed Claims against the
Comdisco, Inc. bankruptcy estate. As part of that initial distribution, the
Company, along with its direct wholly-owned subsidiary, Comdisco, Inc.,
co-issued, effective August 12, 2002, the Senior Notes in the principal amount
of $400 million and the Subordinated Notes in the principal amount of $650
million.
On October 21, 2002, the Company redeemed the entire $400 million
outstanding principal amount of its Senior Notes. The Senior Notes were
redeemed at 100 percent of their principal amount plus accrued and unpaid
interest from August 12, 2002 to the redemption date. Following the redemption
of the Senior Notes, the Company 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.
The Company made several mandatory and optional redemptions of its
Subordinated Notes between November 14, 2002 and April 2, 2003. On April 28,
2003, the Company made the final redemption of $85 million principal amount of
its Subordinated Notes. Each of the redemptions of the Subordinated Notes was
at a price equal to 100 percent of their principal amount plus accrued and
unpaid interest to the redemption date.
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 CDRs 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.
At September 30, 2003, the Company had unrestricted cash and cash
equivalents of approximately $97 million, a decrease of approximately $449
million compared to September 30, 2002. Net cash provided by operating
activities for the year ended September 30, 2003 was $1.42 billion. Net cash
used in investing activities was $13 million for the year ended September 30,
2003.
The Company's operating activities during the year ended September
30, 2003, including minimal 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 year
ended September 30, 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 December 12,
2003, the Company's unrestricted cash balances exceeded $85 million. The
Company expects its cash on hand and cash flow from operations to be
sufficient to fund operations and to meet its obligations (including its
obligation to make payments to CDR holders) 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 the Plan, timely payment by its customers, global economic
conditions and controlling operating costs and expenses.
Net cash provided by operating activities was $1.42 billion in fiscal
2003, $3.57 billion in fiscal 2002 and $3.25 billion in fiscal 2001.
Dividends
In May 2003, the Company distributed approximately $308 million to
stockholders in the form of a dividend paid on the Company's Common Stock. In
June 2003, the Company distributed approximately $60 million to stockholders
in the form of a dividend paid on the Company's Common Stock. In September
2003, the Company distributed approximately $200 million to stockholders in
the form of a dividend paid on the Company's Common Stock. On November 20,
2003, the Company declared a cash dividend of $12 per share (an aggregate
distribution of approximately $50 million) on the outstanding shares of its
Common Stock, paid on December 11, 2003, to stockholders of record on December
1, 2003. Comdisco intends to treat the dividend distributions for federal
income tax purposes as part of a series of liquidating distributions in
complete liquidation of the Company.
Contingent Distribution Rights
All shares of the Predecessor company's common stock were cancelled
on August 12, 2002. The Predecessor company's common stockholders were
entitled to distributions of CDRs under the Plan if they properly completed a
transmittal form and surrendered all of their shares of the Predecessor
company's common stock to Mellon Investor Services LLC prior to August 12,
2003. Approximately five hundred thousand CDRs were forfeited because holders
of Comdisco, Inc. common stock did not exchange their cancelled shares for
CDRs prior to the deadline prescribed in the Plan. More information on the
CDRs can be found in a Registration Statement on Form 8-A filed by the Company
on August 12, 2002 with the SEC and in two Bankruptcy Court orders entered in
respect of the CDRS (incorporated by reference to Exhibits 99.3 and 99.4 filed
with the Company's Quarterly Report on Form 10-Q as filed with the SEC
on May 14, 2003).
The Plan entitles holders of Comdisco Holding's CDRs to share at
increasing percentages in the proceeds realized from the Company's assets
based upon the present value of distributions made to the general unsecured
creditors in the bankruptcy estate of Comdisco, Inc.
The amount due to CDR holders is based on the amount and timing of
distributions made to former creditors of the Company's predecessor, Comdisco,
Inc., and is impacted by both the value received from the orderly sale or
run-off of Comdisco Holding's assets and on the resolution of Disputed Claims
still pending in the bankruptcy estate of Comdisco, Inc.
Management has adopted a methodology for estimating the amount due to
CDR holders following the provisions of SFAS No. 5. Under SFAS No. 5, a
liability must be booked that is probable and reasonably estimatable as of the
balance sheet date.
The Company is not able to definitively estimate either the ultimate
value to be received for the remaining assets or the final resolution of
remaining Disputed Claims. Accordingly, the Company does not forecast these
outcomes in calculating the liability. Instead, the liability calculation uses
the Company's equity value as the basis for remaining asset value, reduced for
estimated operating expenses and increased for two items which did not impact
equity for financial reporting purposes at September 30, 2003: the estimated
fair market value of the remaining properties held for sale, and the
participation interest in certain lease rental payments due from Agere. See
Notes 2, 5, 12 and 19 of Notes to Consolidated Financial Statements for
further discussion of these items. In addition, the liability for CDRs is
calculated as if all remaining Disputed Claims are allowed. The amounts due to
CDR holders will be greater to the extent that Disputed Claims are disallowed.
The disallowance of a Disputed Claim results in a distribution from the
Disputed Claims Reserve to previously allowed creditors that is entirely in
excess of the minimum percentage recovery threshold. In contrast, the
allowance of a Disputed Claim results in a distribution to a newly allowed
creditor that is only partially in excess of the minimum percentage recovery
threshold.
After the quarterly distribution on November 14, 2003, the remaining
estimated Disputed Claims in the bankruptcy estate of Comdisco, Inc. totaled
$290 million. Two groups of Disputed Claims (related to the SIP and a Ventures
compensation plan dispute) represent more than 75 percent of the aggregate
estimated amount. The portion of the CDR liability that is based on the
resolution of Disputed Claims assumes the entire $290 million of estimated
Disputed Claims is allowed. Utilizing the September 30, 2003 assumptions, if
the liability had been calculated as if the entire $290 million of estimated
Disputed Claims had been disallowed, the incremental expense for the year
ended September 30, 2003 would have been approximately $110 million.
On December 16, 2003, the Company filed a Current Report on Form
8-K/A announcing the present value of distributions to the initially allowed
general unsecured creditors in the bankruptcy estate of Comdisco, Inc. was
approximately $3.461 billion (not the $3.449 billion as previously reported
and as utilized in determining the cash payment of $.0514 per CDR paid on
December 11, 2003). This increase in the present value of distributions to the
initially allowed general unsecured creditors in the bankruptcy estate of
Comdisco, Inc. entitles holders of CDRs to receive an incremental cash payment
of approximately $2.8 million, or approximately $0.018 per CDR. The Company
expects to make such incremental distribution in conjunction with its next
payment to holders of CDRs. The next payment to holders of CDRs is expected to
occur shortly after the next Quarterly Distribution (as defined in the Plan)
from the Disputed Claims Reserve, which is scheduled for February 14, 2004.
Recently Issued Professional Accounting Standards
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 150 ("SFAS 150"), "Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity." SFAS 150 establishes standards for classifying and measuring as
liabilities certain financial instruments that have characteristics of both
liabilities and equity. This statement is effective for all financial
instruments created, entered into or modified after May 31, 2003, and is
otherwise effective beginning September 1, 2003. Management does not believe
the adoption of SFAS No. 150 has had a significant impact on the Company's
consolidated financial statements.
In March 2003, the FASB issued Statement No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" which amends
and clarifies financial accounting and reporting for derivative instruments
and is effective for all contracts entered into or modified after June 30,
2003. The Company has not, and does not expect to, enter into any derivative
financial instruments.
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 is an
interpretation of consolidation rules relating to entities where there are
variable interests, not just voting interests. Management does not believe the
adoption of FIN 46 has had a significant impact on the Company's consolidated
financial statements.
Risk Factors Relating to the Company
The following risk factors and other information included in this
Annual Report on Form 10-K should be carefully considered. The risks and
uncertainties described below are not the only ones the Company confronts.
Additional risks and uncertainties not presently known to it or that it
currently deems immaterial also may impair the Company's business operations
and the implementation of the Plan. If any of the following risks actually
occurs, the Company's business, financial condition, operating results and the
implementation of the Plan could be materially adversely affected.
Uncertainties Relating to the Bankruptcy Plan
The results of the Company's operations may be affected by (i) the
reluctance of customers and third parties to do business with a company
recently emerged from bankruptcy proceedings; (ii) the ability of the Company
to retain employees; (iii) limitations imposed by the Plan's focus on the
orderly run-off or sale of assets; and (iv) third party competitive pressures.
In addition, the Company has incurred and will continue to incur
significant costs associated with its reorganization and implementation of the
Plan. The amount of these costs, which are being expensed as incurred, are
expected to have a significant adverse affect on the results of operations.
Inherent Uncertainty of Limited Business Plan
The Company's post-bankruptcy business plan is limited to an orderly
run-off or sale of its remaining assets. Pursuant to the Plan and restrictions
contained in its certificate of incorporation, the Company is specifically
prohibited from engaging in any business activities inconsistent with its
limited business plan. This business plan is based on numerous assumptions
including the anticipated future performance of the Company in running off its
operations, the time frame for the run-off, general business and economic
conditions, and other matters, many of which are beyond the control of the
Company and some of which may not materialize. As a result, the Company's
ability to effectively implement this business plan is inherently uncertain.
In addition, unanticipated events and circumstances occurring subsequent to
the date of this Annual Report may affect the actual financial results of the
Company's operations.
The Company's Liquidity is Dependent on a Number of Factors
The Company's liquidity generally depends on cash provided by
operating activities. The Company's cash flow from operating activities is
dependent on a number of variables, including, but not limited to, timely
payment by its customers, global economic and political conditions, control of
operating costs and expenses and the ability of the Company to dispose of its
assets. The Company's remaining lease funding obligations are immaterial.
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 CDRs 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 or intend, to
make any 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 CDRs is limited to the
funds (in excess of the Company's liabilities) that may be generated from the
remaining asset portfolios.
Impact of Disallowance of Disputed Claims on the Company's Obligation
To Make Payments in Respect of Contingent Distribution Rights
Because the present value of distributions to certain former
creditors of Comdisco, Inc. reached a threshold level of percentage recovery
established pursuant to the Plan, holders of CDRs are entitled to receive
specified payments from the Company. All payments by the Company in respect of
CDRs are made from the Company's available cash-on-hand and not from funds
released from the Disputed Claims Reserve. The Company expects to maintain
cash reserves sufficient to make any required payments on the CDRs. The
Company's success in reducing the Disputed Claims Reserve through disallowance
of Disputed Claims could have a significant negative impact on the cash
available to be distributed to common shareholders.
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 sustained decrease in corporate technology equipment spending
may have a negative impact on equipment values and remarketing results. There
can be no assurance that the Company will be able to remarket its assets at
expected or historical levels.
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 Market Conditions Have Made It Difficult for Ventures to
Timely Realize on its Investments and Have Adversely Affected the Ability of
Ventures Customers to Timely Meet Their Obligations to the Company
Ventures, through Comdisco, Inc.'s former Ventures group, leased
equipment to, made loans to and equity investments in various privately held
companies. The Company's Ventures operations are now managed 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. Many of the companies to
which Ventures provided venture financing prior to the bankruptcy filing are
dependent on third parties for liquidity. The continued limited availability
of funds has had, and may continue to have, a material impact on the fair
market value of the Company's equity securities and on the ability of its
customers to meet their remaining debt and lease obligations.
Current market conditions also have adversely affected, and continue
to adversely affect, 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, and
continues to adversely affect, the ability of the Company to dispose of the
equity securities. Exacerbating these conditions is the fact that the equity
instruments held by the Company are subject to lockup agreements restricting
its ability to sell until several months after an initial public offering.
Without an available liquidity event, the Company is unable to dispose of its
equity securities. As a result, Ventures may not be able to generate gains or
receive proceeds from the sale of equity holdings and the Company's business
and financial results may suffer. Additionally, liquidation preferences may
continue to be offered by companies in the Ventures portfolio to parties
willing to lend to such companies. The liquidation preferences have had, and
may continue to have, an adverse impact on the value of Ventures equity and
warrant holdings. For those securities without a public trading market, the
realizable value of Ventures' interests may prove to be lower than the
carrying value currently reflected in the financial statements.
Company Exposed to Asset Concentration Risk
The Company's asset concentrations expose the Company to additional
risk in that the inability of the obligor to meet its obligations to the
Company could significantly negatively impact the Company's cash flows (see
Item 1, "Customers," for examples of significant asset concentrations).
Impact of Interest Rates and Foreign Exchanges Rates
Increases in interest rates would negatively impact the value of
certain of the Company's assets and a strengthening of the US dollar would
negatively impact the value of the Company's 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 prior to the adoption of SFAS 144
"Accounting for the Impairment or Disposal of Long-Lived Assets," 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, its
limited business purpose, 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 CDRs.
Holders of the Company's CDRs may, therefore, have difficulty selling their
CDRs, should they decide to do so. In addition, there can be no assurances
that such markets will continue or that any CDRs which may be purchased may be
sold without incurring a loss. Any such market price of the CDRs 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 CDRs in the
future. Further, the market price of the CDRs may be volatile depending on a
number of factors, including the status of the Company's business performance,
industry dynamics, news announcements or changes in general economic
conditions.
Other
Other uncertainties include general business conditions, ability to
sell assets, reductions in technology budgets and related spending plans and
the impact of workforce reductions on the Company's operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk and Market Risk
Presently, the Company invests its cash and cash equivalents in money
market and other interest bearing accounts. Such cash and cash equivalents are
essentially the only floating rate assets held by the Company. The remaining
assets of the Company are fixed rate or non-interest bearing and are,
therefore, subject to a decrease in value if market rates increase. Currently,
the Company does not use derivative financial instruments to hedge this risk
as the Company's business purpose is to monetize all remaining assets.
The Company's investment in marketable equity securities of $12
million at September 30, 2003 is primarily in one company (iPass, Inc.) and is
subject to market price risk. The Company's practice is to sell its marketable
equity securities upon the expiration of the lock up period. The lock up
period for iPass, Inc. expires in late January 2004.
The Company has equity investments in private companies consisting
primarily of small investments in over two hundred private companies that are
all non-quoted securities. Common stock and preferred stock investments are
carried at the lower of cost or estimated fair market value in the Company's
financial statements. Warrants in non-public companies are carried at zero
value. These investments are subject to significant volatility and are
difficult to value.
Foreign Exchange Risk
The Company's business purpose is limited to the orderly sale or
run-off of all of its remaining assets, including assets denominated in
foreign currencies. Accordingly, the Company is exposed to the risk of future
currency exchange rate fluctuations, which is accounted for as an adjustment
to stockholders' equity until realized. Therefore, changes from reporting
period to reporting period in the exchange rates between various foreign
currencies and the U.S. Dollar have had and will continue to have an impact on
the accumulated other comprehensive loss component of stockholders' equity
reported by the company, and such effect may be material in any individual
reporting period. In addition, exchange rate fluctuation will have an impact
on cash realized from the repatriation of the proceeds from the sale or
run-off of assets denominated in foreign currencies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Reports of Independent Accountants.........................................42
Consolidated Statements of Earnings (Loss) for the year ended
September 30, 2003 (Successor), the two-month period ended
September 30, 2002 (Successor), the ten-month period
ended July 31, 2002 (Predecessor) and the year ended
September 30, 2001 (Predecessor) ..........................................43
Consolidated Balance Sheets as of September 30, 2003 and
2002 (Successor)...........................................................45
Consolidated Statements of Stockholders' Equity:
For the ten-month period ended July 31, 2002 and the year
ended September 30, 2001 (Predecessor)................................46
For the two-month period ended September 30, 2002 and the
year ended September 30, 2003 (Successor).............................47
Consolidated Statements of Cash Flows for the year ended September
30, 2003 (Successor), the two-month period ended September 30, 2002
(Successor), the ten-month period ended July 31, 2002 (Predecessor)
and the year ended September 30, 2001 (Predecessor)........................48
Notes to Consolidated Financial Statements.................................50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Comdisco Holding Company, Inc.:
We have audited the accompanying consolidated balance sheets of Comdisco
Holding Company, Inc. and subsidiaries (the Successor) as of September 30,
2003 and September 30, 2002 and the related consolidated statements of earnings
(loss), stockholders' equity, and cash flows for the year ended September 30,
2003 and for the period from August 1, 2002 to September 30, 2002, and the
consolidated statements of earnings (loss), stockholders equity, and cash
flows of Comdisco, Inc. and subsidiaries (the Predecessor) for the period from
October 1, 2001 to July 31, 2002 and for the year ended September 30, 2001.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in note 1 to the consolidated financial statements, on July 16,
2001 the Predecessor and fifty of its domestic U.S. subsidiaries filed
voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code from which it emerged on August 12, 2002. Accordingly, the
accompanying consolidated financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "Financial Reporting for
Entities in Reorganization Under the Bankruptcy Code," for the Successor as a
new entity with assets, liabilities, and a capital structure having carrying
values not comparable with prior periods as described in note 2.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Comdisco Holding Company, Inc. at September 30, 2003 and 2002, and the
related consolidated results of operations and cash flows for year ended
September 30, 2003 and for the period from August 1, 2002 to September 30,
2002, and the results of operations and cash flows of Comdisco, Inc. for the
period from October 1, 2001 to July 31, 2002 and for the year ended September
30, 2001, in conformity with accounting principles generally accepted in the
United States of America.
KPMG LLP
Chicago, IL
December 22, 2003
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(in millions except per share data)
SUCCESSOR | PREDECESSOR
Year Two months | Ten months Year
ended ended | ended ended
September September | July September
30, 30, | 31, 30,
-------------- ------------- | --------- ---------
2003 2002 | 2002 2001
--------------- ------------- | --------- ---------
Revenue |
Leasing |
Operating $ 128 $ 42 | $ 436 $ 784
Direct financing 3 1 | 19 44
Sales-type 4 1 | 29 53
--------------- ------------- | --------- ---------
Total leasing 135 44 | 484 881
|
Sales 91 1 | 164 126
Technology services 15 3 | 37 95
Other 62 11 | 60 453
--------------- ------------- | --------- ---------
Total revenue 303 59 | 745 1,555
--------------- ------------- | --------- ---------
|
Costs and expenses |
Leasing |
Operating 105 45 | 344 614
Sales-type 4 1 | 24 34
--------------- ------------- | --------- ---------
Total leasing 109 46 | 368 648
|
Sales 80 3 | 189 111
Technology services 8 5 | 27 110
Selling, general and administrative 77 10 | 85 185
Contingent distribution rights 52 10 | - -
Write-down of equity securities 25 3 | 70 129
Bad debt expense (92) 3 | 115 390
Interest (total Predecessor contractual interest 2002 - |
$214; 2001 - $344) 25 12 | 16 294
Reorganization items - - | 439 34
Fresh-start reporting adjustments - - | 369 -
--------------- ------------- | --------- ---------
Total costs and expenses 284 92 | 1,678 1,901
--------------- ------------- | --------- ---------
|
Earnings (loss) from continuing operations before income |
taxes (benefit), extraordinary items and cumulative effect of |
change in accounting principle 19 (33)| (933) (346)
Income taxes (benefit) (1) 2 | 48 (138)
--------------- ------------- | --------- ---------
Earnings (loss) from continuing operations before |
extraordinary items and cumulative effect of change in |
accounting principle 20 (35)| (981) (208)
Earnings (loss) from discontinued operations, net of tax 80 18 | 287 (66)
--------------- ------------- | --------- ---------
Earnings (loss) before extraordinary items and cumulative |
effect of change in accounting principle 100 (17)| (694) (274)
Extraordinary gain - debt discharge, net of tax - - | 153 -
Extraordinary gain - recognition of excess of fair value |
net assets over reorganization value, net of tax - 241 | - -
--------------- ------------- | --------- ---------
Earnings (loss) before cumulative effect of change in |
accounting principle 100 224 | (541) (274)
Cumulative effect of change in accounting principle, net of |
tax - - | - 2
--------------- ------------- | --------- ---------
Net earnings (loss) $ 100 $ 224 | $ (541) $ (272)
=============== ==============| ========= =========
|
Basic earnings (loss) per common share: |
|
Earnings (loss) from continuing operations $ 4.80 $ (8.28)| $ (6.52) $ (1.37)
Earnings (loss) from discontinued operations 19.11 4.27 | 1.91 (0.44)
Earnings (loss) from extraordinary items - 57.38 | 1.02 -
Cumulative effect of change in accounting principle - - | - 0.01
--------------- ------------- | --------- ---------
Net earnings (loss) $ 23.91 $ 53.37 | $ (3.59) $ (1.80)
=============== ==============| ========= =========
Diluted earnings (loss) per common share: |
Earnings (loss) from continuing operations $ 4.80 $ (8.28)| $ (6.52) $ (1.37)
Earnings (loss) from discontinued operations 19.11 4.27 | 1.91 (0.44)
Earnings (loss) from extraordinary items - 57.38 | 1.02 -
Cumulative effect of change in accounting principle - - | - 0.01
--------------- ------------- | --------- ---------
Net earnings (loss) $ 23.91 $ 53.37 | $ (3.59) $ (1.80)
=============== ==============| ========= =========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except number of shares and per share data)
SUCCESSOR
September 30, September 30,
2003 2002
---------------- -----------------
ASSETS
Cash and cash equivalents $ 97 $ 546
Cash - legally restricted 42 18
Receivables, net 41 98
Inventory of equipment 9 33
Leased assets:
Direct financing and sales-type 26 46
Operating (net of accumulated depreciation) 16 247
---------------- -----------------
Net leased assets 42 293
Equity securities 18 36
Assets of discontinued operations 113 1,251
Other assets:
Electronics contingent payment - 35
Other 11 31
---------------- -----------------
Total other assets 11 66
---------------- -----------------
$ 373 $ 2,341
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Term notes payable $ - $ 35
Discounted lease rentals - 2
Notes payable - 1,050
Accounts payable 6 21
Income taxes:
Current 29 49
Deferred - -
Liabilities related to assets of discontinued operations 11 420
Deferred income 27 16
Other liabilities:
Accrued compensation 62 27
Contingent distribution rights 44 10
Other 12 70
---------------- -----------------
Total other liabilities 118 107
---------------- -----------------
191 1,700
Stockholders' equity:
Common stock $.01 par value. Authorized 10,000,000 shares;
issued 4,200,000 shares. 4,197,100 shares outstanding at
September 30, 2003; 4,200,000 shares outstanding at
September 30, 2002 - -
Additional paid-in capital 169 413
Accumulated other comprehensive income 13 4
Retained earnings - 224
Common stock held in treasury, at cost; 2,900 shares at
September 30, 2003 (none at September 30, 2002) - -
---------------- -----------------
Total stockholders' equity 182 641
---------------- -----------------
$ 373 $ 2,341
================ =================
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions except per share data)
Predecessor
Additional Accumulated Common
Common paid-in other compre- Retained stock in
stock capital hensive income earnings treasury Total
----------- ----------- ---------------- ---------- ----------- ----------
Predecessor Company
Balance at September 30, 2000 $ 23 $ 360 $ 317 $ 1,051 $ (537) $ 1,214
Net loss (272) (272)
Translation adjustment 1 1
Change in unrealized gain (411) (411)
-----------
Total comprehensive income (loss)
(682)
Cash dividends-Old Common stock ($.05 per share) (7) (7)
Stock options exercised 3 1 4
Purchase of Old Common stock (84) (84)
Income tax benefits resulting from the exercise
of non-qualified stock options 2 2
----------- ----------- ---------------- ---------- ----------- ----------
Balance at September 30, 2001 23 365 (93) 772 (620) 447
Net loss for the ten months ended July 31, 2002 (541) (541)
Translation adjustment 24 24
Change in unrealized gain (1) (1)
----------
Total comprehensive income (loss)
(518)
Extinguishment of stockholders' equity in
connection with reorganization (23) (365) 70 (231) 620 71
----------- ----------- ---------------- ---------- ----------- ----------
Balance at July 31, 2002 $ - $ - $ - $ - $ - $ -
=========== =========== ================ ========== =========== ==========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions)
Successor
Additional Accumulated
Common paid-in other compre- Retained
stock capital hensive income earnings Total
----------- ----------- ---------------- -------- ----------
Balance at July 31, 2002 $ - $ - $ - $ - $ -
Issuance of New Common stock 384 384
Tax effect of fresh-start reporting 29 29
Net income for the two months ended
September 30, 2002 224 224
Translation adjustment 4 4
Change in unrealized gain -
---------
Total comprehensive income (loss)
228
----------- ----------- ---------------- --------- ---------
Balance at September 30, 2002 - 413 4 224 641
Net income 100 100
Translation adjustment (2) (2)
Change in unrealized gain 11 11
---------
Total comprehensive income (loss) 109
Liquidating dividends (244) (324) (568)
----------- ----------- ---------------- --------- ---------
Balance at September 30, 2003 $ - $ 169 $ 13 $ - $ 182
=========== =========== ================ ========= =========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
SUCCESSOR | PREDECESSOR
Year Two months | Ten months Year
ended ended | ended ended
September 30, September 30,| July 31, September 30,
2003 2002 | 2002 2001
------------- -------------|----------- --------------
Cash flows from operating activities: |
Operating lease and other leasing receipts $ 228 $ 53 | $ 590 $ 1,024
Leasing costs, primarily rentals paid - - | (2) (3)
Lease portfolio sales 72 13 | 356 -
Sales of equipment 92 9 | 161 109
Sales costs (2) (1) | (7) (30)
Technology services receipts 16 4 | 44 155
Technology services costs (2) (1) | (18) (111)
Note receivable receipts 78 33 | 201 323
Warrant proceeds 3 - | 29 456
Other revenue 7 9 | 38 36
Selling, general and administrative expenses (60) (28) | (79) (261)
Interest (37) 1 | (21) (247)
Income taxes (13) - | 32 (1)
------------ ------------ | ------------- ---------------
Net cash provided by continuing operations 382 92 | 1,324 1,450
Net cash provided by discontinued operations 1,040 196 | 1,971 1,831
------------ ------------ | ------------- ---------------
Net cash provided by operating activities before |
reorganization items 1,422 288 | 3,295 3,281
------------ ------------ | ------------- ---------------
Operating cash flows from reorganization items: |
Interest received on cash accumulated because of |
Chapter 11 proceeding - - | 26 3
Professional fees paid for services rendered in |
connection with Chapter 11 proceeding - - | (42) (33)
------------ ------------ | ------------- ---------------
Net cash used by reorganization items - - | (16) (30)
------------ ------------ | ------------- ---------------
Net cash provided by operating activities 1,422 288 | 3,279 3,251
------------ ------------ | ------------- ---------------
|
Cash flows from investing activities: |
Equipment purchased for leasing (6) (2) | (44) (563)
Notes receivable (1) - | (18) (232)
Equity investments - - | (1) (56)
Equipment purchased for leasing by discontinued |
operations (26) (60) | (267) (930)
Other 20 (1) | 2 49
------------ ------------ | ------------- ---------------
Net cash used in investing activities (13) (63) | (328) (1,732)
------------ ------------ | ------------- ---------------
|
Cash flows from financing activities: |
Cash used by discontinued operations (167) (56) | (267) (55)
Net decrease in notes and term notes payable (1,085) (33) | (462) (489)
Principal payments on secured debt (2) (5) | (117) (50)
Discounted lease proceeds - 1 | 12 263
Maturities and repurchases of senior notes - - | - (813)
Initial cash distribution to creditors - - | (1,983) -
Cash portion of disputed claims reserve - - | (248) -
Old Common stock purchased and placed in treasury - - | - (84)
Dividends paid on Old Common stock - - | - (7)
Dividends paid on New Common stock (568) - | - -
Decrease (increase) in legally restricted cash (24) 40 | (5) -
Other (12) (7) | (20) 1
------------ ------------ | ------------- ---------------
Net cash used in financing activities (1,858) (60) | (3,090) (1,234)
------------ ------------ | ------------- ---------------
|
Net increase (decrease) in cash and cash equivalents (449) 165 | (139) 285
Cash and cash equivalents at beginning of period 546 381 | 520 235
------------ ------------ | ------------- ---------------
Cash and cash equivalents at end of period $ 97 $ 546 | $ 381 $ 520
============ ============ | ============= ===============
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
SUCCESSOR | PREDECESSOR
Year Two months | Ten months Year
ended ended | ended ended
September 30, September 30, | July 31, September 30,
2003 2002 | 2002 2001
------------- ------------- | ----------- ------------
|
Reconciliation of earnings (losses) from |
continuing operations to net cash |
provided by operating activities: |
|
|
Earnings (losses) from continuing operations $ 20 $ (35) | $ (981) $ (208)
|
Adjustments to reconcile earnings (losses) |
from continuing operations to net cash |
provided by operating activities |
|
Leasing costs, primarily |
depreciation and amortization 109 46 | 366 645
Leasing revenue, primarily principal portion of |
direct financing and sales-type lease rentals 93 9 | 106 143
Cost of sales 78 2 | 182 81
Technology services costs, primarily |
depreciation and amortization 6 4 | 9 (1)
Interest (12) 13 | (5) 47
Income taxes (14) 2 | 80 (139)
Principal portion of notes receivable 72 23 | 175 261
Selling, general, and administrative expenses 2 (2) | 191 443
Warrant proceeds in excess of income 1 - | 13 103
Income tax benefit resulting from the exercise of |
non-qualified stock options - - | - 2
Fresh-start reporting adjustments - - | 369 -
Reorganization items - - | 423 4
Lease portfolio sales 72 13 | 356 -
Other, net (45) 17 | 24 39
--------------- ---------------- | -------------- -----------
Net cash provided by continuing operations 382 92 | 1,308 1,420
Net cash provided by discontinued operations 1,040 196 | 1,971 1,831
--------------- ---------------- | -------------- -----------
Net cash provided by operating operations $ 1,422 $ 288 | $ 3,279 $ 3,251
=============== ================ | ============== ===========
|
Supplemental Schedule of Non-cash Financing Activities: |
Reduction of discounted lease rentals in lease |
portfolio sales $ - $ - | $ 292 $ -
=============== ================ | ============== ===========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
Note 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 Bankruptcy Court (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 "CDRs") 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.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
In this annual report on Form 10-K, references to "the Company,"
"Comdisco Holding," "we," "us" and "our" mean Comdisco Holding Company, Inc.,
its consolidated subsidiaries, including Comdisco Global Holding Company,
Inc., Comdisco, Inc., Comdisco Domestic Holding Company, Inc. and Comdisco
Ventures, Inc., and its predecessors, except in each case where the context
indicates otherwise. 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.
Nature of Operations
Comdisco Holding Company, Inc. was formed on August 8, 2002 for the
purpose of selling, collecting or otherwise reducing to money in an orderly
manner the remaining assets of the Company and all of its direct and indirect
subsidiaries, including Comdisco, Inc. Prior to the bankruptcy, Comdisco, Inc.
provided technology services worldwide to help its customers maximize
technology functionality, predictability, and availability, while freeing them
from the complexity of managing their technology. Comdisco, Inc. offered
leasing to key vertical industries, including semiconductor manufacturing and
electronic assembly, healthcare, telecommunications, pharmaceutical,
biotechnology and manufacturing. Through its Comdisco Ventures group,
Comdisco, Inc. provided equipment leasing and other financing and services to
venture capital-backed companies.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Intercompany accounts and
transactions have been eliminated.
Translation Adjustments
All assets and liabilities denominated in foreign currencies are
translated at the exchange rate on the balance sheet date. Revenues, costs and
expenses are translated at average rates of exchange prevailing during the
period. Translation adjustments are deferred as a separate component of
stockholders' equity. Gains and losses resulting from foreign currency
transactions are included in other revenue in the consolidated statements of
earnings (loss).
Income Taxes
The Company uses the asset and liability method to account for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits of which future realization is not
more likely than not.
Lease Accounting
See Notes 7, 8, and 9 of Notes to Consolidated Financial Statements
for a description of lease accounting policies, lease revenue recognition and
related costs.
Technology Services
Revenue from Availability Solutions' contracts was recognized monthly
as subscription fees became due. Revenue from Availability Solutions
continuity contracts was recognized over the terms of the related contracts or
as the service was provided. Revenue from continuity contracts is reported in
discontinued operations.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid debt
instruments with original maturities of 90 days or less.
Allowance for Credit Losses
See Note 12 of Notes to Consolidated Financial Statements for a
description of the policy for reserving for credit losses.
Cash--Legally Restricted
Legally restricted cash represents cash and cash equivalents that are
restricted solely for use as collateral in secured borrowings, cash and cash
equivalents received by the Company from non-owned lease portfolios serviced
by the Company, cash and cash equivalents related to the Company's employee
incentive compensation plans, and cash and cash equivalents held in escrow or
in similar accounts as a result of the various proposed or completed assets
sales. Legally restricted cash is comprised of the following at September 30,
2003 and September 30, 2002 (in millions):
SUCCESSOR SUCCESSOR
2003 2002
--------------- ------------------
SunGard escrow $ 1 $ 2
Professional fee escrow - 7
Letters of credit 3 3
Incentive compensation escrow 37 -
Cash received on non-owned leases - 6
Other 1 -
--------------- ------------------
$ 42 $ 18
=============== ==================
In November 2003, the Company and SunGard resolved the disputed matters
associated with the escrow and, as a result, the Company received $763,000.
The Company's exposure on the letter of credit was eliminated in November 2003
by the customer prepaying its obligation.
Inventory of Equipment
Inventory of equipment is stated at the lower of cost or market by
categories of similar equipment.
Property, Plant and Equipment
As result of fresh-start reporting adjustments, $27 million of excess
fair value of net assets over reorganization value was allocated as a
reduction to property, plant and equipment in accordance with AICPA Statement
of Position ("SOP") 90-7 and Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations." Accordingly, the net book value of
property, plant and equipment as of September 30, 2003 and September 30, 2002
was zero.
The Company completed the sale of two of its five remaining
properties in September 2003. See Note 5 of Notes to Consolidated Financial
Statements for additional information about these property sales. The Company
completed the sale of its property in New Jersey in November 2003 for
approximately $2.2 million, of which approximately $1.5 million is in escrow
pending resolution of an unrelated New Jersey state tax issue as of the date
of this filing. The property in Eching and the day care facility in Rosemont
are offered for sale by the Company at this time. The sale process, which is
being managed by the CAM group, is expected to generate cash of less than $4
million.
Equity Securities
Marketable equity securities: The Company classifies all marketable
equity securities as available-for-sale. These marketable equity securities
are carried at fair value, based on quoted market prices, with unrealized
gains and losses excluded from earnings (loss) and reported in accumulated
other comprehensive income (loss).
Equity investments in private companies: Equity investments in
private companies for which there is no readily determinable fair value are
carried at the lower of cost or estimated fair market value. The Company
identifies and records losses on equity investments in private companies when
market and company specific events and circumstances indicate that such assets
might be impaired. All write-downs are considered permanent impairments for
financial reporting purposes.
Warrants: The Company's investments in warrants (received in
connection with its lease or other financings) are initially recorded at zero
cost and carried in the consolidated financial statements as follows:
o Warrants that meet the criteria for classification as
available-for-sale are carried at fair value based on quoted
market prices with unrealized gains excluded from earnings
(losses) and reported in accumulated other comprehensive
income (loss).
o Warrants that do not meet the criteria for classification as
available-for-sale continue to be carried at zero value.
Contingent Distribution Rights
See Note 19 of Notes to Consolidated Financial Statements for a
description of the policy for recording the estimated liability to CDR
holders.
Earnings (Loss) Per Common Share
Earnings (loss) per common share-basic are computed by dividing the
net earnings (loss) to common stockholders by the weighted average number of
common shares outstanding for the period. Earnings (loss) per common
share-diluted reflect the maximum dilution that would have resulted from the
exercise of stock options. Earnings (loss) per common share-diluted are
computed by dividing the net earnings (loss) to common stockholders by the
weighted average number of common shares outstanding and all dilutive stock
options (dilutive stock options are based on the treasury stock method).
Stock-Based Compensation
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations including FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" issued in March 2000, to account for its fixed plan stock
options. Under this method, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair value-based
method of accounting for stock-based employee compensation plans. As allowed
by SFAS No. 123, the Company has elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123. As a result of the confirmation of
the Plan and the emergence from bankruptcy, all stock option plans were
terminated and all outstanding stock options were cancelled.
Reclassifications
Certain reclassifications have been made in the 2001 and 2002
consolidated financial statements to conform to the 2003 presentation.
Cumulative Effect of Change in Accounting Principle
Comdisco, Inc. adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") on October 1, 2000. In
accordance with the transition provisions of SFAS No. 133, Comdisco, Inc.
recorded a net-of-tax cumulative-effect adjustment of $2 million in current
earnings to recognize at fair value all derivatives that were designated as
cash-flow hedging instruments. For the year ended September 30, 2000, prior to
the adoption of SFAS No. 133, Comdisco, Inc. entered into interest rate and
foreign exchange derivative transactions designed to reduce its exposure to
market risks from changing interest rates and foreign exchange rates.
Neither the Company nor Comdisco, Inc. used derivatives for trading
purposes. The Company's derivative financial instruments at September 30, 2002
were recorded at fair value. The Company did not have any derivative financial
instruments at September 30, 2003.
Note 3 - Fresh-Start Reporting
The Company adopted fresh-start reporting because, as a result of
implementation of the Plan, holders of the Company's existing common stock
immediately before filing and confirmation of the Plan retained less than 50
percent of the common stock of the emerging entity and the Company's
reorganization value at emergence was less than its post-petition liabilities
and Allowed Claims.
Under fresh start reporting, the reorganization value of the Company
is allocated to estimated fair value of the emerging Company's net assets. The
Company's reorganization value was based on the consideration of many factors
and various valuation methodologies, primarily discounted cash flows, believed
by the Company's management and its financial advisors to be representative of
the Company's business and industry. The allocation of the Company's
reorganization value to the estimated fair value of the net assets of the
emerging company was determined in a manner similar to the accounting
provisions applied for business combinations under Statement of Financial
Accounting Standards No. 141 (SFAS 141) which consisted primarily of
discounted cash flows for leased assets, amounts to be paid discounted at
current rates for liabilities and recording of deferred taxes in accordance
with generally accepted accounting principles.
The Company's reorganization value was less than the fair value of
the emerging Company's net assets as estimated by the Company. In accordance
with SFAS 141, the excess of the fair value of the net assets over the
reorganization value is used to reduce the value of certain assets (primarily
long-lived non-financial assets) to zero. The remaining excess was held as a
contra asset on the balance sheet of the Company as of July 31, 2002 (see
adjustment (h) below). The Company recognized an extraordinary gain of $241
million, net of tax, in the Successor consolidated financial statements to
recognize the excess which remained after reducing property, plant and
equipment to zero. The excess of the estimated fair value of the net assets of
the emerging Company over the reorganization value primarily relates to three
factors: (1) the Company's European IT Leasing business performing better than
expected (2) the strengthening of the Euro from the time of estimation of the
reorganization value as disclosed in the Plan; and (3) the reorganization
value considered future operating expenses, whereas the estimated fair value
of the net assets of the emerging company did not. All future operating
expenses will be expensed as incurred in accordance with generally accepted
accounting principles.
The reorganization value and the related allocation to the estimated
fair value of the net assets of the emerging Company is based upon a variety
of estimates and assumptions about future circumstances and events. Such
estimates and assumptions are inherently subject to significant uncertainties.
The reorganization and the adoption of fresh-start reporting resulted
in the following adjustments to the Predecessor's consolidated balance sheet
for the period ended July 31, 2002:
Reorganization and
PREDECESSOR Fresh-Start Adjustments SUCCESSOR
July 31, 2002 Debit Credit July 31, 2002
------------------------------------------------ ---------------
ASSETS |
Cash and equivalents $ 2,635 $ 1,983 (a)| $ 404
248 (a)|
Cash, legally restricted 59 | 59
Receivables, net 237 $ 2 (e) | 239
Inventory 50 10 (e)| 40
Leased assets: |
Direct financing and sales-type 841 55 (e) | 896
Operating, net of accumulated depreciation 602 39 (e)| 563
--------------- | ---------------
Net leased assets 1,443 | 1,459
Property, plant and equipment, net 39 12 (e)| -
27 (h)|
Equity securities 58 16 (e)| 42
Assets of discontinued operations 191 3 (h)| 206
Other 137 1 (c)| 188
35 (e)|
Excess fair value of net assets over reorganization value 241 (h)| (241)
--------------- | ---------------
$ 4,849 | $ 2,291
=============== | ===============
LIABILITIES AND STOCKHOLDERS' EQUITY |
Notes payable $ 916 916 (b) 1,050 (a)| $ 1,050
Term notes payable 67 | 67
Senior notes 2,640 2,640 (b) | -
Accounts payable 116 20 (b) | 96
Income taxes 137 29 (f) | 108
Liabilities related to assets of discontinued operations 31 | 31
Deferred income 94 | 94
Other liabilities 361 160 (b) 10 (e)| 128
83 (b) |
| -
Discounted lease rentals 304 | 304
--------------- | ---------------
4,666 | 1,878
--------------- | ---------------
Stockholders' equity: |
Common stock 22 22 (d) - (a)| -
Additional paid-in capital 365 365 (d) 384 (a)| 413
29 (d)|
Accumulated other comprehensive income (70) 70 (d)| -
Retained earnings 486 332 (d) 29 (f)| -
271 (h) |
65 (e) 153 (g)|
--------------- | ---------------
803 | 413
Common stock held in treasury, at cost (620) 620 (d)| -
--------------- | ---------------
Total Stockholders' Equity 183 | 413
--------------- | ---------------
$ 4,849 $ 4,960 4,960 | $ 2,291
=============== ========== ========== | ===============
Explanations of adjustment columns of the balance sheet are as follows:
(a) To record initial distribution under the Plan, including distribution
for Disputed Claims Reserve. Distribution included cash, the issuance of
New Debt and New Common Stock (4.2 million shares, par value $.01).
(b) To reflect the cancellation of the old debt, including related accrued
interest, and cancellation of other prepetition obligations subject to
compromise.
(c) To write-off the remaining debt issuance costs.
(d) To reflect the cancellation of stockholders' equity of the Predecessor.
(e) To adjust assets to fair value and accrue a liability related to the
Contingent Distribution Rights.
(f) Tax effect of adjusting assets to fair value.
(g) To reflect the extraordinary gain resulting from discharge of
indebtedness. The extraordinary credit is calculated as follows (in
thousands):
Historical carrying value of old debt securities $ 3,556
Historical value of related accrued interest 83
Unamortized portion of deferred debt issuance costs (1)
Prepetition accounts payable and estimated liability related to disputed
claims 180
Plan New Debt (1,050)
Plan Cash Distribution (1,983)
Plan New Common Stock (384)
Disputed Claims Reserve (cash) (248)
-----------
153
Tax provision -
-----------
Gain on extinguishment of debt $ 153
===========
Reconciliation of reorganization value:
Reorganization value per Plan $ 384
Tax effect of fresh start reporting 29
-----------
Reorganization value per financials $ 413
===========
(h) Record excess fair value of net assets over Plan reorganization value
and adjust long-lived assets in accordance with SOP 90-7 and SFAS No.
141.
Operations that were discontinued subsequent to emergence are not reclassified
in the above table (see Note 5 of Notes to Consolidated Financial Statements).
Note 4 - Discontinued Operations
Because of the sale of assets described in Note 5 of Notes to
Consolidated Financial Statements, amounts in the consolidated financial
statements and related notes for all periods shown have been restated to
account for the US Leasing operations, International Leasing, German Leasing
Subsidiary and Availability Solutions as discontinued operations.
"International Leasing" refers to the Company's former 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. 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.
Network Services
During the second quarter of fiscal 2001, the network consulting
business of the Company was discontinued. The network management services
segment of the business was transferred to a new provider during the third
quarter of fiscal 2001. Network customers purchased bundled consulting,
network management and leasing. Even though the consulting and network
management services have been discontinued, the leasing element was not
discontinued.
Prism Communication Services, Inc.
The Company acquired Prism Communication Services, Inc. ("Prism"), a
provider of dedicated high-speed connectivity, on February 28, 1999, for a
cash purchase of approximately $53 million, of which approximately $45 million
was paid in fiscal 1999. From the date of acquisition through September 30,
2001, the Company provided Prism with cash totaling $531 million for the
expansion of its network and for its operating costs and wind-down costs.
On October 2, 2000, the Company ceased funding ongoing operations of
Prism. As a result of this decision, Prism ceased operations and pursued the
immediate sale of its assets. The assets of the Prism entities have been
liquidated and the proceeds realized from such liquidation were distributed to
creditors of Prism in accordance with the Plan.
Following is summary financial information for the Company's
discontinued operations for the fiscal year ended September 30, 2003, the two
months ended September 30, 2002, the ten months ended July 31, 2002 and the
fiscal year ended September 30, 2001. 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
Fiscal year ended September 30, 2003
International German Leasing
US Leasing Leasing Subsidiary Total
----------------- --------------- ------------------- -------------------
Revenue $ 241 $ 5 $ 78 $ 324
================= =============== =================== ===================
Gain on sale $ - $ 7 $ 24 $ 31
================= =============== =================== ===================
Earnings from discontinued operations:
Before income taxes (benefit) $ 26 $ 9 $ 37 $ 72
Income taxes (benefit) (1) (12) 1 3 (8)
----------------- --------------- ------------------- -------------------
Net earnings $ 38 $ 8 $ 34 $ 80
================= =============== =================== ===================
(1) The $12 million income tax benefit for US Leasing during fiscal year 2003
is due to a reduction of deferred tax liabilities relating to the
Company's Canadian operations. See Note 13 of Notes to Consolidated
Financial Statements for further information relating to income taxes.
Two months ended September 30, 2002
International German Leasing
US Leasing Leasing Subsidiary Total
----------------- ------------- ------------------ -------------------
Revenue $ 79 $ 22 $ 31 $ 132
================= ============= ================== ===================
Earnings (loss) from discontinued operations:
Before income taxes 22 (8) 7 21
Income taxes 1 1 1 3
----------------- -------------- ------------------ -------------------
Net earnings (loss) $ 21 $ (9) $ 6 $ 18
================= ============== ================== ===================
PREDECESSOR
Ten months ended July 31, 2002
Avail- Inter- German
ability national Leasing
Solutions US Leasing Leasing Subsidiary Prism Total
----------- ----------- ----------- ------------- ----------- --------
Revenue $ 67 $ 347 $ 137 $ 169 $ - $ 720
=========== =========== =========== ============= =========== ========
----------- ----------- ----------- ------------- ----------- --------
Gain on sale $ 326 $ - $ - $ - $ - $ 326
=========== =========== =========== ============= =========== ========
Income from discontinued operations:
Before income taxes (benefit) $ 339 $ (26) $ 4 $ 35 $ (3) $ 349
Income taxes (benefit) 26 (10) 2 7 - 25
----------- ---------- ---------- ------------- ----------- --------
Net earnings (loss) 313 (16) 2 28 (3) 324
Estimated loss on disposal
Before income taxes - - (37) - - (37)
Income taxes - - - - - -
----------- ---------- ---------- ------------- ----------- --------
Net loss - - (37) - - (37)
----------- ---------- ---------- ------------- ----------- --------
Total $ 313 $ (16) $ (35) $ 28 $ (3) $ 287
=========== ========== ========== ============= =========== =========
Fiscal year ended September 30, 2001
Avail-
ability Network International German Leasing
Solutions Services US Leasing Leasing Subsidiary Prism Total
----------------------------------- -------------- -------------- -------- ----------
Revenue $ 487 $ 9 $ 746 $ 215 $ 190 $ - $ 1,647
========== =========== ========== ============ ============= ======== =========
Income (loss) from discontinued
operations:
Before income taxes (benefit) $ 27 (14) - (16) $ 17 $ - $ 14
Income taxes (benefit) 13 (5) - (2) 6 - 12
---------- ----------- -------- ------------ ------------- -------- ---------
Net earnings (loss) 14 (9) - (14) 11 - 2
Estimated loss on disposal
Before income tax benefit (38) (38) - - - (30) (106)
Income tax benefit (11) (15) - - - (12) (38)
----------- ---------- --------- ------------ ------------- --------- --------
Net loss (27) (23) - - - (18) (68)
----------- ---------- --------- ------------ ------------- --------- --------
Total $ (13) (32) $ - $ (14) $ 11 $ (18) $ (66)
=========== ========== ========= ============ ============= ========= ========
The estimated loss on disposal before income taxes of the
discontinued operations includes the following (in millions):
Ten months
ended
July 31, 2002
International
Leasing
-------------
Carrying value of net assets in excess of
anticipated proceeds $ 37
Expenses of asset disposal and anticipated
operating loss from the discontinued date
through the date of disposal -
-------------
Loss on disposal before income taxes $ 37
=============
PREDECESSOR
Fiscal year ended September 30, 2001
Availability Network
Solutions Services Prism Total
----------------------------------------------------
Carrying value of net assets in excess of
anticipated proceeds $ 33 $ 25 $ 30 $ 88
Expenses of asset disposal and anticipated
operating loss from the discontinued date
through the date of disposal 5 13 - 18
------------ ------------ --------- -----------
Loss on disposal before income taxes $ 38 $ 38 $ 30 $ 106
============ ============ ========= ===========
Expenses of asset disposal and anticipated operating losses represent
the Company's estimate of operational losses to be incurred and the expected
losses from disposition of the operations. Actual losses could differ from
those estimates and will be reflected as adjustments in future financial
statements. No assurances can be given that the recorded losses will be
sufficient to cover the actual operational losses and losses incurred upon
asset disposition or winding down of the discontinued operations.
Note 5 - Sale of Assets
Sale of Assets
US Leasing operations
---------------------
On June 27, 2003, the Board of Directors approved a plan to sell
substantially all of the assets of US Leasing and authorized management to
enter into negotiations for the purpose of completing a sale transaction. On
August 25, 2003, the Company announced that it had agreed to sell the assets
of its US Leasing to Bay4 Capital Partners, LLC ("Bay4"). On September 9, 2003,
the Company completed the sale to Bay4. Under the terms of the asset purchase
agreement, and after completion of the post closing adjustments to the
purchase price in October 2003, the Company received approximately $19.4
million in cash, and Bay4 assumed approximately $21.3 million in secured
nonrecourse debt to third parties. The Company retained a secured nonrecourse
interest of approximately $27.3 million in certain other leases. In addition,
the Company received a note in the amount of approximately $39.9 million
payable primarily from the realization of the residual value of the assets.
Furthermore, the note evidences the Company's right to share in the proceeds,
if any, realized from the assets beyond the stated amount of the note.
On September 30, 2003, the Company completed the sale of its Canadian
information technology assets to Bay4 Capital Partners, Inc. Under the terms
of the asset purchase agreement the Company received approximately 1.6 million
Canadian dollars (approximately $1.2 million as of September 30, 2003).
European IT Leasing
-------------------
On October 18, 2002, the Company announced that it had sold Computer
Discount GmbH, a leasing subsidiary of Comdisco, Inc. formerly known as
Comdisco Austria GmbH, to the Austrian company PH Holding GmbH. Under the
terms of the purchase agreement, PH Holding GmbH agreed to pay Euro 7 million
(approximately U.S. $8.6 million as of September 30, 2002) for 100 percent of
the stated share capital of Computer Discount GmbH. As part of the deal, PH
Holding GmbH agreed to continue to oversee the liquidation of Comdisco Ceska
Republika S.R.O., a wholly-owned Czech subsidiary of Computer Discount GmbH.
On October 18, 2002, the Company announced that it had sold Comprendium
Finance S.A., formerly known as Comdisco (Switzerland) S.A., a leasing
subsidiary of Comdisco Global Holding Company, Inc., to Comprendium
Investments S.A., a Swiss company. Pursuant to the terms of the sale
agreement, the Company received CHF 13.0 million (approximately U.S. $8.7
million as of September 30, 2002). On October 18, 2002, the Company announced
that it, along with Comdisco Global Holding 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 French leasing subsidiaries closed on December 23,
2002 and the Company received the proceeds in the amount of approximately Euro
69 million ( U.S. $70 million).
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
Investments S.A., a Swiss company. 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 over the 42 months
following closing, dependent 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.
For financial reporting purposes, at September 30, 2003, the four
additional payments discussed above are included in the balance sheet as
assets of 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. The German subsidiary sold to Comprendium
Investment (Deutschland) GmbH 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 in July
2002. During the three months ended June 30, 2003 the Company repatriated
funds from the sale of stock of its German Leasing Subsidiary. As a result,
the Company recorded a $24 million gain related to the realization of deferred
translation gains which is included in earnings (loss) of discontinued
operations.
Corporate Asset Management
--------------------------
On January 14, 2002, Comdisco, Inc. announced the sale of
substantially all of its electronics and laboratory and scientific equipment
leasing assets to GE Capital. The Bankruptcy Court approved the sale on
January 24, 2002. On April 24, 2002, Comdisco, Inc. received approximately
$548 million for the sale of these assets, which included the assumption of
approximately $258 million of related secured debt and other obligations. On
May 31, 2002, Comdisco, Inc. and GE Capital completed a second closing on the
sale of electronics and laboratory and scientific assets, for which Comdisco,
Inc. received an additional approximately $24 million, including the
assumption of approximately $5 million of related secured debt and other
obligations. The purchase price for both closings was 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, which was completed on August 4, 2003.
In addition, the Company received additional consideration based on the
performance of the electronics assets sold to GE Capital. Certain electronics
and laboratory and scientific assets were not purchased by GE Capital due to
documentation, credit or other issues. The Company, through its CAM group,
continues to manage the sale or run-off of these assets.
On April 4, 2002, Comdisco, Inc. announced the sale of substantially
all of its healthcare leasing assets to GE Capital. The Bankruptcy Court
approved the sale on April 18, 2002. On May 31, 2002, Comdisco, Inc. and GE
Capital completed a first closing on the sale of the healthcare assets.
Comdisco, Inc. received approximately $117 million for the sale of these
assets, including the assumption of approximately $46 million of related
secured debt and other liabilities. On June 30, 2002, Comdisco, Inc. and GE
Capital completed a second closing on the sale of healthcare assets for which
Comdisco, Inc. received an additional $20 million, including the assumption of
approximately $5 million of related secured debt and other liabilities. The
purchase price for both closings was 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, which was completed on August 4, 2003. Certain
healthcare assets were not purchased by GE Capital due to documentation,
credit, or other issues. The Company, through its CAM group, continues to
manage the sale or run-off of these assets.
On April 9, 2002, Comdisco, Inc. announced that it had agreed to sell
substantially all of its information technology (IT) leasing assets in
Australia and New Zealand to Allco, an Australian company specializing in
equipment and infrastructure finance and leasing. The Bankruptcy Court
approved the sale on April 18, 2002. Under the terms of the sale agreement,
Allco agreed to hire all of the Comdisco Australia and New Zealand employees
and purchase most of its assets in Australia and New Zealand in a series of
closings. On June 28, 2002, Comdisco, Inc. and Allco completed the first
closing on the sale of leased assets in Australia and New Zealand, with the
final closing completed on June 3, 2003. The Company received approximately
$32 million for the assets sold. Allco did not purchase all of the Company's
IT leasing assets in Australia and New Zealand. As such, the Company, through
its CAM group, continued to manage the sale or run-off of these assets until
completed in fiscal 2003.
On August 4, 2003, the Company announced the completion of the
post-closing review of the purchase price calculation for the sale of its
Electronics, Laboratory and Scientific, and Healthcare leasing portfolios to
GE Capital. The Company received approximately $25 million in the settlement
of the purchase price holdbacks. On the same date, the Company also announced
that it had agreed to a settlement with GE Capital regarding their future
contingent payment obligations on the Electronics equipment leasing business
(collectively, the "GE Settlement"). The Company received a single $40 million
cash payment and other consideration currently valued by the Company at
approximately $29 million. The other consideration primarily consisted of a
participation interest in certain lease rental payments previously purchased
by GE Capital. The Company and GE also agreed to a mutual release of
substantially all potential indemnification claims under the sale agreements
for the Electronics, Laboratory and Scientific, and Healthcare leasing
portfolios. As a result of the settlement of the purchase price holdback and
the settlement of the contingent payment obligations, the Company recorded a
gain of approximately $2 million in its fourth fiscal quarter ended September
30, 2003 and expects to recognize approximately $29 million of additional
earnings as payments are received on the other consideration.
On September 26, 2003, the Company announced the sale of two of its
five remaining properties. MB Financial, Inc. a financial services holding
company that is the parent of MB Financial Bank, N.A., purchased the Company's
287,000 square-foot headquarters building located at 6111 N. River Road in
Rosemont, Illinois for $19.3 million. The sale closed on September 25, 2003.
The Company will remain as a tenant in the building and has leased 50,000
square feet through March 31, 2004, declining to approximately 25,000 square
feet through October 2004. The Company has prepaid its leasing obligations
through October 2004. CenterPoint Properties Trust, a real estate investment
trust, purchased the Company's 250,000 square-foot warehouse facility located
at 800 Albion Way in Schaumburg, Illinois for approximately $3.7 million. The
sale closed on August 15, 2003.
The Company completed the sale of its Carlstadt building in November
2003 for approximately $2.2 million of which approximately $1.5 million is in
escrow pending resolution of an unrelated New Jersey state tax issue as of the
date of this filing. The only remaining properties owned by the Company as of
the date hereof is a day-care facility adjacent to the Company's headquarters
and a former Availability Solutions facility in Eching, Germany. The Company
believes the remaining properties have a fair market value of less than $4
million. See Note 2 of Notes to Consolidated Financial Statements, Property,
Plant and Equipment, for the impact of fresh-start reporting adjustments on
the net book value of property, plant and equipment at September 30, 2003 and
2002.
Services
--------
On November 15, 2001, Comdisco, Inc. 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 $1.6 million
was held in escrow pending resolution of disputed matters. In November 2003,
the Company and SunGard resolved the disputed matters and, as a result, the
Company received $763,000, with the balance held in escrow returned to
SunGard. 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.
Note 6 - Reorganization Items, Restructuring Costs, and Fresh-Start Reporting
Adjustments
Reorganization Items
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. As a result of the Company's
emergence from bankruptcy on August 12, 2002, the Company ceased recording
bankruptcy related expenses and income within reorganization items. As such,
the Company does not have reorganization items for either the fiscal year
ended September 30, 2003 or the two months ended September 30, 2002. The major
components for the ten months ended July 31, 2002 and for the year ended
September 30, 2001 are as follows (in millions):
PREDECESSOR
2002 2001
------------- -------------
Estimated loss on sale on leased assets $ 263 $ -
Loss on IT CAP sale 3 -
DIP fees 8 -
Disputed Claims 127 -
Other asset write-downs 22 -
Professional fees 42 37
Interest income (26) (3)
-------------- -------------
$ 439 $ 34
============== =============
In accordance with SOP 90-7 and SFAS No. 5 "Accounting for
Contingencies," in addition to liabilities previously accrued, Comdisco, Inc.,
the Predecessor Company, recorded in its statement of earnings (loss) for the
ten months ended July 31, 2002, an additional liability of $127 million
related to the Disputed Claims.
Professional fees 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 11 of Notes
to Consolidated Financial Statements). Interest income includes interest
earned on the Company's unrestricted cash balance that would not have been
earned if the Company had not filed for Chapter 11 protection.
Restructuring costs
As a result of work-force reductions, the Company initially incurred
a charge of $8 million in the fiscal third quarter ending June 30, 2001. The
Company incurred additional charges of $15 million and $3 million in the three
months ended March 31, 2002 and June 30, 2002, respectively. Approximately $26
million has been paid and charged against the accrued liability through
September 30, 2003. Cost and expenses associated with the restructuring cost
are included in selling, general and administrative expenses.
Fresh-Start Reporting Adjustments
The major components of fresh-start reporting adjustments, which were
expensed, for the ten months ended July 31, 2002 are as follows (in millions):
PREDECESSOR
2002
-------------
Fair value adjustment to assets $ 65
Excess fair value of net assets over
reorganization value 271
Recognition of accumulated other comprehensive loss 70
-------------
406
Charges related to assets in
discontinued operations (37)
-------------
Total fresh-start reporting adjustments $ 369
=============
Note 7 - Lease Accounting Policies
SFAS No. 13, "Accounting for Leases," requires that a lessor account
for each lease by either the direct financing, sales-type or operating method.
Leased Assets
Direct financing and sales-type leased assets consist of the present
value of the future minimum lease payments plus the present value of the
residual (collectively referred to as the net investment). Residual is the
estimated fair market value of the equipment on lease at lease termination. In
estimating the equipment's fair value at lease termination, the Company relies
on historical experience by equipment type and manufacturer and, where
available, valuations by independent appraisers, adjusted for known trends.
The Company's estimates are reviewed continuously to ensure reasonableness;
however, the amounts the Company will ultimately realize could differ from the
estimated amounts.
Operating leased assets consist of the equipment cost, less the
amount depreciated to date.
Revenue, Costs and Expenses
o Direct financing leases: Revenue consists of interest earned on
the present value of the lease payments and residual. Revenue
is recognized periodically over the lease term as a constant
percentage return on the net investment. There are no costs and
expenses related to direct financing leases since leasing
revenue is recorded on a net basis.
o Sales-type leases: Revenue consists of the present value of the
total contractual lease payments which is recognized at lease
inception. Costs and expenses consist of the equipment's net
book value at lease inception, less the present value of the
residual. Interest earned on the present value of the lease
payments and residual, which is recognized periodically over
the lease term as a constant percentage return on the net
investment, is included in direct financing lease revenue in
the statement of earnings (loss).
o Operating leases: Revenue consists of the contractual lease
payments and is recognized on a straight-line basis over the
lease term. Costs and expenses are principally depreciation of
the equipment. Depreciation is recognized on a straight-line
basis over the lease term to the Company's estimate of the
equipment's fair market value at lease termination, also
commonly referred to as "residual" value. In estimating the
equipment's fair value at lease termination, the Company relies
on historical experience by equipment type and manufacturer
and, where available, valuations by independent appraisers,
adjusted for known trends. The Company's estimates are reviewed
continuously to ensure reasonableness, however the amounts the
Company will ultimately realize could differ from the amounts
assumed in determining depreciation on the equipment in the
operating lease portfolio at September 30, 2003.
Initial direct costs related to operating and direct financing
leases, including salespersons' commissions, are capitalized and amortized
over the lease term into leasing costs and expenses. As a result of
fresh-start reporting adjustment, all indirect costs have been recognized in
the consolidated statement of earnings (loss).
Note 8 - Leased Assets
The components of the net investment in direct financing and
sales-type leases as of September 30 are as follows (in millions):
SUCCESSOR
2003 2002
--------------- -----------------
Minimum lease payments receivable $ 29 $ 48
Estimated residual values 2 6
Less: unearned revenue (5) (8)
--------------- ----------------
Net investment in direct financing
and sales-type leases $ 26 $ 46
=============== ================
Unearned revenue is recorded as leasing revenue over the lease term.
Operating leased assets include the following as of September 30 (in
millions):
SUCCESSOR
2003 2002
--------------- ---------------
Operating leased assets $ 90 $ 411
Less: accumulated depreciation
and amortization (74) (164)
---------------- --------------
Net operating leased assets $ 16 $ 247
================ ==============
Note 9 - Lease Portfolio Information
The size of the Company's lease portfolio can be measured by the cost
of leased assets at the date of lease inception. Cost at lease inception
represents either the equipment's original cost or its net book value at
termination of a prior lease. The following table summarizes by year of
projected lease termination, the cost at lease inception for all leased assets
recorded at September 30, 2003 (in millions):
SUCCESSOR
Total
cost at
Projected year of lease termination lease
2004 2005 2006 2007 2008 + inception
---------- --------- ------- ------- --------- -------------
$ 69 $ 36 $ 7 $ 11 $ 5 $ 128
========== ========== ======= ======= ========= ============
The following table summarizes the estimated net book value at lease
termination, or the residual value, for all leased assets recorded at
September 30, 2003 (in millions):
SUCCESSOR
Total
net book
value at
Projected year of lease termination lease
2004 2005 2006 2007 2008 + termination
---------- --------- -------- -------- -------- --------------
$ 7 $ 5 $ - $ - $ - $ 12
========== ========= ======== ========= ========= ==============
Note 10 - Future Contractual Cash Flows
The table below presents cash in-flows due in accordance with the
contractual terms in existence as of September 30, 2003 (in millions):
Years ending September 30,
2004 2005 2006 2007 2008 + Total
---------- -------- ------- ------ ------- --------
Contractual cash in-flows:
Leases - Europe and CAM $ 22 $ 10 $ 6 $ 2 $ - $ 40
Leases - Ventures 2 - - - - 2
Notes receivable -Ventures 3 - - - - 3
Notes receivable -related to Agere 18 8 - - - 26
Notes-discontinued operations 11 11 11 11 - 44
Leases-discontinued operations 14 9 4 - - 27
--------- --------- ------ ------ ------ ---------
Total $ 70 $ 38 $ 21 $ 13 $ - $ 142
========= ========= ====== ====== ====== =========
The residual note due from Bay4 from the sale of US Leasing totaling
approximately $40 million, while not contractual (and not included in the
table above), will be paid, provided the leased equipment residuals perform.
See Note 5 of Notes to Consolidated Financial Statements.
Note 11 - 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 percent 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 6 of Notes to Consolidated Financial
Statements).
Upon emergence, Comdisco, Inc.'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 percent and the Subordinated Notes in aggregate principal
amount of $650 million with an interest rate of 11 percent. General unsecured
creditors also received, and the Disputed Claims Reserve also was funded with,
their pro rata share of 100 percent 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 percent of their principal amount plus accrued and unpaid
interest from August 12, 2002 to the redemption date. Following the redemption
of the Senior Notes, the Company 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.
The Company made several mandatory and optional redemptions of its
Subordinated Notes between November 14, 2002 and April 2, 2003. On April 28,
2003, the Company made the final redemption of $85 million principal amount of
its Subordinated Notes. Each of the redemptions of the Subordinated Notes were
at a price equal to 100 percent of their principal amount plus accrued and
unpaid interest to the redemption date.
The Company had one contractual letter of credit outstanding totaling
$3 million at September 30, 2003 to a landlord of one Ventures' customer, for
the guarantee of the customer's office space lease in the event of default by
the customer. The Company's exposure was eliminated in November 2003 by the
customer prepaying its obligation. The Company had an estimated liability of
approximately $2 million related to this guarantee included in other
liabilities in the accompanying consolidated balance sheet.
Interest rates noted below for fiscal year 2002 were calculated based
upon debt outstanding subsequent to the emergence date. At September 30, 2003,
there are $5 million of discounted lease rentals outstanding which are
liabilities related to assets of discontinued operations. As such, at
September 30, 2003 these amounts are included within liabilities related to
assets of discontinued operations. The entire $5 million becomes due during
fiscal year 2004. Interest-bearing liabilities include the following (in
millions):
SUCCESSOR
At September 30, 2003 Average
------------------------- --------------------
Balance Rate Balance Rate
------------ ------------ ---------- ---------
Notes payable $ - -% $ 241 10.35%
Term notes - -% 8 1.80%
Discounted lease rentals - -% 1 8.89%
------------ ------------ ---------- ---------
$ - -% $ 250 10.07%
============ ============ ========== =========
At September 30, 2002 Average
------------------------- --------------------
Balance Rate Balance Rate
------------ ------------ ---------- ---------
Notes payable $ 1,050 8.62% $ 1,050 8.62%
Term notes 35 2.19% 52 2.08%
Discounted lease rentals 2 8.89% 5 8.89%
------------ ------------ ---------- ---------
$ 1,087 8.41% $ 1,107 8.31%
============ ============ ========== =========
The changes in financing activities were as follows (notes payable
changes are shown net; in millions):
Outstanding Maturities Outstanding
beginning and end
of year Issuances repurchases of year
------------ ------------- -------------- ---------------
Notes payable $ 1,050 $ - $ (1,050) $ -
Term notes 35 - (35) -
Discounted lease rentals 2 - (2) -
------------ ----------- -------------- ---------------
$ 1,087 $ - $ (1,087) $ -
============ =========== ============== ===============
For the two months ended September 30, 2002
-------------------------------------------
Maturities Outstanding
Outstanding and end
July 31, 2002 Issuances repurchases of year
------------- ------------ -------------- -----------------
Notes payable $ - $ 1,050 $ - $ 1,050
Term notes 68 - (33) 35
Discounted lease rentals 7 - (5) 2
------------- ------------ -------------- -----------------
$ 75 $ 1,050 $ (38) $ 1,087
============= ============ ============== =================
PREDECESSOR
For the ten months ended July 31, 2002
--------------------------------------
Outstanding Maturities Outstanding
beginning and Discharge of at
of year Issuances repurchases Other indebtedness July 31, 2002
------------- ------------ -------------- ----------------- ----------------- ---------------
Notes payable:
Credit lines and loan
participation contracts $ 1,068 $ - $ (179) $ - $ (889) $ -
Commercial paper 28 - - - (28) -
Term notes 360 - (292) - - 68
Senior notes 2,639 - - - (2,639) -
Discounted lease rentals 404 12 (117) (292) - 7
------------- ------------ -------------- ----------------- ----------------- ---------------
$ 4,499 $ 12 $ (588) $ (292) $ (3,556) $ 75
============= ============ ============== ================= ================= ===============
Discounted Lease Rentals
The Company utilized its lease rentals receivable and underlying
equipment in leasing transactions as collateral to borrow from financial
institutions at fixed rates on a nonrecourse basis. In return for this secured
interest, the Company received a discounted cash payment. In the event of a
default by a lessee, the financial institution had a first lien on the
underlying leased equipment, with no further recourse against the Company.
Proceeds from discounting were recorded on the balance sheet as discounted
lease rentals; as lessees made payments, lease revenue (i.e., interest income
on direct financing and sales-type leases and rental revenue on operating
leases) and interest expense was recorded. Discounted lease rentals were
accounted for using the interest method.
During fiscal year 2003 and during the two months ended September 30,
2002, interest expense on discounted lease rentals was immaterial. Interest
expense on discounted lease rentals was $13 million for the ten months ended
July 31, 2002. During fiscal year 2001 interest expense on discounted lease
rentals was $45 million.
Derivative Financial Instruments
The Company entered into interest rate and foreign currency related
derivatives in order to limit its exposure to adverse fluctuations in foreign
currency exchange and interest rates. As of September 30, 2003, the Company
had no outstanding derivative financial instruments.
The following table presents the contract or notional (face) amounts
outstanding and the fair value of the contracts based generally on their
termination values at September 30, 2002 (amounts in millions):
SUCCESSOR
Notional Fair
amount value
------------ --------
Derivative financial
instruments $ 68 $ 2
============ ========
The impact of these contracts for the two months ended September 30,
2002 was a decrease of $1 million to interest expense. The impact of these
contracts for the ten months ended July 31, 2002 was a decrease of $4 million
to interest expense and an increase of $4 million to foreign currency losses.
The $4 million foreign currency loss is included within other revenue. For
fiscal 2001, the impact was a decrease of $9 million to interest expense. The
average notional amount outstanding of the floating rate to fixed rate
contracts in fiscal 2002 was $27 million, with an average pay rate of 5.32
percent and an average receive rate of 3.61 percent. The average notional
amount outstanding of the fixed rate to floating rate contracts in fiscal 2001
was $56 million, with an average pay rate of 6.55 percent and an average
receive rate of 6.10 percent. The average notional amount in fiscal 2003 was
immaterial.
Note 19 of Notes to Consolidated Financial Statements below provides
details about the fair value of the Company's financial instruments.
Other Financial Information
Note 12 - Receivables
Receivables include the following as of September 30 (in millions):
SUCCESSOR SUCCESSOR
2003 2002
--------------- ------------------
Notes $ 27 $ 118
Accounts 17 59
Other 8 79
--------------- ------------------
Total receivables 52 256
Allowance for credit losses (11) (158)
--------------- ------------------
Total $ 41 $ 98
=============== ==================
Notes
In conjunction with the GE Settlement (See Note 5 of Notes to
Consolidated Financial Statements), the Company received other consideration,
which the Company valued at $29 million. The other consideration primarily
consisted of a participation interest in certain lease rental payments from
Agere previously purchased by GE Capital. The payments due from Agere are
included in the balance sheet in Receivables (at the present value of the
minimum lease payments, or approximately $24 million) and, in a like amount,
in Deferred Income. As payments are received, the Company records earnings
equal in amount to the payment received.
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 September 30, 2003 and 2002, Ventures had notes receivable of
approximately $3 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
At September 30, 2002, approximately $38 of other receivables related
to 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 5 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
inherent within the receivables and lease portfolio, management relies on
historical experience, adjusted for any known trends, including industry
trends, in the portfolio.
Changes in the allowance for credit losses (combined notes and
accounts receivable) for the year ended September 30 were as follows (in
millions):
SUCCESSOR
Consolidated Ventures
-------------- ----------
2003 2003
-------------- ----------
Balance at beginning of year $ 158 $ 110
Provision for credit losses (92) (63)
Net credit losses (55) (45)
-------------- ----------
Balance at end of year $ 11 $ 2
============== ==========
Consolidated Ventures
-------------- ----------
2002 2002
-------------- ----------
Balance July 31, 2002 $ 191 $ 128
Provision for credit losses 3 3
Net credit losses (36) (21)
-------------- ----------
Balance at end of year $ 158 $ 110
============== ==========
PREDECESSOR Consolidated Ventures
---------------------------- --------------------
2002 2001 2002 2001
-------------- ---------- -------- --------
Balance at beginning of year $ 225 $ 109 $ 202 $ 95
Provision for credit losses 115 390 118 365
Fresh-start adjustment (15) - (15) -
Net credit losses (134) (274) (177) (258)
-------------- ---------- -------- --------
Balance at end of year
(July 31, 2002 for 2002) $ 191 $ 225 $ 128 $ 202
============== ========== ======== ========
Note 13 - Income Taxes
The geographical sources of earnings (loss) from continuing
operations before income taxes were as follows (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
Year months | months Year
ended ended | ended ended
September 30, 2003 September 30, 2002 | July 31, 2002 September 30, 2001
------------------- --------------------| --------------- ---------------------
United States $ 21 $ (33)| $ (831) $ (354)
Outside United States (2) - | (102) 8
------------------ -------------------| -------------- --------------------
$ 19 $ (33)| $ (933) $ (346)
================== ===================| ============== ====================
Income taxes (benefit) included in the consolidated statements of
earnings (loss) were as follows (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
Year months | months Year
ended ended | ended ended
September 30, 2003 September 30, 2002 | July 31, 2002 September 30, 2001
---------------------- --------------------| --------------- ---------------------
Continuing operations $ (1) $ 2 | $ 48 $ (138)
Discontinued operations (8) 3 | 25 (26)
---------------------- --------------------| --------------- ---------------------
$ (9) $ 5 | $ 73 $ (164)
====================== ====================| =============== =====================
The components of the income tax provision (benefit) charged
(credited) to continuing operations were as follows (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
Year months | months Year
ended ended | ended ended
September 30, 2003 September 30, 2002 | July 31, 2002 September 30, 2001
------------------- ------------------ | -------------- ---------------------
Current: |
Inside United States $ (5) $ - | $ 38 $ (25)
Outside United States 4 2 | 10 18
------------------ ----------------- | -------------- ---------------------
(1) 2 | 48 (7)
Deferred: |
Inside United State s - - | - (121)
Outside United States - - | - (10)
------------------- ----------------- | -------------- ---------------------
- - | - (131)
------------------- ----------------- | -------------- ---------------------
$ (1) $ 2 | $ 48 $ (138)
=================== ================= | ============== =====================
The reasons for the difference between the U.S. federal income tax
rate and the effective income tax rate for earnings (loss) were as follows:
SUCCESSOR | PREDECESSOR
Two | Ten
Year months | months Year
ended ended | ended ended
September 30, 2003 September 30, 2002 | July 31, 2002 September 30, 2001
----------------------- --------------------- | --------------- -----------------------
U.S. Federal income |
tax rate tax (benefit) 35.0% (35.0)% | (35.0)% (35.0)%
Increase (reduction) |
resulting from: |
State income taxes, net |
of U.S. federal tax |
benefit 6.8 - | 0.1 (4.0)
Foreign income tax rate |
differential 17.3 92.0 | 3.2 1.4
Non-deductible goodwill - | 9.2 -
Non-deductible legal fees 50.0 | 0.8 -
Tax effect of foreign |
dividends and deemed dividends 226.3 - | - (0.6)
Change in valuation allowance (410.5) - | 24.2 -
Other, net 119.7 (113.0) | (7.6) 78.1
----------------------- --------------------- | --------------- -----------------------
(5.4)% (6.0)% | (5.1)% 39.9%
======================= ===================== | =============== =======================
Deferred tax assets and liabilities at September 30, 2003 and 2002
were as follows (in millions):
SUCCESSOR SUCCESSOR
2003 2002
---------------- ------------------
Deferred tax assets (liabilities):
Foreign loss carryforwards $ 16 $ 16
U.S. NOL C/F - 382 Limit 188 248
U.S. NOL Carryforward 66 20
AMT credit carryforwards 74 74
Deferred income 4 71
Deferred expenses 19 28
Other, net 26 180
Lease accounting 26 57
Other comprehensive income - -
Foreign unremitted earnings 2 -
----------------- ------------------
Gross deferred tax assets
(liabilities) 421 694
Less: valuation allowance (421) (694)
----------------- ------------------
Net deferred tax liabilities $ - $ -
================= ==================
In connection with fresh-start reporting, Comdisco, Inc.'s assets and
liabilities were recorded at their respective fair market values. Deferred tax
assets and liabilities were recognized for the tax effects of the differences
between the fair values and the tax bases of the Company's assets and
liabilities. In addition, deferred tax assets were recognized for future use
of the company's net operating losses and other tax credits.
To the extent that management believes the pre-emergence net deferred
tax asset will more likely than not be realized, a reduction in the valuation
allowance established in fresh-start reporting will be recorded. The reduction
in this valuation allowance (if any) will increase additional paid-in capital.
At September 30, 2003, the Company had not made such a determination.
In connection with the reorganization, the Company realized a gain
from the extinguishment of certain indebtedness. This gain was not taxable
since the gain resulted from the reorganization under the Bankruptcy Code.
However, the Company was required, as of the beginning of its 2003 taxable
year, to reduce certain of its tax attributes. Net operating loss
carryforwards were the only tax attribute which were reduced. However, the
Company had provided a full valuation allowance against this asset.
The reorganization of the Company on the Effective Date constituted
an ownership change under section 382 of the Internal Revenue Code and the use
of any of the Company's NOLs and tax credits generated prior to the ownership
change, that are not reduced pursuant to the provisions discussed above, will
be subject to an overall annual limitation. However, the Company has provided
a valuation allowance for the entire value of the net operating loss as it
does not foresee utilizing the carry forwards in the future.
For financial reporting purposes, the Company has approximately $47
million of foreign net operating loss carryforwards, most of which have no
expiration date. The Company has recognized a valuation allowance of $16
million to offset this deferred tax asset. At September 30, 2003, the Company
has available for U.S. federal income tax purposes the following carryforwards
(in millions):
SUCCESSOR
Year Net
scheduled operating
to expire loss
- ------------- ------------
2004 $ 2
2015 5
2016 3
2018 5
2019 27
2021 475
------------
382 Limit 517
------------
2022 55
2023 126
------------
$ 181
============
For U.S. federal income tax purposes, the Company has approximately
$74 million of alternative minimum tax ("AMT") credit carryforwards available
to reduce regular taxes in future years. AMT credit carryforwards do not have
an expiration date. The use of the Company's alternative minimum tax credits
will be subject to the Section 382 limitation discussed above. As such, the
Company has recognized a valuation allowance of $74 million to offset this
deferred tax asset.
The Company is currently undergoing a routine audit by the Internal
Revenue Service (the "Service") for fiscal year 2001. The Company also
undergoes audits by foreign, state and local tax jurisdictions. As of
September 30, 2003, no material assessments have been made by these tax
authorities.
Note 14 - 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 in privately held companies, 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 market and customer specific events and circumstances indicate
the carrying value might be impaired. All write-downs are considered permanent
impairments for financial reporting purposes. Impairments in equity securities
totaled $25 million and $73 million during fiscal year 2003 and 2002,
respectively.
Realized gains or losses are recorded on the trade date based upon
the difference between the proceeds and the cost basis determined using the
specific identification method. Changes in the valuation of available-for-sale
securities are included as changes in the unrealized holding gains in
accumulated other comprehensive income (loss). Net realized gains from the
sale of equity investments were $1 million during fiscal year 2003. For the
two months ended September 30, 2002, net realized gains from the sale of
equity investments were immaterial. For the ten months ended July 31, 2002,
net realized gains from the sale of equity investments were $2 million. Net
realized gains from the sale of equity investments were $99 million in fiscal
2001. Gross realized gains from the sale of equity investments were $1 million
during fiscal year 2003. For the two months ended September 30, 2002, gross
realized gains from the sale of equity investments were immaterial. For the
ten months ended July 31, 2002, gross realized gains from the sale of equity
investments were $5 million. Gross realized gains from the sale of equity
securities were $101 million during fiscal years 2001. Net realized gains are
included in other revenue in the consolidated statements of earnings (loss).
The Company records the proceeds received from the sale or
liquidation of warrants received in conjunction with its lease or other
financings as income on the trade date. For the fiscal year ended September
30, 2003, these gains were $1 million. For the two months ended September 30,
2002 these gains were immaterial. For the ten months ended July 31, 2002,
these gains totaled $14 million. These gains were $254 million in fiscal 2001.
These amounts are included in other revenue in the consolidated statements of
earnings (loss).
Ventures publicly-traded security holdings were as follows (in
millions):
Gross Gross
unrealized unrealized Market
Cost gains losses value
--------------- --------------- -------------- ---------------
SUCCESSOR
September 30, 2003 $ 1 $ 11 $ - $ 12
September 30, 2002 $ 1 $ - $ - $ 1
At September 30, 2003, $11 million of the $12 million market
value is held in one security
(iPass, Inc.).
Note 15 - Common Stock and Other Comprehensive Income
When the Company emerged from bankruptcy, 4,200,000 shares of new
common stock were issued. As of September 30, 2003, the Company had 4,197,100
shares of common stock outstanding and 2,900 shares of common stock held in
treasury.
The Predecessor company's common stock was cancelled on August 12,
2002. The Predecessor company's common shareholders were entitled to
distributions of CDRs under the Plan. However, to have been eligible to
receive any distribution of CDRs, those former common shareholders must have
properly completed a transmittal form and have surrendered all of their shares
of the Predecessor company's common stock to Mellon Investors Services LLC
prior to August 12, 2003.
In May 2003, the Company distributed approximately $308 million to
stockholders in the form of a dividend paid on the Company's Common Stock. In
June 2003, the Company distributed approximately $60 million to stockholders
in the form of a dividend paid on the Company's Common Stock. In September
2003, the Company distributed approximately $200 million to stockholders in
the form of a dividend paid on the Company's Common Stock. On November 20,
2003, the Company declared a cash dividend of $12 per share (an aggregate
distribution of approximately $50 million) on the outstanding shares of its
Common Stock, paid on December 11, 2003, to stockholders of record on December
1, 2003. Comdisco intends to treat the dividend distributions for federal
income tax purposes as part of a series of liquidating distributions in
complete liquidation of the Company.
The Company's Common Stock share amounts for basic and diluted
earnings (loss) per share calculations were as follows (in thousands):
SUCCESSOR | PREDECESSOR
Two | Ten
Year months | months Year
ended ended | ended ended
September 30, 2003 September 30, 2002 |July 31, 2002 September 30, 2001
------------------ --------------------|------------- --------------------
Average common shares issued 4,200 4,200 | 225,555 225,366
Average common shares held in treasury (1) - | (74,996) (74,120)
------------------ --------------------|------------- -------------------
Basic and diluted common shares outstanding 4,199 4,200 | 150,559 151,246
================== ====================|============= ===================
For the ten months ended July 31, 2002 and for the fiscal year ended
2001, options on 18,179,186 and 15,256,845 shares, respectively, were not
included in the calculation of the diluted shares outstanding because their
effects would be antidilutive.
There are no adjustments to net earnings to common stockholders for
basic and diluted earnings per share calculations for either the two months
ended September 30, 2002, the ten months ended July 31, 2002 or the year ended
September 30, 2001.
Components of other comprehensive earnings (loss) consists of the
following (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
Year months | months Year
ended ended | ended ended
September 30, September 30, | July 31, September 30,
2003 2002 | 2002 2001
------------------ -----------------|------------- ----------------
|
Foreign currency translation adjustments $ (2) $ 4 | $ 24 $ 1
|
Unrealized gains (losses) on derivative instruments - - | (2) 4
|
Unrealized gains (losses) on securities: |
Unrealized holding gains (losses) arising |
during the period 13 - | 18 (295)
Reclassification adjustment for gains |
included in earnings (losses) before |
income taxes (benefit) (2) - | (16) (353)
------------------ -----------------| ----------- -------------------
Net unrealized gains (losses), before |
income taxes (benefit) 11 - | 2 (648)
Income taxes (benefit) - - | 1 (233)
------------------ -----------------| ----------- -------------------
Net unrealized gains (losses) 11 - | 1 (415)
------------------ -----------------| ----------- -------------------
Other comprehensive income (loss) 9 4 | 23 (410)
Net earnings (loss) 100 224 | (541) (272)
------------------ -----------------| ----------- -------------------
Total comprehensive income (loss) $ 109 $ 228 | $ (518) $ (682)
================== =================| =========== ===================
Accumulated other comprehensive income (loss) presented below and in
the accompanying balance sheets consists of the following (in millions):
SUCCESSOR Unrealized
Foreign gain on Unrealized Accumulated
currency available- gain on other
translation for-sale derivative comprehensive
adjustment securities instruments income (loss)
-------------- -------------- --------------- ------------------
Balance at July 31, 2002 $ - $ - $ - $ -
Pretax amount 4 - - 4
Income taxes - - - -
-------------- -------------- --------------- ------------------
Balance at September 30, 2002 4 - - 4
Pretax amount (2) 11 - 9
Income taxes - - - -
-------------- -------------- --------------- -------------------
Balance at September 30, 2003 $ 2 $ 11 $ - $ 13
============== ============== =============== ===================
PREDECESSOR Unrealized
Foreign gain on Unrealized Accumulated
currency available- gain on other
translation for-sale derivative comprehensive
adjustment securities instruments income (loss)
-------------- -------------- --------------- -------------------
Balance at September 30, 2000 $ (98) $ 415 $ - $ 317
Pretax amount 1 (648) 6 (641)
Income taxes (benefit) - (233) 2 (231)
-------------- -------------- --------------- -------------------
Balance at September 30, 2001 $ (97) - 4 (93)
Pretax amount 24 2 (3) 23
Income taxes (benefit) - 1 (1) -
Extinguishment of stockholders'
equity in connection with
reorganization 73 (1) (2) 70
-------------- -------------- --------------- -------------------
Balance at July 31, 2002 $ - $ - $ - $ -
============== ============== =============== ===================
Note 16 - Employee Benefit Plans
All stock option plans, the Employee Stock Ownership Plan, the
Non-Employee Directors' stock option plan and the 1996 Deferred Fee Option
Plan were cancelled effective July 31, 2002.
The Company had a profit sharing plan which, together with the
Employee Stock Ownership Plan (the "Plans"), covered substantially all
domestic employees. Company contributions to the Plans were based on a
percentage of employees' compensation. Benefits were accumulated on an
individual employee basis.
Comdisco, Inc.'s stock option plans provided for the granting of
incentive stock options and/or nonqualified options to employees and agents to
purchase shares of common stock.
Additionally, under the 1999 Non-Employee Directors' Stock Option
Plan, each October 1, each individual who was a Non-Employee Director during
the fiscal year was automatically granted an option for 9,450 shares of the
Old Common stock at the then fair market value. None were granted during
fiscal year 2002.
Under the 1996 Deferred Fee Option Plan, each Non-Employee Director
received options for 2,898 shares of Old Common stock on October 1, 2000 at an
option price of $1.00.
Comdisco, Inc. applies APB Opinion No. 25 and related Interpretations
in accounting for its plans. Had compensation cost for Comdisco, Inc.'s stock
option plans been determined consistent with SFAS No. 123, Comdisco, Inc.'s
net earnings (loss) available to common stockholders and earnings (loss) per
common and common equivalent share would have been reduced to the pro forma
amounts indicated below (in millions except per share data):
PREDECESSOR
Ten
months Year
ended ended
July 31, 2002 2001
---------------- ------------
Net earnings (loss) to
common stockholders
As reported $ (541) $ (272)
Pro forma (546) (280)
Earnings (loss) per
Common share:
As reported-basic (3.59) (1.80)
Pro forma-basic (3.63) (1.85)
As reported-diluted (3.59) (1.80)
Generally, under the stock option plans, the exercise price of each
option equaled the market price of the Old Common stock on the date of grant.
For purposes of calculating the compensation cost consistent with SFAS 123,
the fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 2001: dividend yield of 1.0 percent;
expected volatility of 49 percent; risk free interest rates of 5.51 percent;
and expected lives of five years. As a result of the reorganization of the
Company, all outstanding stock options were cancelled effective July 31, 2002.
Additional information on common shares subject to options is as
follows (in thousands except weighted-average exercise price):
PREDECESSOR
2002 2001
----------------------------- -----------------------------
Weighted- Weighted-
Number average Number average
of shares exercise price of shares exercise price
------------ ---------------- ------------ ----------------
Outstanding at beginning of year 18,524 $13 15,618 $12
Granted - - 7,675 16
Exercised - - (838) 6
Forfeited (18,524) 13 (3,931) 15
------------ ---------------- ------------ ----------------
Outstanding at the end of the year
(July 31, 2002 for 2002) - $0 18,524 $13
============ ================ ============ ================
Options exercisable at year-end - $0 12,478 $12
============ ================ ============ ================
Weighted-average fair value of options
granted during the year $0 $13.22
================ ================
Note 17 - Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments are
as follows as of September 30 (in millions):
SUCCESSOR
2003 2002
Carrying Fair Carrying Fair
amount value amount value
----------- --------- ----------- ---------
Assets:
Cash and cash equivalents $ 97 $ 97 $ 546 $ 546
Marketable equity securities 12 12 1 1
Equity investments in private companies 6 12 35 35
Notes receivable 27 27 118 118
Liabilities:
Notes payable - - 1,050 1,050
Term notes and discounted lease rentals - - 37 37
Derivative financial instruments - - 2 2
Fair values were determined as follows:
The carrying amounts of cash and cash equivalents, and notes payable
approximates fair value because of the short-term maturity of these
instruments.
In accordance with the provisions of SFAS No. 115, marketable equity
securities (equity securities having a readily determinable fair value) have a
carrying value and a fair value based on quoted market prices. The Company's
investment in warrants of public companies were valued at the bid quotation.
The Company's investment in marketable equity securities of $12 million at
September 30, 2003 is primarily in one company (iPass, Inc.) and is subject to
market price risk. The Company's practice is to sell its marketable equity
securities upon the expiration of the lock-up period. The lock-up period for
iPass expires in late January 2004.
Equity investments in private companies consist primarily of small
investments in over two hundred private companies and are all non-quoted
securities. Common stock and preferred stock investments are carried at the
lower of cost or fair market value in the Company's financial statements.
Warrants in non-public companies are carried at zero value. These investments
are subject to significant volatility and are difficult to value. The fair
value at September 30, 2003 for equity investments in private companies,
including warrants, took into consideration the following factors: (i)
non-binding cash bids received from independent third parties; (ii)
management's analysis; and (iii) a limited, independent third party review of
the Company's portfolio. This estimate is not necessarily indicative of what
will ultimately be realized from the Company's investments in private
companies and the reader should be aware that the amount ultimately realized
will be impacted by a number of factors (many of which are beyond the control
of the Company), including, but not limited to, general economic and market
conditions and the underlying performance of the private companies.
Furthermore, the Company's estimated fair value is concentrated in a small
number of companies, thereby significantly increasing the risk that the
estimated fair value will not be ultimately realized.
Notes receivable are estimated by discounting future cash flows using
the current rates at which similar loans would be made to borrowers with
similar business profiles.
The fair value of term notes and discounted lease rentals was
estimated based generally on quoted market prices for the same or similar
instruments or on current rates offered the Company for similar debt of the
same maturity.
The fair value of financial derivative instruments was estimated by
obtaining quotes from brokers.
Note 18 - Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the fiscal years ended
September 30, 2003 and 2002, are as follows (in millions except per share
data):
PREDECESSOR
One month
Quarter ended ended
December 31, March 31, June 30, July 31,
2001 2002 2002 2002
-------------- -------------- ----------- ------------
Total revenue $ 287 $ 260 $ 164 $ 34
Loss from continuing operations (227) (78) (99) (577)
Earnings (loss) from discontinued
operations 215 (16) 2 86
Extraordinary gain - - - 153
-------------- -------------- ----------- ------------
Net loss to common stockholders $ (12) $ (94) $ (97) $ (338)
============== ============== =========== ============
Loss from continuing operations-
diluted $ (1.51) $ (0.52) $ (0.66) $ (3.83)
Earnings (loss) from discontinued
operations 1.43 (0.10) 0.02 0.56
Extraordinary gain - - - 1.02
-------------- -------------- ----------- ------------
Net loss per common share-diluted $ (0.08) $ (0.62) $ (0.64) $ (2.25)
============== ============== =========== ============
SUCCESSOR
Two months
ended Quarter ended
September 30, December 31, March 31, June 30, September 30,
2002 2002 2003 2003 2003
-------------- -------------- ----------- ------------ ---------------
Total revenue $ 59 $ 95 $ 6 $ 77 $ 63
Earnings (loss) from continuing
operations (35) (12) 1 1 15
Earnings (loss) from discontinued
operations 18 21 21 39 -
Extraordinary gain 241 - - -
-------------- -------------- ----------- ------------ ---------------
Net earnings (loss) to common
stockholders $ 224 $ 9 $ 3 $ 40 $ 15
============== ============== =========== ============ ===============
Earnings (loss) from continuing
operations- diluted $ (8.28) $ (2.77) $ 3.64 $ 0.24 $ 3.68
Earnings (loss) from discontinued
operations 4.27 4.86 5.03 9.25 (0.02)
Extraordinary gain 57.38 - -
-------------- -------------- ----------- ------------ ---------------
Net earnings (loss) per common
share-diluted $ 53.37 $ 2.09 $ 8.67 $ 9.49 $ 3.66
============== ============== =========== ============ ===============
Note 19 - Other Financial Information
Other liabilities at September 30 were as follows (in millions):
2003 2002
-----------------------------------
Accrued compensation $ 62 $ 27
CDRs 44 10
Other:
Customer advances, deposits 7 30
Taxes other than income 2 8
Accrued interest - 13
Other 3 19
----------------- -----------------
Total Other 12 70
----------------- -----------------
$ 118 $ 107
================= =================
The liability for accrued compensation includes payroll, estimated
amounts payable under the Compensation Plans (see Item 11, Bankruptcy Court-
Approved Compensation Plans below) as well as estimated severance costs
associated with the wind-down of the Company's operations. Amounts accrued for
the Compensation Plans include $18 million for the SAB and Stay Bonus, $34
million for Upside Sharing plans (amounts accrued for the Upside Sharing plans
include achievement through September 30, 2003 and are not based on estimated
ultimate levels of achievement) and $10 million for severance and accrued
payroll. As of September 30, 2003, approximately $37 million is held in
restricted cash relating to the liabilities under the Compensation Plans (see
Note 2 of Notes to Consolidated Financial Statements).
The liability for CDRs has increased from $10 million to $44 million
from September 30, 2002 to September 30, 2003, respectively. Management has
adopted a methodology for estimating the amount due to CDR holders following
the provisions of Statement of Financial and Accounting Standards No. 5,
Accounting for Contingencies ("SFAS No. 5"). Under SFAS No. 5, a liability
must be booked that is probable and reasonably estimatable as of the balance
sheet date.
The amount due to CDR holders is based on the amount and timing of
distributions made to former creditors of the Company's predecessor, Comdisco,
Inc., and is impacted by both the value received from the orderly sale or
run-off of Comdisco Holding's assets and on the resolution of Disputed Claims
still pending in the bankruptcy estate of Comdisco, Inc.
The Company is not able to definitively estimate either the ultimate
value to be received for the remaining assets or the final resolution of
remaining Disputed Claims. Accordingly, the Company does not forecast these
outcomes in calculating the liability. Instead, the liability calculation uses
the Company's equity value as the basis for remaining asset value, reduced for
estimated operating expenses and increased for two items which did not impact
equity for financial reporting purposes at September 30, 2003: the estimated
fair market value of the remaining properties held for sale, and the
participation interest in certain lease rental payments due from Agere. See
Notes 2, 5, 12 and 19 of Notes to Consolidated Financial Statements for further
discussion of these items. In addition, the liability for CDRs is calculated
as if all remaining Disputed Claims are allowed. The amounts due to CDR
holders will be greater to the extent that Disputed Claims are disallowed. The
disallowance of a Disputed Claim results in a distribution from the Disputed
Claims Reserve to previously allowed creditors that is entirely in excess of
the minimum percentage recovery threshold. In contrast, the allowance of a
Disputed Claim results in a distribution to a newly allowed creditor that is
only partially in excess of the minimum percentage recovery threshold.
After the quarterly distribution on November 14, 2003, the remaining
estimated Disputed Claims in the bankruptcy estate of Comdisco, Inc. totaled
$290 million. Two groups of Disputed Claims (related to the SIP and a Ventures
compensation plan dispute) represent more than 75 percent of the aggregate
estimated amount. The portion of the CDR liability that is based on the
resolution of Disputed Claims assumes the entire $290 million of estimated
Disputed Claims is allowed. All payments by the Company in respect of CDRs are
made from the Company's available cash-on-hand and not from funds released from
the Disputed Claims Reserve.
Other assets at September 30 were as follows (in millions):
2003 2002
---------------- -----------------
Electronics Contingent Payment $ - $ 35
Other:
Deferred commissions - 7
Deferred costs 5 14
Other 6 10
---------------- ---------------
Total Other 11 31
---------------- ---------------
$ 11 $ 66
================ ===============
Note 20 - Industry Segment and Operations by Geographic Areas
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 Holding 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.
For financial reporting purposes, the assets ($69 million) and
liabilities ($8 million) of the Company's US Leasing operations as of
September 30, 2003 are included in the balance sheet as assets of discontinued
operations and liabilities related to assets of discontinued operations and
the results of operations of the Company's US Leasing operations for the all
periods presented are included in the statement of earnings (loss) as
discontinued operations.
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 summarized financial information excludes the gain (loss) from
discontinued operations, the extraordinary gain and the cumulative effect of
change in accounting principle. The information for 2002 and 2001 has been
restated from the prior year's presentation in order to conform to the 2003
presentation. Cash flow from operations for 2002 and 2001 are not available.
The following table presents cash flow from operations (in millions):
SUCCESSOR
Year
ended
2003
--------------
European IT Leasing $ (1)
CAM group 112
Ventures 271
Discontinued operations 1,040
--------------
Total $ 1,422
==============
The following table presents segment revenues and earnings (loss)
before income taxes (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
months | months
Year ended | ended Year
ended September 30, | July 31, ended
2003 2002 | 2002 2001
-------------- --------------------|--------------- ------------
REVENUES: |
|
European IT Leasing $ 36 $ 6 | $ 31 $ 36
CAM group 146 14 | 470 795
Ventures 121 39 | 244 724
-------------- -------------------- |-------------- -----------
$ 303 $ 59 | $ 745 $ 1,555
============== ==================== |============== ===========
|
SEGMENT EARNINGS (LOSS): |
European IT Leasing $ (21) $ 5 | $ (10) $ (8)
CAM group (3) (27) | (755) (188)
Ventures 43 (11) | (168) (150)
-------------- ------------------- |--------------- -----------
$ 19 $ (33) | $ (933) $ (346)
============== =================== |=============== ===========
The following table presents total assets for each of the Company's
reportable segments as of September 30 (in millions):
SUCCESSOR SUCCESSOR
2003 2002
------------------- ----------------------
European IT Leasing $ 27 $ 42
CAM group 196 807
Ventures 37 241
Assets of discontinued
operations held for sale:
US leasing 69 564
Other 44 687
------------------- ----------------------
Total assets of discontinued
operations held for sale $ 113 $ 1,251
------------------- ----------------------
Total $ 373 $ 2,341
=================== ======================
The following table presents revenue by geographic location based on
the location of the Company's local offices (in millions):
SUCCESSOR | PREDECESSOR
Year Two months | Ten months Year
ended September 30, ended September 30, | ended July 31, ended September 30,
2003 2002 | 2002 2001
---------------------- --------------------------|-------------------- ----------------------
|
North America $ 196 $ 38 | $ 518 $ $1,307
Europe 97 12 | 107 92
Pacific Rim 10 9 | 120 156
---------------------- --------------------------|-------------------- ----------------------
Total $ 303 $ 59 | $ 745 $ 1,555
====================== ==========================|==================== ======================
The following table presents total assets by geographic location
based on the location of the Company's local offices as of September 30 (in
millions):
SUCCESSOR SUCCESSOR
2003 2002
-------------------------- -------------------------
North America $ 286 $ 1,490
Europe 84 799
Pacific Rim 3 52
-------------------------- -------------------------
Total $ 373 $ 2,341
========================== =========================
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's
chief executive officer and principal financial officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
the end of the period covered by this report. Based on such evaluation, the
Company's chief executive officer and principal financial officer have
concluded that, as of the end of such period, the Company's disclosure
controls and procedures are effective in recording, processing, summarizing
and reporting, on a timely basis, information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act.
Change in Internal Controls
There have not been any changes in the Company's internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal year to which this report
relates that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
Ronald C. Mishler (Age 43 - Director since August 2002)
Mr. Mishler was appointed chairman, chief executive officer and
president of the Company in August 2002. He had been serving as president and
chief operating officer of Comdisco, Inc. since April 2002. Mr. Mishler was
appointed senior vice president and chief financial officer in September 2001.
Mr. Mishler joined Comdisco, Inc. in July 2001 as senior vice president and
treasurer. Prior to working for Comdisco, Inc. he served as senior vice
president and treasurer of Old Kent Financial Corporation from 1998 to 2001.
From 1996 to 1998 he was vice president and treasurer of USF&G Corporation.
From 1984 to 1996, he held various financial analysis and management positions
at Heller International Corporation. Mr. Mishler's two-year term as a director
of Comdisco Holding Company, Inc. will expire in August 2004.
Jeffrey A. Brodsky (Age 45 - Director since August 2002)
Mr. Brodsky is a managing director of Quest Turnaround Advisors,
L.L.C. and chairman and chief executive officer of NTL Europe, Inc. Prior to
Quest, Mr. Brodsky provided his services as an independent crisis management
consultant and worked with Jay Alix & Associates and Alvarez & Marsal, Inc.
Previously, Mr. Brodsky was a member of Senior Management of Integrated
Resources, Inc., responsible for Integrated's equipment leasing business,
leverage buyout business and was actively involved in all aspects of
Integrated's reorganization under Chapter 11 of the United States Bankruptcy
Code. Mr. Brodsky is a director of TVMAX, Inc. and AboveNet, Inc. Mr.
Brodsky's two-year term as a director of Comdisco Holding Company, Inc. will
expire in August 2004.
Robert M. Chefitz (Age 44 - Director since August 2002)
Mr. Chefitz has been a general partner with NJTC Venture Fund since
2002. Previously, Mr. Chefitz was a general partner of Apax Partners, a
managing director at Patricof and Co. Ventures and Senior Associate at Golder
Thoma Cressey and Company. Mr. Chefitz is a Director of World Links, a
philanthropic, non-governmental agency and Director of Venture Investor
Associates of New York. Mr. Chefitz's two-year term as a director of Comdisco
Holding Company, Inc. will expire in August 2004.
William A. McIntosh (Age 64 - Director since August 2002)
Mr. McIntosh is an adjunct faculty member at Howard University in
Washington, DC and a consultant to financial institutions. Previously Mr.
McIntosh was a general partner and a member of the Executive Committee of
Salomon Brothers. He held various positions during this 34-year career with
the firm including US Fixed Income Division Head and National Sales Manager.
He is a member of the Board of Directors of MGIC Investment Corp., The Mason
Street Mutual Funds, Fairfield University, the Archdiocesan Finance Council of
Chicago and the Big Shoulders Fund in Chicago. Mr. McIntosh's two-year term as
a director of Comdisco Holding Company, Inc. will expire in August 2004.
Randolph I. Thornton (Age 58 - Director since August 2002)
Mr. Thornton is a managing director and senior credit officer of
Citigroup where he has managed several corporate reorganizations and has held
various positions for over thirty years. Mr. Thornton has served as a past
member of the Board of Directors of Mohasco Corporation and Edison Brothers
Stores. Mr. Thornton's two-year term as a director of Comdisco Holding
Company, Inc. will expire in August 2004.
Executive Officers
The following table sets forth certain information with respect to
the executive officers of the Company:
Name Age Position
Ronald C. Mishler 43 Chairman, Chief Executive Officer and President
Francis J. Cirone 45 Former Executive Vice President
Lloyd Cochran 34 Executive Vice President, Finance
Robert E. T. Lackey 55 Executive Vice President, Chief Legal Officer and Secretary
John R. McNally, Jr. 42 Executive Vice President
Nazneen Razi 50 Executive Vice President and Chief Administrative Officer
David S. Reynolds 50 Senior Vice President and Controller
Gregory D. Sabatello 43 Executive Vice President and Chief Information Officer
Caroline Walters 43 Senior Vice President and Treasurer
Mr. Mishler also is a director of the Company. Please refer to the "Directors"
section immediately above for his biographical information.
Francis J. Cirone
Francis J. Cirone was named executive vice president of the Company
in August 2002. He also held the position of chief executive officer and
president of Comdisco, Inc. since August 2002 and was responsible for leading
the US Leasing business until his departure from the Company in October 2003.
Mr. Cirone was appointed senior vice president of Comdisco, Inc. in January
2002. He held the position of assistant vice president beginning in November
1989. Mr. Cirone joined Comdisco, Inc. in 1984, performing various corporate
finance management roles for the Company's US, European and Pacific Rim
operations. Subsequently, he led the IT Leasing and Market Development group,
the Telecommunications and Laboratory and Scientific business groups, and
Comdisco's Ventures Division. Before joining Comdisco, Inc., he worked in
public accounting for Arthur Young & Co.
Lloyd J. Cochran
Lloyd J. Cochran was named executive vice president, finance of the
Company in October 2003. In August 2002 he was named senior vice president,
financial planning and analysis, of the Company. He had been serving as senior
vice president, financial planning, of Comdisco, Inc. since March 2002. Mr.
Cochran joined Comdisco, Inc. in September 1999 as vice president of finance
for Comdisco Healthcare Group. Prior to working for Comdisco, Inc., he worked
in public accounting from 1991 to 1999, most recently for KPMG from 1994 to
1999 where he served in various positions, including senior manager from 1997
to 1999.
Robert E. T. Lackey
Robert E. T. Lackey was named executive vice president, chief legal
officer and secretary of the Company in August 2002. He has held these
positions for Comdisco, Inc. since April 2002. Mr. Lackey is also responsible
for leading the Ventures business. He joined Comdisco, Inc. in June 2001 as
senior vice president, chief legal officer and secretary. Mr. Lackey served as
vice president, secretary and general counsel of Burns International Services
Corporation, from 1997 to 2000. From 1991 to 1995, he was the vice president,
secretary and general counsel for Transamerica Commercial Finance Corporation
and, from 1985 to 1991, he worked in various legal and management positions
for Heller Financial, Inc.
John R. McNally, Jr.
John R. McNally was named executive vice president of the Company in
August 2002. Mr. McNally is responsible for leading the CAM group. Mr. McNally
joined Comdisco, Inc. in 1988 and has held various positions in its Tax
department and Leasing Operations. Before joining Comdisco, Inc., he worked at
Amoco Corporation from 1983 to 1988.
Nazneen Razi
Nazneen Razi was named executive vice president and chief
administrative officer of the Company in August 2002. Ms. Razi has held these
positions for Comdisco, Inc. since April 2002. She joined Comdisco, Inc. as
senior vice president, human resources in November 2000. She previously held
various positions within CNA Insurance Companies from 1984, including senior
vice president and senior human resources officer for CNA Risk Management.
David S. Reynolds
David S. Reynolds was named senior vice president and controller of
the Company in August 2002. Mr. Reynolds held the position of controller for
Comdisco, Inc. since March 2002. He was named acting controller for Comdisco,
Inc. in July 2001. From November 1997 through June 2001, he was North American
controller, responsible for all US and Canada accounting functions as well as
all internal and external financial reporting, including SEC reporting. Mr.
Reynolds joined Comdisco, Inc. in August 1981 and held various positions
within the Accounting and Finance departments, including assistant controller
and manager of financial reporting. Before joining Comdisco, Inc., he worked
in public accounting for Ernst & Ernst from 1976 to 1981.
Gregory D. Sabatello
Gregory D. Sabatello was named executive vice president and chief
information officer of the Company in August 2002. He has served in these
positions for Comdisco, Inc. since April 2002. Prior to that, he was senior
vice president since November 1998 and vice president from July 1994. Mr.
Sabatello joined Comdisco, Inc. as business systems manager in October 1993.
Caroline Walters
Caroline Walters was named senior vice president and treasurer of the
Company in August 2002. Ms. Walters joined Comdisco, Inc. in 1986 and has held
leadership positions in the Treasury department. Prior to joining Comdisco,
Inc., she was director of communications for Rayan, Inc. and a high school
teacher.
Audit Committee Financial Expert
The Audit Committee of the Board of Directors is comprised entirely
of independent outside directors. Mr. Brodsky serves as chair and Messrs.
Chefitz and McIntosh serve as members. The Board of Directors and the Audit
Committee have determined that each of the members meets the requirements of
Audit Committee financial expert.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and
executive officers, and persons who beneficially own more than 10 percent of a
registered class of our equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of our Common Stock
and any changes in that ownership with the SEC. Based solely on our review of
copies of the reports filed with the SEC and written representations of our
directors and officers, we believe all persons subject to Section 16(a)
reporting filed the required reports on time in fiscal year 2003 except as
noted below.
Due to an administrative oversight, an initial Form 3 for Lloyd
Cochran was filed late in connection with his initial appointment as a senior
vice president, finance. His initial report indicated "no securities owned"
and there have been no subsequent reports filed.
Code of Ethics
The Company has adopted a code of conduct, entitled the Employee Code
of Conduct, applicable to all Comdisco employees, officers and directors and a
code of ethics, entitled the Senior Executives Code of Conduct, for its Senior
Executives, including but not limited to, its chief executive officer,
principal financial officer and corporate controller, a copy of which is
available on the Company's website. If the Board of Directors grants any
waivers from the Company's Senior Executive Code of Conduct to any of the
directors, or if the Company amends the Senior Executives Code of Conduct, the
Company will disclose the matters through its website at www.comdisco.com and
in future filings. The Company has granted no such waivers.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
This table shows the compensation paid to (i) Ronald C. Mishler, our
Chairman, Chief Executive Officer and President, (ii) our four other most
highly compensated executive officers serving as of September 30, 2003 and
(iii) Robert E. Koe, who served as executive vice president of the Company
from August 2002 through May 2003 and president and chief executive officer of
Europe for Comdisco, Inc. since March 2002. The persons named in this table
and in this section are referred to as the "named executive officers."
Long-Term
Annual Compensation Compensation
------------------------------------------------ ----------------
Awards
----------------
Other Securities All Other
Annual Underlying Compen-
Name and Principal Salary Bonus Compensation Options (shares sation
Position Year ($) ($) ($) #) ($)
- --------------------- ---------- ---------- ---------- ------------ --------------- -----------
Ronald C. Mishler 2003 400,000 600,000 (1) - - 1,623 (8)
Chairman, Chief 2002 343,750 545,000 (2) 5,500 (6) - 1,635 (8)
Executive Officer, 2001 58,814 192,500 1,323 (6) - -
President
Francis J. Cirone 2003 300,000 300,000 (3) - - 1,623 (8)
Former Executive 2002 309,583 363,750 (4) 3,400 (6) - 211,846 (9)
Vice President 2001 239,583 386,250 4,800 (6) - 223,910 (10)
Robert E. Koe 2003 244,806 450,966 (5) - - 490,000 (11)
Former Executive 2002 154,615 243,400 (2) - - 81,000 (12)
Vice President, 2001 - - - - -
European Operations
Robert E. T. Lackey 2003 300,000 450,000 (1) - - 1,623 (8)
Executive Vice 2002 288,542 410,000 (2) - - 635 (8)
President, Chief 2001 67,868 160,000 - - -
Legal Officer and
Secretary
John R. McNally, Jr. 2003 250,000 374,549 (1) - - 1,623 (8)
Executive Vice 2002 215,048 335,000 (2) - - 106,847 (13)
President 2001 131,250 65,000 267 (7) - 116,410 (14)
Gregory D. Sabatello 2003 250,000 748,125 (3) - - 1,623 (8)
Executive Vice 2002 236,458 505,625 (4) - - 271,847 (15)
President and Chief 2001 224,375 228,750 - 25,000 201,660 (16)
Information Officer
(1) Includes amounts earned under the Semiannual Bonus Plan component of the
Management Incentive Plan (as described below in the section entitled
Bankruptcy Court-Approved Compensation Plans) for the period October 1, 2002
through September 30, 2003. Under the terms and conditions of the Semiannual
Bonus Plan, participants were paid half their earned amount for the period and
half was deferred until job elimination. Deferred payments will be forfeited
if the participant voluntarily resigns or is terminated for cause.
(2) Includes quarterly amounts earned under the annual incentive plans,
commission plans and the chairman's discretionary fund plans that were in
place prior to April 1, 2002. Also includes amounts earned under the
Semiannual Bonus Plan component of the Management Incentive Plan (as described
below in the section entitled Bankruptcy Court-Approved Compensation Plans)
for the period April 1, 2002 through September 30, 2002. Under the terms and
conditions of the Semiannual Bonus Plan, participants were paid half their
earned amount for the period and half was deferred until job elimination.
Deferred payments will be forfeited if the participant voluntarily resigns or
is terminated for cause.
(3) Includes amounts earned under the Semiannual Bonus Plan component of the
Management Incentive Plan (as described below in the section entitled
Bankruptcy Court-Approved Compensation Plans) for the period October 1, 2002
through September 30, 2003. As approved by the Bankruptcy Court and described
in the terms and conditions of the SIP Relief program described in Item 1,
above, SIP participants were paid half their earned amount for the period. The
remaining half was deferred and will either be applied to the balance of their
SIP payment obligation or paid out at job elimination in accordance with the
SIP Relief program. Deferred amounts will be forfeited and not applied to the
balance of SIP payment obligation if the participant voluntarily resigns or is
terminated for cause.
(4) Includes quarterly amounts earned under the incentive plans, commission
plans and the chairman's discretionary fund plans that were in place prior to
April 1, 2002. Also includes amounts earned under the Semiannual Bonus Plan
component of the Management Incentive Plan (as described below in the section
entitled Bankruptcy Court-Approved Compensation Plans) for the period April 1,
2002 through September 30, 2002. As approved by the Bankruptcy Court and
described in the terms and conditions of the SIP Relief program described in
Item 1, above, SIP participants were paid half their earned amount for the
period. The remaining half was deferred and will either be applied to the
balance of their SIP payment obligation or paid out at job elimination in
accordance with the SIP Relief program. Deferred amounts will be forfeited and
not applied to the balance of SIP payment obligation if the participant
voluntarily resigns or is terminated for cause.
(5) Amounts include $150,000 for the sale/liquidation of non-core countries,
and $390,966 under the Semiannual Bonus Plan component of the Management
Incentive Plan (as described below in the section entitled Bankruptcy
Court-Approved Compensation Plans) for the period October 1, 2002 through May
30, 2003.
(6) Amounts reflect car allowance payments.
(7) Amounts reflect taxable income from Employee Stock Purchase Plan.
(8) Amounts reflect contributions by the Company to the 401(k) Retirement Plan
for the benefit of the named executive officer.
(9) Includes $210,000 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were retention bonus plans designed
to retain key employees and aid the Company in achieving specifically
identified business objectives for the period from May 2001 through April 2002
and $1,846 in contributions made by the Company to Mr. Cirone's 401(k)
Retirement Plan.
(10) Includes $222,500 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were retention bonus plans designed
to retain key employees and aid the Company in achieving specifically
identified business objectives for the period from May 2001 through April 2002
and $1,410 in contributions made by the Company to Mr. Cirone's 401(k)
Retirement Plan.
(11) Amounts include a one time severance payment of $300,000; $1,000 in
contributions made by the Company to Mr. Koe's 401(k) Retirement Plan, and
$189,000 in payments made under the European Key Management Incentive Plan and
Special Bonus Plan which were retention bonus plans designed to retain key
employees and aid the Company in achieving specifically identified business
objectives for the period from April 2002 through March 2003.
(12)Amounts reflect payments made under the European Key Management Incentive
Plan and Special Bonus Plan which were retention bonus plans designed to
retain key employees and aid the Company in achieving specifically identified
business objectives for the period from April 2002 through March 2003.
(13) Includes $105,000 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were retention bonus plans designed
to retain key employees and aid the Company in achieving specifically
identified business objectives for the period from May 2001 through April 2002
and $1,847 in contributions made by the Company to Mr. McNally's 401(k)
Retirement Plan.
(14) Includes $115,000 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were retention bonus plans designed
to retain key employees and aid the Company in achieving specifically
identified business objectives for the period from May 2001 through April 2002
and $1,410 in contributions made by the Company to Mr. McNally's 401(k)
Retirement Plan.
(15) Includes $270,000 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were retention bonus plans designed
to retain key employees and aid the Company in achieving specifically
identified business objectives for the period from May 2001 through April 2002
and $1,847 in contributions made by the Company to Mr. Sabatello's 401(k)
Retirement Plan.
(16) Includes $200,250 in payments made under the Special Management Incentive
Plan and Key Performance Award Plan, which were retention bonus plans designed
to retain key employees and aid the Company in achieving specifically
identified business objectives for the period from May 2001 through April 2002
and $1,410 in contributions made by the Company to Mr. Sabatello's 401(k)
Retirement Plan.
Option/SAR Grants/Exercises in the Last Fiscal Year
No stock options or stock appreciation rights ("SARs") were
outstanding nor were any granted to or exercised by the named executive
officers in fiscal 2003. The Company does not plan to issue any options or
SARs in the foreseeable future.
Aggregated Option/SAR Exercise and Fiscal Year-End Options/SAR Values
No stock options or SARs were outstanding as of September 30, 2003.
The Company does not plan to issue any options or SARs in the foreseeable
future.
Bankruptcy Court-Approved Compensation Plans: Management Incentive and Stay
Bonus Plans
In order to continue to maximize recoveries under the Plan, it is
essential that critical employees be retained and remain motivated to execute
the Company's post-emergence run-off strategies. Specifically, management and
the Board of Directors of the Company continue to administer the comprehensive
compensation program that includes the Management Incentive Plan (the "MIP"),
which was designed to retain key employees and give them incentive to maximize
the value of the assets and the Stay Bonus Plan, which was designed to retain
essential support and professional staff. These compensation plans were
approved by the Bankruptcy Court on June 18, 2002 with a retroactive effective
date of April 1, 2002. (The MIP and Stay Bonus plans comprise the
"Compensation Plans," which are incorporated by reference to Exhibit 10.1,
Exhibit 10.2 and Exhibit 10.3 filed with the Company's Annual Report on Form
10-K dated September 30, 2002, as filed with the Commission on January 14,
2003, file No. 0-49968.)
For fiscal 2003, participants in the MIP earned $12.6 million in
non-base earnings (which includes $7.9 paid to employees and $4.7 deferred
until job elimination or SIP obligation resolution). Participants in the Stay
Bonus Plan earned $6.0 million in non-base earnings (which includes $3.8
million paid to employees and $2.2 million deferred until job elimination or
SIP obligation resolution). These plans are described below.
The Company's MIP covers key managers and employees directly
responsible for the overall direction of a particular business unit and the
results achieved within that business unit. Additionally, the MIP covers key
corporate employees whose services are required to facilitate business
operations and to administer claims and related bankruptcy matters. Employees
who voluntarily terminate their employment prior to their respective payment
dates under the MIP or who are terminated for cause are not eligible for any
payments from these plans that have not already been paid.
The MIP is tailored to provide appropriate levels of compensation to
key employees in each of the Company's business units - US Leasing (accounted
for within discontinued operations), European IT Leasing, Ventures and CAM -
as well as at the corporate level. While the award opportunities differ for
each of these units, the MIP, as a whole, is intended to provide adequate
compensation for retention of key employees within a unit as that unit moves
toward its post-emergence business targets and to provide additional
performance-based reward opportunities if those targets are exceeded.
The MIP establishes varying levels of incentive compensation
depending upon whether a given business unit reaches its "threshold target" or
"business plan target." A threshold target and a higher business plan target
have been established for each of the business units. For purposes of
measuring achievement relative to threshold or plan, cash flows will be
discounted using rates specified for each business unit.
Each of the business unit's management team participates in the MIP.
The MIP includes two components: Semiannual Performance Bonuses ("SAB") and
Upside Sharing opportunities for specified employees. For US Leasing, there
were 32 participants in the SAB component with a total cost of $4.7 million
for the period October 1, 2002 until September 30, 2003 and there are 22
participants in the Upside Sharing component with a $10.7 million incentive
sharing pool upon reaching plan target recoveries. The pool increases to $26.6
million when recoveries are 20 percent above plan. In October 2003, the Board
of Directors approved, and the Company made, an advance Upside Sharing payment
of $16.4 million to eligible US Leasing Upside Sharing plan participants based
on achievement of 105 percent of plan target. As of September 30, 2003, US
Leasing had achieved recoveries of approximately 110 percent of plan target. A
final Upside Sharing payment will be made to participants when the Board of
Directors declares End of Term (as defined in the Compensation Plans). For
Ventures, there were 21 participants in the SAB component with a total cost of
$2.1 million for the period October 1, 2002 until September 30, 2003 and there
are 25 participants in the Upside Sharing component with a $5.2 million
incentive sharing pool upon reaching plan target recoveries. The pool
increases to $14.3 million when recoveries are 20 percent above plan. For CAM
group, there were four participants in the SAB component with a total cost of
$0.7 million for the period October 1, 2002 until September 30, 2003 and there
are four participants in the Upside Sharing component with a $0.7 million
incentive sharing pool upon reaching plan target recoveries. The pool
increases to $2.0 million when recoveries are 20 percent above plan. For the
Electronics Inventory group, there were 3 participants in the SAB component
with a total cost of $0.3 million for the period October 1, 2002 until
September 30, 2003 and there are three participants in an Upside Sharing
component related specifically to the sale of specific Electronics assets with
a $0.4 million incentive sharing pool upon reaching plan recoveries.
For corporate, there were 19 participants in the SAB component with a
total cost of $4.3 million for the period October 1, 2002 until September 30,
2003 and there are two participants in the Upside Sharing component with a
$1.6 million incentive sharing pool upon reaching plan target recoveries. The
pool increases to $3.7 million when recoveries are 20 percent above plan. In
addition, there are eight participants who are eligible to participate in an
incentive sharing pool based on reducing off-balance sheet claims (excluding
SIP claims) and tax claims filed. Upon reducing such claims to a plan target
level, participants are eligible to share in a $0.6 million incentive sharing
pool. As recoveries exceed threshold for each business unit, and as claims are
reduced below threshold, the Company has escrowed funds to be distributed at
End of Term, as defined in the Compensation Plans, to all eligible
participants in accordance with the MIP.
The MIP for European IT Leasing has three components: SAB, core
country (Germany and France) portfolio sale/liquidation bonuses and non-core
country portfolio sale/liquidation bonuses. There were two participants in the
MIP plans for European IT Leasing. The SAB component had a total cost of $0.5
million for the period October 1, 2002 until September 30, 2003 and the core
and non-core country bonus component had a total cost of $0.8 million for the
period October 1, 2002 until September 30, 2003. All of the amounts earned
under the European IT Leasing MIP have been paid to the participants.
The Stay Bonus Plan is a retention program that covered 260 U.S.
employees and was designed to retain essential support and professional
personnel who assist managers and key employees most directly responsible for
the success of the Plan. Eligible participants under this compensation plan
accrue one week's salary for each two weeks of work. One-half of such accrued
benefits are paid in two semiannual installments each year on or about May 15
and November 15 (with the first such payment made on November 15, 2002). The
remaining one-half is paid upon job elimination or SIP obligation resolution.
The total cost of the Stay Bonus Plan was $6.0 million for period October 1,
2002 until September 30, 2003, which includes $3.8 million paid to employees
and $2.2 million deferred until job elimination or SIP obligation resolution.
Given the dynamic and short-term nature of corporate objectives going
forward, a non-material modification was made to the Compensation Plans. This
modification, approved by the Board of Directors, was to establish and assess
objectives and pay bonuses on a quarterly versus semi-annual basis. This
modification became effective October 1, 2003 for all Semi-Annual Bonus and
Stay Bonus Plan participants.
Long-Term Incentive Plans - Awards in Last Fiscal Year
The table below contains information on the Upside Sharing plan for
the named executive officers:
Estimated Future Payouts Under Non-Stock Price-Based Plans (1)
--------------------------------------------------------------------------
Number Of
Shares, Performance Or
Units Or Other Period
Other Until 10% Above 20% Above
Rights Maturation Or Threshold Target Target Target Maximum
Name (#) Payout ($) ($) ($) ($) ($)
- ----------------- ----------- ---------------- ------------- ----------- ------------- ------------- ----------
Ronald C. - - $0 $900,000 $2,100,000 $2,700,400 -
Mishler
Francis J. - - 0 852,538 1,896,538 2,445,538 -
Cirone (2)
Robert E. Koe - - 0 - - - -
Robert E. T. - - 0 450,000 1,317,228 1,789,003 -
Lackey
John R. - - 0 281,250 581,361 821,561 -
McNally, Jr.
Gregory D. - - - - - - -
Sabatello
(1) There are no maximum payouts under the Upside Sharing plan component
of the MIP. The Upside Sharing plan includes pre-established present
value recovery thresholds and targets for each business unit and on a
consolidated corporate basis. No amounts are earned in the Upside
Sharing plan until the applicable threshold is exceeded. Amounts
reflected above are net of any applicable payment adjustments as
defined in the Compensation Plans.
(2) In October 2003, the Board of Directors approved an advance payment
at 105 percent achievement of target to all US Leasing Upside Sharing
Plan participants. Accordingly, Mr. Cirone received $1,582,750 in
October 2003, net of the remaining amount to be withheld pending
resolution of his SIP obligation in accordance with the SIP Relief
program.
Compensation of Directors
Non-employee directors are paid a quarterly retainer of $6,000, a
board meeting fee of $2,000 plus expenses, and a committee meeting fee of
$1,000 plus expenses if the committee meeting is not held on the same day as a
Board of Directors meeting. Employee directors receive no additional
compensation for serving on the Board of Directors or its committees.
Directors are reimbursed for customary and usual travel expenses. In fiscal
2003, in addition to its regularly scheduled quarterly meetings, the Board of
Directors of Comdisco Holding Company, Inc. met nineteen times. All directors
attended 75 percent or more of the Board meetings and meetings of the
committees on which they served during fiscal 2003.
Employment Contracts, Termination of Employment and Change-In-Control
Arrangements
The MIP provides for an employment agreement with Mr. Gregory D.
Sabatello. In addition to being eligible for the MIP as of April 1, 2002, Mr.
Sabatello's employment agreement includes, without limitation, the following:
(a) participation in the semiannual bonus plan component of the MIP (at three
times his base salary each year or $750,000 annually); (b) a guaranteed
two-year term; and (c) if terminated prior to April 1, 2004, receipt of
semiannual bonus and base salary payment for the period between the
termination date and April 1, 2004. Mr. Sabatello's employment agreement was
executed upon his acceptance of the SIP Relief program described in Item 1,
Business.
Additional Information with Respect to Compensation Committee
Interlocks and Insider Participation in Compensation Decisions
Mr. McIntosh, Mr. Chefitz, and Mr. Thornton are the three members of
the Compensation Committee of the Board of Directors. Mr. McIntosh is the
Chairperson of the Compensation Committee. No member of the Compensation
Committee was at any time an officer or employee of the Company or its
subsidiaries. There is no director or executive officer who is, or during the
last fiscal year was, a member of any other company, partnership or other
entity's compensation committee or similar committee or otherwise was involved
in making decisions regarding compensation of other entities' executives. See
Item 13, Certain Relationships and Related Transactions, for additional
information regarding Mr. Thornton and his relationship with Citigroup.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee met five times during fiscal year 2003, on
November 11, 2002, December 12, 2002, May 2, 2003, May 13, 2003, and August
12, 2003. The purpose of the Compensation Committee is to ensure that the
senior executives, the management and employees of the Company and its
wholly-owned subsidiaries are compensated effectively in a manner consistent
with the stated compensation strategy of the Company in furtherance of the
Plan and requirements of the appropriate regulatory bodies. The committee's
charter states that the Compensation Committee shall be composed of at least
three independent directors. The members are designated annually by the Board
of Directors upon the recommendations of the Chairman of the Board. Per the
charter, the duties and responsibilities of the committee include (but are not
limited to): (a) reviewing the Company's compensation strategy, (b) reviewing
and determining the individual elements of total compensation for the Chief
Executive Officer, (c) reviewing and approving appropriate discretionary bonus
recommendations by the Chief Executive Officer for managers and officers, (d)
reviewing and approving disposition of forfeited monies as a result of
voluntary resignation or for-cause termination for the MIP and Stay Bonus
Plan, and (e) reviewing employee benefit plans of the Company.
The Compensation Committee reviewed the SAB objectives and the
assessments of achievements relative to those objectives for Mr. Mishler and
his direct reports, including all of the officers listed in the Summary
Compensation Table, for the two periods ending March 31, 2003 and September
30, 2003. The SAB objectives were comprised of corporate and business unit
cash flow objectives based on recoveries achieved during the period as well as
individual performance objectives. Actual cash flow recoveries exceeded plan
targets for both six-month periods, with the exception of the Electronics
Inventory group, which did not meet its plan target for the period ended
September 30, 2003.
Pursuant to the Compensation Committee's responsibility to review and
approve the chief executive officer's compensation and corporate and business
unit cash-flow results, the Compensation Committee approved the SAB objectives
and assessed the achievement relative to those objectives for Mr. Mishler for
the two periods ending March 31, 2003 and September 30, 2003. Mr. Mishler's
SAB was based 50 percent on cash flow targets and 50 percent on individual
performance objectives, both of which he met for the respective six-month
periods. Mr. Mishler had the following individual performance objectives: (i)
maintaining compliance with Bankruptcy Court orders, debt indentures,
corporate organizational documents and corporate policies; (ii) timely and
accurate financial reporting; (iii) maintaining adequate corporate governance
processes; (iv) managing sales, general and administrative expenses within
plan levels; (v) securing and maintaining corporate insurance, and; (vi)
developing exit strategies for each business unit.
In addition, the Compensation Committee approved non-material
adjustments to some components of the MIP. The Compensation Committee also
approved, pursuant to the MIP, payment to two employees for the sale and
liquidation of the European IT Leasing portfolio within the core countries
(France and Germany) and non-core European countries.
The Board of Directors engaged independent legal counsel to provide a
summary of all components of the Compensation Plans and to assist the Board in
determining that the Compensation Plans were implemented in compliance with
the intent of the agreement with the statutory creditors' committee and the
Compensation Plans.
The Board of Directors also engaged KPMG to assist the Company in
evaluating the amounts accrued, paid and deferred by Comdisco in accordance
with the provisions of the MIP and the Stay Bonus Plan for each semiannual
period. KPMG applied agreed-upon procedures in accordance with standards
established by the American Institute of Certified Public Accountants in their
evaluations.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
William A. McIntosh, Chairman Randolph I. Thornton Robert M. Chefitz
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Common Stock Owned by Certain Beneficial Owners
The following table reflects the number of shares of Common Stock
beneficially owned on December 1, 2003 by all persons whom we know to be
beneficial owners of 5 percent or more of our Common Stock, based on a review
of public filings.
Stockholders Owning at Least 5 percent of the Company's Common Stock
Shares Percent of
Name Beneficially Owned Class
---- ------------------ ----------
Berkshire Hathaway, Inc. (1) 1,452,548 34.61%
1440 Kiewit Plaza
Omaha, Nebraska 68131
Davidson Kempner Partners (2) 855,515 20.38%
885 Third Avenue
New York, New York 10022
(1) The information with respect to 1,452,548 shares of Common Stock
beneficially owned by Berkshire Hathaway, Inc. is based on an Amended
Report on Schedule 13D dated October 1, 2002 and filed with the SEC
on October 21, 2002.
(2) The information with respect to 855,515 shares of Common Stock
beneficially owned by Davidson Kempner Partners is based on a Report
on Schedule 13D dated July 16, 2003 and filed with the SEC on July
24, 2003.
Common Stock Owned by Directors and Executive Officers
The following table reflects the number of shares of Common Stock
beneficially owned on December 1, 2003 by (i) each director of the Company,
(ii) each of the named executive officers as set forth above in the Summary
Compensation Table, (iii) all directors and current named executive officers
as a group and (iv) all directors and current executive officers as a group.
The address of each director and executive officer is c/o Comdisco Holding
Company, Inc., 6111 North River Road, Rosemont, Illinois 60018.
Common Stock Owned by Directors and Executive Officers
Shares Beneficially Owned on
Name December 1, 2003 Percent of Class
---- ----------------------------- ----------------
Ronald C. Mishler 0 *
Jeffrey A. Brodsky 0 *
Robert M. Chefitz 0 *
William A. McIntosh 0 *
Randolph I. Thorton 0 *
Francis J. Cirone 0 (1) *
Robert E. T. Lackey 0 (2) *
Gregory J. Sabatello 0 (3) *
John R. McNally 0 (4) *
All Directors and Current Named Executive 0 (5) *
Officers as a Group:
All Directors and Current Executive 0 (6) *
Officers as a Group:
----------------------------------
*Indicates holdings of less than
one percent.
(1) Does not include 32,000 CDRs beneficially owned by Mr. Cirone.
(2) Does not include 500 CDRs beneficially owned by Mr. Lackey.
(3) Does not include 155,282 CDRs beneficially owned by Mr. Sabatello.
(4) Does not include 1,066 CDRs beneficially owned by Mr. McNally.
(5) Does not include 156,848 CDRs beneficially owned by all directors and
current named executive officers as a group.
(6) Does not include 157,292 CDRs beneficially owned by all directors and
current executive officers as a group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Randolph I. Thornton, who has been a member of the Company's Board of
Directors and the Compensation Committee since August 2002, also is a Managing
Director within the Institutional Recovery Management Department within
Citigroup. Citigroup was a creditor of Comdisco, Inc. and Mr. Thornton was a
co-chair of the statutory creditors' committee. On September 30, 2002, as part
of the initial distribution to holders of allowed Class C-4 Claims conducted
in accordance with the Plan, Citigroup received approximately $35.3 million in
cash, $6.3 million and $10.3 million of Senior Notes and Subordinated Notes,
respectively, and 66,521 shares of the Company's Common Stock. Since that
time, Citigroup has adopted certain procedures to govern disclosure by Mr.
Thornton of the Company's confidential information.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Committee of the Board of Directors
The Audit Committee and the Board of Directors have adopted a
charter, setting forth the structure, powers and responsibilities of the Audit
Committee. Pursuant to the charter, the Audit Committee is comprised of at
least three members appointed by the Board of Directors, each of whom satisfy
the membership requirements of independence and financial literacy. Mr.
Brodsky serves as Chair and Messrs. Chefitz and McIntosh as members. The Audit
Committee met seven times in fiscal 2003. See Item 10, Directors and Executive
Officers of the Registrant, above, for biographical information for each
member of the Company's Board of Directors. The Board of Directors and the
Audit Committee have determined that each of the members meet the requirements
of Audit Committee financial expert.
One of the Audit Committee's primary responsibilities is to assist
the Board of Directors in its oversight of the integrity of the Company's
financial statements and financial reporting process. To fulfill these
oversight responsibilities, the Audit Committee has reviewed and discussed
with management and the independent auditors the audited financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2003, and has reviewed and discussed with the independent
auditors the matters required to be discussed by Statement on Auditing
Standards No. 61, Communication with Audit Committees, as amended. In
addition, the Audit Committee received from the independent auditors written
reports disclosing that they are not aware of any relationships between the
auditors and the Company that, in their professional judgment, may reasonably
be thought to bear on their independence, consistent with Independence
Standards Board Standard Number 1, Independence Discussions with Audit
Committees. The Audit Committee also reviewed and discussed with the
independent auditors all relationships the auditors have with the Company to
determine and satisfy itself regarding the auditors' objectivity and
independence. The Audit Committee has also considered whether the provision of
non-audit services by the independent auditors to the Company for the most
recent fiscal year and the fees and costs billed and expected to be billed by
the independent auditors for those services are compatible with maintaining
their independence.
Based on the review and discussions described in this report, the
Audit Committee recommended to the Board of Directors that the Company's
audited consolidated financial statements be included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 2003, for filing
with the SEC. The Audit Committee appointed KPMG LLP as independent auditors
for the Company for fiscal 2004.
Principal Accountant Audit Fees and Services Fees
The following table describes fees for professional audit services
rendered by KPMG, the Company's principal accountant, for the audit of our
annual financial statements for the years ended September 30, 2003 and
September 30, 2002 and fees billed for other services rendered by KPMG during
those periods.
Type of Fee 2003 2002
----------- ---------- -----------
Audit Fees (1) $1,393,000 $2,236,000
Audit Related Fees (2) 1,104,000 236,000
Tax Fees (3) 805,000 951,000
All Other Fees (4) 161,000 304,000
------------ ----------
Total $3,463,000 $3,727,000
(1) Audit Fees, including those for statutory audits, include
the aggregate fees paid by the Company during the fiscal
year indicated for professional services rendered by KPMG
for the audit of the Company's annual financial statements
and review of financial statements included in the Company's
Forms 10-Q.
(2) Audit Related Fees include the aggregate fees paid by the
Company during the fiscal year indicated for assurance and
related services by KPMG that are reasonably related to the
performance of the audit or review of the Company's
financial statements and not included in Audit Fees. Also
included in Audit Related Fees are fees for accounting
advice.
(3) Tax Fees include the aggregate fees paid by the Company
during the fiscal year indicated for professional services
rendered by the principal accountant for tax compliance, tax
advice and tax planning.
(4) All Other Fees include the aggregate fees paid by the
Company during the fiscal year indicated for products and
services provided by KPMG, other than the services reported
above.
Procedures For Audit Committee Pre-Approval of Audit and Permissible
Non-Audit Services of Independent Auditor
Pursuant to its charter, the Audit Committee of Comdisco Holding
Company's Board of Directors is responsible for reviewing and approving, in
advance, any audit and any permissible non-audit engagement or relationship
between Comdisco and its independent auditors. KPMG's engagement to conduct
the audit of Comdisco Holding Company, Inc. was approved by the Audit
Committee on October 28, 2002. Additionally, each permissible non-audit
engagement or relationship between Comdisco and KPMG entered into since May 2,
2003 has been reviewed and approved by the Audit Committee, as provided in its
charter.
We have been advised by KPMG that all of the work done in
conjunction with its audit of Comdisco Holding Company's financial statements
for the most recently completed fiscal year was performed by permanent full
time employees and partners of KPMG.
PART IV
-------
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
1. Financial Statements
See Index to Financial Statements contained in Item 8, Financial
Statements and Supplementary Data, above.
2. Financial Statement Schedules
All Financial Statement Schedules have been omitted because (i) the
required information is not present in amounts sufficient to require
submission of the schedule, (ii) the information required is included in the
Financial Statements or the Notes thereto or (iii) the information required in
the schedules is not applicable to the Company.
3. Exhibits
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Commission:
Exhibit No. Description of Exhibit
----------- -----------------------
2.1 Joint Plan of Reorganization of Comdisco, Inc. and its
Affiliated Debtors and Debtors in Possession (Incorporated by
reference to Exhibit 99.3 filed with Comdisco, Inc.'s Current
Report on Form 8-K dated April 26, 2002, as filed with the
Commission on May 10, 2002, File No. 1-7725).
2.2 First Amended Joint Plan of Reorganization of Comdisco, Inc.
and its Affiliated Debtors and Debtors in Possession
(Incorporated by reference to Exhibit 2.2 filed with
Comdisco, Inc.'s Current Report on Form 8-K dated July 30,
2002, as filed with the Commission on August 9, 2002, File
No. 1-7725).
2.3 Findings of Fact, Conclusions of Law, and Order Under 11
U.S.C.ss.ss.1129(a) and (b) and Fed. R. Bankr. P. 3020
Confirming the First Amendment Plan of Reorganization of
Comdisco, Inc. and its Affiliated Debtors and Debtors in
Possession (Incorporated by reference to Exhibit 2.1 filed
with Comdisco, Inc.'s Current Report on Form 8-K dated July
30, 2002, as filed with the Commission on August 9, 2002,
File No. 1-7725).
3.1 Certificate of Incorporation of Registrant, dated August 8,
2002 (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. 0-49968).
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. 0-49968).
4.1 Indenture Agreement between Registrant, Comdisco, Inc. and
Wells Fargo Bank Minnesota, N.A., as Trustee, dated as of
August 12, 2002 (said Indenture defines certain rights of
Senior Note holders) (Incorporated by reference to Exhibit
4.1 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. 0-49968).
4.2 First Supplemental Indenture Agreement between Registrant,
Comdisco, Inc. and Wells Fargo Bank Minnesota, N.A., as
Trustee, dated as of October 7, 2002 (said Indenture defines
certain rights of Senior Note holders) (Incorporated by
reference to Exhibit 4.2 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. 0-49968).
4.3 Indenture Agreement between Registrant, Comdisco, Inc. and
Wells Fargo Bank Minnesota, N.A., as Trustee, dated as of
August 12, 2002 (said Indenture defines certain rights of
Subordinated Note holders) (Incorporated by reference to
Exhibit 4.3 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. 0-49968).
4.4 First Supplemental Indenture Agreement between Registrant,
Comdisco, Inc. and Wells Fargo Bank Minnesota, N.A., as
Trustee, dated as of October 7, 2002 (said Indenture defines
certain rights of Subordinated Note holders) (Incorporated by
reference to Exhibit 4.4 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. 0-49968).
4.5 Rights Agent Agreement between Registrant and Mellon Investor
Services, L.L.C., as Rights Agent, dated as of August 12,
2002 (Incorporated by reference to Exhibit 4.5 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. 0-49968).
4.6 Pledge Agreement between Registrant, Comdisco, Inc. and Wells
Fargo Bank Minnesota, N.A., as Trustee, dated as of August
12, 2002 (Incorporated by reference to Exhibit 4.6 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. 0-49968).
10.1* Motion, dated as of May 24, 2002, and Order, dated as of June
18, 2002, Pursuant to 11 U.S.C. Sections 105(a) and 363(b)(1)
Approving and Authorizing the Debtors' Stay Bonus Plan and
Management Incentive Plan, dated June 18, 2002 (Incorporated
by reference to Exhibit 10.1 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. 0-49968).
10.2* First Letter from Ronald C. Mishler to the Official Committee
of Unsecured Creditors of Comdisco, Inc., dated May 29, 2002
(Incorporated by reference to Exhibit 10.2 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. 0-49968).
10.3* Second Letter from Ronald C. Mishler to the Official
Committee of Unsecured Creditors of Comdisco, Inc., dated
July 3, 2002 (Incorporated by reference to Exhibit 10.3 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. 0-49968).
10.4* Employment Agreement of Norman P. Blake, Jr., dated February
27, 2001, as amended on April 13, 2001 and as amended and
restated June 4, 2001 (Incorporated by reference to Exhibits
10.10 and 10.20 filed with Comdisco, Inc.'s Quarterly Report
on Form 10-Q for the Quarterly Period ended March 31, 2002
and Exhibit 10.10 filed with Comdisco, Inc.'s Quarterly
Report on Form 10-Q for the Quarterly Period ended June 30,
2001, File No. 1-7725).
10.5 Agreed Motion for Dismissal With Prejudice, dated March 7,
2002, and Agreed Order for Dismissal with Prejudice, dated
March 14, 2002 (Incorporated by reference to Exhibit 10.5
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. 0-49968).
10.6* Employment Agreement of Michael Fazio, dated as of July 5,
2001 (Incorporated by reference to Exhibit 10.6 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. 0-49968).
10.7* Employment Agreement of Gregory D. Sabatello, dated as of
September 9, 2002 (Incorporated by reference to Exhibit 10.7
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. 0-49968).
10.8 Acquisition Agreement, dated effective July 15, 2001, and
executed as of October 12, 2001, between Comdisco, Inc. and
SunGard Data Systems, Inc. (Incorporated by reference to
Exhibit 99.1 filed with Comdisco, Inc.'s Current Report on
Form 8-K dated November 15, 2001, as filed with the
Commission on December 3, 2001).
10.9 Amended and Restated Asset Purchase Agreement (Electronics),
dated as of April 10, 2002 but effective as of January 23,
2002, between Comdisco, Inc. and General Electric Capital
Corporation (Incorporated by reference to Exhibit 99.1 filed
with Comdisco, Inc.'s Current Report on Form 8-K dated April
24, 2002, as filed with the Commission on May 9, 2002, File
No. 1-7725).
10.10 First Amendment to the Amended and Restated Asset Purchase
Agreement (Electronics), dated as of April 24, 2002, by and
between Comdisco, Inc. and General Electric Capital
Corporation (Incorporated by reference to Exhibit 99.2 filed
with Comdisco, Inc.'s Current Report on Form 8-K dated April
24, 2002, as filed with the Commission on May 9, 2002, File
No. 1-7725).
10.11 Amended and Restated Asset Purchase Agreement (Lab and
Scientific), dated as of April 10, 2002 but effective as of
January 23, 2002, between Comdisco, Inc. and General Electric
Capital Corporation (Incorporated by reference to Exhibit
99.3 filed with Comdisco, Inc.'s Current Report on Form 8-K
dated April 24, 2002, as filed with the Commission on May 9,
2002, File No. 1-7725).
10.12 First Amendment to the Amended and Restated Asset Purchase
Agreement (Lab and Scientific), dated as of April 24, 2002,
by and between Comdisco, Inc. and General Electric Capital
Corporation (Incorporated by reference to Exhibit 99.4 filed
with Comdisco, Inc.'s Current Report on Form 8-K dated April
24, 2002, as filed with the Commission on May 9, 2002, File
No. 1-7725).
10.13 Asset Acquisition Agreement, dated as of January 31, 2002,
between Comdisco, Inc. and T-Systems Inc. (Incorporated by
reference to Exhibit 10.13 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. 0-49968).
10.14 Amendment to Asset Acquisition Agreement, dated as of
February 13, 2002, between Comdisco, Inc. and T-Systems Inc.
(Incorporated by reference to Exhibit 10.14 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. 0-49968).
10.15 Second Amendment to Asset Acquisition Agreement, dated as of
February 27, 2002, between Comdisco, Inc. and T-Systems Inc.
(Incorporated by reference to Exhibit 10.15 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. 0-49968)
10.16 Asset Purchase Agreement (Healthcare), dated as of April 2,
2002, between General Electric Capital Corporation, Comdisco,
Inc. and Comdisco Healthcare Group (Incorporated by reference
to Exhibit 10.16 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. 0-49968).
10.17 Asset Sale Agreement, dated as of April 8, 2002, between
Comdisco Australia Pty Limited, Comdisco New Zealand, Nadlo
Pty Limited, Codis Limited and Rellim Pty Limited
(Incorporated by reference to Exhibit 10.17 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. 0-49968).
10.18 Share Purchase Agreement, dated as of August 14, 2002,
between Comdisco, Inc. and PH Holding GmbH (Incorporated by
reference to Exhibit 10.18 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. 0-49968).
10.19 Share Purchase Agreement, dated as of October 10, 2002,
between Comdisco Global Holding Company, Inc. and Comprendium
Investment S.A. (Incorporated by reference to Exhibit 10.19
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. 0-49968).
10.20 Share Purchase Agreement relating to the Acquisition of
Comdisco France SA and Promodata SNC, dated as of October 1,
2002, between Econocom Group SA/NV, Comdisco Global Holding
Company, Inc. and Comdisco Holding Company, Inc.
(Incorporated by reference to Exhibit 10.20 filed with the
Company's Current Report on Form on Form 10-K dated September
30, 2002, as filed with the Commission on January 14, 2003,
file No. 0-49968).
10.21 Asset Purchase Agreement, dated as of August 25, 2003, by and
between Bay4 Capital Partners, LLC and Comdisco, Inc.
(Incorporated by reference to Exhibit 99.1 filed with the
Company's Current Report on Form 8-K dated September 9, 2003,
as filed with the Commission on September 24, 2003, File No.
0-49968).
11.1 Statement re computation of per share earnings (Filed
herewith).
21.1 Subsidiaries of the registrant (Filed herewith).
31.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(a0 and Rule 15d-14(a) of the Exchange Act, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Filed herewith).
31.2 Certification of Principal Financial Officer Pursuant to Rule
13a-14(a0 and Rule 15d-14(a) of the Exchange Act, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Filed herewith).
32.1 Certification of the Chief Executive Officer and Principal
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (Furnished herewith).
- ------------------------------------------------------------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
Since the beginning of the fourth quarter of fiscal 2003, the Company
filed the following current reports on Form 8-K which have not been previously
reported:
On August 15, 2003, the Company filed a Current Report on Form 8-K,
dated August 14, 2003. Pursuant to Item 12 of its Report, the Company reported
that it had issued a press release on August 14, 2003 announcing its unaudited
financial results for the third fiscal quarter ended June 30, 2003. The Report
added the press release as an exhibit pursuant to Item 7.
On August 19, 2003, the Company filed a Current Report on Form 8-K,
dated August 18, 2003. Pursuant to Item 5 of its Report, the Company reported
that it had issued a press release on August 18, 2003 announcing that its
Board of Directors had declared a cash dividend on the outstanding shares of
common stock and announcing a cash payment on its CDRs. The Report added the
press release as an exhibit pursuant to Item 7.
On August 26, 2003, the Company filed a Current Report on Form 8-K,
dated August 26, 2003. Pursuant to Item 5 of its Report, the Company reported
that it had issued a press release on August 25, 2003 announcing that it had
agreed to sell its United States information technology leasing business to
Bay4 Capital Partners, LLC. The Report added the press release as an exhibit
pursuant to Item 7.
On September 10, 2003, the Company filed a Current Report on Form
8-K, dated September 10, 2003. Pursuant to Item 5 of its Report, the Company
reported that it had issued a press release on September 10, 2003 announcing
the completion of the sale of its United States information technology leasing
business to Bay4 Capital Partners, LLC. The Report added the press release as
an exhibit pursuant to Item 7.
On September 24, 2003, the Company filed a Current Report on Form
8-K, dated September 9, 2003. Pursuant to Item 2 of its Report, the Company
reported the sale of its United States information technology leasing business
to Bay4 Capital Partners, LLC, including the date and manner of disposition,
the nature and amount of consideration received and the identity of the
acquiring company. The Report attached the pro forma financial information and
added the Asset Purchase Agreement as an exhibit pursuant to Item 7.
On November 21, 2003, the Company filed a Current Report on Form 8-K,
dated November 20, 2003. Pursuant to Item 5 of its Report, the Company
reported that it had issued a press release on November 20, 2003 announcing
that its Board of Directors had declared a cash dividend on the outstanding
shares of common stock and announcing a cash payment on its CDRs. The Report
added the press release as an exhibit pursuant to Item 7.
On December 16, 2003, the Company filed a Current Report on Form
8-K/A announcing the present value of distributions to the initially allowed
general unsecured creditors in the bankruptcy estate of Comdisco, Inc. was
approximately $3.461 billion (not the $3.449 billion as previously reported
and as utilized in determining the cash payment of $.0514 per CDR right paid
on December 11, 2003). This increase in the present value of distributions to
the initially allowed general unsecured creditors in the bankruptcy estate of
Comdisco, Inc. entitles holders of CDRs to receive an incremental cash payment
of approximately $2.8 million, or approximately $0.018 per CDR. The Company
expects to make such incremental distribution in conjunction with its next
payment to holders of CDRs. The next payment to holders of CDRs is expected to
occur shortly after the next Quarterly Distribution (as defined in the Plan)
from the Disputed Claim Reserve, which is scheduled for February 14, 2004.
(c) Exhibits
The response to this portion of Item 15 is submitted as a separate
section of this report. See Item 15(a)(3) above.
(d) Financial Statement Schedules
The response to this portion of Item 15 is submitted as a separate
section of this report. See Item 15(a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COMDISCO HOLDING COMPANY, INC.
Dated: December 23, 2003 By: /s/ Ronald C. Mishler
___________________________________
Name: Ronald C. Mishler
Title: Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on December 23, 2003.
SIGNATURE DATE
/s/ David S. Reynolds December 23, 2003
______________________________________________
Name: David S. Reynolds
Title: Senior Vice President and Controller
(Principal Financial and Accounting
Officer)
/s/ Jeffrey A. Brodsky December 23, 2003
______________________________________________
Name: Jeffrey A. Brodsky
Title: Director
/s/ Robert M. Chefitz December 23, 2003
______________________________________________
Name: Robert M. Chefitz
Title: Director
/s/ William A. McIntosh December 23, 2003
______________________________________________
Name: William A. McIntosh
Title: Director
/s/ Randolph I. Thornton December 23, 2003
______________________________________________
Name: Randolph I. Thornton
Title: Director