UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2004
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission file number 000-499-68
COMDISCO HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-2066534
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
6111 North River Road
Rosemont, Illinois 60018
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (847) 698-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 4,197,100 shares of the
registrant's Common Stock, $0.01 par value per share, were outstanding on
May 10, 2004.
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COMDISCO HOLDING COMPANY, INC.
INDEX
Page
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PART I. FINANCIAL INFORMATION........................................... 3
Item 1. Financial Statements
Consolidated Statements of Earnings (Loss) -- Three and six months ended
March 31, 2004 and 2003 (Unaudited)....................................... 4
Consolidated Balance Sheets -- March 31, 2004 (Unaudited) and
September 30, 2003 (Audited).............................................. 5
Consolidated Statements of Cash Flows -- Six months ended March 31, 2004
and 2003 (Unaudited)...................................................... 6
Notes to Consolidated Financial Statements (Unaudited).................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................20
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 38
Item 4. Controls and Procedures......................................... 38
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 39
Item 2. Changes in Securities and Use of Proceeds....................... 39
Item 3. Defaults Upon Senior Securities................................. 39
Item 4. Submission of Matters to a Vote of Security Holders............. 39
Item 5. Other Information............................................... 39
Item 6. Exhibits and Reports on Form 8-K................................ 39
SIGNATURES.................................................................. 42
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PART I
FINANCIAL INFORMATION
---------------------
Forward-Looking Statements
This quarterly report on Form 10-Q contains, and our periodic filings with
the Securities and Exchange Commission (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, realization of value from our
equity investments, recoveries on amounts written off in prior periods, 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 2, Management's Discussion and Analysis of Financial Condition
and Results of Operation, below. Many of the risk factors that could affect the
results of the Company's operations are beyond our ability to control or
predict.
ITEM 1. FINANCIAL STATEMENTS
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 (THE "PLAN") 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.
On April 15, 2004, the Bankruptcy court entered an order (the "Order")
granting the motion (the "Motion") that was filed on February 17, 2004 by the
Company in furtherance of the Plan. The Company furnished a copy of the Motion
to the SEC on a Form 8-K pursuant to Item 9 on February 18, 2004. The Company
also included a copy of the Motion in its Report to Stakeholders, dated March 2,
2004, that was distributed to holders of the Company's common stock and
contingent distribution rights ("CDRs"), holders of disputed claims remaining in
the bankruptcy and certain other interested parties. As proposed in the Motion
and as authorized by the Order, the Company will appoint a disbursing agent,
prior to August 12, 2004, to fulfill the roles of the Board of Directors and
executive officers of the Company, file a certificate of dissolution and take
such other measures as are necessary to complete the administration of the
reorganized debtors' Plan and chapter 11 cases. The filing of the certificate of
dissolution with the Secretary of State of the State of Delaware, which will
occur prior to August 12, 2004, will formally extinguish the Company's corporate
existence with the State of Delaware except for the purpose of completing the
wind-down contemplated by the Plan.
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Comdisco Holding Company, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED)
(in millions except per share data)
Three months ended Six months ended
March 31, March 31,
------ ------ ------ ------
2004 2003 2004 2003
------ ------ ------ ------
Revenue
Leasing
Operating $ 5 $ 38 $ 12 $ 91
Direct financing - 1 1 2
Sales-type - 1 1 3
------ ------ ------ ------
Total leasing 5 40 14 96
Sales 4 17 25 31
Technology services - 5 1 10
Agere lease participation payment 17 - 24 -
Sale of properties 3 - 5 -
Foreign exchange gain - 2 1 14
Other 7 4 10 11
------ ------ ------ ------
Total revenue 36 68 80 162
------ ------ ------ ------
Costs and expenses
Leasing
Operating 2 29 6 77
Sales-type - 1 1 2
------ ------ ------ ------
Total leasing 2 30 7 79
Sales - 24 17 35
Technology services - 2 1 6
Selling, general and administrative 14 19 19 36
Contingent distribution rights 1 10 1 16
Write-down of equity securities - 1 - 8
Bad debt expense (3) (40) (8) (46)
Interest - 6 - 25
------ ------ ------ ------
Total costs and expenses 14 52 37 159
------ ------ ------ ------
Earnings from continuing operations before income
taxes (benefit) 22 16 43 3
Income taxes (benefit) (4) - (8) -
------ ------ ------ ------
Earnings from continuing operations 26 16 51 3
Earnings (loss) from discontinued operations, net of
tax (8) 21 (19) 42
------ ------ ------ ------
Net earnings $ 18 $ 37 $ 32 $ 45
====== ====== ====== ======
Basic earnings (loss) per common share:
Earnings from continuing operations $ 6.00 $ 3.64 $12.16 $ 0.88
Earnings (loss) from discontinued operations (1.80) 5.03 (4.67) 9.88
------ ------ ------ ------
Net earnings $ 4.20 $ 8.67 $ 7.49 $10.76
====== ====== ====== ======
Diluted earnings (loss) per common share:
Earnings from continuing operations $ 6.00 $ 3.64 $12.16 $ 0.88
Earnings (loss) from discontinued operations (1.80) 5.03 (4.67) 9.88
------ ------ ------ ------
Net earnings $ 4.20 $ 8.67 $ 7.49 $10.76
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
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Comdisco Holding Company, Inc.
CONSOLIDATED BALANCE SHEETS
(in millions except share data)
(Unaudited) (Audited)
March 31, September 30,
2004 2003
----------- -----------
ASSETS
Cash and cash equivalents $ 177 $ 97
Cash - legally restricted 29 42
Receivables, net 13 41
Inventory of equipment - 9
Leased assets:
Direct financing and sales-type 18 26
Operating (net of accumulated depreciation) 4 16
----------- -----------
Net leased assets 22 42
Equity securities 7 18
Assets of discontinued operations 35 113
Other assets 4 11
----------- -----------
$ 287 $ 373
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1 $ 6
Accrued income taxes 46 29
Liabilities related to assets of
discontinued operations 3 11
Deferred income 4 27
Other liabilities:
Accrued compensation 39 62
Contingent distribution rights 34 44
Other 6 12
----------- -----------
Total other liabilities 79 118
----------- -----------
133 191
Stockholders' equity:
Common stock $.01 par value. Authorized
10,000,000 shares; issued 4,200,000 shares.
4,197,100 shares outstanding at
March 31, 2004 and September 30, 2003 - -
Additional paid-in capital 133 169
Accumulated other comprehensive income 3 13
Retained earnings 18 -
Common stock held in treasury, at cost; 2,900
shares at March 31, 2004 and
September 30, 2003 - -
----------- -----------
Total stockholders' equity 154 182
----------- -----------
$ 287 $ 373
=========== ===========
See accompanying notes to consolidated financial statements.
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Comdisco Holding Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
For the six months ended March 31, 2004 and 2003
2004 2003
---- ----
Cash flows from operating activities:
Operating lease and other leasing receipts $ 28 $135
Lease portfolio sales - 7
Sales of equipment 26 30
Sales costs - (2)
Technology services receipts 1 11
Technology services costs - (1)
Note receivable receipts 1 58
Warrant proceeds 8 2
Other revenue 31 17
Selling, general and administrative expenses (40) (29)
Contingent distribution rights payments (11) -
Interest - (36)
Income taxes 22 (20)
---- ----
Net cash provided by continuing operations 66 172
Net cash provided by discontinued operations 59 555
---- ----
Net cash provided by operating activities 125 727
---- ----
Cash flows from investing activities:
Equipment purchased for leasing (1) (5)
Notes receivable - (1)
Equipment purchased for leasing by discontinued operations (1) (26)
Other (1) -
---- ----
Net cash used in investing activities (3) (32)
---- ----
Cash flows from financing activities:
Cash used by discontinued operations (4) (137)
Net decrease in notes and term notes payable - (525)
Maturities and repurchases of senior notes - (400)
Dividends paid on Common Stock (50) -
Decrease in legally restricted cash 13 6
Other (1) (30)
---- ----
Net cash used in financing activities (42) (1,086)
---- ----
Net increase (decrease) in cash and cash equivalents 80 (391)
Cash and cash equivalents at beginning of period 97 546
---- ----
Cash and cash equivalents at end of period $177 $155
==== ====
See accompanying notes to consolidated financial statements.
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Comdisco Holding Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED
(in millions)
For the six months ended March 31, 2004 and 2003
2004 2003
---- ----
Reconciliation of earnings from
continuing operations to net cash provided by
operating activities:
Earnings from continuing operations $ 51 $ 3
Adjustments to reconcile earnings from
continuing operations to net cash provided by
operating activities:
Leasing costs, primarily depreciation and
amortization 7 79
Leasing revenue, primarily principal portion
of direct financing and sales-type lease rentals 15 39
Cost of sales 16 33
Technology services costs, primarily
depreciation and amortization 1 5
Interest - (11)
Income taxes 15 (21)
Principal portion of notes receivable - 58
Selling, general, and administrative expenses (31) (39)
Contingent distribution rights 2 16
Lease portfolio sales - 7
Other, net (10) 3
---- ----
Net cash provided by continuing operations 66 172
Net cash provided by discontinued operations 59 555
---- ----
Net cash provided by operating activities $125 $727
==== ====
See accompanying notes to consolidated financial statements.
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COMDISCO HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2004 and 2003
The following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 2 below and in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 2003, and with the Consolidated
Financial Statements and related notes in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 2003.
1. Reorganization
On July 16, 2001, Comdisco, Inc. ("Predecessor") and 50 of its domestic
subsidiaries filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Illinois, Eastern Division (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 became
responsible for the management of 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 became
responsible for the management of the sale and run-off of the Company's
reorganized US Leasing operations and assets; and (iii) Comdisco Ventures, Inc.
(which became a direct wholly-owned subsidiary of Comdisco, Inc.), which became
responsible for the management of the sale and run-off of the Company's venture
financing operations and assets ("Ventures"). The Company's Corporate Asset
Management group ("CAM group") became 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 became a direct wholly-owned subsidiary of Comdisco Domestic
Holding Company, Inc., which is itself a direct wholly-owned subsidiary of
Comdisco, Inc. On February 26, 2004, the Bankruptcy court entered an order
closing the fully administered Prism cases effective March 5, 2004.
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
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Predecessor company's common stock; and (vi) the cancellation of the Predecessor
company's notes, notes payable, common stock and stock options.
Consummation of the Plan resulted in the election of a new Board of
Directors for the Company (the "Board"). The Board is comprised of five members.
The management director and Chairman is Ronald C. Mishler, Chief Executive
Officer. The four additional members of the Board are Jeffrey A. Brodsky, Robert
M. Chefitz, William A. McIntosh and Randolph I. Thornton.
2. Basis of Presentation
In this quarterly report on Form 10-Q, references to "the Company," "
Comdisco Holding," "we," "us" and "our" mean Comdisco Holding Company, Inc., its
consolidated subsidiaries, including Comdisco Global Holding Company, Inc.,
Comdisco, Inc., Comdisco Domestic Holding Company, Inc. and the former 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 effective on July 31, 2002, the consolidated financial statements for
the Successor company, presented herein, are not comparable to those of the
Predecessor company presented in filings with the SEC for periods prior to July
31, 2002.
Certain reclassifications, including those for discontinued operations,
have been made in the 2003 financial statements to conform to the 2004
presentation.
3. Discontinued Operations
Because of the sale of assets described in Note 4 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 and German leasing operations (the
"German Leasing Subsidiary") 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.
Following is summary financial information for the Company's discontinued
operations for the three and six months ended March 31, 2004 and 2003 (in
millions):
Three months ended March 31, 2004 Six months ended March 31, 2004
German German
International Leasing International Leasing
US Leasing Leasing Subsidiary Total US Leasing Leasing Subsidiary Total
---------- ------- ----------- ----- ---------- ------- ---------- -----
Revenue $ 2 $ - $ 1 $ 3 $ 9 $ 1 $ 2 $ 12
========== ======= ========== ===== ========== ======= ========== =====
Earnings (loss) from discontinued
operations:
Before income taxes $ (7) $ - $ (1) $ (8) $ (14) $ 1 $ (6) $ (19)
Income taxes - - - - - - - -
---------- -------- ---------- ----- ---------- ------- ---------- -----
Net earnings (loss) $ (7) $ - $ (1) $ (8) $ (14) $ 1 $ (6) $ (19)
========== ======== ========== ===== ========== ======= ========== =====
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Three months ended March 31, 2003 Six months ended March 31, 2003
German German
International Leasing International Leasing
US Leasing Leasing Subsidiary Total US Leasing Leasing Subsidary Total
---------- ------- ---------- ----- ---------- ------- --------- -----
Revenue $ 49 $ - $ 42 $ 91 $ 115 $ - $ 81 $ 196
========== ======= ========== ===== ========== ======= ========= =====
Earnings from discontinued
operations:
Before income taxes $ 15 $ - $ 8 $ 23 $ 34 $ - $ 11 $ 45
Income taxes - - 2 2 - - 3 3
---------- ------- ---------- ----- ---------- ------- --------- -----
Net earnings $ 15 $ - $ 6 $ 21 $ 34 $ - $ 8 $ 42
========== ======= ========== ===== ========== ======= ========= =====
4. Sale of Assets
US Leasing
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 its U.S. information
technology leasing business 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 non-recourse 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 (the "residual note").
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.
Through March 31, 2004, the Company had received approximately $25 million
of payments on the residual note. The Company received an additional $4 million
payment on the note in April 2004. On May 13, 2004, the remaining residual note
balance and the Company's right to share were settled with Bay4 for $16.5
million. The Company expects to realize a gain of approximately $5 million as a
result of this transaction in the third quarter of fiscal 2004.
In April 2004, Bay4 paid Comdisco approximately $15 million in payment of
principal on the Company's retained secured non-recourse interest in certain
leases purchased by Bay4. The principal balance, which is included in assets of
discontinued operations-US leasing, was approximately $7 million after the April
30, 2004 payment.
On September 30, 2003, the Company completed the sale of its Canadian
information technology leasing 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, which was completed on
August 14, 2002. 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).
-10-
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.
("Comprendium"), a Swiss company. Under the terms of the Amended Share Purchase
Agreement, Comdisco received approximately Euro 285 million (approximately $316
million) at closing, and four additional payments totaling up to approximately
Euro 38 million over the 42 months following closing, dependent upon specific
portfolio performance criteria. On March 31, 2004, the Company accepted a
discounted prepayment by Comprendium of the four remaining payments due from the
sale. The Company received 30.5 million euros in lieu of four payments of 9.5
million euros each, scheduled for payment in April 2004, April 2005, May 2006
and December 2006. The four additional payments would have been subject to
reduction if certain customers exercised contractual termination provisions. The
Company recorded a charge of approximately $2 million ($0.47 per share) in the
three months ended March 31, 2004 to reflect the difference between the prepaid
amount and the carrying value of the four scheduled payments. In accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," the Company recorded a charge of
$6 million ($1.46 per share) in the first quarter of fiscal 2004 to reduce cost
in excess of fair value to reflect the difference between carrying value and
estimated proceeds from a sale or early buy-out.
For financial reporting purposes, at September 30, 2003, the four
additional payments discussed above were included in the balance sheet as assets
of discontinued operations. The results of operations of the Company's German
Leasing Subsidiary for the three and six months ended March 31, 2004 and 2003
are included in the statement of earnings (loss) as discontinued operations.
Corporate Asset Management
On January 7, 2004, the Company completed the sale of its participation
interest in certain Agere Systems, Inc. ("Agere") lease payments. The aggregate
purchase price was approximately $18 million. Approximately $15 million was
received in cash and the remaining $3 million was placed in escrow pending the
resolution of post-closing adjustments, if any, to be made over the next year.
The participation interest was included in Comdisco's March 31, 2004 and
September 30, 2003 balance sheets in receivables at the present value of the
minimum payments, or approximately $3 million and $24 million, respectively,
and, in a like amount, in deferred income. During the three and six months ended
March 31, 2004, the Company received approximately $17 million ($2 million in
payments in January 2004 prior to the sale and $15 million from the sale) and
$24 million, respectively, in payments with respect to the participation
interest. Approximately $1.2 million of the remaining $3 million placed in
escrow in January 2004 was received by the Company on May 12, 2004. All proceeds
related to the participation interest have and will be reflected in Comdisco's
earnings when received.
The Company completed the sale of its former Availability Solutions
facility in Eching, Germany in March 2004 for approximately $2.5 million. The
Company recorded a $2.5 million gain during the three months ended March 31,
2004 as a result of the sale.
The Company completed the sale of its Carlstadt property in November 2003
for approximately $2.2 million of which approximately $1.5 million was placed in
escrow pending resolution of an unrelated New Jersey state tax issue. On April
28, 2004, the Company and the State of New Jersey settled the unrelated state
tax issue and the $1.5 million in escrow has been received by the Company. The
Company recorded a $2.2 million gain during the three months ended December 31,
2003 as a result of the sale.
The only remaining property owned by the Company as of the date hereof is a
day-care facility adjacent to the Company's headquarters, which the Company
believes has a fair market value of less than $1 million.
5. Interest-Bearing Liabilities
Upon emergence, the Company's general unsecured creditors received, and the
Disputed Claims Reserve was funded with, their pro-rata share of an initial cash
distribution of approximately $2.2 billion. In addition, general unsecured
creditors received, and the Disputed Claims Reserve was funded with, their
pro-rata share of two separate note issuances: the Senior Notes in aggregate
principal amount of $400 million with an interest rate of three month LIBOR plus
3% and the Subordinated Notes in aggregate principal amount of $650 million with
an interest rate of 11%.
On October 21, 2002, the Company redeemed the entire $400 million
outstanding principal amount of its Senior Notes. On April 28, 2003, the Company
-11-
made the final redemption of its Subordinated Notes. The Senior and Subordinated
Notes were redeemed at 100% of their principal amount plus accrued and unpaid
interest from August 12, 2002 to their respective redemption dates.
The average daily borrowings outstanding during the six months ended March
31, 2004 were nominal. This compares to average daily borrowings during the six
months ended March 31, 2003 of approximately $695 million, with a contractual
weighted average interest rate of 8.87%.
6. Receivables
Receivables include the following as of March 31, 2004 and September 30,
2003 (in millions):
March 31, September 30,
2004 2003
------------- ------------
Notes $ 4 $ 27
Accounts 9 17
Other 2 8
------------- ------------
Total receivables 15 52
Allowance for credit losses (2) (11)
------------- ------------
Total $ 13 $ 41
============= ============
Notes
The payments due from Agere are included in the balance sheet in
Receivables at the present value of the minimum lease payments, or approximately
$3 million and $24 million at March 31, 2004 and September 30, 2003,
respectively and, in a like amount, in Deferred income. As payments are
received, the Company records earnings equal in amount to the payment received.
See Note 4 of Notes to Consolidated Financial Statements.
At September 30, 2003, Ventures had notes receivable of approximately $2.6
million. No Ventures notes were outstanding as of March 31, 2004. 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 provided 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
Included in other receivables at March 31, 2004 is approximately $1.1
million of estimated collections on Ventures leases currently in default, and
miscellaneous global receivables of approximately $1.4 million.
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 for the six months ended
March 31, 2004 and 2003 were as follows (in millions):
Consolidated Ventures
------------ ------------
March 31,
-----------------------------
2004 2003 2004 2003
---- ---- ---- ----
Balance at beginning of period $ 11 $162 $ 2 $110
Provision for credit losses (8) (46) (7) (33)
Net credit recoveries (losses) (1) (20) 5 (17)
---- ---- ---- ----
Balance at end of period $ 2 $ 96 $ - $ 60
==== ==== ==== ====
-12-
7. Equity Securities
Prior to Filing, the Company, primarily through its Ventures group,
provided financing to privately held companies, in networking, optical
networking, software, communications, internet-based and other industries for
which the Company received warrants and/or equity positions. The Ventures group
also made direct investments in equity securities.
Marketable equity securities:
Ventures' available-for-sale security holdings were as follows (in
millions):
Gross Gross
unrealized unrealized Market
Cost gains losses value
---- ---------- ---------- ------
March 31, 2004 $ - $ 1 $ - $ 1
September 30, 2003 $ 1 $ 11 $ - $ 12
Changes in the valuation of available-for-sale securities are included as
changes in the unrealized holding gains (losses) in accumulated other
comprehensive income (loss) (see Note 8 of Notes to Consolidated Financial
Statements). The decrease in the market value of Ventures' publicly-traded
security holdings from $12 million at September 30, 2003 to $1 million at March
31, 2004 is due to the sale of the Company's holdings of iPass, Inc. ("iPass")
common stock in February 2004. The market value of the Company's holdings of
iPass common stock of approximately $11 million at September 30, 2003 declined
to approximately $7 million at the time of its sale in February 2004. 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 expired in late
January 2004.
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. Net realized gains are included in other revenue in the
consolidated statements of earnings (loss). A gain of approximately $7 million
from the sale of the Company's holdings in iPass in the three months ended March
31, 2004 is included in other revenue in the consolidated statements of earnings
(loss).
Equity investments in private companies:
The Company's policy for equity investments in privately held companies,
which are non-quoted investments, 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. There were no impairments in
equity securities recorded during the three and six months ended March 31, 2004,
compared to $1 million and $8 million recorded in the three and six months ended
March 31, 2003, respectively.
The Company estimated the fair value at September 30, 2003 for equity
investments in private companies, including warrants, at approximately $12
million. This estimate 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. The Company did not adjust the carrying value of its equity
investments in private companies during the six months ended March 31, 2004.
-13-
On February 23,2004, the Company announced that its subsidiary, Comdisco,
Inc., entered into agreements (collectively, the "Agreements") with Windspeed
Acquisition Fund GP, LLC ("Windspeed") for the ongoing management and
liquidation of Comdisco Ventures, Inc.'s warrant and equity investment
portfolio. The management agreement includes substantially all of the Company's
warrant and equity investment portfolio. Windspeed will be entitled to certain
fixed and declining management fees. Additionally, after the Company has
realized a specified amount, Windspeed will share in the net receipts at various
percentages. Copies of the Amended and Restated Limited Liability Company
Agreement of Comdisco Ventures Fund A, LLC (the former Comdisco Ventures, Inc.),
dated as of February 20, 2004 by and among Comdisco, Inc., Windspeed and
Comdisco Ventures Fund B, LLC and the Limited Liability Company Agreement of
Comdisco Ventures Fund B, LLC, dated as of February 20, 2004, by and among
Comdisco, Inc., Windspeed and Windspeed Acquisition Fund, L.P. were filed with
the SEC on a Form 8-K pursuant to Item 5 on February 23, 2004. As a result of
the Agreements, the ongoing management of the Company's equity investments in
private companies will be provided by Windspeed.
8. Stockholders' Equity
When the Company emerged from bankruptcy, 4,200,000 shares of Common Stock
were issued. As of March 31, 2004, the Company had 4,197,100 shares of Common
Stock outstanding and 2,900 shares of Common Stock held in treasury.
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 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).
From May 2003 to March 31, 2004, the Company distributed approximately $618
million to stockholders, including approximately $50 million in December 2003,
in the form of dividends paid on the Company's Common Stock. On April 16, 2004,
the Company issued a press release announcing that its Board of Directors had
declared a cash dividend of $11.50 per share on the outstanding shares of its
Common Stock (an aggregate distribution of approximately $48.3 million), payable
on May 6, 2004 to common stockholders of record on April 26, 2004. Comdisco
intends to treat the dividend distributions for federal income tax purposes as a
series of liquidating distributions in complete liquidation of the Company.
Stockholders' equity consists of the following (in millions):
Additional Accumulated
Common paid-in other compre- Retained
Stock capital hensive income earnings Total
------ ---------- -------------- -------- ------
Balance at September 30, 2003 $ - $ 169 $ 13 $ - $ 182
Net income 32 32
Translation adjustment - -
Change in unrealized gain (10) (10)
------
Total comprehensive income 22
Liquidating dividend (36) (14) (50)
------ ---------- -------------- -------- ------
Balance at March 31, 2004 $ - $ 133 $ 3 $ 18 $ 154
====== ========== ============== ======== ======
-14-
Total comprehensive income (loss) consists of the following (in
millions):
Three months Six months
ended March 31, ended March 31,
2004 2003 2004 2003
---- ---- ---- ----
Foreign currency translation adjustments $ (1) $ 15 $ - $ 34
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period - 1 (2) 1
Reclassification adjustment for gains
included in earnings before income taxes (7) (1) (8) (1)
---- ---- ---- ----
Net unrealized gains (losses), before
income taxes (7) - (10) -
Income taxes - - - -
---- ---- ---- ----
Net unrealized gains (losses) (7) - (10) -
---- ---- ---- ----
Other comprehensive income (loss) (8) 15 (10) 34
Net earnings 18 37 32 45
---- ---- ---- ----
Total comprehensive income $ 10 $ 52 $ 22 $ 79
==== ==== ==== ====
9. Other Financial Information
Legally restricted cash represents cash and cash equivalents that are
restricted solely for use as collateral supporting letters of credit, 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 March 31, 2004 and September 30, 2003 (in
millions):
March 31, September 30,
2004 2003
------------- ------------
SunGard escrow $ - $ 1
Letter of credit - 3
Incentive compensation escrows 29 37
Other - 1
------------- ------------
$ 29 $ 42
============= ============
In November 2003, the Company and SunGard resolved all disputed matters
associated with the SunGard escrow and, as a result, the Company received
$763,000. The Company's exposure at September 30, 2003 on the letter of credit
was eliminated in November 2003 by the customer prepaying the obligation
underlying the letter of credit. The decrease in the incentive compensation
escrow is primarily the result of payments, approved by the Board of Directors,
made in October and November 2003 under the Company's Bankruptcy court approved
compensation plans.
Other assets consists of the following (in millions):
March 31, September 30,
2004 2003
------------- ------------
Deferred costs $ - $ 5
Prepaid expenses 1 2
Deposits on rent 1 1
Other 2 3
------------- ------------
$ 4 $ 11
============= ============
-15-
Other liabilities consists of the following (in millions):
March 31, September 30,
2004 2003
------------- ------------
Accrued compensation $ 39 $ 62
CDRs 34 44
Other:
Customer advances, deposits 1 7
Taxes other than income - 2
Accrued professional services 4 1
Due SunGard 1 1
Other - 1
-------------- -------------
Total other 6 12
-------------- -------------
$ 79 $ 118
============== =============
The liability for accrued compensation includes payroll and estimated
amounts payable under the Company's Bankruptcy court approved compensation
plans. The decrease in the accrued compensation liability from $62 million at
September 30, 2003 to $39 million at March 31, 2004 is primarily the result of
the payments approved by the Board of Directors and made by the Company in
October and November 2003 (see Item 11, Bankruptcy Court-Approved Compensation
Plans in the Company's Annual Report on Form 10-K for the year ended September
30, 2003).
From October 2003 to March 2004, the Company made payments to holders of
CDRs totaling approximately $11 million. CDR expense was approximately $1
million in the six months ended March 31, 2004. Accordingly, the liability for
CDRs has decreased from $44 million to $34 million from September 30, 2003 to
March 31, 2004, 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 March 31, 2004: the estimated fair market value
of the remaining property held for sale, and the participation interest in
certain lease rental payments due from Agere. See Notes 4 and 6 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, above which recoveries to general unsecured creditors are shared with
CDR holders. 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.
-16-
The remaining estimated Disputed Claims in the bankruptcy estate of
Comdisco, Inc. are $289 million. The Company expects the Disputed Claims Reserve
to be reduced further with the next quarterly distribution scheduled for May 17,
2004. Two groups of Disputed Claims (related to the Shared Investment Plan and a
Ventures' compensation plan dispute) represent approximately 78 percent of the
remaining aggregate estimated amount. The portion of the CDR liability that is
based on the resolution of Disputed Claims assumes the entire $289 million of
estimated Disputed Claims are allowed. Utilizing the March 31, 2004 assumptions,
if the liability had been calculated as if the entire $289 million of estimated
Disputed Claims are disallowed, the incremental expense for the six months ended
March 31, 2004 would have been approximately $110 million.
Gross cash distributions related to general unsecured claims totaled $3.983
billion through May 6, 2004. The distributions funded claims allowed on the
initial distribution date and the Disputed Claims Reserve, where cash and Common
Stock are being held pending the outcome of the remaining Disputed Claims. A
portion of the original Disputed Claims have been allowed subsequent to the
initial distribution date.
Pursuant to the Rights Agent Agreement that established the terms of CDRs
distributed in accordance with the Plan, the Company agreed to provide
information in its annual and quarterly reports regarding the Present Value of
Distributions (as defined in the Rights Agent Agreement) made to certain former
creditors of Comdisco, Inc. The Present Value of Distributions calculation
requires the Company to discount the cash distributions to the initially allowed
claimholders from the date the distribution is made to the date of the Company's
emergence from Bankruptcy on August 12, 2002. The gross distributions through
May 6, 2004 of approximately $3.632 billion made to initially allowed
claimholders equates to a present value of $3.498 billion. The associated
percentage recovery was approximately 96.4 percent as of May 6, 2004.
10. Financial Information by Business Segment and Geographic Area
Following the Company's emergence from bankruptcy on August 12, 2002, the
Company's operations were reorganized into four reportable business groups.
These business groups are: (i) US Leasing, which includes leasing operations in
the US and Canada and is managed by Comdisco, Inc.; (ii) European IT Leasing,
which is managed by Comdisco Global Holding Company, Inc.; (iii) Ventures, which
was 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 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.
-17-
For financial reporting purposes, the assets ($33 million) and liabilities
($1 million) of the Company's US Leasing operations as of March 31, 2004 are
included in the balance sheet as assets of discontinued operations and
liabilities related to assets of discontinued operations. The results of
operations of the Company's US Leasing operations for the periods presented are
included in the statement of earnings (loss) as discontinued operations.
Historically, the Company evaluated the performance of its business
segments based on cash flow from operations, revenues and earnings (loss) before
income taxes. As a result of the wind-down of operations, the Company believes
that the relevance of the reportable business segment results has significantly
diminished since emergence and, accordingly, the Company expects to consolidate
business units and cease to report independent business segment results
beginning with the Company's third quarter 2004 report on Form 10-Q.
Intersegment sales are not significant and all intersegment balances have
been eliminated in the summarized financial information presented below. The
summarized financial information for segment revenues and earnings (loss)
excludes the gain (loss) from discontinued operations. The information for
fiscal 2003 has been restated from the prior year's presentation in order to
conform to the fiscal 2004 presentation.
The following table presents cash flow from operations (in millions):
Three months Six Months
ended March 31, ended March 31,
2004 2003 2004 2003
---- ---- ---- ----
European IT Leasing $ 2 $ (5) $ 29 $(10)
CAM group 16 (4) 25 8
Ventures 8 85 12 175
Discontinued operations 51 356 59 554
---- ---- ---- ----
Total $ 77 $432 $125 $727
==== ==== ==== ====
The following table presents segment revenues and earnings (loss) before
income taxes (in millions):
Three months Six Months
ended March 31, ended March 31,
2004 2003 2004 2003
---- ---- ---- ----
REVENUES:
European IT Leasing $ 4 $ 10 $ 7 $ 20
CAM group 24 22 63 59
Ventures 8 36 10 83
---- ---- ---- ----
$ 36 $ 68 $ 80 $162
==== ==== ==== ====
EARNINGS (LOSS):
European IT Leasing $ 2 $(14) $ - $(14)
CAM group 14 2 35 (8)
Ventures 6 28 8 25
---- ---- ---- ----
$ 22 $ 16 $ 43 $ 3
==== ==== ==== ====
-18-
The following table presents total assets for each of the Company's
reportable segments (in millions):
March 31, September 30,
2004 2003
------------- ------------
European IT Leasing $ 60 $ 27
CAM group 174 196
Ventures 18 37
Assets of discontinued
operations:
US leasing 33 69
Other 2 44
------------- ------------
Total 35 113
------------- ------------
Total $ 287 $ 373
============= ============
European IT Leasing assets at March 31, 2004 include approximately $12.8
million in direct financing leased assets for which the lessee is an affiliate
of Cable & Wireless Plc and cash of approximately $45 million, primarily from
the German note prepayment (See Note 4 of Notes to Consolidated Financial
Statements). On April 29, 2004, the Company completed a mid-term off-lease sale
with Cable & Wireless Plc for all equipment on lease as of March 31, 2004 for
6.925 million GBP, or approximately net book value. The amount has been
converted into approximately $12.1 million and repatriated to the U.S.
CAM group assets at March 31, 2004 include corporate cash balances of
approximately $148 million, plus approximately $3 million held in various global
accounts.
Ventures assets at March 31, 2004 include $10 million of cash,
approximately $7 million of equity securities and receivables of $1 million.
Through March 31, 2004, the Company had received approximately $25 million
of payments on the residual note, which is included in assets of discontinued
operations-US leasing. The Company received an additional $4 million payment on
the note in April 2004. On May 13, 2004, the remaining residual note balance and
the Company's right to share were settled with Bay4 for $16.5 million. The
Company expects to realize a gain of approximately $5 million as a result of
this transaction in the third quarter of fiscal 2004.
In April 2004, Bay4 paid Comdisco approximately $15 million in payment of
principal on the Company's retained secured non-recourse interest in certain
leases purchased by Bay4. The principal balance, which is included in assets of
discontinued operations-US leasing, was approximately $7 million after the April
30, 2004 payment. See Note 4 of Notes to Consolidated Financial Statements.
Other assets of discontinued operations held for sale at September 30, 2003
are principally the present value of the remaining payments due from the sale of
the Company's German Leasing Subsidiary (see Note 4 of Notes to Consolidated
Financial Statements).
The following table presents total revenue by geographic location based on
the location of the Company's offices (in millions):
Three months Six Months
ended March 31, ended March 31,
2004 2003 2004 2003
---- ---- ---- ----
North America $ 31 $ 54 $ 60 $130
Europe 5 14 20 32
---- ---- ---- ----
Total $ 36 $ 68 $ 80 $162
==== ==== ==== ====
The following table presents total assets by geographic location based on
the location of the Company's offices (in millions):
March 31, September 30,
2004 2003
------------- ------------
North America $ 219 $ 286
Europe 66 84
Pacific Rim 2 3
------------- ------------
Total $ 287 $ 373
============= ============
-19-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and related notes included elsewhere in
this Quarterly Report on Form 10-Q and in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 2003, and with the information
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2003.
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 88 percent to $287
million at March 31, 2004 from $2.341 billion at September 30, 2002, and has
decreased by 23 percent from $373 million at September 30, 2003. At March 31,
2004, assets other than cash were approximately $79 million. Total revenue and
net cash provided by operating activities have decreased by 51 percent and 83
percent, respectively, during the six months ended March 31, 2004 as compared to
the prior year period. The Company expects total revenue and net cash provided
by operating activities 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 May 6, 2004, the Company had a total of 41
employees, a decrease of approximately 93 percent from approximately 600
employees upon emergence from bankruptcy proceedings on August 12, 2002. On
January 6, 2004, the Bankruptcy court approved an order granting authority for
the Company to migrate from its legacy mainframe-based information system to a
simplified, alternative information system which the Company completed by April
30, 2004. Further, the Company plans to consolidate its management structure
into a single business unit during the third quarter of fiscal 2004 and will
cease to report independent business segment results beginning with the
Company's third quarter 2004 report on Form 10-Q.
On April 15, 2004, the Bankruptcy court entered an order (the "Order")
granting the motion (the "Motion") that was filed on February 17, 2004 by the
Company in furtherance of the Plan. The Company furnished a copy of the Motion
to the SEC on a Form 8-K pursuant to Item 9 on February 18, 2004. The Company
also included a copy of the Motion in its Report to Stakeholders, dated March 2,
2004, that was distributed to holders of the Company's common stock and
contingent distribution rights ("CDRs"), holders of disputed claims remaining in
the bankruptcy and certain other interested parties. As proposed in the Motion
and as authorized by the Order, the Company will appoint a disbursing agent,
prior to August 12, 2004, to fulfill the roles of the Board of Directors and
executive officers of the Company, file a certificate of dissolution and take
such other measures as are necessary to complete the administration of the
reorganized debtors' Plan and chapter 11 cases. The filing of the certificate of
dissolution with the Secretary of State of the State of Delaware, which will
occur prior to August 12, 2004, will formally extinguish the Company's corporate
existence with the State of Delaware except for the purpose of completing the
wind-down contemplated by the Plan.
Overview
Bankruptcy: 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
-20-
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.
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.
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.
The Company's revenues are generated by the Company's existing lease base,
by sales of equipment from inventory or from off-lease sales and, for the
quarter ended March 31, 2004, from its participation interest in certain Agere
lease payments, sale of equity securities and the sale of its property in
Germany. Because of the Company's declining assets, revenue has declined
significantly in the current year period compared to the year earlier period
and, because of the Company's limited business purpose, this trend is expected
to continue. The Company's expenses are primarily depreciation of leased
equipment, cost of equipment sold, CDRs, and selling, general and administrative
expense (including legal costs associated with the administration and/or
litigation of Disputed Claims). As a result of the wind-down of operations, the
Company expects continued declines in total costs and expenses, subject to
volatility in the amount of the expense associated with the liability for CDRs.
All funds generated from the Company's remaining assets 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. Dividends paid on Common Stock and payments to CDR holders were $50
million and $11 million, respectively, in the six months ended March 31, 2004.
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 is required to maintain sufficient cash reserves for the
potential CDR liability associated with the eventual allowance or disallowance
of the remaining Disputed Claims. The outcome and the timing of the resolution
of the remaining Disputed Claims will impact both the timing and the amount of
future dividends and CDR payments. See "Critical Accounting Policies" and "Risk
Factors Relating to the Company" for a discussion of the impact of Disputed
Claims on the distributions.
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.
The Company's assets at March 31, 2004 consist primarily of cash,
receivables, leased assets and equity securities. The Company believes that its
collections on leases in default, recoveries on accounts previously written off,
and proceeds from the disposition of equity securities will provide future cash
flows in excess of the current carrying value of these assets.
Collections and recoveries: Discontinued operations, CAM and Ventures
have potential collections on accounts that are in default and recoveries
on accounts that had been previously written off by the Company. A
substantial number of such recoveries involve prior lessees or debtors
who are now in bankruptcy and in whose respective case the Company has
filed and is pursuing a claim to maximize its recovery. It is
management's expectation that actual collections and recoveries will
exceed the approximately $1.1 million receivable amount reflected in the
Company's financial statements as of March 31, 2004 (see Note 6 of Notes
to Consolidated Financial Statements). However, the amount and timing of
such collections and recoveries are dependent upon many factors
including: the ability of the Company to recover and liquidate any of its
collateral, any offsets or counterclaims that may be asserted against the
Company and the ability of a lessee or debtor or its respective estate to
pay the claim or any portion thereof.
-21-
Equity Securities: The Company carries its common stock and preferred
stock investments in public companies at fair market value and in private
companies at the lower of cost or estimated fair market value in its
financial statements. Any warrants held by the Company in private
companies are carried at zero value (collectively "Equity Investments").
Any write-downs in the carrying value of such Equity Investments in
private companies are considered permanent for financial reporting
purposes. See Note 7 of Notes to Consolidated Financial Statements and
"Critical Accounting Policies". It is management's expectation that the
amount ultimately realized on Equity Investments will, in the aggregate,
exceed the amount reflected in the financial statements as of March 31,
2004. The Company expects to disclose an updated fair value estimate for
this portfolio in its next quarterly report on Form 10-Q. Management's
expectation is based on a number of factors including: the engagement of
Windspeed Acquisition Fund GP, LLC ("Windspeed") as a professional
management group to manage the Equity Investments on an ongoing basis,
the willingness of Windspeed to make further investments in the companies
in which the Company has made Equity Investments and the apparent and
recent increase in merger and acquisition and public offering activity
generally in the market (seven companies in the Ventures portfolio of
Equity Investments filed registration statements with the SEC to
effectuate initial public offerings in 2004). Management's expectations
are subject to the risk factors discussed in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Risk Factors", entitled "Current Market Conditions Have Made It Difficult
and May Continue to Make It Difficult for the Company to Timely Realize
on the Value of Its Warrant and Equity Securities."
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.
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 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 the
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 March 31, 2004:
the estimated fair market value of the remaining property held for sale,
and the participation interest in certain lease rental payments due from
Agere. See Notes 4 and 6 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, above
which recoveries to general unsecured creditors are shared with CDR
holders. 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.
-22-
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 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. On
February 23,2004, the Company announced that its subsidiary, Comdisco,
Inc., entered into agreements (collectively, the "Agreements") with
Windspeed Acquisition Fund GP, LLC ("Windspeed") for the ongoing management
and liquidation of Comdisco Ventures, Inc.'s warrant and equity investment
portfolio. The management agreement includes substantially all of the
Company's warrant and equity investment portfolio. As a result of the
Agreements, the ongoing management of the Company's equity investments in
private companies will be provided by Windspeed.
o 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.
The Company operates within multiple taxing jurisdictions and is subject to
audit in these jurisdictions. In management's opinion, adequate provisions
for income taxes have been made for taxes estimated to be payable in all
jurisdictions. The accrued tax liabilities resulting from tax expense
recorded in previous periods have been evaluated by management in
accordance with FASB No. 5, "Accounting for Contingencies." Accordingly,
the ultimate amount paid may be more or less than the accrued tax
liabilities recorded within the financial statements.
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.
-23-
o Fresh-Start Reporting: Upon 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 were stated at the present values of amounts
to be paid discounted at appropriate rates. Deferred taxes were reported in
conformance with existing generally accepted accounting principles. Debt
issued in connection with the Plan was 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" was subject to the provisions of SFAS No. 141.
Under SFAS No. 141, the excess of the net fair value was 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 was recognized as an extraordinary gain. The determination of
the net fair values of the assets and liabilities was subject to
significant estimation and assumptions. Actual results could differ from
the estimates made.
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.
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 basis for the opening consolidated balance sheet of the
reorganized Company. Since fresh-start reporting has been reflected in the
accompanying consolidated balance sheets as of March 31, 2004 and September 30,
2003, the consolidated balances as of those dates are not comparable in certain
material respects to any such balance sheet for any period prior to July 31,
2002. In addition, Comdisco, Inc.'s results of operations prior to July 31, 2002
are not comparable to the Company's results of operations after its emergence
from bankruptcy due to the adoption of fresh-start reporting.
Recent Developments
On May 13, 2004, the Company and Bay4 reached an agreement on the remaining
residual note balance and the sharing rights associated with the sale of the
Company's US Leasing assets to Bay4 Capital Partners, LLC ("Bay4") in September
2003. The Company received approximately $16.5 million in payment of the
remaining principal balance of the residual note and for the settlement of the
Company's sharing rights. See Note 4 of Notes to Consolidated Financial
Statements for a description of the sale, including a description of the
residual note and the Company's right to share in the proceeds realized from the
assets sold.
In April 2004, Bay4 paid Comdisco approximately $15 million in payment of
principal on the Company's retained secured non-recourse interest in certain
leases purchased by Bay4. The principal balance, which is included in assets of
discontinued operations-US leasing, was approximately $7 million after the April
30, 2004 payment. See Note 4 of Notes to Consolidated Financial Statements.
On April 29, 2004, the Company completed a mid-term off-lease sale with
Cable & Wireless Plc for all equipment on lease as of March 31, 2004 for 6.925
million GBP, or approximately net book value. The amount was converted into
$12.1 million and repatriated to the U.S.
-24-
The Company completed the sale of its Carlstadt property in November 2003
for approximately $2.2 million of which approximately $1.5 million was placed in
escrow pending resolution of an unrelated New Jersey state tax issue. On April
28, 2004, the Company and the State of New Jersey settled the unrelated state
tax issue and the $1.5 million in escrow has been received by the Company.
On April 16, 2004, the Company announced that its Board of Directors had
declared a cash dividend of $11.50 per share on the outstanding shares of its
Common Stock, payable on May 6, 2004 to common stockholders of record on April
26, 2004.
On April 16, 2004, the Company announced that it would make a cash payment
of $.0781 per CDR, payable on May 6, 2004 to CDR holders of record on April 26,
2004.
On April 15, 2004, the Bankruptcy court entered the Order granting the
Motion that was filed on February 17, 2004 by the Company in furtherance of the
Plan. The Company furnished a copy of the Motion to the SEC on a Form 8-K
pursuant to Item 9 on February 18, 2004. The Company also included a copy of the
Motion in its Report to Stakeholders, dated March 2, 2004, that was distributed
to holders of the Company's common stock and CDRs, holders of disputed claims
remaining in the bankruptcy and certain other interested parties. As proposed in
the Motion and as authorized by the Order, the Company will appoint a disbursing
agent, prior to August 12, 2004, to fulfill the roles of the Board of Directors
and executive officers of the Company, file a certificate of dissolution and
take such other measures as are necessary to complete the administration of the
reorganized debtors' Plan and chapter 11 cases. The filing of the certificate of
dissolution with the Secretary of State of the State of Delaware, which will
occur prior to August 12, 2004, will formally extinguish the Company's corporate
existence with the State of Delaware except for the purpose of completing the
wind-down contemplated by the Plan.
On April 6, 2004, the Company converted the 30.5 million euros from the
discounted prepayment of the note related to the sale of the Company's German
Leasing Subsidiary into $36.7 million and repatriated the funds to the U.S. The
$36.7 million is approximately $1 million less than the US equivalent at March
31, 2004 due to the strengthening of the U.S. dollar from March 31, 2004 to
April 6, 2004.
Results of Operations
Certain reclassifications have been made to the prior period financial
statements to conform to the presentation used in the March 31, 2004
consolidated financial statements.
Three Months Ended March 31, 2004 Compared to the Three Months Ended
March 31, 2003
Total Revenue
Total revenue decreased 47 percent to $36 million for the three months
ended March 31, 2004 from $68 million for the three months ended March 31, 2003.
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 4 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 throughout 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 3 and 4
of Notes to Consolidated Financial Statements).
-25-
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 88
percent to $5 million for the three months ended March 31, 2004 from $40 million
for the three months ended March 31, 2003. Total leasing revenue from European
IT Leasing operations decreased 66 percent to $1 million for the three months
ended March 31, 2004 from $3 million for the three months ended March 31, 2003.
Total leasing revenue from CAM group decreased 73 percent to $3 million for the
three months ended March 31, 2004 from $11 million for the three months ended
March 31, 2003. Total leasing revenue from Ventures operations decreased 96
percent to $1 million for the three months ended March 31, 2004 from $26 million
for the three months ended March 31, 2003. The decreases are primarily due to
the continued orderly run-off of the lease base, the absence of any 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.
Sales Revenue
The Company generates sales revenue 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 generally conducts these types of sales
transactions rather than extending existing leases or re-leasing its inventory
of equipment. Revenue from sales decreased 76 percent to $4 million for the
three months ended March 31, 2004 from $17 million for the three months ended
March 31, 2003. European IT Leasing sales revenue was nominal for the three
months ended March 31, 2004 compared to $4 million for the three months ended
March 31, 2003. CAM group sales revenue decreased 50 percent to $3 million for
the three months ended March 31, 2004 from $6 million for the three months ended
March 31, 2003. As of January 31, 2004, the Company substantially liquidated
its inventory of electronics equipment and has outsourced to a third party the
management of any future inventory resulting from the return of equipment
currently on lease. Ventures sales revenue decreased 86 percent to $1 million
for the three months ended March 31, 2004 from $7 million for the three months
ended March 31, 2004.
Technology Services Revenue
Revenues from technology services were $221,000 and $5 million for the
three months ended March 31, 2004 and 2003, respectively.
Agere lease participation payment
During the three months ended March 31, 2004, the Company recorded $2
million of revenue from its interest in certain lease rental payments from Agere
and an additional $15 million from the cash portion of the sale of its remaining
participation interest.
The aggregate purchase price for its remaining participation interest was
approximately $18 million. Approximately $15 million was received in cash and
the remaining $3 million was placed in escrow pending the resolution of
post-closing adjustments, if any, to be made over the next year. See Notes 4 and
6 of Notes to Consolidated Financial Statements for information on the Agere
lease participation payments.
Sale of properties
The Company completed the sale of its former Availability Solutions
facility in Eching, Germany in March 2004 for approximately $2.5 million. The
Company recorded a $2.5 million gain during the three months ended March 31,
2004 as a result of the sale. See Note 4 of Notes to Consolidated Financial
Statements for additional information about property sales.
-26-
Other Revenue
Other revenue increased 75 percent to $7 million for the three months
ended March 31, 2004 from $4 million for the three months ended March 31, 2003.
The components of other revenue were as follows (in millions):
Three months
ended March 31,
2004 2003
---- ----
Sale of equity holdings $ 7 $ 1
Interest income on notes - 2
Investment income - -
Other - 1
---- ----
Total other revenue $ 7 $ 4
==== ====
The revenue from the sale of equity holdings is primarily from the sale of
the Company's holdings in iPass, Inc.
Interest income on notes was nominal in the current quarter compared to $2
million for the three months ended March 31, 2003. The decrease is due to the
declining number and amount of notes receivable.
Total Costs and Expenses
Total operating costs and expenses decreased 73 percent to $14 million for
the three months ended March 31, 2004 from $52 million for the three months
ended March 31, 2003. The Company expects total costs and expenses to continue
to decline throughout fiscal 2004, subject to volatility in the amount of the
expense associated with the liability for CDRs, as compared to fiscal 2003 as a
result of continued declines in assets, the consolidation of its management
structure into a single business unit and the appointment of a disbursing agent
to fulfill the roles of the Board of Directors and executive officers of the
Company.
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 93 percent to $2 million for the
three months ended March 31, 2004 from $30 million for the three months ended
March 31, 2003. Total leasing costs and expenses are 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 period compared to the prior year period.
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 50 percent to $1 million for the three months
ended March 31, 2004 from $2 million for the three months ended March 31, 2003.
Total leasing costs and expenses from CAM group decreased 88 percent to $1
million for three months ended March 31, 2004 from $8 million for the three
months ended March 31, 2003. Total leasing costs and expenses from Ventures were
nominal for the three months ended March 31, 2004 compared to $20 million for
the three months ended March 31, 2003.
Sales Costs and Expenses
Sales costs and expenses were nominal for the three months ended March 31,
2004 compared to $24 million for the three months ended March 31, 2003. The
decrease in the current year period compared to the prior year period reflects
the decline in equipment available for sale and the sales of equipment coming
off lease with zero residual value. Sales costs and expenses from European IT
Leasing operations, CAM group and Ventures were nominal for the three months
ended March 31, 2004 compared to $5 million, $15 million and $4 million,
respectively, in the three months ended March 31, 2003.
Technology Services Costs and Expenses
Services costs were nominal for the three months ended March 31, 2004
compared to $2 million for the three months ended March 31, 2003.
-27-
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 26 percent to $14
million for the three months ended March 31, 2004 from $19 million for the three
months ended March 31, 2003. The following table summarizes selling, general and
administrative expenses (in millions):
Three months
ended March 31,
2004 2003
---- ----
Compensation and benefits $ 10 $ 14
Outside professional services 3 4
Other expenses 1 1
---- ----
$ 14 $ 19
==== ====
Compensation and benefits includes payroll and benefits and, for the three
months ended March 31, 2004, estimated amounts payable under the Bankruptcy
court approved Upside Sharing plans. The decrease in compensation and benefits
in the current year compared to the year earlier period reflects the continued
reduction in personnel, offset by costs associated with the Upside Sharing
plans.
Contingent Distribution Rights
The Company recorded $1 million of expense associated with the liability
for CDRs in the three months ended March 31, 2004 compared to $10 million for
the three months ended March 31, 2003. See "Critical Accounting Policies" and
"Liquidity and Capital Resources--Contingent Distribution Rights" for a
discussion of the CDR liability.
Write-down of Equity Securities
There was no charge for write-down of equity securities for the three
months ended March 31, 2004 compared to $1 million for the three months ended
March 31, 2003. 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 $(3) million for the three months ended March 31, 2004
and $(40) million for the three months ended March 31, 2003. The negative
provisions are primarily due to better than anticipated collection results
during the three months ended March 31, 2004 and 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 March 31, 2004. See Note 6 of Notes to Consolidated
Financial Statements.
Interest Expense
Interest expense was nominal during the three months ended March 31, 2004
compared to $6 million for the three months ended March 31, 2003. The decrease
in the current year period compared to the year earlier period is due to lower
average daily borrowings during the current year period.
Income Taxes
During the quarter ended March 31, 2004, the Company made significant
progress in the settlement of certain income tax liabilities with certain global
tax authorities, including authorities in Canada and Europe. In addition, the
Company and the Internal Revenue Service have settled certain income tax matters
for years through 2001. Accordingly, in connection with the settlement and
progress as it relates to the Company's income tax accounts, an income tax
benefit of $4 million was recorded for the three months ended March 31, 2004.
-28-
Earnings from Continuing Operations
Earnings from continuing operations were $26 million for the three months
ended March 31, 2004, or $6.00 per share-diluted, compared to earnings from
continuing operations of $16 million for the three months ended March 31, 2003,
or $3.64 per share-diluted.
Discontinued Operations
Loss from discontinued operations was $8 million, or $1.80 per
share-diluted, for the three months ended March 31, 2004 compared to earnings
from discontinued operations of $21 million, or $5.03 per share-diluted, for the
three months ended March 31, 2003. The results of operations for US Leasing
operations, the German Leasing Subsidiary and International Leasing have been
classified as discontinued operations and prior year periods have been restated.
o US Leasing operations: On September 9, 2003, the Company completed the sale
of its U.S. information technology 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. Revenue was $2
million during the three months ended March 31, 2004 compared to $49
million during the three months ended March 31, 2003. Costs and expenses
for US Leasing were $9 million during the three months ended March 31, 2004
compared to $34 million during the three months ended March 31, 2003. The
net loss for US Leasing was $7 million for the three months ended March 31,
2004 compared to net earnings of $15 million for the three months ended
March 31, 2003. See Notes 4 and 10 of Notes to Consolidated Financial
Statements for a description of the Company's US Leasing assets as of March
31, 2004.
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. On March 31, 2004, the
Company accepted a discounted prepayment by Comprendium of the four
remaining payments due from the sale. The Company received 30.5 million
euros in lieu of four payments of 9.5 million euros each, scheduled for
payment in April 2004, April 2005, May 2006 and December 2006. The four
additional payments would have been subject to reduction if certain
customers exercised contractual termination provisions. The Company
recorded a charge of approximately $2 million ($0.47 per share) in the
three months ended March 31, 2004 to reflect the difference between the
prepaid amount and the carrying value of the four scheduled payments. (see
Note 4 of Notes to Consolidated Financial Statements). Revenue was $1
million for the three months ended March 31, 2004, compared to $42 million
for the three months ended March 31, 2003. Costs and expenses for these
operations were $2 million in the three months ended March 31, 2004
compared to $34 million for the three months ended March 31, 2003. Net loss
was $1 million for the three months ended March 31, 2004 compared to net
earnings of $6 million for the three months ended March 31, 2003.
o International Leasing: On October 18, 2002, the Company announced that it
had sold Comprendium Finance S.A. (formerly known as Comdisco (Switzerland)
S.A.), Computer Discount GmbH and the Company's French leasing
subsidiaries, Comdisco France SA and Promodata SNC. 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. During the three months ended March 31, 2004 and 2003
revenues and net earnings were nominal.
Net Earnings
Net earnings were $18 million, or $4.20 per share-diluted, for the three
months ended March 31, 2004 compared to net earnings of $37 million, or $8.67
per share-diluted, for the three months ended March 31, 2003.
Six Months Ended March 31, 2004 Compared to the Six Months Ended
March 31, 2003
Total Revenue
Total revenue decreased 51 percent to $80 million for the six months ended
March 31, 2004 from $162 million for the six months ended March 31, 2003. The
decrease is due to lower revenues from all of the Company's operations, except
for CAM sales revenue, which increased in the current year period. Since
September 30, 2002, the Company has monetized a substantial amount of assets
(portfolio sales, sales of stock in subsidiaries (see Note 4 of Notes to
Consolidated Financial Statements) and mid-term off-lease sales to existing
customers). 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 throughout fiscal 2004 as its asset
base continues to decline.
-29-
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 3 and 4
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 85
percent to $14 million for the six months ended March 31, 2004 from $96 million
for the six months ended March 31 2003. Total leasing revenue from European IT
Leasing operations decreased 67 percent to $3 million for the six months ended
March 31, 2004 from $9 million for the six months ended March 31, 2003. Total
leasing revenue from CAM group decreased 57 percent to $9 million for the six
months ended March 31, 2004 from $21 million for the six months ended March 31,
2003. Total leasing revenue from Ventures operations decreased 97 percent to $2
million for the six months ended March 31, 2004 from $66 million for the six
months ended March 31, 2003. The decreases are primarily due to the continued
orderly run-off of the lease base, the absence of any 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.
Sales Revenue
The Company generates sales revenue 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 generally conducts these types of sales
transactions rather than extending existing leases or re-leasing its inventory
of equipment. Revenue from sales decreased 19 percent to $25 million for the six
months ended March 31, 2004 from $31 million for the six months ended March 31,
2003. European IT Leasing sales revenue was $1 million for the six months ended
March 31, 2004 compared to $8 million for the six months ended March 31, 2003.
CAM group sales revenue increased 77 percent to $23 million for the six months
ended March 31, 2004 from $13 million for the six months ended March 31, 2003.
Ventures sales revenue decreased 90 percent to $1 million for the six months
ended March 31, 2004 from $10 million for the six months ended March 31, 2004.
Technology Services Revenue
Revenues from technology services were $1 million and $10 million for the
six months ended March 31, 2004 and 2003, respectively.
Agere lease participation payment
During the six months ended March 31,2004, the Company recorded $9 million
of revenue from its interest in certain lease rental payments from Agere and an
additional $15 million from the cash portion of the sale of its remaining
participation interest.
The aggregate purchase price for its remaining participation interests was
approximately $18 million. Approximately $15 million was received in cash and
the remaining $3 million was placed in escrow pending the resolution of
post-closing adjustments, if any, to be made over the next year. See Notes 4 and
6 of Notes to Consolidated Financial Statements for information on the Agere
lease participation payments.
Sale of properties
The Company completed the sale of its Carlstadt property in November 2003
for approximately $2.2 million of which approximately $1.5 million was placed in
escrow pending resolution of an unrelated New Jersey state tax issue. The
Company recorded a $2.2 million gain during the three months ended December 31,
2003 as a result of the sale. On April 28, 2004, the Company and the State of
New Jersey settled the unrelated state tax issue and the $1.5 million in escrow
has been received by the Company.
The Company completed the sale of its former Availability Solutions
facility in Eching, Germany in March 2004 for approximately $2.5 million. The
Company recorded a $2.5 million gain during the three months ended March 31,
2004 as a result of the sale. See Note 4 of Notes to Consolidated Financial
Statements for additional information about the property sales.
-30-
Other Revenue
Other revenue decreased 9 percent to $10 million for the six months ended
March 31, 2004 from $11 million for the six months ended March 31, 2003. The
components of other revenue were as follows (in millions):
Six months
ended March 31,
2004 2003
---- ----
Sale of equity holdings $ 8 $ 1
Interest income on notes - 6
Investment income - 1
Other 2 3
---- ----
Total other revenue $ 10 $ 11
==== ====
The revenue from the sale of equity holdings is primarily from the sale of
the Company's holdings in iPass, Inc.
Interest income on notes was nominal in the six months ended March 31, 2004
compared to $6 million for the six months ended March 31, 2003. The decrease is
due to the declining number and amount of notes receivable.
Total Costs and Expenses
Total operating costs and expenses decreased 77 percent to $37 million for
the six months ended March 31, 2004 from $159 million for the six months ended
March 31, 2003. The Company expects total costs and expenses to continue to
decline throughout fiscal 2004, subject to volatility in the amount of the
expense associated with the liability for CDRs, as compared to fiscal 2003 as a
result of continued declines in assets, the consolidation of its management
structure into a single business unit and the appointment of a disbursing agent
to fulfill the roles of the Board of Directors and executive officers of the
Company.
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 91 percent to $7 million for the
six months ended March 31, 2004 from $79 million for the six months ended March
31, 2003. Total leasing costs and expenses are 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 period compared to the prior year period. 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 60 percent to $2 million for the six months ended March 31, 2004 from
$5 million for the six months ended March 31, 2003. Total leasing costs and
expenses from CAM group decreased 75 percent to $4 million for six months ended
March 31, 2004 from $16 million for the six months ended March 31, 2003. Total
leasing costs and expenses from Ventures decreased 98 percent to $1 million for
the six months ended March 31, 2004 compared to $58 million for the six months
ended March 31, 2003.
Sales Costs and Expenses
Sales costs and expenses decreased 51 percent to $17 million for the six
months ended March 31, 2004 from $35 million for the six months ended March 31,
2003. European IT Leasing sales costs and expenses decreased 88 percent to $1
million for the six months ended March 31, 2004 from $8 million for the six
months ended March 31, 2003. CAM group sales costs and expenses decreased 36
percent to $14 million for the six months ended March 31, 2004 from $22 million
for six months ended March 31, 2003. Ventures sales costs and expenses decreased
60 percent to $2 million for the six months ended March 31, 2004 from $5 million
for the six months ended March 31, 2003.
Technology Services Costs and Expenses
Services costs were $1 million for the six months ended March 31, 2004
compared to $6 million for the six months ended March 31, 2003.
-31-
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 47 percent to $19
million for the six months ended March 31, 2004 from $36 million for the six
months ended March 31, 2003. The following table summarizes selling, general and
administrative expenses (in millions):
Six months
ended March 31,
2004 2003
---- ----
Compensation and benefits $ 11 $ 23
Outside professional services 6 13
Other expenses 2 -
---- ----
$ 19 $ 36
==== ====
Compensation and benefits includes payroll and benefits and, for the six
months ended March 31, 2004, estimated amounts payable under the Bankruptcy
court approved Upside Sharing Plans. The decrease in compensation and benefits
in the current year compared to the year earlier period reflects the continued
reduction in personnel, offset by costs associated with the Upside Sharing
plans.
Contingent Distribution Rights
The Company recorded $1 million of expense associated with the liability
for CDRs in the six months ended March 31, 2004 compared to $16 million for the
six months ended March 31, 2003. See "Critical Accounting Policies" and
"Liquidity and Capital Resources--Contingent Distribution Rights" for a
discussion of the CDR liability.
Write-down of Equity Securities
There was no charge for write-down of equity securities for the six months
ended March 31, 2004 compared to $8 million for the six months ended March 31,
2003. 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 $(8) million for the six months ended March 31, 2004
and $(46) million for the six months ended March 31, 2003. The negative
provisions are primarily due to better than anticipated collection results
during the six months ended March 31, 2004 and 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 March 31, 2004 (See Note 6 of Notes to Consolidated
Financial Statements).
Interest Expense
Interest expense was nominal during the six months ended March 31, 2004
compared to $25 million for the six months ended March 31, 2003. The decrease in
the current year period compared to the year earlier period is due to lower
average daily borrowings during the current year period.
Income Taxes
During the six months ended March 31, 2004, the Company made significant
progress in the settlement of certain income tax liabilities with certain global
tax authorities, including authorities in Canada and Europe. In addition, the
Company and the Internal Revenue Service have settled certain income tax matters
for years through 2001. Accordingly, in connection with the settlement and
progress as it relates to the Company's income tax accounts, an income tax
benefit of $8 million was recorded for the six months ended March 31, 2004.
In October 2003, the Company's United Kingdom subsidiary received a tax
refund of approximately GBP 15 million relating to the 2002 tax year. The UK
Inland Revenue has one year to challenge and propose any adjustments to this
refund. The Company expects to recognize any benefit of this refund when Inland
Revenue completes its review.
-32-
Earnings from Continuing Operations
Earnings from continuing operations were $51 million for the six months
ended March 31, 2004, or $12.16 per share-diluted, compared to earnings of $3
million for the six months ended March 31, 2003, or $0.88 per share-diluted.
Discontinued Operations
Loss from discontinued operations was $19 million, or $4.67 per
share-diluted, for the six months ended March 31, 2004 compared to earnings of
$42 million, or $9.88 per share-diluted, for the six months ended March 31,
2003. The results of operations for US Leasing operations, the German Leasing
Subsidiary and International Leasing have been classified as discontinued
operations and prior year periods have been restated.
o US Leasing operations: On September 9, 2003, the Company completed the sale
of its U.S. information technology 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. Revenue was $9
million during the six months ended March 31, 2004 compared to $115 million
during the six months ended March 31, 2003. Costs and expenses for US
Leasing were $23 million during the six months ended March 31, 2004
compared to $81 million during the six months ended March 31, 2003. The net
loss for US Leasing was $14 million for the six months ended March 31, 2004
compared to net earnings of $34 million for the six months ended March 31,
2003. See Notes 4 and 10 of Notes to Consolidated Financial Statements for
a description of the Company's US Leasing assets as of March 31, 2004.
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. On March 31, 2004, the
Company accepted a discounted prepayment by Comprendium of the four
remaining payments due from the sale. The Company received 30.5 million
euros in lieu of four payments of 9.5 million euros each, scheduled for
payment in April 2004, April 2005, May 2006 and December 2006. The four
additional payments would have been subject to reduction if certain
customers exercised contractual termination provisions. The Company
recorded a charge of approximately $2 million ($0.47 per share) in the
three months ended March 31, 2004 to reflect the difference between the
prepaid amount and the carrying value of the four scheduled payments. (see
Note 4 of Notes to Consolidated Financial Statements). During the three
months ended December 31, 2003, the Company recorded a $6 million charge
against the note receivable balance due from the sale (see Note 4 of Notes
to Consolidated Financial Statements). Revenue was $2 million for the six
months ended March 31, 2004 compared to $81 million for the six months
ended March 31, 2003. Costs and expenses for these operations were $8
million for the six months ended March 31, 2004 compared to $70 million for
the six months ended March 31, 2003. Net loss was $6 million for the six
months ended March 31, 2004 compared to net earnings of $8 million for the
six months ended March 31, 2003.
o International Leasing: On October 18, 2002, the Company announced that it
had sold Comprendium Finance S.A. (formerly known as Comdisco (Switzerland)
S.A.), Computer Discount GmbH and the Company's French leasing
subsidiaries, Comdisco France SA and Promodata SNC. 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. During the six months ended March 31, 2004 revenues and net
earnings were $1 million. The revenues relate primarily to foreign exchange
gains and are noncash. Revenues and cost and expenses were immaterial
during the six months ended March 31, 2003.
Net Earnings
Net earnings were $32 million, or $7.49 per share-diluted, for the six
months ended March 31, 2004 compared to net earnings of $45 million, or $10.76
per share-diluted, for the six months ended March 31, 2003.
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.
-33-
Liquidity and Capital Resources
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 March 31, 2004, the Company had unrestricted cash and cash equivalents
of approximately $177 million, an increase of approximately $80 million compared
to September 30, 2003. Net cash provided by operating activities for the six
months ended March 31, 2004 was $125 million. Net cash used in investing
activities of $3 million for the six months ended March 31, 2004 was primarily
related to tax payments.
The Company's operating activities during the six months ended March 31,
2004, including minimal capital expenditures, were funded by cash flows from
operations (primarily lease and sale receipts). During the six months ended
March 31, 2004, the Company received approximately $38 million from the
prepayment of the German note, $17 million in payments with respect to the
participation interest in certain Agere lease payments, $8 million from the sale
of equity securities and approximately $3 million from the sale of properties.
The Company's cash expenditures are primarily operating expenses (principally
compensation and professional services), dividends and payments to CDR holders.
The Company's current and future liquidity depends on cash on hand, cash
provided by operating activities and asset sales. As of May 13, 2004, the
Company's unrestricted cash balances exceeded $160 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 is required to maintain sufficient cash reserves for the
potential CDR liability associated with the eventual allowance or disallowance
of the remaining Disputed Claims. The outcome and the timing of the resolution
of the remaining Disputed Claims will impact both the timing and the amount of
future dividends and CDR payments. See "Critical Accounting Policies" and "Risk
Factors Related to the Company" for a discussion of the impact of Disputed
Claims on the distributions.
The Company's cash flow from operating activities is dependent on a number
of variables, including, but not limited to, timely payment by its customers,
global economic conditions and controlling operating costs and expenses.
Dividends
In December 2003, the Company distributed approximately $50 million in the
form of a dividend to stockholders paid on the Company's Common Stock. On April
16, 2004, the Company announced a cash dividend of $11.50 per share (an
aggregate of $48.3 million) on the outstanding shares of its Common Stock,
payable on May 6, 2004 to common stockholders of record on April 26, 2004.
Comdisco intends to treat the dividend distributions for federal income tax
purposes as a series of liquidating distributions in complete liquidation of the
Company.
Contingent Distribution Rights
For financial reporting purposes, the Company accrues an operating expense
for CDRs although the CDRs trade over-the-counter.
In December 2003, the Company distributed a cash payment of $.0514 per CDR
(an aggregate distribution of approximately $7.8 million) to CDR holders of
record on December 1, 2003.
In March 2004, the Company distributed a cash payment of $.0187 per CDR (an
aggregate distribution of approximately $2.8 million). The aggregate payment of
approximately $2.8 million was primarily an incremental payment related to the
amended present value of the distributions to the initially allowed general
unsecured creditors in the bankruptcy estate of Comdisco, Inc. disclosed in a
Form 8-K/A filed with the SEC on December 16, 2003.
On April 16, 2004, the Company announced a cash payment of $.0781 per CDR
(an aggregate payment of approximately $11.8 million) payable on May 6, 2004 to
CDR holders of record on April 26, 2004.
-34-
Gross cash distributions related to general unsecured claims totaled $3.983
billion through May 6, 2004. The distributions funded claims allowed on the
initial distribution date and the Disputed Claims Reserve where cash and Common
Stock are being held pending the outcome of the remaining Disputed Claims. A
portion of the original Disputed Claims have been allowed subsequent to the
initial distribution date.
Pursuant to the Rights Agent Agreement that established the terms of the
CDRs distributed in accordance with the Plan, the Company agreed to provide
information in its annual and quarterly reports regarding the Present Value of
Distributions (as defined in the Rights Agent Agreement) made to certain former
creditors of Comdisco, Inc. The Present Value of Distributions calculation
requires the Company to discount the cash distributions to the initially allowed
claimholders from the date the distribution is made to the date of the Company's
emergence from bankruptcy on August 12, 2002. The gross distributions through
May 6, 2004 of approximately $3.632 billion made to initially allowed
claimholders equates to a present value of $3.498 billion. The associated
percentage recovery was approximately 96.4 percent as of May 6, 2004.
See Critical Accounting Policies and Note 9 of Notes to Consolidated
Financial Statements for a further discussion of CDRs and the methodology for
estimating the CDR liability and the potential impact of the resolution of
Disputed Claims on liquidity. See Recent Developments for a discussion of the
Wells Fargo claim and its potential negative impact on future distributions. See
Risk Factors--Impact of Disallowance of Disputed Claims on the Company's
Obligation To Make Payments in Respect of Contingent Distribution Rights and
Impact of Reconsideration and Potential Allowance of Newly Filed Claims or Late
Filed Claims or Previously Disallowed Claims.
Risk Factors Relating to the Company
The following risk factors and other information included in this Quarterly
Report on Form 10-Q should be carefully considered. The risks and uncertainties
described below are not the only ones the Company confronts. Additional risks
and uncertainties not presently known or currently deemed immaterial also may
impair the Company's business operations and the implementation of the Plan. If
any of the following risks actually occurs, the Company's business, financial
condition, operating results and the implementation of the Plan could be
materially adversely affected.
Uncertainties Relating to the Bankruptcy Plan
The results of the Company's operations may be affected by (i) the
reluctance of customers and third parties to do business with a company recently
emerged from bankruptcy proceedings; (ii) the ability of the Company to retain
employees; (iii) limitations imposed by the Plan's focus on the orderly run-off
or sale of assets; and (iv) third party competitive pressures.
In addition, the Company has incurred and will continue to incur
significant costs associated with its reorganization and implementation of the
Plan. The amount of these costs, which are being expensed as incurred, are
expected to have a significant adverse affect on the results of operations.
Inherent Uncertainty of Limited Business Plan
The Company's post-bankruptcy business plan is limited to an orderly
run-off or sale of its remaining assets. Pursuant to the Plan and restrictions
contained in its certificate of incorporation, the Company is specifically
prohibited from engaging in any business activities inconsistent with its
limited business plan. This business plan is based on numerous assumptions
including the anticipated future performance of the Company in running off its
operations, the time frame for the run-off, general business and economic
conditions, and other matters, many of which are beyond the control of the
Company and some of which may not materialize. As a result, the Company's
ability to effectively implement this business plan is inherently uncertain. In
addition, unanticipated events and circumstances occurring subsequent to the
date of this Quarterly Report may affect the actual financial results of the
Company's operations.
Uncertainties Relating to the Wind-down of Operations
The Company has reduced the size and complexity of its organizational and
systems infrastructure concurrently with the monetization of its assets. The
success of the Company's continuing wind-down of operations and implementation
of the Order entered by the Bankruptcy court on April 15, 2004 is dependent on
numerous factors, including the timing and amount of cash received from the
monetization of its assets, the resolution of the remaining Disputed Claims, the
ability of the disbursing agent to fulfill the positions of the current Board of
Directors and executive officers and the ability of the Company to effectively
consolidate its management structure and maintain its operations with limited
personnel.
-35-
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 Contingent Distribution Rights in
the manner and priorities set forth in the Plan. Because of the composition and
nature of its asset portfolios, the Company expects to generate funds from the
sale or run-off of its asset portfolios at a decreasing rate over time. The
Company has material restrictions on its ability, and does not expect 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 Contingent
Distribution Rights 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.
Impact of Reconsideration and/or Allowance of Newly Filed Claims, Late
Filed Claims or Previously Disallowed Claims
The reconsideration and/or allowance by the Bankruptcy court of newly filed
claims, late filed claims, or previously disallowed claims, in full or in part,
may negatively impact future distributions.
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.
-36-
Current Market Conditions Have Made It Difficult and May Continue to Make
it Difficult for the Company To Timely Realize on the Value of its Warrant and
Equity Securities (collectively, "Equity Securities")
Current market conditions have adversely affected, and may 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 the Company's Equity
Securities. Additionally, the public market for high technology and other
emerging growth companies is extremely volatile. Such volatility has adversely
affected, and may continue to adversely affect, the ability of the Company to
realize value from its Equity Securities. Exacerbating these conditions is the
fact that the Equity Securities 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
sell its Equity Securities. As a result, the Company, or Windspeed on behalf of
the Company, may not be able to generate gains or receive proceeds from the sale
of Equity Securities and the Company's business and financial results may
suffer. Additionally, liquidation preferences may continue to be offered by
companies in the Company's portfolio to parties willing to lend to such
companies. The liquidation preferences have had, and may continue to have, an
adverse impact on the value of the Company's Equity Securities. For those Equity
Securities without a public trading market, the realizable value of the
Company's Equity Securities 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 future cash flow.
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.
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 Contingent
Distribution Rights. Holders of the Company's Contingent Distribution Rights
may, therefore, have difficulty selling their Contingent Distribution Rights,
should they decide to do so. In addition, there can be no assurances that such
markets will continue or that any Contingent Distribution Rights which may be
purchased may be sold without incurring a loss. Any such market price of the
Contingent Distribution Rights may not necessarily bear any relationship to the
Company's book value, assets, past operating results, financial condition or any
other established criteria of value, and may not be indicative of the market
price for the Contingent Distribution Rights in the future. Further, the market
price of the Contingent Distribution Rights may be volatile depending on a
number of factors, including the status of the Company's business performance,
industry dynamics, news announcements or changes in general economic conditions.
Other
Other uncertainties include general business conditions, ability to sell
assets, reductions in technology budgets and related spending plans and the
impact of workforce reductions on the Company's operations.
-37-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change during the six months ended March 31,
2004 from the disclosures about interest rate and market risk provided in the
Company's Annual Report on Form 10-K for the year ended September 30, 2003. See
Note 7 of Notes to Consolidated Financial Statements for a discussion of the
changes in and the realization of gains on the Company's holding of iPass common
stock.
The Company's exposure to the risk of future currency exchange rate
fluctuations, which is accounted for as an adjustment to stockholders' equity
until realized, has been significantly reduced since September 30, 2003 as a
result of the acceptance by the Company of a discounted prepayment by
Comprendium Investments S.A. on March 31, 2004 of the four remaining payments
due from the sale of the German Leasing Subsidiary and the subsequent
repatriation in April 2004 of the funds received. See Note 4 of Notes to
Consolidated Financial Statements and "Management's Discussion and
Analysis--Recent Events". On April 29, 2004, the Company's exposure to the risk
of future currency exchange rate fluctuations was further reduced by the
completion of a mid-term off-lease sale with Cable & Wireless Plc for all
equipment on lease as of March 31, 2004. See Management's Discussion and
Analysis--Recent Events".
Item 4. Controls and Procedures
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.
Internal Controls Over Financial Reporting
During the fiscal quarter to which this report relates, the Company
reengineered its business processes to be consistent with a more simplified
alternative information system. Management documented and tested key process
workflows and related internal controls. The results of these assessments
evidenced that there have not been any changes to the Company's internal
controls over financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15 (f) under the Exchange Act) during the fiscal quarter to which this
report relates that have materially affected, or are reasonably likely to
materially effect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
{a} Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.1 Certificate of Incorporation of Registrant dated August 8, 2002
(Incorporated by reference to Exhibit 3.1 filed with the
Company's Annual Report of Form 10-K dated September 30, 2002,
as filed with the Commission on January 14, 2003, File No.
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)
10.1 Amended and Restated Limited Liability Company Agreement of
Comdisco Ventures Fund A, LLC, dated as of February 20, 2004,
by and among Comdisco, Inc., Windspeed Acquisition Fund GP, LLC
and Comdisco Ventures Fund G, LLC
(Incorporated by reference to Exhibit 99.1 filed with the
Company's Current Report on Form 8-K dated February 23, 2004,
as filed with the Commission on February 23, 2004, File No.
0-49968)
10.2 Limited Liability Company Agreement of Comdisco Ventures Fund
B, LLC, dated as of February 20, 2004, by and among Comdisco,
Inc., Windspeed Acquisition Fund GP, LLC and Windspeed
Acquisition Fund, L.P.
(Incorporated by reference to Exhibit 99.2 filed with the
Company's Current Report on Form 8-K dated February 23, 2004,
as filed with the Commission on February 23, 2004, File No.
0-49968)
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11.1 Statement re computation of per share earnings
(filed herewith).
31.1 Certificate of Chief Executive Officer Pursuant to Rule 13a-14
and Rule 15d-14 of the Exchange Act, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certificate of Principal Financial Officer Pursuant to
Rule 13a-14 and Rule 15d-14 of the Exchange Act, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
32.1 Certification of 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 (filed herewith).
{b} Reports on Form 8-K
Since the beginning of the second quarter of fiscal 2004, the Company filed
the following current reports:
On January 8, 2004, the Company filed a Current Report on Form 8-K, dated
January 7, 2004. Pursuant to Items 9 and 12 of its Report, the Company reported
that it had issued a press release on January 7, 2004 announcing the sale to
Marathon Structured Finance Fund, Ltd. of the Company's participation interest
in certain Agere Systems, Inc. lease payments. The Report furnished the press
release as an exhibit pursuant to Item 12.
On February 13, 2004, the Company filed a Current Report on Form 8-K dated
February 13, 2004. Pursuant to Item 5 of its Report, the Company reported that
it had issued a press release on February 13, 2004 announcing a cash payment of
$.0187 per right on its CDRs, payable on March 4, 2004 to CDR holders of record
on February 23, 2004. The aggregate payment of approximately $2.8 million was
primarily an incremental payment related to the amended present value of
distributions to the initially allowed general unsecured creditors in the
bankruptcy estate of Comdisco, Inc. disclosed in a Form 8-K/A filed with the SEC
on December 16, 2003. The Report added the press release as an exhibit pursuant
to Item 7.
On February 18, 2004, the Company filed a Current Report on Form 8-K dated
February 17, 2004. Pursuant to Item 9 of its Report, the Company reported that
it had filed with the Bankruptcy court the Motion for an order in furtherance of
its Plan seeking authority to appoint a disbursing agent, prior to August 12,
2004, to fulfill the roles of the Board of Directors and executive officers of
the Company, to file a certificate of dissolution and to take such other
measures as are necessary to complete the administration of the reorganized
debtors' Plan and chapter 11 cases. The Report furnished the press release and
the Motion as exhibits pursuant to Item 9.
On February 23, 2004, the Company filed a Current Report on Form 8-K dated
February 23, 2004. Pursuant to Item 5 of its Report, the Company reported that
its subsidiary, Comdisco, Inc., had entered into agreements with Windspeed
Acquisition Fund GP, LLC ("Windspeed") for the ongoing management and
liquidation of Comdisco Ventures, Inc.'s warrant and equity investment
portfolio. The Report added the Amended and Restated Limited Liability Company
Agreement of Comdisco Ventures Fund A, LLC, dated as of February 20, 2004, by
and among Comdisco, Inc., Windspeed and Comdisco Ventures Fund B, LLC; the
Limited Liability Company Agreement of Comdisco Ventures Fund B, LLC, dated as
of February 20, 2004, by and among Comdisco, Inc., Windspeed and Windspeed
Acquistion Fund, L.P.; and the press release as exhibits pursuant to Item 7.
-40-
On March 2, 2004, the Company filed a Current Report on Form 8-K dated
March 2, 2004. Pursuant to Item 9 of its Report, the Company reported that it
had prepared a Report to Stakeholders and was currently in the process of
distributing the Report to Stakeholders to holders of its common stock and
contingent distribution rights, holders of disputed claims remaining in the
bankruptcy and certain other interested parties. The Report furnished the letter
from Ronald C. Mishler that was included in the Report to Stakeholders as an
exhibit pursuant to Item 9.
On April 13, 2004, the Company filed a Current Report on Form 8-K dated
April 13, 2004. Pursuant to Item 5 of its Report, the Company reported that it
had issued a press release announcing the discounted prepayment by Comprendium
Investments S.A. of the remaining payments due from the sale of the company's
German leasing subsidiary. The Report added the press release as an exhibit
pursuant to Item 7.
On April 16, 2004, the Company filed a Current Report on Form 8-K dated
April 16, 2004. Pursuant to Item 5 of its Report, the Company reported that the
Bankruptcy court entered an order (the "Order") granting the Motion. Also
pursuant to Item 5 of its Report, the Company reported that on April 16, 2004,
the company had issued a press release announcing that its Board of Directors
had declared a cash dividend of $11.50 per share on the outstanding shares of
its Common Stock, payable on May 6, 2004 to common stockholders of record on
April 26, 2004. The Company also announced that it would make a cash payment of
$.0781 per right on its CDRs, payable on May 6, 2004 to CDR holders of record on
April 26, 2004. The Report added the press release as an exhibit pursuant to
Item 7.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMDISCO HOLDING COMPANY, INC.
Dated: May 14, 2004 By: /s/ David S. Reynolds
--------------------------
Name: David S. Reynolds
Title: Senior Vice President
and Controller
(Principal Financial Officer)
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