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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 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.)
5600 North River Road
Rosemont, Illinois 60018
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (847) 698-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
--------------------- -----------------------------------------
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
- -------------------------------------------------------------------------------
Common Stock, par value $0.01 per share
Contingent Distribution Rights
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No |_|
The aggregate market value of common stock held by non-affiliates of the
registrant was approximately $40 million based on its closing price per share
of $37.00 on March 31, 2004. On March 31, 2004, there were 4,197,100 shares of
common stock outstanding. Shares of common stock held by each officer and
director and each shareholder who owned 5 percent or more of the outstanding
common stock at that time have been excluded in that such persons may be deemed
affiliates. The determination of affiliate status is not necessarily a
conclusive determination for other purposes.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |X| No |_|
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title of Each Class Number of Shares Outstanding at December 1, 2004
- -------------------- ------------------------------------------------
Common Stock, par value 4,168,319
$0.01 per share
DOCUMENTS INCORPORATED BY REFERENCE: NONE
================================================================================
COMDISCO HOLDING COMPANY, INC.
2004 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS..............................................................3
ITEM 2. PROPERTIES...........................................................11
ITEM 3. LEGAL PROCEEDINGS....................................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES....................13
ITEM 6. SELECTED FINANCIAL DATA..............................................14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.............................................66
ITEM 9A. CONTROLS AND PROCEDURES..............................................66
ITEM 9B. OTHER INFORMATION ...................................................66
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................67
ITEM 11. EXECUTIVE COMPENSATION...............................................69
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLER MATTERS ......................................73
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................74
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES...............................75
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......77
SIGNATURES....................................................................79
CERTIFICATIONS
2004 ANNUAL REPORT ON FORM 10-K
PART I
Disclosure Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains, and our periodic filings with the
Securities and Exchange Commission (the "SEC") and written and oral statements
made by the Company's officers and directors to press, potential investors,
securities analysts and others, will contain, forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and
the Company intends that such forward-looking statements be subject to the safe
harbors created thereby. These forward-looking statements are not historical
facts, but rather are predictions and generally can be identified by use of
statements that include phrases such as "believe," "expect," "anticipate,"
"estimate," "intend," "plan," "foresee," "looking ahead," "is confident,"
"should be," "will," "predicted," "likely" or other words or phrases of similar
import. Similarly, statements that describe or contain information related to
matters such as our intent, belief, or expectation with respect to financial
performance, claims resolution under the Plan (as defined below), cash
availability and cost-cutting measures are forward-looking statements. These
forward-looking statements often reflect a number of assumptions and involve
known and unknown risks, uncertainties and other factors that could cause our
actual results to differ materially from those currently anticipated in these
forward-looking statements. In light of these risks and uncertainties, the
forward-looking events might or might not occur, which may affect the accuracy
of forward-looking statements and cause the actual results of the Company to be
materially different from any future results expressed or implied by such
forward-looking statements.
Important factors that could cause actual results to differ materially from
those suggested by these written or oral forward-looking statements, and could
adversely affect our future financial performance, include the risk factors
discussed in Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operation, below. Many of the risk factors that could affect the
results of the Company's operations are beyond our ability to control or
predict.
Available Information
The Company's website address is www.comdisco.com. The Company makes
available through its website its Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports,
as soon as reasonably practicable after such material is electronically filed
with the SEC. The Company also makes available through the website its press
releases, the Code of Conduct Applicable to its Chief Executive Officer and
Authorized Representatives, the Employee Code of Conduct, the Audit Committee
Charter and the Compensation Committee Charter, as well as contact information
for the Audit Committee and an employee hotline number. Information contained on
the Company's website is not intended to be part of this Annual Report on Form
10-K.
ITEM 1. BUSINESS
THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12,
2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO
MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO
THE COMPANY'S FIRST AMDENDED JOINT 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. THE COMPANY FILED ON AUGUST 12, 2004 A CERTIFICATE
OF DISSOLUTION WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE TO FORMALLY
EXTINGUISH COMDISCO HOLDING COMPANY, INC.'S CORPORATE EXISTENCE WITH THE STATE
OF DELAWARE EXCEPT FOR THE PURPOSE OF COMPLETING THE WIND-DOWN CONTEMPLATED BY
THE PLAN.
AS A RESULT OF THE REORGANIZATION AND THE IMPLEMENTATION OF FRESH-START
REPORTING, AS FURTHER DESCRIBED HEREIN, THE COMPANY'S RESULTS OF OPERATIONS
AFTER JULY 31, 2002 ARE NOT COMPARABLE TO RESULTS REPORTED IN PRIOR PERIODS FOR
COMDISCO, INC.
In this Annual Report on Form 10-K, references to "the Company," "Comdisco
Holding," "we," "us" "our" and "Successor" mean Comdisco Holding Company, Inc.
and its consolidated subsidiaries. All references to "Comdisco, Inc." and
"Predecessor" mean Comdisco, Inc. and its subsidiaries, other than the Prism (as
defined below) entities, prior to the Company's emergence from bankruptcy on
August 12, 2002, except where the context indicates otherwise.
General Development of Business
Wind-Down of Operations
Since emerging from bankruptcy proceedings on August 12, 2002, the Company
has, pursuant to the Plan, focused on the monetization of its remaining assets.
The Company's asset base has decreased by approximately 92 percent to $198
million at September 30, 2004 from $2.341 billion at September 30, 2002, and has
decreased by 47 percent from $373 million at September 30, 2003. At September
30, 2004, assets other than cash and cash equivalentes were approximately $31
million, primarily equity securities ($14 million) and leased assets ($8
million, including discontinued operations). Total revenue and net cash provided
by operating activities have decreased by 64 percent and 88 percent,
respectively, in the current year compared to the prior year. 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 December 1, 2004, the Company had a total
of 16 employees, a decrease of approximately 97 percent from approximately 600
employees upon emergence from bankruptcy proceedings on August 12, 2002.
Reorganized Corporate History
On July 16, 2001, Comdisco, Inc. and fifty of its domestic subsidiaries
filed voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Northern District
of Illinois Eastern Division (the "Bankruptcy Court") (consolidated case number
01-24795). Comdisco Holding Company, Inc., as the successor company to Comdisco,
Inc., emerged from bankruptcy under the Plan that became effective on August 12,
2002. Prior to the effective date of the Plan, Comdisco, Inc. formed Comdisco
Holding Company, Inc., a Delaware corporation (the "Company" or "Comdisco
Holding"), and Comdisco Holding, in turn, formed Comdisco Leasing Merger
Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of
Comdisco Holding. On August 12, 2002, in accordance with the Plan, Comdisco
Leasing Merger Subsidiary, Inc. merged with and into Comdisco, Inc. such that
Comdisco, Inc. emerged as the surviving corporation of the merger and a
wholly-owned subsidiary of Comdisco Holding. As a result of that merger,
Comdisco Holding became the successor to Comdisco, Inc. A copy of the Plan for
Comdisco, Inc., as well as other information related to distributions of cash
and securities pursuant to the Plan, can be found in a Current Report on Form
8-K filed on August 9, 2002 with the SEC by Comdisco, Inc. A copy of the Plan
was filed as an exhibit thereto.
Prior to the bankruptcy, Comdisco, Inc. provided technology services
worldwide to help its customers maximize technology functionality,
predictability and availability, while freeing them from the complexity of
managing their technology. Comdisco, Inc. leased information technology
equipment to a variety of industries and more specialized equipment to key
vertical industries, including semiconductor manufacturing and electronic
assembly, healthcare, telecommunications, pharmaceutical, biotechnology and
manufacturing. Through its Ventures group (as defined below), Comdisco, Inc.
provided equipment leasing and other financing and services to venture
capital-backed companies.
Implementation of the Plan resulted in the reorganization of Comdisco, Inc.
and its domestic and foreign subsidiaries into Comdisco Holding and three new
primary subsidiaries: (i) Comdisco Global Holding Company, Inc. (a direct
wholly-owned subsidiary of Comdisco Holding), which managed the sale and run-off
of the Company's reorganized European IT Leasing operations and assets; (ii)
Comdisco, Inc. (a direct wholly-owned subsidiary of Comdisco Holding), which
managed the sale and run-off of the Company's reorganized US Leasing operations
and assets (information technology and telecommunications leasing operations in
the US and Canada); and (iii) Comdisco Ventures, Inc. (a direct wholly-owned
subsidiary of Comdisco, Inc.), which managed the sale and run-off of the
Company's venture financing operations and assets ("Ventures"). The Company's
Corporate Asset Management, or CAM, group was responsible for the sale and
run-off of certain corporate and leasing assets held by Comdisco Global Holding
Company, Inc., Comdisco, Inc. and their subsidiaries that remained after certain
pre-emergence bankruptcy asset sales. The CAM group's operations were managed
through Comdisco, Inc. Implementation of the Plan also resulted in the
reorganization of Prism Communication Services, Inc. and its subsidiaries
("Prism"); as a consequence, Prism became a direct wholly-owned subsidiary of
Comdisco Domestic Holding Company, Inc., which is itself a direct wholly-owned
subsidiary of Comdisco, Inc. The assets of the Prism entities have been
liquidated and the proceeds realized from such liquidation were distributed to
creditors of Prism in accordance with the Plan. The Prism estates were closed by
order of the Bankruptcy court on February 26, 2004.
General Terms of the Plan of Reorganization
As more fully described in the Plan, the Company's business purpose is
limited to the orderly sale or run-off of all of its remaining assets. Pursuant
to the Plan and restrictions contained in its certificate of incorporation, the
Company is specifically prohibited from engaging in any business activities
inconsistent with its limited business purpose.
Approximately $10.745 billion in claims were initially filed in the
Comdisco, Inc. bankruptcy case. By the date of the initial distribution under
the Plan on September 30, 2002, the claims amount was reduced to approximately
$4.4 billion. The $4.4 billion claims amount consisted of $3.9 billion in
Allowed Claims (as defined below), of which $3.628 billion were Allowed Class
C-3 Claims and Allowed Class C-4 Claims, $285 million were Allowed Class
C-1 Claims and $450 million was the estimated amount of claims that were
unresolved (the "Disputed Claims"). A claim is deemed allowed by the Bankruptcy
Court when it is resolved and settled pursuant to the Plan or court order (an
"Allowed Claim").
From the initial distribution through the date of this filing, Allowed
Claims increased by $92 million from $3.628 billion to $3.720 billion due to
additional Class C-3 and C-4 claims being allowed subsequent to the initial
distribution. No additional Class C-1 claims have been allowed. From the initial
distribution through the date of this filing, the estimated amount of Disputed
Claims has, through the allowance of $92 million and the disallowance of $154
million, decreased to approximately $204 million. At December 1, 2004, the
Disputed Claims Reserve (as defined below) consisted of approximately $207
million in cash and approximately 218,000 shares of Common Stock.
In very general terms, the Plan contemplates six different classes of
claims against the Comdisco, Inc. bankruptcy estate:
o "Class C-1" Claims. This class is comprised of secured claims against
Comdisco, Inc.
o "Class C-2" Claims. This class is comprised of certain priority claims
against Comdisco, Inc., but does not include Administrative Claims or
Priority Tax Claims (as each are defined in the Plan) although such
claims do have the same priority as Class C-2 Claims.
o "Class C-3" Claims. This class is comprised of general unsecured
convenience claims against Comdisco, Inc. that were $15,000 or less
and claims in excess of $15,000, but whose holder elected to reduce
his or her claims to $15,000 in the aggregate and have the reduced
single claim reclassified as a general unsecured convenience claim.
o "Class C-4" Claims. The largest class of claims against the Comdisco,
Inc. bankruptcy estate, this class is comprised of general unsecured
claims other than Class C-3 Claims and includes holders of Comdisco,
Inc. notes, bonds, credit lines and other trade debt.
o "Class C-5A" Claims. This class is comprised of equity claims,
consisting of holders of shares of Comdisco, Inc. common stock and
other "Interests" as defined in the Plan. All shares of common stock
of Comdisco, Inc. were cancelled on August 12, 2002 in accordance with
the Plan.
o "Class C-5B" Claims. This class is comprised of subordinated claims
against Comdisco, Inc.
The Plan provides that holders of Allowed Class C-1 Claims, Allowed Class
C-2 Claims, Administrative Claims and Priority Tax Claims will be unimpaired.
Class C-1 Claims primarily relate to discounted lease rentals where the Company
generated cash proceeds by selling the future rental payments for specific
domestic lease contracts on a non-recourse basis. As these rental payments are
collected from our customers, they are remitted to holders of claims related to
the discounted lease rentals in the ordinary course of business. As of the date
of this filing, the three remaining Class C-1, Class C-2 Claims or
Administrative Claims and Priority Tax Claims will be resolved in association
with a separately filed Class C-4 claim.
On August 12, 2002, pursuant to the Plan, the Company, along with its
direct wholly-owned subsidiary, Comdisco, Inc., co-issued variable rate senior
secured notes due 2004 (the "Senior Notes") in the principal amount of $400
million and 11 percent subordinated secured notes due 2005 (the "Subordinated
Notes") in the principal amount of $650 million. Further, on September 30, 2002,
the Company issued 4.2 million shares of common stock, $0.01 par value per share
(the "Common Stock").
On September 30, 2002, the Company made an initial distribution to holders
of Allowed Class C-3 and Class C-4 Claims based upon an aggregate allowed amount
of approximately $3.628 billion. As part of the initial distribution, Allowed
Claims for Class C-3 creditors were paid in cash at the rate of approximately
89.8 percent of the allowed amount of their claims. Allowed Claims for Class C-4
creditors received a distribution valued on the date of initial distribution at
89.8 percent of the allowed amount of their claims comprised of cash equal to
approximately 55 percent of their Allowed Claims, and pro rata shares of the
Senior Notes, Subordinated Notes, new Common Stock of the Company and rights to
the Trust Assets (as defined below). In addition, Allowed Claims for Class C-5A
received contingent distribution rights ("CDRs") that entitle holders to share
at increasing percentages in the proceeds realized from the monetization of the
Company's assets based upon the present value of distributions made to the
general unsecured creditors in the bankruptcy estate of Comdisco, Inc. If and
when any Class C-5B claims are allowed, holders of such Allowed Claims also will
receive CDRs. Pursuant to a Bankruptcy court order dated March 17, 2003,
approximately 8.1 million CDRs, and any distributions relating to these rights,
are being held by the Company's transfer agent pending resolution of the Class
C-5A and the Class C-5B claims. No Class C-5B claims have been allowed to date.
Additional information on the CDRs can be found in a Registration Statement on
Form 8-A filed by the Company on August 12, 2002 with the SEC and in the section
entitled "Contingent Distribution Rights" in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Approximately $1.347 billion of outstanding claims as of the initial
distribution were Disputed Claims. Pursuant to the Plan, the Company established
a reserve for Disputed Claims in the amount of $450 million (the "Disputed
Claims Reserve"), which was funded based upon a Bankruptcy court order granting
authority to Comdisco, Inc. to estimate certain claims. The Disputed Claims
Reserve was established to fund a claim once the claim is deemed an Allowed
Claim so long as funds are available in the Disputed Claims Reserve. The process
of resolving the Disputed Claims is ongoing. If a Disputed Claim is not settled
consensually, it will ultimately be heard and determined by the Bankruptcy
court. The Company cannot predict with accuracy when the claims resolution
process will be completed or what the total amount of Allowed Claims will be
upon completion. Payments and distributions from the Disputed Claims Reserve
have been made as appropriate to the holder of any Disputed Claim that has
become an Allowed Claim, on the next Quarterly Distribution Date (as defined in
the Plan) after the date the Disputed Claim becomes an Allowed Claim. Such
distributions are based upon the cumulative distributions that would have been
made to the holder of such a claim under the Plan if the Disputed Claim had been
allowed on the Effective Date (as defined by the Plan) and are not limited by
the Disputed Claim amounts previously reserved with respect to such Disputed
Claim to the extent that additional amounts are available in the Disputed Claims
Reserve. On each Quarterly Distribution Date, the Disputed Claims Reserve is
reduced by an amount equal to the amount reserved with respect to each Disputed
Claim that has been resolved during the period. To the extent the amount
reserved for the Disputed Claim exceeds the allowed amount, if any, of the
claim, the remainder shall be distributed to holders of Class C-4 Claims that
have been allowed in accordance with the provisions of the Plan.
The Plan further provides that, under certain circumstances, subrogation
rights that the Company may have against senior managers (the "SIP
Participants") who participated in Comdisco, Inc.'s Shared Investment Plan
("SIP") be placed in a trust for the benefit of creditors (the "Trust Assets").
In February 1998, pursuant to the SIP, the SIP Participants took out full
recourse, personal loans to purchase approximately six million shares of
Comdisco, Inc.'s common stock. In connection therewith, Comdisco, Inc. executed
a guaranty dated February 2, 1998 (the "Guaranty") providing a guaranty of the
loans in the event of default by the SIP Participants to the lenders under the
SIP (the "SIP Lenders"). On November 29, 2001, the SIP Lenders filed a master
proof of claim in the Comdisco, Inc. bankruptcy in the amount of $133 million
("SIP Guaranty Claim"). On July 29, 2002, the Company filed an objection to the
SIP Guaranty Claim asserting various arguments in support of its defense against
the SIP Guaranty Claim. On November 20, 2003, the Bankruptcy court entered a
Final Order allowing the SIP Guaranty Claim for $104 million in principal, $26
million in pre-petition interest, $2 million in breakage losses and legal fees
in an amount to be determined. The Bankruptcy court had previously ruled that
the Company did not have the appropriate legal standing to assert a regulatory
margin violation. The Company appealed the Final Order and ruling. However, the
Company and the SIP Lenders subsequently reached a settlement that was approved
by the Bankruptcy court on December 9, 2004. Please see Wind-down of Operations:
Reduction in Disputed Claims for a summary of the terms of the settlement.
To the extent that the Company makes a payment or distribution to the SIP
Lenders, and as a result thereof obtains subrogation rights, whether by
operation of law, by agreement with the SIP Lenders or otherwise, such
subrogation rights may become part of the Trust Assets. Pursuant to the Plan,
the Company was authorized to provide various levels of relief (the "SIP
Relief") to the SIP Participants on account of any subrogation claims which the
Company may have against the SIP Participants. On November 27, 2002, the
Bankruptcy court approved the offering by the Company of enhanced SIP Relief of
70 percent to seventy-two terminated employees and 80 percent to twenty-three
go-forward employees who remained with the Company following its emergence from
bankruptcy, provided that such employees executed waivers and releases in favor
of the Company, made irrevocable and unconditional agreements to pay their
unreleased SIP Subrogation Claims (as defined in the Plan) and fulfilled certain
other conditions. The enhanced SIP Relief offer generally expired on December
31, 2002 and five of seventy-two terminated employees and twenty-one of
twenty-three go-forward employees have executed a Waiver, Release And Agreement
to pay and provided additional documentation in support of the fulfillment of
certain other conditions. On December 13, 2004, Comdisco offered a New SIP
Relief proposal to those SIP Participants that had not accepted the SIP Relief
previously offered by Comdisco. The New SIP Relief was subject to approval by
the Bankruptcy court and requires that the SIP Participants pay 20% of an
adjusted amount (based on a standardized formula) of their respective obligation
under the SIP Notes. SIP Participants with financial hardship may be eligible
for additional relief and Comdisco will engage a debt reconciliation company to
work with it and such SIP Participants. Subject to Comdisco's discretion, if
less than 40% of the SIP Participants to whom the New SIP Relief is proposed
accept it, then Comdisco will not be obligated to offer it to any such SIP
Participant or to seek Bankruptcy court approval.
In regard to Prism and its subsidiaries, Comdisco, Inc. had intercompany
secured claims against Prism that exceeded the value of the assets of Prism.
Pursuant to the Plan, Comdisco, Inc. reduced its Allowed Claims against the
Prism entities to no more than one-third of the total distribution to Prism
creditors. The assets of the Prism entities have been liquidated and the
proceeds realized from such liquidation were distributed to creditors of Prism
in accordance with the Plan.
Changes in Management
On 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. A copy of the Motion was furnished 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, CDRs, and
Disputed Claims remaining in the bankruptcy and also certain other interested
parties.
Pursuant to and in furtherance of the Order, on August 12, 2004, the
following occurred:
o The officers of the Company, including Ronald C. Mishler who had served as
Chairman, Chief Executive Officer and President of the Company since August
2002, resigned their respective officer positions.
o The Board of Directors appointed Randolph I. Thornton, as Chief Executive
Officer, President and Secretary of Comdisco Holding Company, Inc.
o The Company filed a Certificate of Amendment to the Certificate of
Incorporation of Comdisco Holding Company, Inc. (the "Certificate") with
the State of Delaware amending the Company's Certificate to provide for a
Board of Directors consisting of one member.
o Four of the five individuals serving on the Board of Directors (Ronald C.
Mishler (chairman), Jeffrey A. Brodsky, Robert M. Chefitz and William A.
McIntosh) resigned their position as Directors. Randolph I. Thornton did
not resign and continues as the sole director.
o Randolph I. Thornton's appointment as Initial Disbursing Agent became
effective. As Initial Disbursing Agent, he assumed the roles and
responsibilities performed by the former Board of Directors and officers of
the Company, including all measures which are necessary to complete the
administration of the reorganized debtors' Plan and Chapter 11 cases.
On August 12, 2004, Randolph I. Thornton appointed Lloyd J. Cochran, Robert
E. T. Lackey, David S. Reynolds and Caroline Walters and two other individuals
as authorized representatives of the Company. These individuals derive their
authority from Mr. Thornton as sole director and officer of the Company and the
named individuals report directly to him.
Filing of Certificate of Dissolution
Pursuant to and in furtherance of the Order, the Company filed on August
12, 2004 a Certificate of Dissolution with the Secretary of State of the State
of Delaware to formally extinguish Comdisco Holding Company, Inc.'s corporate
existence with the State of Delaware except for the purpose of completing the
wind-down contemplated by the Plan.
Sales of Assets
See Note 5 of Notes to Consolidated Financial Statements for information on
the sale of assets by the Company during the three-year period ended September
30, 2004. See section Narrative Description of Business (below), for a
discussion of the Company's principal business segments after emergence.
Discontinued Operations
As a result of the asset sales described in Note 5 of Notes to Consolidated
Financial Statements, the Australian, New Zealand, Austrian, French and Swiss
(collectively, "International Leasing"), German ("German Leasing Subsidiary")
and US Leasing operations have been accounted for as discontinued operations,
and accordingly, amounts in the financial statements and related notes for all
historical periods shown have been restated to reflect the International
Leasing, German Leasing Subsidiary and US leasing operations as discontinued
operations.
Comdisco, Inc.'s Availability Solutions business was offered for sale in
the third quarter of fiscal 2001 and the sale was completed in the first quarter
of fiscal 2002. As a result of the sale, the Availability Solutions segment has
been accounted for as a discontinued operation, and accordingly, amounts in the
financial statements and related notes for all historical periods shown have
been restated to reflect Availability Solutions as a discontinued operation.
On October 1, 2000, Comdisco, Inc. ceased funding Prism and, as a result,
Prism began winding down its operations. The assets of the Prism entities have
been liquidated and the proceeds realized from such liquidation were distributed
to creditors of Prism in accordance with the Plan and the estates closed. As a
result, Prism has been accounted for as a discontinued operation, and
accordingly, amounts in the financial statements and related notes for all
historical periods shown have been restated to reflect Prism as a discontinued
operation.
Financial Information about Segments
As a result of the substantial wind-down of operations, the declaration of
End of Term for purposes of each business units' management incentive plan and
the consolidation of the management structure, the Company believes that
business segment results have become substantially irrelevant and, accordingly,
the Company has consolidated its business units and has ceased to report
independent business segment results.
Narrative Description of Business
General
Since the Company emerged from Chapter 11 bankruptcy proceedings on August
12, 2002, the Company's business activities have been limited to the orderly
sale or run-off of all of its existing asset portfolios. Pursuant to the Plan
and restrictions contained in its certificate of incorporation, the Company is
specifically prohibited from engaging in any business activities inconsistent
with its limited business purpose. Since emerging from bankruptcy, the Company
has not engaged in any new leasing or financing activities, except for
previously existing customer commitments and to restructure existing equipment
leases and loans to maximize the value of the Company's assets.
Management Incentive Compensation Plans and End of Term Designation
Following the Company's emergence from bankruptcy on August 12, 2002, the
Company's operations were reorganized into four reportable business units.
These business units were: (i) US Leasing, which included leasing operations in
the US and Canada and was managed by Comdisco, Inc.; (ii) European IT Leasing,
which was managed by Comdisco Global Holding Company, Inc.; (iii) Ventures,
which was managed by Comdisco Ventures, Inc.; and (iv) the Corporate Asset
Management group ("CAM group"). The Company's CAM group was 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 were managed through
Comdisco, Inc. For business segment reporting purposes, the CAM group also
included various corporate assets and liabilities managed by Comdisco Holding
Company, Inc. corporate staff.
Each of the business units' management teams participated in Bankruptcy
court-approved Compensation Plans. While the award opportunities differed for
each of these units, the management incentive plan ("MIP"), as a whole, was
intended to provide adequate compensation for retention of key employees and an
incentive to maximize the value of each business unit's assets for the benefit
of all stakeholders. The MIP included two components: Semiannual Performance
Bonuses and Upside Sharing opportunities for specified employees. For purposes
of the Upside Sharing plans, the Board of Directors determined that the business
units had substantially completed their business unit objectives and declared
End of Term (as defined in the Compensation Plans) for US Leasing as of May 31,
2004 and for Comdisco Ventures and CAM group as of April 30, 2004 and authorized
payments to be made to participants in the respective business unit's Upside
Sharing Plan. Payments to eligible participants in US Leasing were made in July
2004. Payments to eligible participants for Comdisco Ventures and the CAM group
were completed in June 2004. The European IT Leasing unit's compensation plan
did not include an Upside Sharing component. In June 2004, the Board of
Directors approved, and the Company made, an advance corporate Upside Sharing
payment of $2.7 million to Mr. Mishler.
Principal Business Segments (From Emergence through June 30, 2004)
The Company's operations are primarily conducted through its principal
office in Rosemont, Illinois. Until the sale of assets to Bay4 Capital Partners,
Inc., ("Bay4") the US Leasing operations maintained various sales offices
located in North America. The assets remaining in Europe were managed through
two regional offices located in the Netherlands and the United Kingdom. All of
the Company's business segments had their own management teams, account
management operations and customer support personnel. Overall corporate control
and coordination was achieved through centralized policies and procedures,
financial reporting, cash management, legal services, additional customer
support and strategic planning.
The following is a narrative description of the US Leasing (which, for
financial reporting purposes, has been classified as discontinued operations at
September 30, 2004), European IT Leasing, Ventures and CAM business segments,
for which the Company reported results from emergence until consolidation in the
third quarter of fiscal 2004. The Company's Services business was substantially
sold prior to emergence.
US Leasing
Prior to the bankruptcy, the Company provided a variety of leasing products
and related services to its customers. These services included acquisition
management, expenditure tracking, asset tracking and reselling of third party
services. The rate and all other transaction terms were individually negotiated
with customers. The leased equipment was owned by the Company, which purchased
the equipment from a variety of manufacturers.
Substantially all equipment leases that the Company originated had
specified non-cancelable initial terms ranging from two to five years. The
general terms and conditions of all of its leases were substantially similar and
were embodied in a master lease agreement. For each lessee, the lease term, rent
interval, lease rate factor and other specific terms for each piece of leased
equipment were set forth on equipment schedules, which incorporated the terms
and conditions of its master lease agreement.
The Company bought, sold, leased and remarketed technology equipment made
by most of the leading manufacturers. Specifically, the Company leased PCs,
point of sale, server, enterprise, network, telecommunications and other
equipment. The Company's strategy for the distributed systems market was to
provide financing, asset management, reconditioning services and software tools
to its customers.
The Company offered a variety of leasing products to the marketplace and
often the leases were enhanced with service products for its customers. The
Company differentiated itself from competitors through a number of service
offerings tied into the assets on lease. For example, the Company's asset
management services included procurement, tracking, help desk and break/fix
services for the assets on lease.
See Note 5 of Notes to Consolidated Financial Statements for information
regarding the sale of US Leasing.
European IT Leasing
The European IT Leasing segment's operations, assets and business strategy
were substantially similar to those of the US Leasing segment. However, the
European IT Leasing segment offered a different variety of leasing products to
the marketplace than those of US Leasing. For example, the technology refresh
option product, offered primarily in Europe, involved long-term funding
commitments and allowed customers to reduce technology risk while maintaining a
predictable spending pattern.
Prior to bankruptcy, the Company's European IT Leasing operations were
conducted through its subsidiaries with multiple operations centers across
Europe. Today, European IT Leasing has substantially consolidated its operations
and the Company expects to close its only remaining office in the Netherlands
within the next six months.
See Note 5 of Notes to Consolidated Financial Statements for information
regarding the sale of certain European IT Leasing assets and subsidiaries.
Ventures
Prior to bankruptcy, the Ventures group structured financial relationships
specific to a company's needs and provided services specific to the company's
stage of development. The Ventures group served as a strategic financing source
to complement venture capital and commercial banking relationships and provided
a means for leveraging the equity capital invested.
The Ventures group invested in various stages of companies from seed stage
to pre-IPO companies and offered financing products that included leasing,
subordinated debt, secured debt (e.g., lines of credit, working capital), bridge
loans, expansion loans, acquisition financing, landlord guarantees, convertible
debt and equity.
The Ventures group provided venture leases, venture debt and direct equity
financing to venture capital-backed companies. Venture leases were leases with
warrants that were intended to compensate the Ventures group for providing
equipment leases with terms having lower periodic cash costs than leases without
warrants. Similarly, venture debt was a high-risk loan with warrants or a
conversion-to-equity feature with more flexible terms than more traditional debt
financing. Direct equity financings involved the Ventures group's purchase of
convertible preferred stock and common stock from its customers.
The Ventures group provided financing to companies providing Internet
services, and in industries that included software and computer services,
communications and networking, hardware, semiconductors, biotechnology and
medical devices, and others.
See Note 14 of Notes to Consolidated Financial Statements for information
on the ongoing management and liquidation of the Company's equity investments
from its Ventures' operations by Windspeed Acquisition Fund GP, LLC.
The Corporate Asset Management ("CAM") Group
CAM group was established as a separate business unit pursuant to the Plan,
operating as a division of Comdisco, Inc. CAM group's business purpose was
limited to the orderly sale or run-off of all of the remaining assets that it
managed. For business segment reporting purposes, the CAM group included various
corporate assets and liabilities managed by corporate staff. CAM managed a
diverse set of assets located globally including:
o management of the amounts due from buyers on certain portfolio sales
including performance based payments;
o management of the remaining assets for industry specific leasing
portfolios including assets located in North America, Europe and the
Pacific Rim;
o disposition of various corporate assets including real estate and
equity positions;
o the orderly liquidation of the network leasing portfolio; and
o the orderly liquidation of the Japanese and Mexican IT portfolios.
Substantially all equipment leases managed by CAM group had specified
non-cancelable initial terms ranging from two to five years. The general terms
and conditions of all of its leases were substantially similar and were embodied
in a master lease agreement. For each lessee, the lease term, rent interval,
lease rate factor and other specific terms for each piece of leased equipment
were set forth on equipment schedules, which incorporated the terms and
conditions of its master lease agreement.
Prior to the bankruptcy proceeding, the Company provided leasing and
remarketing, asset management and reconditioning services for industry specific
equipment including the following leasing groups:
o Electronics Group: The Company leased new and used electronic
manufacturing, testing and monitoring equipment, including
semiconductor production equipment, automated test equipment and
assembly equipment to customers globally. Additionally, the Company
maintained a dedicated refurbishing and sales facility in the Silicon
Valley area.
o Healthcare Group: The Company leased medical and other high technology
equipment to healthcare providers, including used reconditioned
medical equipment. The Company's portfolio included angiography, MRI
systems, CT scanners, nuclear imaging devices, test equipment such as
oscilloscopes, analyzers and testers and other medical equipment.
o Laboratory and Scientific Group: The Company assisted organizations in
the pharmaceutical, chemical, research, healthcare and biotechnology
industries through the implementation of an equipment life-cycle
management strategy for various laboratory and scientific equipment.
See Note 5 of Notes to Consolidated Financial Statements for information
regarding the sales of assets formerly managed by CAM.
Services
Prior to its sale to SunGard Data Systems,Inc. in November 2001, the
Company's Availability Solutions business provided web-hosting, including
production hosting, for both primary and alternate sites. These services
included multi-site protection of a customer's data, servers, network and
applications. The Company's Availability Solutions business offered continuous
web-availability to ensure a continuous web presence. Availability Solutions
also addressed the challenges of managing through peak demand periods via a
shared infrastructure service.
Prior to its sale to T-Systems Inc. in February 2002, the Company's IT CAP
Services business provided strategic solutions for desktop management services
to its customers to assist them in managing their information technology assets
with the objective of increasing productivity and reducing technology cost and
risk. The Company's integrated desktop management software tools allowed
customers to order, track and manage their inventory of distributed systems
equipment.
Single Business Segment (Post June 30, 2004)
As a result of the substantial wind-down of operations, the declaration of
End of Term for purposes of each business units' management incentive plan and
the consolidation of the management structure, the Company believes that
business segment results have become substantially irrelevant and, accordingly,
the Company has consolidated its business units and ceased to report independent
business segment results beginning with its quarterly report on Form 10-Q for
the quarter ended June 30, 2004.
Customers
Due to the Company's limited business purpose, the Company does not expect
to be dependent upon a single customer or group of customers to generate future
investment or revenue opportunities. However, the Company's assets are
concentrated in certain obligors and asset managers. A subsidiary of VarTec
Telecom Inc. ("VarTec") owes the Company $2.7 million in payments through
December 2005. VarTec filed for Chapter 11 bankruptcy protection in November
2004. In addition, the ongoing management and liquidation of the Company's
warrant and equity investment portfolio, with a net book value of approximately
$14 million at September 30, 2004, is handled by Windspeed Acquisition Fund GP,
LLC.
Competition
The Company's post-bankruptcy business purpose is limited to the orderly
sale or run-off of all of its remaining asset portfolios. Pursuant to the Plan
and restrictions contained in its certificate of incorporation, the Company is
specifically prohibited from engaging in any business activities inconsistent
with its limited business purpose.
Employees
On September 30, 2004, the Company had approximately 24 U.S. employees and
3 non-U.S. employees, for a total of 27 employees. On December 1, 2004, the
Company had a total of 16 employees. No employees are represented by a labor
union. The Company anticipates further reductions in its workforce.
Other
The Company does not own any patents, trademarks, licenses, franchises or
concessions that it considers to be material to the Company's businesses.
The Company's businesses are not seasonal; however, quarter-to-quarter
results from operations can vary significantly.
Because of the nature of the Company's business, the Company is not
required to carry significant amounts of inventory either for delivery
requirements or to assure continuous availability of goods from suppliers.
Financial Information about Geographic Areas
See Note 20 of Notes to Consolidated Financial Statements, which is
incorporated in this section by reference, for information about foreign and
domestic operations.
ITEM 2. PROPERTIES
On September 26, 2003, the Company announced the sale of its 287,000
square-foot headquarters building located at 6111 N. River Road in Rosemont,
Illinois for $19.3 million. The Company remained as a tenant in the building
through October 2004. The Company currently leases short-term furnished
executive office space for all of its operations at 5600 N. River Road in
Rosemont, Illinois.
The Company completed the sale of its Carlstadt property in November 2003
for approximately $2.2 million. In addition, the Company completed the sale of
its former Availability Solutions facility in Eching, Germany in March 2004 for
approximately $2.5 million. The only remaining property owned by the Company is
an 11,500 square foot day care facility adjacent to its former headquarters. The
day care facility, with an estimated fair market value of less than $750,000, is
offered for sale by the Company at this time.
Leased Properties
Effective October 31, 2004, the Company leases short-term furnished
executive office space for all of its operations in Rosemont, Illinois. The
terms of its rental agreement provide the Company with the ability to match its
actual leased space with its declining space requirements.
ITEM 3. LEGAL PROCEEDINGS
Bankruptcy Proceeding
On July 16, 2001, Comdisco, Inc. and fifty of its domestic subsidiaries
filed voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code in the Bankruptcy court to facilitate the restructuring of
Comdisco, Inc.'s debt, trade and other obligations. Comdisco, Inc. continued to
operate its business and manage its property as a debtor-in-possession subject
to the Bankruptcy Court's supervision and orders until the Plan was confirmed on
July 30, 2002 and became effective on August 12, 2002. The provisions of the
Plan are further described under Item 1, Business, of this Report and in a
Current Report on Form 8-K filed on August 9, 2002 with the SEC by Comdisco,
Inc. A copy of the Plan is also available on the Company's website. Since
emerging from bankruptcy, the Company has filed a number of motions with and
obtained orders from the Bankruptcy court, including, but not limited to,
motions and orders relating to payments due under the CDRs, the administration
of the Disputed Claims Reserve, administration of the claims resolution process
and the wind down of the operations of the Company.
Securities Litigation
On February 7, 2001, a purported class action complaint was filed in the
United States District Court for the Northern District of Illinois, Eastern
Division, against Comdisco, Inc., Nicholas K. Pontikes, and John J. Vosicky,
alleging violations of Section 10(b) and Section 20(a) of the Securities
Exchange Act of 1934, as amended. See Blitzer v. Comdisco, et al., No.
01-C-0874. Nicholas K. Pontikes is a former chief executive officer and director
of Comdisco, Inc.; John J. Vosicky formerly served as a director, executive vice
president, and chief financial officer of Comdisco, Inc. In addition, fourteen
other similar purported class action lawsuits were filed against Comdisco, Inc.,
Nicholas K. Pontikes, and John J. Vosicky in the United States District Court
for the Northern District of Illinois, Eastern Division. Those individual class
action lawsuits, along with the first-filed Blitzer case, were dismissed and the
complaints were combined into a single action, captioned In re: Comdisco
Securities Litigation, No. 01-C-2110.
In connection with the confirmation process for the Plan for Comdisco,
Inc., the lead plaintiff in the consolidated action agreed to dismiss the action
with respect to Comdisco, Inc., but maintained all rights, if any, against
Nicholas K. Pontikes, John Vosicky, and any person not released from liability
by the Plan. This resolution was made effective pursuant to a stipulation and
agreed order dated June 13, 2002.
On November 15, 2002, the lead plaintiff in the consolidated lawsuit filed
an Amended Class Action Complaint in the United States District Court for the
Northern District of Illinois, Eastern Division, Master File No. 01 C 2110
("Amended Complaint"). Neither the Company nor Comdisco, Inc. was named as a
defendant in the Amended Complaint, which included claims against only Nicholas
K. Pontikes and John J. Vosicky. On December 10, 2002, Messrs. Pontikes and
Vosicky filed a motion to dismiss the Amended Complaint. The court denied that
motion on March 31, 2003. Since that time, the parties have been engaged in
discovery.
On November 5, 2004, the lead plaintiff filed a Motion for Class
Certification. Discovery regarding class certification is underway. As yet, no
class has been certified in this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
three months ended September 30, 2004.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
In connection with the September 30, 2002 initial distribution under the
Plan, the Company issued approximately 3.74 million shares of Common Stock to
holders of Allowed Claims in Class C-4. Approximately 460,000 additional shares
of Common Stock were deposited in the Disputed Claims Reserve for future
distribution pending the outcome of Disputed Claims (approximately 218,000
shares remain in the Disputed Claims Reserve as of November 15, 2004). The
Company's Common Stock currently trades on the Over-the-Counter Bulletin Board
system under the symbol "CDCO" In addition, the Contingent Distribution
Rights currently trade on the Over-the-Counter Bulletin Board system under the
symbol "CDCOR" Over-the-Counter Bulletin Board quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
The Plan authorizes, but does not require, the issuance of additional
shares of the Company's Common Stock to make distributions to holders of CDRs.
The Company has chosen to distribute cash to holders of CDRs in lieu of shares
of Common Stock (see discussion following for distributions made to holders of
CDRs). More information on distributions to holders of CDRs can be found in a
Registration Statement on Form 8-A filed by the Company on August 12, 2002 with
the SEC and in the section Contingent Distribution Rights in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Common Stock
As of December 1, 2004, there were 222 shareholders of record of the
Company's Common Stock. The following table set forth the high and low sales
prices for the Common Stock of Comdisco Holding Company, Inc. and cash dividends
paid for fiscal 2004 and 2003.
2004 2003
----------------------------- -----------------------------
QUARTER High Low Dividends High Low Dividends
- ------- ------ ------ --------- ------- ------ ---------
First $88.00 $35.00 $ 12.00 $ 80.00 $46.00 $ --
Second 53.00 37.00 -- 137.00 76.50 --
Third 40.00 21.25 11.50 172.00 89.00 87.63
Fourth 28.99 21.00 -- 130.00 70.00 47.60
- -------------------------------------------------------------------------------
The Company's transfer agent and registrar is Mellon Investor Services,
L.L.C., P.O. Box 3312, South Hackensack, New Jersey, 07606. The shareholder
relations telephone number is (800) 851-9677 and the internet address is
http://www.melloninvestor.com.
Comdisco intends to treat the dividend distributions for federal income tax
purposes as part of a series of liquidating distributions in complete
liquidation of the Company. Aggregate total dividend distributions on the
Company's Common Stock were as follows (in millions):
Aggregate
Payment
---------
May 2003 .................. $ 308
June 2003 ................. 60
September 2003 ............ 200
December 2003 ............. 50
May 2004 .................. 49
---------
$ 667
=========
The Company is required to maintain sufficient cash reserves for operations
and 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.
Contingent Distribution Rights
For financial reporting purposes, the Company records CDRs as a liability
and as an operating expense although the CDRs trade over-the-counter.
The Plan entitles holders of CDRs to share at increasing percentages in the
proceeds realized from the Company's assets based upon the present value of
distributions made to the general unsecured creditors in the bankruptcy estate
of Comdisco, Inc. As of December 1, 2004, there were 2,188 holders of record of
the Company's CDRs and there were 152,272,188 outstanding CDRs.
Aggregate total distributions with respect to the CDRs were as follows (in
millions):
Aggregate Per
Payment CDR
--------- -------
May 2003 .................. $ 3 $.01793
June 2003 ................. 2 .01621
September 2003 ............ 13 .08780
December 2003 ............. 8 .05140
March 2004 ................ 3 .01870
May 2004 .................. 12 .07810
December 2004 ............. 15 .09820
--------- -------
$ 56 $.36834
========= =======
See Critical Accounting Policies and Contingent Distribution Rights in Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations for information on the CDR liability and the impact of the resolution
of Disputed Claims on the operations of the Company.
Recent Sales of Unregistered Securities
None.
Repurchases of Common Stock
There were no repurchases of Common Stock in the fourth quarter of fiscal
2004. The Company does not regularly repurchase shares nor does the Company have
a share repurchase plan.
In November 2004, in connection with the settlement of the Ventures
compensation dispute (See Item 1. "Business" for a discussion of Disputed Claims
and the funding of the Disputed Claims Reserve), the Company received from the
Disputed Claims Reserve 27,703 shares of Common Stock which were placed in
treasury stock.
ITEM 6. SELECTED FINANCIAL DATA
Upon its emergence from bankruptcy on August 12, 2002, the Company adopted
fresh-start reporting in accordance with Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7")
effective as of July 31, 2002 for financial reporting purposes. SOP 90-7
requires the Company to allocate the reorganization value of the reorganized
Company to its assets, and to state liabilities existing at the Plan
confirmation date at present values of amounts to be paid determined at
appropriate current interest rates. As a result, the adjustments made in
accordance with SOP 90-7 have materially impacted the financial statements of
the Company.
For financial reporting purposes only, the "effective date" of the
emergence from bankruptcy was selected as the close of business on July 31,
2002. Accordingly, the effects of the adjustments on the reported amounts of
individual assets and liabilities resulting from the adoption of fresh-start
reporting are reflected in the Company's financial statements as of July 31,
2002. As a result of the reorganization and the recording of the restructuring
transaction and the implementation of fresh-start reporting pursuant to SOP
90-7, the Company's results of operations after July 31, 2002 are not comparable
to results reported in prior periods for Comdisco, Inc.
Under fresh-start reporting, the final consolidated balance sheet as of
July 31, 2002 became the opening consolidated balance sheet of the reorganized
Company. Since fresh-start reporting has been reflected in the accompanying
consolidated balance sheets as of September 30, 2004 and 2002, the consolidated
balance sheets as of those dates are not comparable in certain material respects
to any such balance sheet for any period prior to July 31, 2002. In addition,
Comdisco, Inc.'s results of operations prior to July 31, 2002 are not comparable
to the Company's results of operations after its emergence from bankruptcy due
to the adoption of fresh-start reporting.
A black line has been drawn on the accompanying consolidated financial
statements to distinguish between Comdisco Holding Company, Inc. (occasionally
referred to herein as the "Successor company") and Comdisco, Inc. (occasionally
referred to herein as the "Predecessor company").
The selected consolidated financial data of the Company for the years ended
September 30, 2004 and 2003, the two months from August 1, 2002 to September 30,
2002 and for Comdisco, Inc. for the ten months from October 1, 2001 to July 31,
2002 and the years ended September 30, 2001 and 2000, has been derived from the
Company's and/or Comdisco, Inc.'s audited consolidated financial statements.
This information should be read in conjunction with the consolidated financial
statements and the related notes thereto appearing elsewhere in this Report and
in conjunction with Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Certain reclassifications have been made to the prior period financial
statements to conform to the presentation used in the September 30, 2004
consolidated financial statements.
SUCCESSOR | PREDECESSOR
Two Months | Ten
ended | Months
September | ended
Years ended September 30, 30, | July 31, Years ended September 30,
(in millions except per share data) 2004 2003 2002 | 2002 2001 2000
----------- ---------- ----------- | ----------- ----------- -----------
Consolidated summary of earnings (losses) |
Revenue |
Leasing .................................... $ 17 $ 135 $ 44 | $ 484 $ 881 $ 786
Sales ...................................... 43 91 1 | 164 126 141
technology services ........................ 1 15 3 | 37 95 105
Other ...................................... 47 62 11 | 60 453 524
----------- ---------- ----------- | ----------- ----------- -----------
Total revenue ......................... 108 303 59 | 745 1,555 1,556
|
|
Costs and expenses |
Leasing .................................... 8 109 46 | 368 648 563
Sales ...................................... 34 80 3 | 189 111 115
Technology services ........................ 1 8 5 | 27 110 115
Selling, general and administrative ........ 31 77 10 | 85 185 258
Contingent distribution rights ............. 49 52 10 | -- -- --
Write-down of equity securities ............ 2 25 3 | 70 129 7
Bad debt expense ........................... (12) (92) 3 | 115 390 113
Interest ................................... 1 25 12 | 16 294 314
Reorganization items ....................... -- -- -- | 439 34 --
Fresh-start accounting adjustments ......... -- -- -- | 369 -- --
Other ...................................... -- -- -- | -- -- --
----------- ---------- ----------- | ----------- ----------- -----------
Total costs and expenses .............. 114 284 92 | 1,678 1,901 1,485
|
Earnings (loss) from continuing operations |
before income taxes (benefit), |
extraordinary gain and cumulative effect of |
change in accounting principle .............. (6) 19 (33) | (933) (346) 71
Income taxes (benefit) ....................... (42) (1) 2 | 48 (138) 24
----------- ---------- ----------- | ----------- ----------- -----------
Earnings (loss) from continuing operations |
before extraordinary gain and cumulative |
effect of change in accounting principle .... 36 20 (35) | (981) (208) 47
Earnings (loss) from discontinued operations, |
net of income tax .......................... (13) 80 18 | 287 (66) (114)
Extraordinary gain ........................... -- -- 241 | 153 -- --
Cumulative effect of change in accounting |
principle, net of income tax ................ -- -- -- | -- 2 --
----------- ---------- ----------- | ----------- ----------- -----------
Net earnings (loss) to common stockholders . $ 23 $ 100 $ 224 | $ (541) $ (272) $ (67)
=========== ========== =========== | =========== =========== ===========
Per common share data: |
Earnings (loss) from continuing |
operations-diluted ........................... $ 8.61 $ 4.80 $ (8.28) | $ (6.52) $ (1.37) $ 0.28
Earnings (loss) from discontinued |
operations-diluted ........................... (3.21) 19.11 4.27 | 1.91 (0.44) (0.69)
Earnings from extraordinary gain-diluted ..... -- -- 57.38 | 1.02 -- --
Cumulative effect of change in accounting |
principle .................................. -- -- -- | -- 0.01 --
----------- ---------- ----------- | ----------- ----------- -----------
Net earnings (loss) to common |
stockholders-diluted ...................... $ 5.40 $ 23.91 $ 53.37 | $ (3.59) $ (1.80) $ (0.41)
=========== ========== =========== | =========== =========== ===========
|
Cash dividends paid on common stock (per |
share) ..................................... $ 23.50 $ 135.23 $ -- | $ -- $ .05 $ .10
Average common shares (in thousands)-diluted . 4,197 4,199 4,200 | 150,559 151,246 161,782
|
Financial position: |
Total assets (1) ............................. $ 198 $ 373 $ 2,341 | $ 2,291 $ 6,202 $ 8,697
Notes payable ................................ -- -- 1,050 | 1,050 1,096 1,314
Total long-term debt ......................... -- -- 1,113 | 1,123 2,999 4,147
Discounted lease rentals ..................... -- -- 262 | 304 964 794
Stockholders' equity ......................... 103 182 641 | 413 447 1,214
Other data: |
Total rents of new leases .................... $ -- $ 6 $ 69 | $ 241 $ 1,500 $ 2,800
Future leasing contractual cash flows ........ 12 148 1,798 | N/A 5,397 7,063
(1) Total cash at September 30, 2004 and 2003 was $167 million and $139 million, respectively.
ITEM 7. 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 Annual Report on Form 10-K for the fiscal year ended September 30, 2004.
This discussion and analysis also contains forward-looking statements and should
also be read in conjunction with the disclosures and information contained in
the sections of this Annual Report on Form 10-K entitled "Disclosure Regarding
Forward-Looking Statements" and "Risk Factors Relating to the Company."
- --------------------------------------------------------------------------------
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 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. THE COMPANY FILED ON
AUGUST 12, 2004 A CERTIFICATE OF DISSOLUTION WITH THE SECRETARY OF STATE OF THE
STATE OF DELAWARE TO FORMALLY EXTINGUISH COMDISCO HOLDING COMPANY, INC.'S
CORPORATE EXISTENCE WITH THE STATE OF DELAWARE EXCEPT FOR THE PURPOSE OF
COMPLETING THE WIND-DOWN CONTEMPLATED BY THE PLAN.
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: Reductions in assets, revenues, cash flows
and employees since emerging from bankruptcy
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 92 percent to $198
million at September 30, 2004 from $2.341 billion at September 30, 2002, and has
decreased by 47 percent from $373 million at September 30, 2003. At September
30, 2004, assets other than cash and cash equivalents were approximately $31
million, primarily equity securities ($14 million) and leased assets ($8
million, including discontinued operations). Total revenue and net cash provided
by operating activities have decreased by 64 percent and 91 percent,
respectively, in the current year compared to the prior year. 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 December 1, 2004, the Company had a total
of 16 employees, a decrease of approximately 97 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.
The Company has significantly reduced the number of its domestic and
international subsidiaries from ninety-four to nineteen as of December 1, 2004
and, to the extent that such subsidiaries were Reorganized Debtors, has closed
the related estates.
Wind-down of Operations: Resignation of Directors and Officers and
assumption of responsibilities by the Disbursing Agent
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. A copy of the Motion was furnished 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, CDRs, and
Disputed Claims remaining in the bankruptcy and also certain other interested
parties.
Pursuant to and in furtherance of the Order, on August 12, 2004, the
following occurred:
o The officers of the Company, including Ronald C. Mishler who had served as
Chairman, Chief Executive Officer and President of the Company since August
2002, resigned their respective officer positions.
o The Board of Directors appointed Randolph I. Thornton, as Chief Executive
Officer, President and Secretary of Comdisco Holding Company, Inc.
o The Company filed a Certificate of Amendment to the Certificate of
Incorporation of Comdisco Holding Company, Inc. (the "Certificate") with
the State of Delaware amending the Company's Certificate to provide for a
Board of Directors consisting of one member.
o Four of the five individuals serving on the Board of Directors (Ronald C.
Mishler (chairman), Jeffrey A. Brodsky, Robert M. Chefitz and William A.
McIntosh) resigned their position as Directors. Randolph I. Thornton did
not resign and continues as the sole director.
o Randolph I. Thornton's appointment as Initial Disbursing Agent became
effective. As Initial Disbursing Agent, he assumed the roles and
responsibilities performed by the former Board of Directors and officers of
the Company, including all measures which are necessary to complete the
administration of the reorganized debtors' Plan and Chapter 11 cases.
Subsequently, pursuant to and in furtherance of the Order, the Company
filed, on August 12, 2004, a Certificate of Dissolution with the Secretary of
State of the State of Delaware to formally extinguish Comdisco Holding Company,
Inc.'s corporate existence with the State of Delaware except for the purpose of
completing the wind-down contemplated by the Plan.
On August 12, 2004, Randolph I. Thornton appointed Lloyd J. Cochran, Robert
E. T. Lackey, David S. Reynolds and Caroline Walters and two other individuals
as authorized representatives of the Company. These individuals derive their
authority from Mr. Thornton as sole director and officer of the Company and the
named individuals report directly to him.
Wind-down of Operations: Management Incentive Compensation Plans and
End of Term Designation
Following the Company's emergence from bankruptcy on August 12, 2002, the
Company's operations were reorganized into four reportable business units. These
business units were: (i) US Leasing, which included leasing operations in the US
and Canada and was managed by Comdisco, Inc.; (ii) European IT Leasing, which
was managed by Comdisco Global Holding Company, Inc.; (iii) Ventures, which was
managed by Comdisco Ventures, Inc.; and (iv) the Corporate Asset Management
group ("CAM group"). The Company's CAM group was 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 were managed through Comdisco, Inc. For
business segment reporting purposes, the CAM group also included various
corporate assets and liabilities managed by Comdisco Holding Company, Inc.
corporate staff.
Each of the business units' management teams participated in Bankruptcy
court-approved Compensation Plans. While the award opportunities differed for
each of these units, the management incentive plan ("MIP"), as a whole, was
intended to provide adequate compensation for retention of key employees and an
incentive to maximize the value of each business unit's assets for the benefit
of all stakeholders. The MIP included two components: Semiannual Performance
Bonuses and Upside Sharing opportunities for specified employees. For purposes
of the Upside Sharing plans, the Board of Directors determined that the business
units had substantially completed their business unit objectives and declared
End of Term (as defined in the Compensation Plans) for US Leasing as of May 31,
2004 and for Comdisco Ventures and CAM group as of April 30, 2004 and authorized
payments to be made to participants in the respective business unit's Upside
Sharing Plan. Payments to eligible participants in US Leasing were made in July
2004. Payments to eligible participants for Comdisco Ventures and the CAM group
were completed in June 2004. The European IT Leasing unit's compensation plan
did not include an Upside Sharing component. In June 2004, the Board of
Directors approved, and the Company made, an advance corporate Upside Sharing
payment of $2.7 million to Mr. Mishler.
Wind-down of Operations: Consolidation of Business Units
As a result of the substantial wind-down of operations, the declaration of
End of Term for purposes of each business units' management incentive plan and
the consolidation of the management structure, the Company believes that
business segment results have become substantially irrelevant and, accordingly,
the Company has consolidated its business units and has ceased to report
independent business segment results.
Wind-Down of Operations: Reduction in Disputed Claims
Since emerging from bankruptcy proceedings on August 12, 2002, the Company
has focused on the resolution of Disputed Claims. Upon emergence, and pursuant
to the Plan, the Company established a Disputed Claims Reserve for Disputed
Claims estimated in the amount of $450 million. See Item 1. Business--"General
Development of Business" for a discussion of Disputed Claims, the Disputed
Claims Reserve and the resolution process. Since emergence, the number of
Disputed Claims has decreased from approximately 619 Disputed Claims to
approximately 76 Disputed Claims and the estimated amount of Disputed Claims has
decreased from $450 million to $289 million at September 30, 2004. Two groups of
Disputed Claims (related to the SIP (See Item 1. Business--"General Development
of Business") and a Ventures compensation plan dispute) represented more than 79
percent of the aggregate estimated amount as of September 30, 2004.
On November 2, 2004, the Company announced the settlement of all claims in
the Ventures compensation plan dispute. Pursuant to the settlement agreement,
these claims were allowed for approximately $30 million on a Disputed Claim
estimated in the amount of $90 million.
Resolution of Disputed Claims is one of the measures necessary for the
Company to finalize administration of the Reorganized Debtors' Plan and Chapter
11 cases. (See "Recent Events" for recent Disputed Claims resolutions.) The
Company has devoted, and is devoting, significant resources to resolve
outstanding Disputed Claims and believes that it has made substantial progress
in this area.
As of the date of this filing, the Company and the SIP Lenders have reached
a settlement agreement on the SIP Guaranty Claim ("Settlement Agreement") and
on December 9, 2004, the Bankruptcy court approved the Settlement Agreement. If
the Settlement Agreement is not Closed (as defined in the Settlement Agreement)
by January 31, 2005, then the SIP Lenders, at their sole discretion, may
terminate the Settlement Agreement
The Settlement Agreement provides for a cash payment to the SIP Lenders of
$126,350,000 (actual cash payment of $122,893,503.26 after crediting the
previous setoff by Dresdner Bank AG of $3,456,496.74) on the previously Allowed
Claim of $133,000,000. The SIP Lenders are also waiving and releasing any rights
or interests to receive any future distributions and stock (and the dividends
thereon) related to the SIP Guaranty Claim. The Company and the Litigation
Trustee, as specified in the Settlement Agreement, will be receiving certain of
the SIP Notes and the subrogation rights related to, or arising from, the
payment on Comdisco's guaranty of such SIP Notes. The SIP Lenders and the
Company exchanged mutual releases.
See "Critical Accounting Policies" and "Liquidity and Capital
Resources--Contingent Distribution Rights" for a discussion of the impact of
Disputed Claims on the CDR liability and the impact of the November 15, 2004
quarterly distribution and the settlement of the SIP Guaranty Claim on the CDR
liability as of September 30, 2004.
Overview
On July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries
voluntarily filed for bankruptcy. Prior to the bankruptcy, Comdisco, Inc.
provided technology services worldwide to help its customers maximize technology
functionality, predictability and availability, while freeing them from the
complexity of managing their technology. Comdisco, Inc. leased information
technology equipment to a variety of industries and more specialized equipment
to key vertical industries, including semiconductor manufacturing and electronic
assembly, healthcare, telecommunications, pharmaceutical, biotechnology and
manufacturing. Through its Ventures group, Comdisco, Inc. provided equipment
leasing and other financing and services to venture capital-backed companies.
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"); and Ventures. See Item 1,
Business, above, for more details about the Company's business operations.
Since the Company emerged from Chapter 11 bankruptcy proceedings on August
12, 2002, the Company's business activities have been limited to the orderly
sale or run-off of all of its existing asset portfolios. Pursuant to the Plan
and restrictions contained in its certificate of incorporation, the Company is
specifically prohibited from engaging in any business activities inconsistent
with its limited business purpose. Since emerging from bankruptcy, the Company
has not engaged in any new leasing or financing activities, except for
previously existing customer commitments and to restructure existing equipment
leases and loans to maximize the value of the Company's assets.
The Company's revenues are generated primarily by its existing lease base,
sales of equipment from inventory, off-lease sales, its participation interest
in certain Agere lease payments, sale of equity securities and from recoveries
on periously written-off accounts. 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 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. Dividends paid on Common Stock and payments to CDR
holders were $99 million and $23 million, respectively, in the year ended
September 30, 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, substantially or
completely resolved the Disputed Claims in the bankruptcy estate of Comdisco,
Inc. 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 September 30, 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: The Company has potential collections on
accounts that are in default and recoveries on accounts that had been
previously written off. 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 September 30, 2004
(see Note 12 of Notes to Consolidated Financial Statements). The amount
and timing of such collections and recoveries, if any, are subject to the
risk factors discussed in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations, Risk Factors Relating to
the Company", entitled "Uncertainties in Collections and Recoveries."
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 14 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 September
30, 2004. The Company estimates that the realizable value, net of fees
and sharing with Windspeed (see discussion below), at September 30, 2004
for its common stock, preferred stock and warrants in private companies
was approximately $20 million. The Company's estimate was made in
consultation with Windspeed Acquisition Fund GP, LLC ("Windspeed"), a
professional management group which the Company engaged to manage the
Company's Equity Investments on an ongoing basis in February 2004.
However, there is no assurance as to the timing or the amount the Company
will ultimately realize on the Equity Investments. 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 Relating to the Company", 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 book equity value as the
basis for remaining asset value, reduced for estimated operating
expenses and increased for two items which did not impact book equity
for financial reporting purposes at September 30, 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 assuming Disputed
Claims are either: 1) allowed at the amount estimated for the Disputed
Claim, or; 2) allowed at an approved amount where a settlement
agreement or Bankruptcy court order exists ("Approved Claims"). Any
estimates exceeding the Approved Claims would be considered disallowed
for purposes of the CDR liability. 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.
Estimated Disputed Claims consisted of $289 million as of September
30, 2004. On November 15, 2004, a distribution from the Disputed
Claims Reserve in connection with approximately $85 million of
estimated Disputed Claims was made to creditors, which consisted of
approximately $30 million of claims allowed and paid to new
claimholders and approximately $55 million of claims disallowed
resulting in the associated funds being redistributed to all unsecured
creditors through a supplemental distribution. The CDR liability
calculation reflected the actual disposition for claims involved in
the November 15, 2004 distribution. After the distribution, the
remaining estimated Disputed Claims totaled approximately $204
million. The Disputed Claim Reserve consisted of $207 million in cash
and approximately 218,000 shares of Common Stock.
Since the November 15, 2004 distribution, $182 million of the $204
million remaining estimated Disputed Claims have been resolved by the
Company either through a settlement with certain parties, or the
issuance of a Bankruptcy court order, leaving only $22 million
unresolved at the date of this filing. These $22 million in estimated
Disputed Claims have been considered allowed for purposes of the CDR
liability. If the $22 milllion is ultimately ruled as disallowed, the
CDR liability would increase by approximaely $8 million
$60 million of the approximately $182 million of Approved Claims are
expected to be ultimately disallowed. A portion of the $60 million
estimated Disputed Claims are under appeal as of the date of this
filing. Any detrimental ruling to the Company under appeal may
materially reduce the CDR liability as of September 30, 2004 and could
negatively impact future CDR distributions. If the $60 million is
ultimately ruled as allowed, the CDR liability would be reduced by
approximately $18 million.
On December 9, 2004, the Bankruptcy court approved the settlement
between the Company and the bank group relating to its unconditional
guarantee on the Shared Investment Plan ("SIP"). While the settlement
resulted in an Allowed Claim of $133 million, the SIP Lenders agreed
to receive a reduced cash amount of approximately $123 million, which
is net of an approximately $3 million offset due Comdisco. The SIP
Lenders waived their rights to any consideration in excess of the $123
million cash payment. For purposes of the CDR liability, the Company
converted the $123 million cash payment into an equivalent estimated
claim amount of $122 million. The excess estimated Disputed Claim has
been considered as part of the $60 million of estimated Disputed
Claims ultimately disallowed for purposes of the CDR liability.
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 in private
companies 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, in consultation with Windspeed, 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 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. The carrying value
of the Company's equity investments in private companies was
approximately $5 million at September 30, 2004.
o Income Taxes: The Company uses the asset and liability method to
account for income taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary
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 Allowance for Doubtful Accounts: The Company maintains an allowance
for doubtful accounts. This allowance reflects management's estimate
of the amount of the Company's receivables that it will be unable to
collect and is based on current trends and historical collection
experience. The estimate could require adjustments based on changing
circumstances, including changes in the economy or in the particular
circumstances of individual customers. Accordingly, the Company may be
required to increase or decrease the allowance.
o Fresh-Start Reporting: Upon the emergence from bankruptcy proceedings,
the Company adopted fresh-start reporting which resulted in material
adjustments to the historical carrying amounts of the Company's assets
and liabilities. Fresh-start reporting was applied in accordance with
SOP 90-7, which required the Company to allocate the reorganization
value to its assets and liabilities based upon their estimated fair
value in accordance with the procedures specified by Statement of
Financial and Accounting Standards No. 141, Business Combinations
("SFAS No. 141"). The fair values of the assets as determined for
fresh-start reporting were based on estimates of anticipated future
cash flows of assets discounted at rates consistent with the discount
rates used in the Plan. Liabilities existing at the Plan confirmation
date are stated at the present values of amounts to be paid discounted
at appropriate current rates. Deferred taxes are reported in
conformance with existing generally accepted accounting principles.
Debt issued in connection with the Plan is recorded at the stated
value. The difference between the net fair value of the assets and the
liabilities existing at the confirmation date (excluding restructured
debt in accordance with the Plan) and the reorganization value is
"Excess of the Net Fair Value over Reorganization Value." "Excess of
the Net Fair Value over Reorganization Value" is subject to the
provisions of SFAS No. 141. Under SFAS No. 141, the excess of the net
fair value is used to reduce certain assets, as defined by SFAS No.
141 (generally long-lived non-financial assets), to zero. Any excess
net fair value remaining after the reduction is recognized as an
extraordinary gain. The determination of the net fair values of the
assets and liabilities is subject to significant estimation and
assumptions. Actual results could differ from the estimates made.
The above listing is not intended to be a comprehensive list of all the
Company's accounting policies. Please refer to the Company's consolidated
financial statements and notes thereto which contain the Company's significant
accounting policies and other disclosures required by accounting principles
generally accepted in the United States of America.
Basis of Presentation
Comdisco, Inc. and fifty of its domestic subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code in
the Bankruptcy Court on July 16, 2001. Prior to emerging from Chapter 11 on
August 12, 2002, Comdisco, Inc. operated its business as a debtor-in-possession
subject to the jurisdiction of the Bankruptcy Court. The reorganized Company
adopted fresh-start reporting and gave effect to its emergence as of July 31,
2002 for financial reporting purposes.
Under fresh-start reporting, the final consolidated balance sheet as of
July 31, 2002 became the opening consolidated balance sheet of the reorganized
Company. Since fresh-start reporting has been reflected in the accompanying
consolidated balance sheets as of September 30, 2004 and 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.
A black line has been drawn on the accompanying consolidated financial
statements to distinguish between the Successor company and the Predecessor
company.
Recent Developments
On October 18, 2004, the Bankruptcy court approved closing the cases of
Comdisco International Holdings, Inc., Comdisco Equipment Solutions, Inc.,
Comdisco Trade, Inc., Comdisco Financial Services, Inc., Comdisco Healthcare
Group, Inc., Comdisco Medicial Exchange, Inc., Comdisco Labs, Inc., CDC Realty,
Inc., Hybrid Venture Partners, LP, Rosemont Venture Management I, LLC, CDS
Foreign Holdings, Inc., Rosemont Equities, LLC and Computer Discount
Corporation.
On November 2, 2004, the Company announced the settlement of all claims in
the Ventures compensation plan dispute. Pursuant to the settlement agreement,
these claims were allowed for approximately $30 million on a Disputed Claim
estimated in the amount of $90 million. On November 12, 2004, the Bankruptcy
court approved the settlement and the stipulation which dismissed all the claims
of the parties.
On November 11,2004, the Company received the remaining Agere payment. See
Note 5 of Notes to Consolidated Financial Statements.
On November 15, 2004, the Company made a quarterly distribution from the
Disputed Claims Reserve relating to $85 million of estimated Disputed Claims.
$30 million of claims were allowed and paid to newly allowed creditors. The
remaining $55 million of the claims were disallowed resulting in a supplemental
distribution to all C-4 creditors. The remaining estimated amounts for Disputed
Claims in the bankruptcy estate of Comdisco, Inc. total 68 Disputed Claims
estimated in the amount of $204 million.
On November 17, 2004, the Bankruptcy court issued a decision and order
finally denying Wells Fargo's motion for reconsideration of the Bankruptcy
court's order of July 31, 2002 disallowing Wells Fargo's contingent and
unliquidated claim against Comdisco, Inc. in its entirety. On November 29, 2004,
Wells Fargo filed a notice of appeal from the Bankruptcy court's decision and
order. This matter is currently pending on appeal in the United States District
Court for the Northern District of Illinois, Eastern Division.
On November 19, 2004, the Company announced a cash payment of $0.0982 per
right on its contingent distribution rights ("CDRs"), payable on December 10,
2004 to CDR holders of record on November 30, 2004.
On December 9, 2004, the Bankruptcy court entered an order approving a
settlement between the SIP Lenders and Comdisco of the $133,000,000 Allowed
Claim. The allowance of the claim had been appealed by Comdisco and during a
mediation at the appellate level, Comdisco and the SIP Lenders reached a
settlement. The general terms of the settlement ("Settlement Agreement") provide
for an Allowed Claim of $133,000,000 that will be satisfied by a cash payment of
$126,650,000 (less $ 3,456,496.74 credit for the Dresdner Bank AG setoff);
assignment of the SIP Notes and the related subrogation rights to either
Comdisco or the Litigation Trustee; mutual releases; and, the SIP Lenders
foregoing any and all rights to receive shares (and any dividends thereon) in
Comdisco and any right to receive future distributions from the Disputed Claims
Reserve. The Settlement Agreement must be Closed (as defined in the Settlement
Agreement) by January 31, 2005 or the SIP Lenders, at their sole discretion, may
terminate the Settlement Agreement.
On December 13, 2004, Comdisco offered a New SIP Relief proposal to those
SIP Participants that had not accepted the SIP Relief previously offered by
Comdisco. The New SIP Relief was subject to approval by the Bankruptcy Court and
requires that the SIP Participants pay 20% of an adjusted amount (based on a
standardized formula) of their respective obligation under the SIP Notes. SIP
Participants with financial hardship may be eligible for additional relief and
Comdisco will engage a debt reconciliation company to work with it and such SIP
Participants. Subject to Comdisco's discretion, if less than 40% of the SIP
Participants to whom the New SIP Relief is proposed accept it, then Comdisco
will not be obligated to offer it to any such SIP Participant or to seek
Bankruptcy court approval.
Results of Operations
For purposes of this Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, the results of operations of the
Company for the fiscal year ended September 30, 2002 are comprised of selected
consolidated financial data of the Company for the two months from August 1,
2002 to September 30, 2002 and of Comdisco, Inc. for the ten months from October
1, 2001 to July 31, 2002.
As a result of the substantial wind-down of operations, the declaration of
End of Term for purposes of each business units' management incentive plan and
the consolidation of the management structure, the Company believes that
business segment results have become substantially irrelevant and, accordingly,
the Company has consolidated its business units and has ceased to report
independent business segment results.
Certain reclassifications have been made to the prior period financial
statements to conform to the presentation used in the September 30, 2004
consolidated financial statements.
As a result of the reorganization, the recording of the restructuring
transactions, the asset disposition transactions and the implementation of
fresh-start reporting pursuant to SOP 90-7, the Company's results of operations
after July 31, 2002 are not comparable to the results reported in prior periods
for Comdisco, Inc. The information in this section should be read in conjunction
with the consolidated financial statements and the related notes thereto
appearing in Item 8, Financial Statements and Supplementary Data.
Fiscal Year Ended September 30, 2004 Compared to the Fiscal Year Ended September
30, 2003
Total Revenue
Total revenue decreased 64 percent to $108 million for the fiscal year
ended September 30, 2004 from $303 million for the fiscal year ended September
30, 2003. The decrease is due to lower revenues from all of the Company's
operations. The Company's business purpose is limited to selling, collecting, or
otherwise reducing to money in an orderly manner the remaining assets of the
Company. Since emerging from bankruptcy, the Company has not engaged in any new
leasing or financing activities, except for previously existing customer
commitments and to restructure existing equipment leases and loans to maximize
the value of the Company's assets. Accordingly, the Company expects continued
declines in total revenue in fiscal 2005 as its asset base continues to decline.
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 87
percent to $17 million for the fiscal year ended September 30, 2004 from $135
million for the fiscal year ended September 30, 2003. Operating, direct
financing and sales-type lease revenues declined 89 percent, 67 percent and 50
percent, respectively. The decreases are primarily due to the continued orderly
run-off of the lease base and the absence of significant new business volume.
Sales Revenue
The Company generates sales from two sources: (i) the sale of equipment
from its inventory; and (ii) the sale of equipment to the lessee either at
original lease termination or during the original lease. Revenue from sales
decreased 53 percent to $43 million for the fiscal year ended September 30, 2004
from $91 million for the fiscal year ended September 30, 2003. This decrease is
due primarily to the declining lease base, which results in fewer assets
available for sale.
Technology Services Revenue
Revenues from technology services were $1 million and $15 million for the
fiscal years ended September 30, 2004 and 2003, respectively. The decrease in
the current fiscal year compared to the prior fiscal year is primarily the
result of the run-off of this business which, as of September 30, 2004, does not
have any remaining customers and is not generating revenues.
Agere lease participation payment
During the year ended September 30,2004, the Company recorded $9 million of
revenue from its interest in certain lease rental payments from Agere and an
additional $16 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. Approximately
$1.2 million of the remaining $3 million placed in escrow in January 2004 was
received by the Company on May 12, 2004, with the balance received in November
2004. See Notes 5 and 12 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
resulting in a $2.2 million gain during the three months ended December 31,
2003. The Company completed the sale of its former Availability Solutions
facility in Eching, Germany in March 2004 resulting in a $2.5 million gain
during the three months ended March 31, 2004.
On September 26, 2003, the Company announced the sale of its headquarters
building and the sale of its warehouse facility. The Company recorded a gain in
the amount of approximately $20 million, net of closing costs, in its fiscal
year 2003 fourth quarter as a result of these sales.
See Notes 2 and 5 of Notes to Consolidated Financial Statements for
additional information about the property sales.
Other Revenue
Other revenue decreased 15 percent to $17 million for the fiscal year ended
September 30, 2004 from $20 million for the fiscal year ended September 30,
2003.
The components of other revenue were as follows (in millions):
Years ended
2004 2003
------ ------
Sale of equity holdings ........ $ 10 $ 2
Interest income on notes ....... -- 8
Investment income .............. 2 2
Release of escrow funds on sale. 2 --
GE Capital settlement gain ..... -- 3
Other .......................... 3 5
------ ------
Total other revenue ............ $ 17 $ 20
====== ======
The revenue from the sale of equity holdings for the year ended September
30, 2004 is primarily from the sale of the Company's holdings in iPass, Inc.
during the three months ended March 31, 2004.
Interest income on notes was nominal in the year ended September 30, 2004
compared to $8 million for the year ended September 30, 2003. The decrease is
due to the declining number and amount of notes receivable.
Investment income for the years ended September 30, 2004 and 2003 represent
interest income on cash on hand.
In the fourth quarter of fiscal 2004, the Company received approximately $2
million of cash held in escrow in connection with the sale of lease portfolios
to GE Capital. See Note 5 of Notes to Consolidated Financial Statements.
On August 4, 2003, the Company announced the completion of the post-closing
review of the purchase price calculation for the sale of its leasing portfolios
to GE Capital and announced that it had agreed to a settlement with GE Capital
regarding their future contingent payment obligations on the Electronics
equipment leasing business. See Note 5 of Notes to Consolidated Financial
Statements for a description of the settlement and the settlement amounts.
Total Costs and Expenses
Total operating costs and expenses decreased 60 percent to $114 million for
the fiscal year ended September 30, 2004 from $284 million for the fiscal year
ended September 30, 2003. The Company expects expenses to continue to decline in
fiscal 2005 as compared to fiscal 2004 as a result of continued declines in
assets and consolidation in personnel.
Total Leasing Costs and Expenses
Total leasing costs and expenses decreased 93 percent to $8 million for the
fiscal year ended September 30, 2004 from $109 million for the fiscal year ended
September 30, 2003. Total leasing costs and expenses is comprised of two
components: (i) operating lease costs and expenses and (ii) sales-type lease
costs and expenses. The decrease is primarily due to the continued orderly
run-off of the lease base, the absence of significant new business volume and
the sale of leasing assets rather than the extension of existing leases or the
re-leasing of the Company's inventory of equipment.
Sales Costs and Expenses
Sales costs and expenses decreased 58 percent to $34 million for the fiscal
year ended September 30, 2004 from $80 million for the fiscal year ended
September 30, 2003. The decrease in fiscal 2004 compared to fiscal 2003 is due
to a decrease in assets available for sale.
Technology Services Costs and Expenses
Services costs were $1 million and $15 million for the fiscal years ended
September 30, 2004 and 2003, respectively. The decrease in the current fiscal
year compared to the prior fiscal year is primarily the result of the run-off of
this business which, as of September 30, 2004, does not have any customers and
is not incurring any expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 60 percent to $31
million for the fiscal year ended September 30, 2004 from $77 million for the
fiscal year ended September 30, 2003. The following table summarizes selling,
general and administrative expenses (in millions):
Years ended
2004 2003
------ ------
Compensation and benefits ...... $ 8 $ 40
Outside professional services .. 15 29
Other expenses ................. 8 8
------ ------
$ 31 $ 77
====== ======
The decrease in compensation and benefits for the fiscal year ended
September 30, 2004 compared to the prior year reflects the continued reduction
in personnel. Outside professional fees for the year ended September 30, 2004
include general corporate professional fees as well as legal fees incurred
primarily for claims in the bankruptcy estate. The decrease in outside
professional services is consistent with the reduction of assets of the Company,
and the reduction of disputed claims.
Contingent Distribution Rights
The Company expensed $49 million and $52 million relating to the
liability for CDRs for the years ended September 30, 2004 and 2003,
respectively. The fiscal 2004 expense was primarily the result of significant
progress regarding claims resolution while the fiscal 2003 expense was primarily
the result of earnings. See sections entitled "Critical Accounting Policies" and
"Contingent Distribution Rights" for a discussion of the amounts due CDR
holders.
Write-down of Equity Securities
The charge for write-down of equity securities decreased 92 percent to $2
million for the fiscal year ended September 30, 2004 from $25 million for the
fiscal year ended September 30, 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 $(12) million for the fiscal year ended September 30,
2004 and $(92) million for the fiscal year ended September 30, 2003. The
negative provision is primarily due to better than anticipated collection
results in the year ended September 30, 2004 on the Company's assets, recoveries
on previously written off receivables, favorable economic conditions (including
continued low interest rates) and management's estimate of the reserves
necessary for the Company's remaining assets as of September 30, 2004 (See Note
12 of Notes to Consolidated Financial Statements).
Interest Expense
Interest expense decreased 96 percent to $1 million for the fiscal year
ended September 30, 2004 from $25 million for the fiscal year ended September
30, 2003. There were no outstanding interest-bearing liabilities at September
30, 2004 and 2003. Interest expense in fiscal 2004 represents interest on late
payment of goods and services taxes in Austrialia which became due as a result
of the sale of assets. See Note 5 of Notes to Consolidated Financial Statements.
Income Taxes
See Note 13 of Notes to Consolidated Financial Statements, which is
incorporated in this section by reference, for details about the Company's
income tax provision.
During the year ended September 30, 2004, the Company recorded a tax
benefit of approximately $42 million, primarily as a result of significant
progress in the settlement of certain income tax liabilities with certain global
tax authorities, including authorities in Canada and Europe, and as a result of
a tax refund in the United Kingdom (see discussion following). In addition, the
Company and the Internal Revenue Service have settled certain income tax matters
for years through 2001.
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 had one year to challenge and propose any adjustments to this
refund. This review period expired September 30, 2004 with no adjustments and,
accordingly, the Company recognized the benefit of this refund in fiscal 2004.
Earnings from Continuing Operations
Earnings from continuing operations were $36 million, or $8.61 per
share-diluted, for the year ended September 30, 2004, compared to earnings from
continuing operations of $20 million, or $4.80 per share-diluted, in the year
ended September 30, 2003.
Discontinued Operations
Loss from discontinued operations was $13 million, or $3.21 per
share-diluted, for the year ended September 30, 2004 compared to earnings from
discontinued operations of $80 million, or $19.11 per share-diluted, for the
year ended September 30, 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 $30 million during the fiscal year ended September 30,
2004 compared to $241 million during the fiscal year ended September
30, 2003. Costs and expenses for US Leasing were $39 million during
the fiscal year ended September 30, 2004 compared to $215 million
during fiscal year ended September 30, 2003. The decrease in revenue
in the current year compared to the prior year is due to declines in
revenue producing assets as a result of the sale. The decrease in
costs and expenses in the fiscal year ended September 30, 2004
compared to the fiscal year ended September 30, 2003 is due to the
declines in revenue producing assets, reductions in personnel and
reductions in the allowance for doubtful accounts. Net loss for US
Leasing was $9 million in the year ended September 30, 2004 compared
to net earnings of $38 million in the fiscal year ended September 30,
2003.
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. 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
year ended September 30, 2004 compared to $78 million for the year
ended September 30, 2003. Costs and expenses for these operations were
$8 million for the year ended September 30, 2004 compared to $65
million for the year ended September 30, 2003. Net loss was $7 million
for the year ended September 30, 2004 compared to net earnings of $34
million for the year ended September 30, 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 year ended September
30, 2004, revenues and earnings before income taxes were $1 million.
The revenues relate primarily to foreign exchange gains and are
noncash. International Leasing in fiscal 2004 recognized a tax benefit
of $2 million. Revenues and net earnings were $5 million and $8
million, respectively, during the year ended September 30, 2003.
Net Earnings
Net earnings were $23 million, or $5.40 per share-diluted, for the year
ended September 30, 2004 compared $100 million, or $23.91 per share-diluted, for
the fiscal year ended September 30, 2003.
Fiscal Year Ended September 30, 2003 Compared to the Fiscal Year Ended September
30, 2002
Total Revenue
Total revenue decreased 62 percent to $303 million for the fiscal year
ended September 30, 2004 from $804 million for the fiscal year ended September
30, 2002. The decrease is due to lower revenues from all of the Company's
operations. Since September 30, 2002, the Company has monetized a substantial
amount of assets (portfolio sales, sales of stock in subsidiaries (see Note 5 of
Notes to Consolidated Financial Statements) and mid-term off-lease sales to
existing customers). Furthermore, the Company's business purpose is limited to
selling, collecting, or otherwise reducing to money in an orderly manner the
remaining assets of the Company. Since emerging from bankruptcy, the Company has
not engaged in any new leasing or financing activities, except for previously
existing customer commitments and to restructure existing equipment leases and
loans to maximize the value of the Company's assets.
Total Leasing Revenue
Total leasing revenue is comprised of three revenue components: (i)
operating lease revenue; (ii) direct financing lease revenue; and (iii)
sales-type lease revenue. Total leasing revenue from operations decreased 74
percent to $135 million for the fiscal year ended September 30, 2003 from $528
million for the fiscal year ended September 30, 2002. Operating, direct
financing and sales-type lease revenues declined in all business segments in
fiscal 2003 compared to fiscal 2002, declining 73 percent, 85 percent and 87
percent, respectively. The decreases are primarily due to the continued orderly
run-off of the lease base, the absence of significant new business volume and
the sale of leased assets rather than the extension of existing leases or the
re-leasing of the Company's inventory of equipment.
Sales Revenue
The Company generates sales from two sources: (i) the sale of equipment
from its inventory; and (ii) the sale of equipment to the lessee either at
original lease termination or during the original lease. Given the Company's
limited business purpose, it conducts these types of sales transactions rather
than extending existing leases or re-leasing its inventory of equipment. Revenue
from sales decreased 45 percent to $91 million for the fiscal year ended
September 30, 2003 from $165 million for the fiscal year ended September 30,
2002. This decrease is due primarily to the declining lease base and the
completion of a sale to a single customer, which generated $38 million of sales
revenue during the fiscal year ended September 30, 2002. In addition, generally
declining values for electronics equipment in inventory has also resulted in
lower revenues on these sales.
Technology Services Revenue
Revenues from technology services were $15 million and $40 million for the
fiscal years ended September 30, 2003 and 2002, respectively. The decrease in
fiscal 2003 compared to the fiscal 2002 is primarily the result of reduced
revenues from the IT CAP services business. The IT CAP Services North America
business was sold in February 2002.
Sale of properties
On September 26, 2003, the Company announced the sale of its headquarters
building and the sale of its warehouse facility. The Company recorded a gain in
the amount of approximately $20 million, net of closing costs, in its fiscal
year 2003 fourth quarter as a result of these sales.
There were no property sales in the year ended September 30, 2002.
See Notes 2 and 5 of Notes to Consolidated Financial Statements for
additional information about the property sales.
Other Revenue
Other revenue decreased 66 percent to $20 million for the fiscal year ended
September 30, 2003 from $58 million for the fiscal year ended September 30,
2002.
The components of other revenue were as follows (in millions):
Years ended
2003 2002
------ ------
Sale of equity holdings ........ $ 2 $ 16
Interest income on notes ....... 8 30
Investment income .............. 2 7
GE Capital settlement gain ..... 3 --
Other .......................... 5 5
------ ------
Total other revenue ............ $ 20 $ 58
====== ======
Revenue form the sale of equity securities was $2 million for the year
ended September 30, 2003, compared to $16 million for the year ended September
30, 2002. The decrease is primarily due to the declining value of the equity
securities portfolio and reductions in overall liquidity events.
Interest income on notes decreased 73 percent to $8 million for the fiscal
year ended September 30, 2003 from $30 million for the fiscal year ended
September 30, 2002. The decrease is primarily due to the declining number and
amount of notes receivable.
Investment income was $2 million for the year ended September 30, 2003,
compared to $7 million for the year ended September 30, 2002. The decrease is
due to reduced average cash balances retained by the Company.
On August 4, 2003, the Company announced the completion of the post-closing
review of the purchase price calculation for the sale of its leasing portfolios
to GE Capital and announced it had agreed to a settlement with GE Capital
regarding their future contingent payment obligations on the Electronics
equipment leasing business. See Note 5 of Notes to Consolidated Financial
Statements for a description of the settlement and the settlement amounts.
Total Costs and Expenses
Total operating costs and expenses decreased 84 percent to $284 million for
the fiscal year ended September 30, 2003 from $1.77 billion for the fiscal year
ended September 30, 2002. The year ended September 30, 2002 included $439
million of reorganization items (see Note 6 of Notes to Consolidated Financial
Statements) and $369 million of charges related to the Company's emergence from
bankruptcy and the adoption of fresh-start reporting.
Total Leasing Costs and Expenses
Total leasing costs and expenses decreased 74 percent to $109 million for
the fiscal year ended September 30, 2003 from $414 million for the fiscal year
ended September 30, 2002. Total leasing costs and expenses is comprised of two
components: (i) operating lease costs and expenses and (ii) sales-type lease
costs and expenses. 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.
Sales Costs and Expenses
Sales costs and expenses decreased 58 percent to $80 million for the fiscal
year ended September 30, 2003 from $192 million for the fiscal year ended
September 30, 2002. The decrease in fiscal 2003 compared to fiscal 2002 is due
to a decrease in assets available for sale. Generally declining fair market
values for electronics equipment has resulted in losses on sales of such
equipment. Equipment inventory is carried at the lower of net book value at
lease term or fair value.
Technology Services Costs and Expenses
Services costs were $8 million and $32 million for the fiscal years ended
September 30, 2003 and 2002, respectively. The decrease reflects the overall
reduction in services revenue and the sale of the IT CAP Services North America
business in February 2002.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 19 percent to $77
million for the fiscal year ended September 30, 2003 from $95 million for the
fiscal year ended September 30, 2002. The following table summarizes selling,
general and administrative expenses for the years ended September 30 (in
millions):
2003 2002
------ ------
Compensation and benefits ...... $ 40 $ 54
Outside professional services .. 29 27
Other expenses ................. 9 14
------ ------
$ 77 $ 95
====== ======
The decrease in compensation and benefits in the fiscal 2003 compared to
fiscal 2002 reflect the continued reduction in personnel, offset by the effect
of compensation plans implemented in order to maximize recoveries under the Plan
(see Item 11, Bankruptcy Court-Approved Compensation Plans: Management Incentive
and Stay Bonus Plans). The increase in outside professional service costs is
attributable to the Company recording professional service costs related to the
bankruptcy in reorganization items during the ten months ended July 31, 2002.
Since emerging from bankruptcy, the Company records professional services in
selling, general and administrative expenses.
Contingent Distribution Rights
The Company expensed $52 million and $10 million relating to the liability
for CDRs for the years ended September 30, 2003 and 2002, respectively. See
Critical Accounting Policies and Contingent Distribution Rights for a discussion
of the amounts due CDR holders.
Write-down of Equity Securities
The charge for write-down of equity securities decreased 66 percent to $25
million for the fiscal year ended September 30, 2003 from $73 million for the
fiscal year ended September 30, 2002. The decrease reflects the overall
reduction in the carrying value of the Company's equity securities, market
conditions and management's assessment of the ability of the portfolio companies
to meet their business plans.
Bad Debt Expense
Bad debt expense was $(92) million for the fiscal year ended September 30,
2003 and $118 million for the fiscal year ended September 30, 2002. The decrease
is primarily due to better than anticipated collection results in the year ended
September 30, 2003 on the Company's assets, improving market and economic
conditions (including continued low interest rates) and management's estimate of
the reserves necessary for the Company's remaining assets as of September 30,
2003 (See Note 12 of Notes to Consolidated Financial Statements).
Interest Expense
Interest expense decreased 11 percent to $25 million for the fiscal year
ended September 30, 2003 from $28 million for the fiscal year ended September
30, 2002. The decrease in interest expense for the year ended September 30, 2003
compared to the year ended September 30, 2002 is primarily due to lower average
daily borrowings during the year ended September 30, 2003.
As of July 16, 2001, Comdisco, Inc. ceased accruing interest on its
domestic unsecured debt obligations. Contractual interest on all obligations for
the ten months ended July 31, 2002 was $214 million which is $198 million in
excess of the $16 million recorded interest expense included in the accompanying
financial statements for the ten months ended July 31, 2002. The $16 million of
interest expense was primarily interest on secured debt.
Interest expense for the two months ended September 30, 2002 includes
interest on secured debt and on senior and subordinated debt issued upon
emergence. See Note 11 of Notes to Consolidated Financial Statements for
information about the Company's interest-bearing liabilities.
Reorganization Items
Charges for reorganization items were $439 million for the fiscal year
ended September 30, 2002. See Note 6 of Notes to Consolidated Financial
Statements, which is incorporated in this section by reference, for a discussion
of reorganization items. Included in reorganization items is the pre-tax charge
of $263 million for the sales of electronics, laboratory and scientific and
healthcare leasing assets and Australian IT leasing assets. No reorganization
items were recorded after emergence.
Fresh-Start Reporting Adjustments
Fresh-start reporting adjustments, which reflect the impact of fresh-start
reporting on the assets and liabilities of Comdisco, Inc. as of July 31, 2002,
totaled $369 million for the ten months ended July 31, 2002. See Notes 3 and 6
to Notes to Consolidated Financial Statements, which are incorporated in this
section by reference, for details of the fresh-start reporting adjustments.
Income Taxes
See Note 13 of Notes to Consolidated Financial Statements, which is
incorporated in this section by reference, for details about the Company's
income tax provision.
Net Loss from Continuing Operations
The net earnings from continuing operations were $20 million in fiscal
2003, or $4.80 per share-diluted in fiscal 2003, compared to a net loss of $1.02
billion in fiscal 2002. Fiscal 2003 continuing operations compared to the prior
year reflect the lack of reorganization items and fresh-start reporting
adjustments, reduced provisions for credit losses, and a positive margin from
sales, partially offset by increased expense for the Company's CDRs.
Discontinued Operations
Net earnings from discontinued operations were $80 million for the year
ended September 30, 2003 compared to $305 million for the year ended September
30, 2002.
o US Leasing operations: On September 9, 2003, the Company completed the
sale of its U.S. information technology leasing business to Bay4. On
September 30, 2003, the Company completed the sale of its Canadian
information technology leasing business to Bay4 Capital Partners, Inc.
The results of operations for this business segment have been
classified as discontinued operations and prior year periods have been
restated. Revenue was $241 million during the fiscal year ended
September 30, 2003 compared to $426 million during the fiscal year
ended September 30, 2002. Costs and expenses for US Leasing were $215
million during the fiscal year ended September 30, 2003 compared to
$430 million during fiscal year ended September 30, 2002. The decrease
in revenue in the current year compared to the prior year is due to
declines in revenue producing assets as a result of mid-term sales,
leased asset sales and the runoff of the lease portfolio. The decrease
in costs and expenses in the fiscal year ended September 30, 2003
compared to the fiscal year ended September 30, 2002 is due to the
declines in revenue producing assets, reductions in personnel and
reductions in the allowance for doubtful accounts. Net earnings for US
Leasing were $38 million in the year ended September 30, 2003 compared
to net earnings of $5 million in the fiscal year ended September 30,
2002.
o German Leasing Subsidiary: On April 30, 2003, the Company announced
that it had completed the sale of the stock of its German Leasing
Subsidiary to Munich-based Comprendium Investment (Deutschland) GmbH,
which is owned by Comprendium Investment SA, a Swiss corporation.
Revenue was $78 million and $200 million during the years ended
September 30, 2003 and 2002, respectively. Costs and expenses for
these operations were $65 million during the year ended September 30,
2003 compared to $158 million during the year ended September 30,
2002. In the third quarter of fiscal 2003, the Company repatriated
funds from the sale of stock of its German Leasing Subsidiary. As a
result, the Company recorded a $24 million gain related to the
realization of deferred translation gains. Net earnings were $34
million during the years ended September 30, 2003 and 2002.
o International Leasing: On October 18, 2002, the Company announced that
it had sold Comprendium Finance S.A., Computer Discount GmbH and the
Company's French leasing subsidiaries, Comdisco France SA and
Promodata SNC. The Company sold substantially all of its information
technology assets in Australia and New Zealand to Allco pursuant to a
sale approved by the Bankruptcy Court on April 18, 2002. The financial
results of these operations have been classified as discontinued
operations and prior year periods have been restated. Revenue from
International Leasing was $5 million in the year ended September 30,
2003 compared to $159 million for the year ended September 30, 2002.
The gain recognized during the year ended September 30, 2003,
approximately $7 million, relates primarily to foreign currency
exchange gains. Costs and expenses for these operations were $3
million in the year ended September 30, 2003 compared to $163 million
for the year ended September 30, 2002. Net earnings for International
Leasing were $8 million in the year ended September 30, 2003, compared
to a net loss of $44 million in the year ended September 30, 2002,
including an estimated loss on disposal of assets of approximately $37
million.
o Availability Solutions: On November 15, 2001, Comdisco, Inc. completed
the sale of its Availability Solutions business to SunGard. The
results of operations of Availability Solutions have been classified
as discontinued operations and prior periods have been restated.
Revenue from Availability Solutions was $67 million for the year ended
September 30, 2002. Availability Solutions costs were $54 million
during year ended September 30, 2002.
Net earnings of the Availability Solutions business were $313 million
for the year ended September 30, 2002. Approximately $301 million of
the net earnings within discontinued operations for the year ended
September 30, 2002 relates to the gain on the sale of the Availability
Solutions business.
The sale excluded the purchase of the stock of subsidiaries in Germany
and Spain. However, as a result of the Company's intention to exit the
Availability Solutions businesses of Germany and Spain (including the
possible sale of assets in either or both countries), the Company has
also accounted for these businesses as discontinued operations.
Revenue and expenses for the Company's operations in Germany and Spain
for the year ended September 30, 2002 were immaterial.
o Prism Communications: Prism ceased operations on October 1, 2000.
Continued declines in the telecommunications industry in the three
months ended June 30, 2002 negatively impacted the market for
telecommunications equipment. As a result, Comdisco, Inc. recorded a
charge of $3 million in fiscal 2002 to write down these assets to fair
market value. The assets of the Prism entities have been liquidated
and the proceeds realized from such liquidation were distributed to
creditors of Prism in accordance with the Plan and the estates have
been closed.
Extraordinary Gain
For the ten months ended July 31, 2002, the Company recorded a $153 million
extraordinary gain resulting from the discharge of indebtedness. See Note 3 of
Notes to Consolidated Financial Statements. During the two months ended
September 30, 2002, the Company recorded a $241 million, net of tax,
extraordinary gain related to the elimination of the excess fair value of net
assets over the reorganization value in accordance with SFAS No. 141, "Business
Combinations."
Net Earnings (Loss)
Net earnings were $100 million for the year ended September 30, 2003
compared to a net loss of $317 million for the fiscal year ended September 30,
2002.
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.
Tabular Disclosure of Contractual Obligations
The Company does not have any contractual debt, lease or purchase
obligations nor any other long-term liabilities reflected on its balance sheet
as of September 30, 2004.
Liquidity and Capital Resources
The Company must rely on cash on hand and cash generated from the orderly
sale and run-off of its assets to meet its liquidity needs. All funds generated
from the Company's remaining asset portfolios are required by the Plan to be
used to satisfy liabilities of the Company and, to the extent funds are
available, to pay dividends on the Company's Common Stock and to make
distributions with respect to the CDRs in the manner and priorities set forth in
the Plan. Because of the composition and nature of its asset portfolios, the
Company expects to generate funds from the sale or run-off of its asset
portfolios at a decreasing rate over time.
At September 30, 2004, the Company had unrestricted cash and cash
equivalents of approximately $157 million, an increase of approximately $60
million compared to September 30, 2003. Net cash provided by operating
activities for the year ended September 30, 2004 was $134 million. Net cash used
in investing activities was $5 million for the year ended September 30, 2004.
The Company's operating activities during the year ended September 30,
2004, including minimal capital expenditures, were funded by cash flows from
operations (primarily lease and sale receipts). During the year ended September
30, 2004, the Company received proceeds from a number of non-recurring events
including: approximately $46 million from Bay4 in settlement of the Company's
sale of US Leasing, approximately $38 million from Comprendium as final
settlement of the note from the sale of the Company's German subsidiary, $25
million in payments with respect to the participation interest in certain Agere
lease payments including the proceeds from the sale of its interest (see Note 4
of Notes to Consolidated Financial Statements), $10 million from the sale of
equity securities and approximately $5 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 December 1, 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, the ability of the Company to
implement the Plan, timely payment by its customers, global economic conditions
and controlling operating costs and expenses.
Net cash provided by operating activities was $134 million in fiscal 2004,
$1.42 billion in fiscal 2003 and $3.58 billion in fiscal 2002.
Dividends
In December 2003 and May 2004, the Company distributed approximately $50
million and $49 million, respectively, in the form of a dividend to stockholders
paid on the Company's Common Stock. 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.
Aggregate distributions (in millions) and cash payment per CDR in fiscal
2004 were as follows:
Aggregate Per
Payment CDR
--------- -------
December 2003 ............. $ 8 $.05140
March 2004 ................ 3 .01870
May 2004 .................. 12 .07810
--------- -------
$ 23 $.14820
========= =======
Gross cash distributions related to general unsecured claims totaled $3.986
billion through November 15, 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
November 15, 2004 of approximately $3.685 billion made to initially allowed
claimholders equates to a present value of $3.535 billion. The associated
percentage recovery was approximately 97 percent as of November 15, 2004.
See Critical Accounting Policies and Note 19 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 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.
Recently Issued Professional Accounting Standards
In May 2004, the Financial Accounting Standards Board issued FASB Staff
Position ("FSP") 106-2, "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003." This
statement applies to the sponsor of a single-employer defined benefit
postretirement health care plan for which (a) the employer has concluded that
prescription drug benefits available under the plan to some or all participants
for some or all future years are "actuarially equivalent" to Medicare Part D and
thus qualify for the subsidy under the Medicare Prescription Drug, Improvement
and Modernization Act of 2003; and (b) the expected subsidy will offset or
reduce the employer's share of the cost of the underlying postretirement
prescription drug coverage on which the subsidy is based. FSP No. 106-2 became
effective for the Company on September 1, 2004 and is not expected to have a
material effect on the Company
Risk Factors Relating to the Company
The following risk factors and other information included in this Annual
Report on Form 10-K should be carefully considered. The risks and uncertainties
described below are not the only ones the Company confronts. Additional risks
and uncertainties not presently known to it or that it currently deems
immaterial also may impair the Company's business operations and the
implementation of the Plan. If any of the following risks actually occurs, the
Company's business, financial condition, operating results and the
implementation of the Plan could be materially adversely affected.
Uncertainties Relating to the Bankruptcy Plan and the Limited Business
Plan
The Company has incurred and will continue to incur significant costs
associated with the administration of the estate of Comdisco, Inc. and in
completing the wind-down of operations. The amount of these costs, which are
being expensed as incurred, are expected to have a significant adverse affect on
the results of operations and on the Company's cash position.
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 complete this business plan is inherently uncertain. In
addition, unanticipated events and circumstances occurring subsequent to the
date of this Annual Report may affect the actual financial results of the
Company's operations.
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 previous 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.
Uncertainties in Collections and Recoveries
The Company believes that its collections on leases in default and
recoveries on accounts previously written off will provide future cash flows.
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. Some of these factors are beyond the control
of the Company.
The Company's Liquidity is Dependent on a Number of Factors
The Company's liquidity generally depends on cash on hand and 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.
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.
The estimated fair market value of the Company's equity securities was
determined in consultation with Windspeed based on a variety of factors,
including, but not limited to, quoted trading levels for publicly-traded
securities, industry and company multiples, industry acceptance in the market
place, liquidity discounts due to lock ups, estimated revenue, and customer,
product and market share growth by the respective companies in the portfolio.
Substantially all of these factors are outside the control of the Company and
are subject to significant volatility. There can be no assurance that the
Company will be able to realize the estimated fair market value. Furthermore,
the current estimated fair market value is subject to significant concentration
risk, as 89 percent of the estimated fair market value of the entire portfolio
is concentrated in less than fifteen individual companies and approximately
29 percent of the estimated amount is in one company.
Company Exposed to Asset Concentration Risk
The Company's asset concentrations expose the Company to additional risk in
that the inability of the obligor to meet its obligations to the Company could
significantly negatively impact the Company's cash flows (see Item 1,
"Customers," for examples of significant asset concentrations).
Impact of Interest Rates and Foreign Exchanges Rates
Increases in interest rates would negatively impact the value of certain of
the Company's assets and a strengthening of the US dollar would negatively
impact the value of the Company's net foreign assets.
Discontinued Operations and the Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. With respect to the Company's
discontinued operations prior to the adoption of SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets," actual losses could differ from
those estimates and will be reflected as adjustments in future financial
statements when probable and estimable.
Limited Public Market for Common Stock
There is currently a limited public market for the Company's Common Stock.
Holders of the Company's Common Stock may, therefore, have difficulty selling
their Common Stock, should they decide to do so. In addition, there can be no
assurances that such markets will continue or that any shares of Common Stock
which may be purchased may be sold without incurring a loss. Any such market
price of the Common Stock may not necessarily bear any relationship to the
Company's book value, assets, past operating results, financial condition or any
other established criteria of value, and may not be indicative of the market
price for the Common Stock in the future. Further, the market price of the
Common Stock may be volatile depending on a number of factors, including the
status of the Company's business performance, its limited business purpose,
industry dynamics, news announcements or changes in general economic conditions.
Limited Public Market for Contingent Distribution Rights
There is currently a limited public market for the Company's Contingent
Distribution Rights. Holders of the Company's Contingent Distribution Rights
may, therefore, have difficulty selling their Contingent Distribution Rights,
should they decide to do so. In addition, there can be no assurances that such
markets will continue or that any Contingent Distribution Rights which may be
purchased may be sold without incurring a loss. Any such market price of the
Contingent Distribution Rights may not necessarily bear any relationship to the
Company's book value, assets, past operating results, financial condition or any
other established criteria of value, and may not be indicative of the market
price for the Contingent Distribution Rights in the future. Further, the market
price of the Contingent Distribution Rights may be volatile depending on a
number of factors, including the status of the Company's business performance,
industry dynamics, news announcements or changes in general economic conditions.
Other
Other uncertainties include general business conditions, ability to sell
assets, reductions in technology budgets and related spending plans and the
impact of workforce reductions on the Company's operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk and Market Risk
Presently, the Company invests its cash and cash equivalents in money
market and other interest bearing accounts. Such cash and cash equivalents are
essentially the only floating rate assets held by the Company. The remaining
assets of the Company are fixed rate or non-interest bearing and are, therefore,
subject to a decrease in value if market rates increase. Currently, the Company
does not use derivative financial instruments to hedge this risk as the
Company's business purpose is to monetize all remaining assets.
At September 30, 2004, the Company held securities of six publicly-traded
companies: Atheros Communications, Inc., Blue Nile, Inc., Cytokinetics, Inc.,
NuVasive, Inc., Salesforce.com and Volterra Semiconductor Corporation. Each of
these holdings are subject to lock-up periods, which restrict the Company's
ability to sell in the near term. The Company's practice is to sell its
marketable equity securities within a reasonable period of time after the
lock-up period ends.
The Company has equity investments in private companies consisting
primarily of small investments in approximately two hundred private companies
that are all non-quoted securities. Common stock and preferred stock investments
are carried at the lower of cost or estimated fair market value in the Company's
financial statements. Warrants in non-public companies are carried at zero
value. These investments are subject to significant volatility and are difficult
to value.
Foreign Exchange Risk
The Company's business purpose is limited to the orderly sale or run-off of
all of its remaining assets, including assets denominated in foreign currencies.
Accordingly, the Company is exposed to the risk of future currency exchange rate
fluctuations, which is accounted for as an adjustment to stockholders' equity
until realized. Therefore, changes from reporting period to reporting period in
the exchange rates between various foreign currencies and the U.S. Dollar have
had and will continue to have an impact on the accumulated other comprehensive
loss component of stockholders' equity reported by the company, and such effect
may be material in any individual reporting period. In addition, exchange rate
fluctuation will have an impact on the US dollar value realized from the
repatriation of the proceeds from the sale or run-off of assets denominated in
foreign currencies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
Reports of Independent Registered Public Accounting Firm ........................................38
Consolidated Statements of Earnings (Loss) for the years ended September 30, 2004 and 2003
(Successor), the two-month period ended September 30, 2002 (Successor) and the
ten-month period ended July 31, 2002 (Predecessor) ..............................................39
Consolidated Balance Sheets as of September 30, 2004 and 2003 (Successor) ......................40
Consolidated Statements of Stockholders' Equity:
For the ten-month period ended July 31, 2002 (Predecessor)..................................41
For the two-month period ended September 30, 2002 and for the years ended
September 30, 2004 and 2003 (Successor).....................................................41
Consolidated Statements of Cash Flows for the years ended September 30, 2004 and 2003
(Successor), the two-month period ended September 30, 2002 (Successor)and the
ten-month period ended July 31, 2002 (Predecessor) ..............................................42
Notes to Consolidated Financial Statements.......................................................44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Comdisco Holding Company, Inc.:
We have audited the accompanying consolidated balance sheets of Comdisco
Holding Company, Inc. and subsidiaries (the Successor) as of September 30, 2004
and September 30, 2003, and the related consolidated statements of earnings
(loss), stockholders' equity, and cash flows for the years ended September 30,
2004 and September 30, 2003 and the period from August 1, 2002 to September 30,
2002, and the consolidated statements of earnings (loss), stockholders' equity,
and cash flows of Comdisco, Inc. and subsidiaries (the Predecessor) for the
period from October 1, 2001 to July 31, 2002. These consolidated financial
statements are the responsibility of the Successor's and Predecessor's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in note 1 to the consolidated financial statements, on July
16, 2001 the Predecessor and fifty of its domestic U.S. subsidiaries filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code from which it emerged on August 12, 2002. Accordingly, the accompanying
consolidated financial statements have been prepared in conformity with AICPA
Statement of Position 90-7, "Financial Reporting for Entities in Reorganization
Under the Bankruptcy Code," for the Successor as a new entity with assets,
liabilities, and a capital structure having carrying values not comparable with
prior periods as described in note 2.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Comdisco
Holding Company, Inc. and subsidiaries as of September 30, 2004 and 2003, the
results of their operations and cash flows for the years ended September 30,
2004 and 2003 and the period from August 1, 2002 to September 30, 2002, and the
results of operations and cash flows of Comdisco, Inc. and subsidiaries for the
period from October 1, 2001 to July 31, 2002, in conformity with U.S. generally
accepted accounting principles.
KPMG LLP
Chicago, IL
December 13, 2004
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(in millions except per share data)
SUCCESSOR | PREDECESSOR
Two months | Ten months
ended | ended
Year ended September 30, September 30, | July 31,
----------------------- ------------ | ----------
2004 2003 2002 | 2002
--------- --------- ------------ | ----------
Revenue |
Leasing |
Operating ................................................ $ 14 $ 128 $ 42 | $ 436
Direct financing ......................................... 1 3 1 | 19
Sales-type ............................................... 2 4 1 | 29
--------- --------- --------- | ----------
Total leasing ......................................... 17 135 44 | 484
|
Sales ......................................................... 43 91 1 | 164
Technology services ........................................... 1 15 3 | 37
Agere lease participation payment ............................. 25 -- -- | --
Sale of properties ............................................ 5 20 -- | --
Foreign exchange gain ......................................... -- 22 -- | 13
Other ......................................................... 17 20 11 | 47
--------- --------- --------- | ----------
Total revenue ......................................... 108 303 59 | 745
--------- --------- --------- | ----------
Costs and expenses |
Leasing |
Operating ................................................ 7 105 45 | 344
Sales-type ............................................... 1 4 1 | 24
--------- --------- --------- | ----------
Total leasing ......................................... 8 109 46 | 368
|
Sales ......................................................... 34 80 3 | 189
Technology services ........................................... 1 8 5 | 27
Selling, general and administrative ........................... 31 77 10 | 85
Contingent distribution rights ................................ 49 52 10 | --
Write-down of equity securities ............................... 2 25 3 | 70
Bad debt expense .............................................. (12) (92) 3 | 115
Interest (total Predecessor contractual interest 2002 - $214).. 1 25 12 | 16
Reorganization items .......................................... -- -- -- | 439
Fresh-start accounting adjustments ............................ -- -- -- | 369
--------- --------- --------- | ----------
Total costs and expenses ................................. 114 284 92 | 1,678
--------- --------- --------- | ----------
Earnings (loss) from continuing operations before income |
taxes (benefit) and extraordinary items ..................... (6) 19 (33) | (933)
Income taxes (benefit) ........................................ (42) (1) 2 | 48
--------- --------- --------- | ----------
Earnings (loss) from continuing operations before |
extraordinary items ......................................... 36 20 (35) | (981)
|
Earnings (loss) from discontinued operations, net of tax ...... (13) 80 18 | 287
--------- --------- --------- | ----------
Earnings (loss) before extraordinary items .................... 23 100 (17) | (694)
|
Extraordinary gain - debt discharge, net of tax ............... -- -- -- | 153
Extraordinary gain - recognition of excess of fair value of |
net assets over reorganization value, net of tax ............ -- -- 241 | --
--------- --------- --------- | ----------
Net earnings (loss) ........................................... $ 23 $ 100 $ 224 | $ (541)
========= ========= ========= | ==========
Basic earnings (loss) per common share: |
Earnings (loss) from continuing operations .................. $ 8.61 $ 4.80 $ (8.28) | $ (6.52)
Earnings (loss) from discontinued operations ................ (3.21) 19.11 4.27 | 1.91
Earnings (loss) from extraordinary items .................... -- -- 57.38 | 1.02
Cumulative effect of change in accounting principle ......... -- -- -- | --
--------- --------- --------- | ----------
Net earnings (loss) ......................................... $ 5.40 $ 23.91 $ 53.37 | $ (3.59)
========= ========= ========= | ==========
Diluted earnings (loss) per common share: |
Earnings (loss) from continuing operations .................. $ 8.61 $ 4.80 $ (8.28) | $ (6.52)
Earnings (loss) from discontinued operations ................ (3.21) 19.11 4.27 | 1.91
Earnings (loss) from extraordinary items .................... -- -- 57.38 | 1.02
Cumulative effect of change in accounting principle ......... -- -- -- | --
--------- --------- --------- | ----------
Net earnings (loss) ......................................... $ 5.40 $ 23.91 $ 53.37 | $ (3.59)
========= ========= ========= | ==========
See accompanying notes to consolidated financial statements
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except number of shares and per share data)
September 30, September 30,
2004 2003
------------- ------------
ASSETS
Cash and cash equivalents ............................... $ 157 $ 97
Cash - legally restricted ............................... 10 42
Receivables, net ........................................ 4 41
Inventory of equipment .................................. 1 9
Leased assets:
Direct financing and sales-type ....................... 1 26
Operating (net of accumulated depreciation) ........... 2 16
------------- ------------
Net leased assets ................................... 3 42
Equity securities ....................................... 14 18
Assets of discontinued operations ....................... 5 113
Other 4 11
------------- ------------
$ 198 $ 373
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ....................................... $ 2 $ 6
Income taxes:
Current ............................................... 6 29
Deferred .............................................. -- --
Liabilities related to assets of discontinued operations. 1 11
Deferred income ......................................... 2 27
Other liabilities:
Accrued compensation .................................. 12 62
Contingent distribution rights ........................ 70 44
Other ................................................. 2 12
------------- ------------
Total other liabilities .............................. 84 118
------------- ------------
95 191
Stockholders' equity:
Common stock $.01 par value. Authorized 10,000,000
shares; issued 4,200,000 shares. 4,196,022 shares
outstanding at September 30, 2004;
4,197,100 shares outstanding at September 30, 2003 ... -- --
Additional paid-in capital ............................ 109 169
Accumulated other comprehensive income ................ 10 13
Retained earnings (deficit) ........................... (16) --
Common stock held in treasury, at cost; 3,978 shares at
September 30, 2004 (2,900 at September 30, 2003)..... -- --
------------- ------------
Total stockholders' equity ........................ 103 182
------------- ------------
$ 198 $ 373
============= ============
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions)
Predecessor
Additional Accumulated Common
Common paid-in other compre- Retained stock in
stock capital hensive income earnings treasury Total
- ------------------------------------------- ----------- ---------- --------------- --------- --------- --------
Predecessor Company
Balance at September 30, 2001 $ 23 $ 365 $ (93) $ 772 $ (620) $ 447
Net loss for the ten months ended
July 31, 2002 (541) (541)
Translation adjustment 24 24
Change in unrealized gain (1) (1)
--------
Total comprehensive income (loss) (518)
Extinguishment of stockholders' equity in
connection with reorganization (23) (365) 70 (231) 620 71
- ------------------------------------------- ----------- ---------- --------------- --------- --------- --------
Balance at July 31, 2002 $ -- $ -- $ -- $ -- $ -- $ --
=========== ========== =============== ========= ========= ========
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions)
Successor
Additional Accumulated
Common paid-in other compre- Retained
stock capital hensive income earnings Total
- ------------------------------------------- ----------- ---------- --------------- --------- ----------
Successor Company
Balance at July 31, 2002 $ -- $ -- $ -- $ -- $ --
Issuance of New Common stock 384 384
Tax effect of fresh-start accounting 29 29
Net income for the two months ended
September 30, 2002 224 224
Translation adjustment 4 4
Change in unrealized gain --
----------
Total comprehensive income 228
- ------------------------------------------- ----------- ---------- --------------- --------- ----------
Balance at September 30, 2002 -- 413 4 224 641
Net income 100 100
Translation adjustment (2) (2)
Change in unrealized gain 11 11
----------
Total comprehensive income 109
Liquidating dividends (244) (324) (568)
- ------------------------------------------- ----------- ---------- --------------- --------- ----------
Balance at September 30, 2003 -- 169 13 -- 182
Net income 23 23
Translation adjustment -- --
Change in unrealized gain (3) (3)
----------
Total comprehensive income 20
Liquidating dividends (60) (39) (99)
- ------------------------------------------- ----------- ---------- --------------- --------- ----------
Balance at September 30, 2004 $ -- $ 109 $ 10 $ (16) $ 103
=========== ========== =============== ========= ==========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
SUCCESSOR | PREDECESSOR
Two months | Ten months
ended | ended
Year ended September 30, September 30, | July 31,
----------------------- ------------ | ----------
2004 2003 2002 | 2002
--------- --------- ------------ | ----------
Cash flows from operating activities: |
Operating lease and other leasing receipts .......... $ 39 $ 228 $ 53 | $ 590
Leasing costs, primarily rentals paid ............... -- -- -- | (2)
Lease portfolio sales ............................... -- 72 13 | 356
Sales of equipment ................................. 44 92 9 | 161
Sales costs ......................................... -- (2) (1) | (7)
Technology services receipts ........................ -- 16 4 | 44
Technology services costs ........................... -- (2) (1) | (18)
Note receivable receipts ............................ 1 78 33 | 201
Warrant proceeds .................................... 9 3 -- | 29
Other revenue ....................................... 37 7 9 | 38
Selling, general and administrative expenses ........ (72) (41) (28) | (79)
Contingent distribution rights payments ............. (23) (19) -- | --
Interest ............................................ -- (37) 1 | (21)
Income taxes ........................................ 19 (13) -- | 32
--------- --------- ------------ | ----------
Net cash provided by continuing operations ........ 54 382 92 | 1,324
Net cash provided by discontinued operations ...... 80 1,040 196 | 1,971
--------- --------- ------------ | ----------
Net cash provided by operating activities before |
reorganization items ........................... 134 1,422 288 | 3,295
--------- --------- ------------ | ----------
Operating cash flows from reorganization items: |
Interest received on cash accumulated because of |
Chapter 11 proceeding ............................... -- -- -- | 26
Professional fees paid for services rendered in |
connection with Chapter 11 proceeding ............... -- -- -- | (42)
--------- --------- ------------ | ----------
Net cash used by reorganization items ............. -- -- -- | (16)
--------- --------- ------------ | ----------
Net cash provided by operating activities ......... 134 1,422 288 | 3,279
--------- --------- ------------ | ----------
|
Cash flows from investing activities: |
Equipment purchased for leasing ..................... (1) (6) (2) | (44)
Notes receivable .................................... -- (1) -- | (18)
Equity investments .................................. (2) -- -- | (1)
Equipment purchased for leasing by discontinued |
operations .......................................... (1) (26) (60) | (267)
Other ............................................... (1) 20 (1) | 2
--------- --------- ------------ | ----------
Net cash used in investing activities ............. (5) (13) (63) | (328)
--------- --------- ------------ | ----------
Cash flows from financing activities: |
Cash used by discontinued operations ................ (4) (167) (56) | (267)
Net decrease in notes and term notes payable ........ -- (1,085) (33) | (462)
Principal payments on secured debt .................. -- (2) (5) | (117)
Discounted lease proceeds ........................... -- -- 1 | 12
Initial cash distribution to creditors .............. -- -- -- | (1,983)
Cash portion of disputed claims reserve ............. -- -- -- | (248)
Dividends paid on New Common stock .................. (99) (568) -- | --
Decrease (increase) in legally restricted cash ...... 32 (24) 40 | (5)
Other ............................................... 2 (12) (7) | (20)
--------- --------- ------------ | ----------
Net cash used in financing activities ............. (69) (1,858) (60) | (3,090)
--------- --------- ------------ | ----------
|
Net increase (decrease) in cash and cash equivalents ... 60 (449) 165 | (139)
Cash and cash equivalents at beginning of period ....... 97 546 381 | 520
--------- --------- ------------ | ----------
Cash and cash equivalents at end of period ............. $ 157 $ 97 $ 546 | $ 381
========= ========= ============ | ==========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
SUCCESSOR | PREDECESSOR
Two months | Ten months
ended | ended
Year ended September 30, September 30, | July 31,
----------------------- ------------ | ----------
2004 2003 2002 | 2002
--------- --------- ------------ | ----------
Reconciliation of earnings (losses) from |
continuing operations to net cash |
provided by operating activities: |
Earnings (losses) from continuing operations ............ $ 36 $ 20 $ (35) | $ (981)
Adjustments to reconcile earnings (losses) |
from continuing operations to net cash provided |
by operating activities |
Leasing costs, primarily |
depreciation and amortization ..................... 9 109 46 | 366
Leasing revenue, primarily principal portion of |
direct financing and sales-type lease rentals ..... 21 93 9 | 106
Cost of sales ....................................... 33 78 2 | 182
Technology services costs, primarily |
depreciation and amortization ...................... 1 6 4 | 9
Interest ............................................ 1 (12) 13 | (5)
Income taxes ........................................ (23) (14) 2 | 80
Principal portion of notes receivable ............... 1 72 23 | 175
Selling, general, and administrative expenses ....... (53) (32) (2) | 191
Contingent Distribution Rights ...................... 26 34 -- | --
Warrant proceeds in excess of income ................ -- 1 -- | 13
Fresh-start accounting adjustments .................. -- -- -- | 369
Reorganization items ................................ -- -- -- | 423
Lease portfolio sales ............................... -- 72 13 | 356
Other, net .......................................... 2 (45) 17 | 24
--------- --------- ------------ | ----------
Net cash provided by continuing operations ... 54 382 92 | 1,308
Net cash provided by discontinued operations . 80 1,040 196 | 1,971
--------- --------- ------------ | ----------
Net cash provided by operating activities .... $ 134 $ 1,422 $ 288 | $ 3,279
========= ========= ============ | ==========
Supplemental Schedule of Non-cash Financing Activities: |
Reduction of discounted lease rentals in lease |
portfolio sales $ -- $ -- $ -- | $ 292
========= ========= ============ | ==========
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
Note 1 - Reorganization
On July 16, 2001, Comdisco, Inc. ("Predecessor") and 50 of its domestic
subsidiaries filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code in the Bankruptcy Court (consolidated case number
01-24795) (the "Filing"). Comdisco Holding Company, Inc., as the successor
company ("Successor") to Comdisco, Inc., emerged from bankruptcy under a
confirmed plan of reorganization (the First Amended Joint Plan of Reorganization
(the "Plan")) that became effective on August 12, 2002 (the "Effective Date").
For financial reporting purposes only, however, the effective date for
implementation of fresh-start reporting was July 31, 2002.
Implementation of the Plan resulted in the reorganization of Comdisco, Inc.
and its domestic and foreign subsidiaries into Comdisco Holding Company, Inc.
and three new primary subsidiaries: (i) Comdisco Global Holding Company, Inc. (a
direct wholly-owned subsidiary of Comdisco Holding Company, Inc.), which managed
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 managed the sale and run-off of the Company's
reorganized US Leasing operations and assets; and (iii) Comdisco Ventures, Inc.
(a direct wholly-owned subsidiary of Comdisco, Inc.), which managed the sale and
run-off of the Company's venture financing operations and assets ("Ventures").
The Company's Corporate Asset Management group ("CAM") was 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 were managed
through Comdisco, Inc. Implementation of the Plan also resulted in the
reorganization of Prism Communication Services, Inc. and its subsidiaries
("Prism"); as a consequence, Prism is now a direct wholly-owned subsidiary of
Comdisco Domestic Holding Company, Inc., which was a direct wholly-owned
subsidiary of Comdisco, Inc. The assets of the Prism entities have been
liquidated and the proceeds realized from such liquidation were distributed to
creditors of Prism in accordance with the Plan and the estate was closed.
Comdisco Holding Company, Inc. was formed on August 8, 2002 for the purpose
of selling, collecting or otherwise reducing to money in an orderly manner the
remaining assets of the Company and all of its direct and indirect subsidiaries,
including Comdisco, Inc. As more fully described in the Plan, the Company's
business purpose is limited to the orderly sale or run-off of all its remaining
assets. Pursuant to the Plan and restrictions contained in its certificate of
incorporation, the Company is specifically prohibited from engaging in any
business activities inconsistent with its limited business purpose. Prior to the
bankruptcy, Comdisco, Inc. provided technology services worldwide to help its
customers maximize technology functionality, predictability and availability,
while freeing them from the complexity of managing their technology. Comdisco,
Inc. offered leasing to key vertical industries, including semiconductor
manufacturing and electronic assembly, healthcare, telecommunication,
pharmaceutical, biotechnology and manufacturing. Through its Comdisco Ventures
group, Comdisco, Inc. provided equipment leasing and other financing and
services to venture capital-backed companies.
Consummation of the Plan resulted in (i) the distribution of cash totaling
approximately $2.2 billion; (ii) the issuance of variable rate senior secured
notes due 2004 in aggregate principal amount of $400 million (the "Senior
Notes"); (iii) the issuance of 11% subordinated secured notes due 2005 in
aggregate principal amount of $650 million (the "Subordinated Notes"); (iv) the
issuance of 4.2 million shares of new common stock ("Common Stock"); (v) the
issuance of contingent distribution rights (the "CDRs") to holders of the
Predecessor company's common stock; and (vi) the cancellation of the Predecessor
company's notes, notes payable, common stock and stock options.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
In this annual report on Form 10-K, references to "the Company," "Comdisco
Holding," "we," "us" and "our" mean Comdisco Holding Company, Inc., its
consolidated subsidiaries, including Comdisco Global Holding Company, Inc.,
Comdisco, Inc., Comdisco Domestic Holding Company, Inc. and Comdisco Ventures,
Inc., and its predecessors, except in each case where the context indicates
otherwise. References to "Comdisco, Inc." mean Comdisco, Inc. and its
subsidiaries, other than the Prism entities, prior to the Company's emergence
from bankruptcy on August 12, 2002, except where the context indicates
otherwise.
Due to the Company's reorganization and implementation of fresh-start
reporting, the consolidated financial statements for the Successor company are
not comparable to those of the Predecessor company.
A black line has been drawn on the accompanying consolidated financial
statements to distinguish between the Successor company and the Predecessor
company.
Nature of Operations
Comdisco Holding Company, Inc. was formed on August 8, 2002 for the purpose
of selling, collecting or otherwise reducing to money in an orderly manner the
remaining assets of the Company and all of its direct and indirect subsidiaries,
including Comdisco, Inc. Prior to the bankruptcy, Comdisco, Inc. provided
technology services worldwide to help its customers maximize technology
functionality, predictability, and availability, while freeing them from the
complexity of managing their technology. Comdisco, Inc. offered leasing to key
vertical industries, including semiconductor manufacturing and electronic
assembly, healthcare, telecommunications, pharmaceutical, biotechnology and
manufacturing. Through its Comdisco Ventures group, Comdisco, Inc. provided
equipment leasing and other financing and services to venture capital-backed
companies.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany accounts and transactions have
been eliminated.
Translation Adjustments
All assets and liabilities denominated in foreign currencies are translated
at the exchange rate on the balance sheet date. Revenues, costs and expenses are
translated at average rates of exchange prevailing during the period.
Translation adjustments are deferred as a separate component of stockholders'
equity. Gains and losses resulting from foreign currency transactions are
included in other revenue in the consolidated statements of earnings (loss).
Income Taxes
The Company uses the asset and liability method to account for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary 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.
Lease Accounting
See Notes 7, 8, and 9 of Notes to Consolidated Financial Statements for a
description of lease accounting policies, lease revenue recognition and related
costs.
Technology Services
Revenue from Availability Solutions' contracts was recognized monthly as
subscription fees became due. Revenue from Availability Solutions continuity
contracts was recognized over the terms of the related contracts or as the
service was provided. Revenue from continuity contracts is reported in
discontinued operations.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid debt instruments
with original maturities of 90 days or less.
Allowance for Credit Losses
See Note 12 of Notes to Consolidated Financial Statements for a description
of the policy for reserving for credit losses.
Inventory of Equipment
Inventory of equipment is stated at the lower of cost or market by
categories of similar equipment.
Property, Plant and Equipment
As result of fresh-start reporting adjustments, $27 million of excess fair
value of net assets over reorganization value was allocated as a reduction to
property, plant and equipment in accordance with AICPA Statement of Position
("SOP") 90-7 and Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations." Accordingly, the net book value of property, plant and
equipment as of September 30, 2004 and September 30, 2003 was zero.
The Company completed the sale of two of its five properties, including its
former headquarters, in September 2003. The Company completed the sale of its
Carlstadt property in November 2003 for approximately $2.2 million. The Company
completed the sale of its former Availability Solutions facility in Eching,
Germany in March 2004 for approximately $2.5 million. See Note 5 of Notes to
Consolidated Financial Statements for additional information about these
property sales.
The remaining property, a day care facility in Rosemont, Illinois, is
offered for sale by the Company at this time. The Company estimates the fair
market value of the remaining property is less $.75 million.
Equity Securities
Marketable equity securities: The Company classifies all marketable equity
securities as available-for-sale. These marketable equity securities are carried
at fair value, based on quoted market prices, with unrealized gains and losses
excluded from earnings (loss) and reported in accumulated other comprehensive
income (loss).
Equity investments in private companies: Equity investments in private
companies for which there is no readily determinable fair value are carried at
the lower of cost or estimated fair market value as determined by the Company in
consultation with Windspeed. The Company, in consultation with Windspeed,
identifies and records losses on equity investments in private companies when
market and company specific events and circumstances indicate that such assets
might be impaired. All write-downs are considered permanent impairments for
financial reporting purposes.
Warrants: The Company's investments in warrants (received in connection
with its lease or other financings) are initially recorded at zero cost and
carried in the consolidated financial statements as follows:
o Warrants that meet the criteria for classification as
available-for-sale are carried at fair value based on quoted market
prices with unrealized gains excluded from earnings (loss) and
reported in accumulated other comprehensive income (loss).
o Warrants that do not meet the criteria for classification as
available-for-sale continue to be carried at zero value.
Contingent Distribution Rights
See Note 19 of Notes to Consolidated Financial Statements for a description
of the policy for recording the estimated liability to CDR holders.
Earnings (Loss) Per Common Share
Earnings (loss) per common share-basic are computed by dividing the net
earnings (loss) to common stockholders by the weighted average number of common
shares outstanding for the period. Earnings (loss) per common share-diluted
reflect the maximum dilution that would have resulted from the exercise of stock
options. Earnings (loss) per common share-diluted are computed by dividing the
net earnings (loss) to common stockholders by the weighted average number of
common shares outstanding and all dilutive stock options (dilutive stock options
are based on the treasury stock method).
Reclassifications
Certain reclassifications have been made in the 2002 and 2003 consolidated
financial statements to conform to the 2004 presentation.
Note 3 - Fresh-Start Reporting
The Company adopted fresh-start reporting because, as a result of
implementation of the Plan, holders of the Predecessor's existing common stock
immediately before filing and confirmation of the Plan retained less than 50
percent of the Common Stock of the emerging entity and the Company's
reorganization value at emergence was less than its post-petition liabilities
and allowed claims.
Under fresh start reporting, the reorganization value of the Company is
allocated to estimated fair value of the emerging Company's net assets. The
Company's reorganization value was based on the consideration of many factors
and various valuation methodologies, primarily discounted cash flows, believed
by the Company's management and its financial advisors to be representative of
the Company's business and industry. The allocation of the Company's
reorganization value to the estimated fair value of the net assets of the
emerging company was determined in a manner similar to the accounting provisions
applied for business combinations under Statement of Financial Accounting
Standards No. 141 (SFAS 141) which consisted primarily of discounted cash flows
for leased assets, amounts to be paid discounted at current rates for
liabilities and recording of deferred taxes in accordance with generally
accepted accounting principles.
The Company's reorganization value was less than the fair value of the
emerging Company's net assets as estimated by the Company. In accordance with
SFAS 141, the excess of the fair value of the net assets over the reorganization
value is used to reduce the value of certain assets (primarily long-lived
non-financial assets) to zero. The remaining excess was held as a contra asset
on the balance sheet of the Company as of July 31, 2002. The Company recognized
an extraordinary gain of $241 million, net of tax, in the Successor consolidated
financial statements to recognize the excess which remained after reducing
property, plant and equipment to zero. The excess of the estimated fair value of
the net assets of the emerging Company over the reorganization value primarily
relates to three factors: (1) the Company's European IT Leasing business
performing better than expected (2) the strengthening of the Euro from the time
of estimation of the reorganization value as disclosed in the Plan; and (3) the
reorganization value considered future operating expenses, whereas the estimated
fair value of the net assets of the emerging company did not. All future
operating expenses will be expensed as incurred in accordance with generally
accepted accounting principles.
The reorganization value and the related allocation to the estimated fair
value of the net assets of the emerging Company was based upon a variety of
estimates and assumptions about future circumstances and events. Such estimates
and assumptions are inherently subject to significant uncertainties.
The extraordinary gain-debt discharge for the ten months ended July 31,
2002 was calculated as follows (in thousands):
Historical carrying value of old debt securities $ 3,556
Historical value of related accrued interest 83
Unamortized portion of deferred debt issuance costs (1)
Prepetition accounts payable and estimated liability
related to disputed claims 180
Plan New Debt (1,050)
Plan Cash Distribution (1,983)
Plan New Common Stock (384)
Disputed Claims Reserve (cash) (248)
---------
153
Tax provision --
---------
Gain on extinguishment of debt $ 153
=========
Note 4 - Discontinued Operations
Because of the sale of assets described in Note 5 of Notes to Consolidated
Financial Statements, amounts in the consolidated financial statements and
related notes for all periods shown have been restated to account for the US
Leasing operations, International Leasing, German Leasing Subsidiary and
Availability Solutions as discontinued operations. "International Leasing"
refers to the Company's former French, Swiss, Austrian, Australian and New
Zealand leasing operations. The Company sold the stock of its French, Swiss and
Austrian subsidiaries and sold the assets of its Australian and New Zealand
operations. Each of the aforementioned transactions resulted from an extensive
offering and competitive bidding process run by the Company's independent
investment banking firm. In the case of Availability Solutions, the sale also
resulted from a Bankruptcy Court-supervised auction process.
The assets of Prism Communication Services, Inc. ("Prism") have been
liquidated and the proceeds realized from such liquidation distributed to
creditors of Prism in accordance with the Plan. On February 26, 2004, the
Bankruptcy court entered an order closing the fully administered Prism cases
effective March 5, 2004. Results of operations of Prism for fiscal 2001 are
included in discontinued operations.
Following is summary financial information for the Company's discontinued
operations for the fiscal years ended September 30, 2004 and 2003, the two
months ended September 30, 2002 and the ten months ended July 31, 2002. The
Availability Solutions information below includes the results from the Company's
Availability Solutions businesses sold to SunGard as well as the Availability
Solutions operations discontinued in Germany and Spain (in millions):
SUCCESSOR
Fiscal year ended September 30, 2004
-----------------------------------------------------
Inter- German
national Leasing
US Leasing Leasing Subsidiary Total
---------- ---------- ---------- ----------
Revenue $ 30 $ 1 $ 2 $ 33
========== ========== ========== ==========
Earnings from discontinued operations:
Before income taxes $ (9) $ 1 $ (7) $ (15)
Income taxes (benefit) -- (2) -- (2)
---------- ---------- ---------- ----------
Net earnings (loss) $ (9) $ 3 $ (7) $ (13)
========== ========== ========== ==========
Fiscal year ended September 30, 2003
-----------------------------------------------------
Inter- German
national Leasing
US Leasing Leasing Subsidiary Total
---------- ---------- ---------- ----------
Revenue $ 241 $ 5 $ 78 $ 324
========== ========== ========== ==========
Gain on sale $ -- $ 7 $ 24 $ 31
========== ========== ========== ==========
Earnings from discontinued operations:
Before income taxes (benefit) $ 26 $ 9 $ 37 $ 72
Income taxes (benefit) (1) (12) 1 3 (8)
--------- ---------- ---------- ----------
Net earnings $ 38 $ 8 $ 34 $ 80
========= ========== ========== ==========
(1) The $12 million income tax benefit for US Leasing during fiscal year
2003 is due to a reduction of deferred tax liabilities relating to the
Company's Canadian operations. See Note 13 of Notes to Consolidated
Financial Statements for further information relating to income taxes.
Two months ended September 30, 2002
-----------------------------------------------------
Inter- German
national Leasing
US Leasing Leasing Subsidiary Total
---------- ---------- ---------- ----------
Revenue $ 79 $ 22 $ 31 $ 132
========== ========== ========== ==========
Earnings from discontinued operations:
Before income taxes $ 22 $ (8) $ 7 $ 21
Income taxes 1 1 1 3
---------- ---------- ---------- ----------
Net earnings (loss) $ 21 $ (9) $ 6 $ 18
========== ========== ========== ==========
PREDECESSOR
Ten months ended July 31, 2002
------------------------------------------------------------------------------------
Inter- German
Availability national Leasing
Solutions US Leasing Leasing Subsidiary Prism Total
------------ ---------- ----------- ----------- ---------- ----------
Revenue $ 67 $ 347 $ 137 $ 169 $ -- $ 720
============ ========== =========== =========== ========== ==========
Gain on sale $ 326 $ -- $ -- $ -- $ -- $ 326
============ ========== =========== =========== ========== ==========
Income from discontinued operations:
Before income taxes (benefit) $ 339 $ (26) $ 4 $ 35 $ (3) $ 349
Income taxes (benefit) 26 (10) 2 7 -- 25
------------ ---------- ----------- ----------- ---------- ----------
Net earnings (loss) 313 (16) 2 28 (3) 324
Estimated loss on disposal
Before income taxes -- -- (37) -- -- (37)
Income taxes -- -- -- -- -- --
------------ ---------- ----------- ----------- ---------- ----------
Net loss -- -- (37) -- -- (37)
------------ ---------- ----------- ----------- ---------- ----------
Total $ 313 $ (16) $ (35) $ 28 $ (3) $ 287
============ ========== =========== =========== ========== ==========
The estimated loss on disposal before income taxes of the discontinued
operations for the ten months ended July 31, 2002 included the following (in
millions):
Inter-
national
Leasing
--------
Carrying value of net assets in excess of
anticipated proceeds $ 37
Expenses of asset disposal and anticipated
operating loss from the discontinued date
through the date of disposal --
---------
Loss on disposal before income taxes $ 37
=========
Note 5 - Sale of Assets
Sale of Assets
US Leasing operations
On August 25, 2003, the Company announced that it had agreed to sell the
assets of its US 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 nonrecourse interest of approximately $27.3 million in certain other
leases. In addition, the Company received a note in the amount of approximately
$39.9 million payable primarily from the realization of the residual value of
the assets. Furthermore, the note evidences the Company's right to share in the
proceeds, if any, realized from the assets beyond the stated amount of the note.
Through May 13, 2004, the Company had received approximately $29 million of
payments on the residual note. 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 realized a gain of approximately $6 million as a result of
this transaction in the three months ended June 30, 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 remaining principal balance, which is included in
assets of discontinued operations, was approximately $4 million at September 30,
2004, including contractual lease payments of approximately $2.7 million due
from a subsidiary of VarTec Telecom Inc. through December 2005. Vartec filed for
Chapter 11 bankruptcy protection in November 2004.
On September 30, 2003, the Company completed the sale of its Canadian
information technology assets to Bay4 Capital Partners, Inc. Under the terms of
the asset purchase agreement the Company received approximately 1.6 million
Canadian dollars (approximately $1.2 million as of September 30, 2003).
European IT Leasing
On October 18, 2002, the Company announced that it had sold Computer
Discount GmbH, a leasing subsidiary of Comdisco, Inc. formerly known as Comdisco
Austria GmbH, to the Austrian company PH Holding GmbH. Under the terms of the
purchase agreement, PH Holding GmbH agreed to pay Euro 7 million (approximately
U.S. $8.6 million as of September 30, 2002) for 100 percent of the stated share
capital of Computer Discount GmbH. As part of the deal, PH Holding GmbH agreed
to continue to oversee the liquidation of Comdisco Ceska Republika S.R.O., a
wholly-owned Czech subsidiary of Computer Discount GmbH. On October 18, 2002,
the Company announced that it had sold Comprendium Finance S.A., formerly known
as Comdisco (Switzerland) S.A., a leasing subsidiary of Comdisco Global Holding
Company, Inc., to Comprendium Investments S.A., a Swiss company. Pursuant to the
terms of the sale agreement, the Company received CHF 13.0 million
(approximately U.S. $8.7 million as of September 30, 2002). On October 18, 2002,
the Company announced that it, along with Comdisco Global Holding Company, Inc.,
had entered into an agreement for the sale of the stock of the Company's French
leasing subsidiaries, Comdisco France SA and Promodata SNC, to Econocom Group
SA/NV. Comdisco France S.A. was a wholly-owned subsidiary of Comdisco Global
Holding Company, Inc. and Promodata SNC was a wholly-owned subsidiary of
Comdisco France S.A. The sale of the French leasing subsidiaries closed on
December 23, 2002 and the Company received the proceeds in the amount of
approximately Euro 69 million (U.S. $70 million).
On April 30, 2003, the Company announced that it had completed the sale of
the stock of its leasing subsidiary in Germany to Munich-based Comprendium
Investment (Deutschland) GmbH, which is owned by Comprendium Investments S.A.
("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 Euro 30.5 million in lieu of four payments of Euro
9.5 million 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. During the three months ended June 30, 2003 the
Company repatriated funds from the sale of stock of its German Leasing
Subsidiary. As a result, the Company recorded a $24 million gain related to the
realization of deferred translation gains which is included in earnings (loss)
of discontinued operations.
Corporate Asset Management
On January 14, 2002, Comdisco, Inc. announced the sale of substantially all
of its electronics and laboratory and scientific equipment leasing assets to GE
Capital Corporation ("GE Capital"). The Bankruptcy Court approved the sale on
January 24, 2002. On April 24, 2002, Comdisco, Inc. received approximately $548
million for the sale of these assets, which included the assumption of
approximately $258 million of related secured debt and other obligations. On May
31, 2002, Comdisco, Inc. and GE Capital completed a second closing on the sale
of electronics and laboratory and scientific assets, for which Comdisco, Inc.
received an additional approximately $24 million, including the assumption of
approximately $5 million of related secured debt and other obligations. The
purchase price for both closings was subject to adjustment based upon the
completion of a post-closing review of the purchase price calculation. A portion
of the purchase price was held back at each closing pending the resolution of
that review, which was completed on August 4, 2003. In addition, the Company
received additional consideration based on the performance of the electronics
assets sold to GE Capital. Certain electronics and laboratory and scientific
assets were not purchased by GE Capital due to documentation, credit or other
issues. The Company, through its CAM group, continues to manage the sale or
run-off of these assets.
On April 4, 2002, Comdisco, Inc. announced the sale of substantially all of
its healthcare leasing assets to GE Capital. The Bankruptcy court approved the
sale on April 18, 2002. On May 31, 2002, Comdisco, Inc. and GE Capital completed
a first closing on the sale of the healthcare assets. Comdisco, Inc. received
approximately $117 million for the sale of these assets, including the
assumption of approximately $46 million of related secured debt and other
liabilities. On June 30, 2002, Comdisco, Inc. and GE Capital completed a second
closing on the sale of healthcare assets for which Comdisco, Inc. received an
additional $20 million, including the assumption of approximately $5 million of
related secured debt and other liabilities. The purchase price for both closings
was subject to adjustment based upon the completion of a post-closing review of
the purchase price calculation. A portion of the purchase price was held back at
each closing pending the resolution of that review, which was completed on
August 4, 2003. Certain healthcare assets were not purchased by GE Capital due
to documentation, credit, or other issues. The Company, through its CAM group,
continues to manage the sale or run-off of these assets.
On April 9, 2002, Comdisco, Inc. announced that it had agreed to sell
substantially all of its information technology (IT) leasing assets in Australia
and New Zealand to Allco, an Australian company specializing in equipment and
infrastructure finance and leasing. The Bankruptcy Court approved the sale on
April 18, 2002. Under the terms of the sale agreement, Allco agreed to hire all
of the Comdisco Australia and New Zealand employees and purchase most of its
assets in Australia and New Zealand in a series of closings. On June 28, 2002,
Comdisco, Inc. and Allco completed the first closing on the sale of leased
assets in Australia and New Zealand, with the final closing completed on June 3,
2003. The Company received approximately $32 million for the assets sold. Allco
did not purchase all of the Company's IT leasing assets in Australia and New
Zealand. As such, the Company, through its CAM group, continued to manage the
sale or run-off of these assets until completed in fiscal 2003.
On August 4, 2003, the Company announced the completion of the post-closing
review of the purchase price calculation for the sale of its Electronics,
Laboratory and Scientific, and Healthcare leasing portfolios to GE Capital. The
Company received approximately $25 million in the settlement of the purchase
price holdbacks. On the same date, the Company also announced that it had agreed
to a settlement with GE Capital regarding their future contingent payment
obligations on the Electronics equipment leasing business (collectively, the "GE
Settlement"). The Company received a single $40 million cash payment and other
consideration valued by the Company at approximately $29 million. The other
consideration primarily consisted of a participation interest in certain Agere
Systems, Inc. ("Agere") lease payments previously purchased by GE Capital. The
Company and GE Capital also agreed to a mutual release of substantially all
potential indemnification claims under the sale agreements for the Electronics,
Laboratory and Scientific, and Healthcare leasing portfolios. As a result of the
settlement of the purchase price holdback and the settlement of the contingent
payment obligations, the Company recorded a gain of approximately $2 million in
its fourth fiscal quarter ended September 30, 2003 (see below for a description
of the sale of its participation interest in fiscal 2004).
On September 26, 2003, the Company announced the sale of two of its five
remaining properties. MB Financial, Inc. a financial services holding company
that is the parent of MB Financial Bank, N.A., purchased the Company's 287,000
square-foot headquarters building located at 6111 N. River Road in Rosemont,
Illinois for $19.3 million. The sale closed on September 25, 2003. The Company
remained as a tenant in the building through October 2004. CenterPoint
Properties Trust, a real estate investment trust, purchased the Company's
250,000 square-foot warehouse facility located at 800 Albion Way in Schaumburg,
Illinois for approximately $3.7 million. The sale closed on August 15, 2003.
The Company completed the sale of its Carlstadt property in November 2003
for approximately $2.2 million. The Company recorded a $2.2 million gain during
the three months ended December 31, 2003 as a result of the sale.
On January 7, 2004, the Company completed the sale of its participation
interest in certain Agere lease payments (see above for description of the 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. Approximately $1.2 million of the remaining $3
million placed in escrow in January 2004 was received by the Company on May 12,
2004, with the balance scheduled to be received by the Company on November 11,
2004.
The participation interest was included in Comdisco's September 30, 2003
balance sheet in receivables at the present value of the minimum payments, or
approximately $24 million and, in a like amount, in deferred income. During the
year ended September 30, 2004, the Company received approximately $25 million
($9 million in payments prior to the sale, $15 million from the sale and $1
million from the escrow in May 2004), respectively, in payments with respect to
the participation interest. 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 only remaining property owned by the Company at September 30, 2004
(which is currently for sale by the Company) was a day-care facility adjacent to
the Company's former headquarters, with an estimated fair market value of less
than $750,000. See Note 2 of Notes to Consolidated Financial Statements,
Property, Plant and Equipment, for the impact of fresh-start reporting
adjustments on the net book value of property, plant and equipment at September
30, 2004 and 2003.
Services
On November 15, 2001, Comdisco, Inc. completed the sale of its Availability
Solutions business to SunGard Data Systems Inc. ("SunGard") for $825 million in
cash (plus approximately $25 million in cash for estimated working capital
received in excess of agreed-upon levels). At closing, $45 million of the
purchase price was put into escrow to satisfy any post-closing indemnity claims
and $15 million was put into escrow to satisfy any closing date working capital
shortfalls. Of the $45 million put into escrow, the Company has received
approximately $43 million and approximately $1.6 million was held in escrow
pending resolution of disputed matters. In November 2003, the Company and
SunGard resolved the disputed matters and, as a result, the Company received
$763,000, with the balance held in escrow returned to SunGard. During the second
quarter of fiscal 2002, the Company returned the entire $15 million working
capital escrow to SunGard to settle all outstanding working capital adjustment
issues. The terms of the sale were arrived at pursuant to the auction process
approved by the Bankruptcy Court. The sale included the purchase of assets of
the U.S. operations of the Availability Solutions business and the stock of its
subsidiaries in the United Kingdom, France and Canada. The sale excluded the
purchase of the stock of subsidiaries in Germany and Spain, as well as other
identified assets, including Network Services and IT CAP services business. The
Company has exited the Availability Solutions businesses in Germany and Spain.
The Company announced on February 5, 2002 that it had executed an agreement
for the sale of substantially all of its North American IT CAP Services
contracts to T-Systems Inc. ("T-Systems") for approximately $7 million, plus
consideration for future business with those accounts. The sale was approved by
the Bankruptcy Court on February 14, 2002 and closed on February 28, 2002.
During the second quarter of fiscal 2002, the Company recorded a $3 million
pre-tax loss on the sale to T-Systems.
Note 6 - Reorganization Items and Fresh-Start Reporting Adjustments
Reorganization Items
Expenses and income of the Predecessor company directly incurred or
realized as a result of the Chapter 11 cases have been segregated from the
normal operations and are disclosed separately. As a result of the Company's
emergence from bankruptcy on August 12, 2002, the Company ceased recording
bankruptcy related expenses and income within reorganization items. As such, the
Company does not have reorganization items for either the fiscal year ended
September 30, 2004 and 2003 or the two months ended September 30, 2002. The
major components for the ten months ended July 31, 2002 were as follows (in
millions):
PREDECESSOR
2002
-----
Estimated loss on sale on leased assets $ 263
Loss on IT CAP sale 3
DIP fees 8
Disputed Claims 127
Other asset write-downs 22
Professional fees 42
Interest income (26)
-----
$ 439
=====
In accordance with SOP 90-7 and SFAS No. 5 "Accounting for Contingencies,"
in addition to liabilities previously accrued, Comdisco, Inc., the Predecessor
Company, recorded in its statement of earnings (loss) for the ten months ended
July 31, 2002, an additional liability of $127 million related to the Disputed
Claims.
Professional fees related to legal, investment advisory and other
professional services. DIP facility fees relate to the write-off of previously
capitalized arrangement and structuring fees the Company incurred in connection
with the Debtor-In-Possession (DIP) facility (see Note 11 of Notes to
Consolidated Financial Statements). Interest income included interest earned on
the Company's unrestricted cash balance that would not have been earned if the
Company had not filed for Chapter 11 protection.
Fresh-Start Reporting Adjustments
The major components of fresh-start accounting adjustments, which were
expensed, for the ten months ended July 31, 2002 are as follows (in millions):
PREDECESSOR
2002
-----
Fair value adjustment to assets $ 65
Excess fair value of net assets over
reorganization value 271
Recognition of accumulated other comprehensive loss 70
-----
406
Charges related to assets in
discontinued operations (37)
-----
Total fresh-start reporting adjustments $ 369
=====
Leasing
Note 7 - Lease Accounting Policies
SFAS No. 13, "Accounting for Leases," requires that a lessor account for
each lease by either the direct financing, sales-type or operating method.
Leased Assets
Direct financing and sales-type leased assets consist of the present value
of the future minimum lease payments plus the present value of the residual
(collectively referred to as the net investment). Residual is the estimated fair
market value of the equipment on lease at lease termination. In estimating the
equipment's fair value at lease termination, the Company relies on historical
experience by equipment type and manufacturer and, where available, valuations
by independent appraisers, adjusted for known trends. The Company's estimates
are reviewed continuously to ensure reasonableness; however, the amounts the
Company will ultimately realize could differ from the estimated amounts.
Operating leased assets consist of the equipment cost, less the amount
depreciated to date.
Revenue, Costs and Expenses
o Direct financing leases: Revenue consists of interest earned on the
present value of the lease payments and residual. Revenue is
recognized periodically over the lease term as a constant percentage
return on the net investment. There are no costs and expenses related
to direct financing leases since leasing revenue is recorded on a net
basis.
o Sales-type leases: Revenue consists of the present value of the total
contractual lease payments which is recognized at lease inception.
Costs and expenses consist of the equipment's net book value at lease
inception, less the present value of the residual. Interest earned on
the present value of the lease payments and residual, which is
recognized periodically over the lease term as a constant percentage
return on the net investment, is included in direct financing lease
revenue in the statement of earnings (loss).
o Operating leases: Revenue consists of the contractual lease payments
and is recognized on a straight-line basis over the lease term. Costs
and expenses are principally depreciation of the equipment.
Depreciation is recognized on a straight-line basis over the lease
term to the Company's estimate of the equipment's fair market value at
lease termination, also commonly referred to as "residual" value. In
estimating the equipment's fair value at lease termination, the
Company relies on historical experience by equipment type and
manufacturer and, where available, valuations by independent
appraisers, adjusted for known trends. The Company's estimates are
reviewed continuously to ensure reasonableness, however the amounts
the Company will ultimately realize could differ from the amounts
assumed in determining depreciation on the equipment in the operating
lease portfolio at September 30, 2004.
Initial direct costs related to operating and direct financing leases,
including salespersons' commissions, are capitalized and amortized over the
lease term into leasing costs and expenses. As a result of fresh-start reporting
adjustment, all indirect costs have been recognized in the consolidated
statement of earnings (loss).
Note 8 - Leased Assets
The components of the net investment in direct financing and sales-type
leases as of September 30 are as follows (in millions):
SUCCESSOR
2004 2003
----- -----
Minimum lease payments receivable $ -- $ 29
Estimated residual values 1 2
Less: unearned revenue (--) (5)
----- -----
Net investment in direct financing
and sales-type leases $ 1 $ 26
===== =====
Unearned revenue is recorded as leasing revenue over the lease term.
Operating leased assets include the following as of September 30 (in
millions):
SUCCESSOR
2004 2003
----- -----
Operating leased assets $ 8 $ 90
Less: accumulated depreciation
and amortization (6) (74)
----- -----
Net operating leased assets $ 2 $ 16
===== =====
Note 9 - Lease Portfolio Information
The size of the Company's lease portfolio can be measured by the cost of
leased assets at the date of lease inception. Cost at lease inception represents
either the equipment's original cost or its net book value at termination of a
prior lease. The following table summarizes by year of projected lease
termination, the cost at lease inception for all leased assets recorded at
September 30, 2004 (in millions):
SUCCESSOR
Total
cost at
Projected year of lease termination lease
2005 2006 2007 2008 2009+ inception
----- ----- ----- ----- ----- ---------
$ 13 $ 1 $ -- $ -- $ -- $ 14
===== ===== ===== ===== ===== =========
The following table summarizes the estimated net book value at lease
termination, or the residual value, for all leased assets recorded at September
30, 2004 (in millions):
SUCCESSOR
Total
cost at
Projected year of lease termination lease
2005 2006 2007 2008 2009+ inception
----- ----- ----- ----- ----- ---------
$ 1 $ -- $ -- $ -- $ -- $ 1
===== ===== ===== ===== ===== =========
Note 10 - Future Contractual Cash Flows
The table below presents cash in-flows due in accordance with the
contractual terms in existence as of September 30, 2004 (in millions):
Projected year of lease termination
2005 2006 2007 2008 2009+ Total
----- ----- ----- ----- ----- -----
Contractual cash in-flows:
Leases $ 1 $ -- $ -- $ -- $ -- $ 1
Leases-discontinued operations 3 1 -- -- -- 4
Agere lease participation payments 2 -- -- -- -- 2
Settlement agreements 1 1 1 -- 2 5
----- ----- ----- ----- ----- -----
Total $ 7 $ 2 $ 1 $ -- $ 2 $ 12
===== ===== ===== ===== ===== =====
The cash flow from leases--discontinued operations includes contractual
lease payments of approximately $2.7 million due from a subsidiary of VarTec
Telecom Inc. through December 2005. Vartec filed for Chapter 11 bankruptcy
protection in November 2004.
The remaining Agere lease participation payment was received by the Company
in November 2004.
Settlement agreements represent contractual recoveries on accounts that
have been previously written off. A substantial number of such recoveries
involve prior lessees or debtors who are now in bankruptcy and in whose
respective case the Company has contractual settlement agreements. The net book
value of these settlement agreements is nominal.
Note 11 - Interest-Bearing Liabilities
In connection with the Filing, the Company obtained a two-year, $450
million senior secured Debtor-In-Possession financing facility ("DIP facility").
During the second quarter of fiscal 2002, the Company terminated the DIP
facility, without ever drawing down upon it.
In connection with the DIP facility, the Company paid an arrangement and
structuring fee of $9 million or 2% of the credit line. The Company was also
required to pay a 50 basis point annual unused line fee and annual
administration and collateral monitoring fees, as defined in the agreement. The
unamortized fee balance as of September 30, 2001 was expensed in the first
quarter of fiscal 2002 (see Note 6 of Notes to Consolidated Financial
Statements).
Upon emergence, Comdisco Inc.'s general unsecured creditors received, and
the Disputed Claims Reserve was funded with, their pro-rata share of an initial
cash distribution of approximately $2.2 billion. In addition, general unsecured
creditors received, and the Disputed Claims Reserve was funded with, their
pro-rata share of two separate note issuances: the Senior Notes in aggregate
principal amount of $400 million with an interest rate of three month LIBOR plus
3% and the Subordinated Notes in aggregate principal amount of $650 million with
an interest rate of 11%. General unsecured creditors also received, and the
Disputed Claims Reserve also was funded with, their pro rata share of 100% of
the Common Stock of the reorganized Company.
On October 21, 2002, the Company redeemed the entire $400 million
outstanding principal amount of its Senior Notes. The Senior Notes were redeemed
at 100% of their principal amount plus accrued and unpaid interest from August
12, 2002 to the redemption date. Following the redemption of the Senior Notes,
the Company was required to make cash interest payments on the Subordinated
Notes. The terms of the Subordinated Notes provided for the interest to be
paid-in-kind through the issuance of additional Subordinated Notes while the
Senior Notes were outstanding. The initial interest payment date for the
Subordinated Notes was December 31, 2002.
The Company made several mandatory and optional redemptions of its
Subordinated Notes between November 14, 2002 and April 2, 2003. On April 28,
2003, the Company made the final redemption of $85 million principal amount of
its Subordinated Notes. Each of the redemptions of the Subordinated Notes were
at a price equal to 100% of their principal amount plus accrued and unpaid
interest to the redemption date.
The Company had one contractual letter of credit outstanding totaling $3
million at September 30, 2003 to a landlord of one Ventures' customer, for the
guarantee of the customer's office space lease in the event of default by the
customer. The Company's exposure was eliminated in November 2003 by the customer
prepaying its obligation.
Interest rates noted below for fiscal year 2002 were calculated based upon
debt outstanding subsequent to the emergence date. At September 30, 2003, there
are $5 million of discounted lease rentals outstanding which are liabilities
related to assets of discontinued operations. As such, at September 30, 2003
these amounts are included within liabilities related to assets of discontinued
operations. The entire $5 million became due during fiscal year 2004.
There were no outstanding interest-bearing liabilities at September 30,
2004 and 2003. Average outstanding interest-bearing liabilities for fiscal 2003
were as follows (in millions):
SUCCESSOR
Average
-----------------
Balance Rate
------- -----
Notes payable $ 241 10.35%
Term notes 8 1.80%
Discounted lease rentals 1 8.89%
------- ------
$ 250 10.07%
======= ======
The changes in financing activities for fiscal 2003 were as follows (in
millions):
Outstanding Maturities Outstanding
beginning and end
of year Issuances repurchases of year
----------- ----------- ----------- -----------
Notes payable $ 1,050 $ -- $ (1,050) $ --
Term notes 35 -- (35) --
Discounted lease rentals 2 -- (2) --
----------- ----------- ----------- -----------
$ 1,087 $ -- $ (1,087) $ --
=========== =========== =========== ===========
Discounted Lease Rentals
The Company utilized its lease rentals receivable and underlying equipment
in leasing transactions as collateral to borrow from financial institutions at
fixed rates on a nonrecourse basis. During fiscal year 2003 interest expense on
discounted lease rentals was nominal.
Derivative Financial Instruments
The Company entered into interest rate and foreign currency related
derivatives in order to limit its exposure to adverse fluctuations in foreign
currency exchange and interest rates. As of September 30, 2004 and 2003, the
Company had no outstanding derivative financial instruments and, accordingly,
there was no impact on the results of operations or changes in financial
condition resulting from such contracts in fiscal 2004 and 2003.
The impact of derivative financial instrument contracts for the two months
ended September 30, 2002 was a decrease of $1 million to interest expense. The
impact of these contracts for the ten months ended July 31, 2002 was a decrease
of $4 million to interest expense and an increase of $4 million to foreign
currency losses. The $4 million foreign currency loss is included within other
revenue. The average notional amount outstanding of the floating rate to fixed
rate contracts in fiscal 2002 was $27 million, with an average pay rate of 5.32
percent and an average receive rate of 3.61 percent. The average notional amount
in fiscal 2003 was immaterial.
Other Financial Information
Note 12 - Receivables
Receivables include the following as of September 30 (in millions):
SUCCESSOR
2004 2003
----- -----
Notes $ 2 $ 27
Accounts 1 17
Other 2 8
----- -----
Total receivables 5 52
Allowance for credit losses (1) (11)
----- -----
Total $ 4 $ 41
===== =====
Notes
Certain payments due from the Agere escrow are included in the balance
sheet in Notes at the present value of the minimum lease payments, or
approximately $2 million and $24 million at September 30, 2004 and 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.
The remaining payment due as of September 30, 2004 was received in November
2004. 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 September 30, 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.
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 September 30, 2004 is approximately $1.1
million of estimated collections on Ventures leases currently in default.
Allowance
The allowance for credit losses includes management's estimate of the
amounts expected to be uncollectable on specific accounts and for losses on
other as of yet unidentified accounts, including estimated losses on future
non-cancelable lease rentals, net of estimated recoveries from remarketing of
related leased equipment. In estimating the reserve component for unidentified
losses inherent within the receivables and lease portfolio, management relies on
historical experience, adjusted for any known trends, including industry trends,
in the portfolio.
Changes in the allowance for credit losses (combined notes and accounts
receivable) for the Company for the years ended September 30, 2004 and 2003, the
two months from August 1, 2002 to September 30, 2002 and for Comdisco, Inc., for
the ten months from October 1, 2001 to July 31, 2002 were as follows (in
millions):
SUCCESSOR
SUCCESSOR | PREDECESSOR
Two | Ten
Year ended months ended | months ended
September 30, September 30, | July 31,
2004 2003 2002 | 2002
----- ----- ------------- | ------------
Balance at beginning of |
period $ 11 $ 158 $ 191 | $ 225
Provision for credit losses (12) (92) 3 | 115
Fresh-start adjustment -- -- -- | (15)
Net credit recoveries (losses) 2 (55) (36) | (134)
----- ----- ------------- | ------------
Balance at end of period $ 1 $ 11 $ 158 | $ 191
===== ===== ============= | ============
Note 13 - Income Taxes
The geographical sources of earnings (loss) from continuing operations
before income taxes were as follows (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
Year ended months ended | months ended
September 30, September 30, | July 31,
2004 2003 2002 | 2002
----- ----- ------------- | ------------
United States $ (25) $ 21 $ (33) | $ (831)
Outside United States 19 (2) -- | (102)
----- ----- ------------- | ------------
$ (6) $ 19 $ (33) | $ (933)
===== ===== ============= | ============
Income tax expense (benefit) included in the consolidated statements of
earnings (loss) were as follows (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
Year ended months ended | months ended
September 30, September 30, | July 31,
2004 2003 2002 | 2002
----- ----- ------------- | ------------
Continuing operations $ (42) $ (1) $ 2 | $ 48
Discontinued operations (2) (8) 3 | 25
----- ----- ------------- | ------------
$ (44) $ (9) $ 5 | $ 73
===== ===== ============= | ============
The components of the income tax expense (benefit) charged (credited) to
continuing operations were as follows (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
Year ended months ended | months ended
September 30, September 30, | July 31,
2004 2003 2002 | 2002
----- ----- ------------- | ------------
Current: |
United States $ (6) $ (5) $ -- | $ 38
Outside United States (36) 4 2 | 10
----- ----- ------------- | ------------
(42) (1) 2 | 48
Deferred: |
United States -- -- -- | --
Outside United States -- -- -- | --
----- ----- ------------- | ------------
-- -- | --
----- ----- ------------- | ------------
$ (42) $ (1) $ 2 | $ 48
===== ===== ============= | ============
The reasons for the difference between the U.S. federal income tax rate
and the effective income tax rate for earnings (loss) were as follows:
Two | Ten
Year ended months ended | months ended
September 30, September 30, | July 31,
2004 2003 2002 | 2002
----- ----- ------------- | ------------
U.S. Federal income |
tax rate (tax benefit) (35.0)% 35.0% (35.0)%| (35.0)%
Increase (reduction) |
resulting from: |
State income taxes, net |
of U.S. federal tax benefit (18.2) 6.8 -- | (0.1)
Foreign income tax rate |
differential (710.8) 17.3 (92.0) | (3.2)
Non-deductible goodwill -- -- -- | (9.2)
Non-deductible legal fees -- -- (50.0) | (0.8)
Non-deductible CDR expenses 425.8 -- -- | --
Tax effect of foreign |
dividends and deemed dividends -- 226.3 -- | --
Change in valuation allowance (331.5) (410.5) -- | (24.2)
Change in tax contingency reserve |
due to completion of audits and |
expiration of statutes of |
limitation (100.0) -- -- | --
Other, net 69.7 119.7 183.0 | 77.6
----- ----- ------------- | ------------
(700.0)% (5.4)% 6.0% | 5.1%
===== ===== ============= | ============
Deferred tax assets and liabilities at September 30, 2004 and 2003 were
as follows (in millions):
2004 2003
----- -----
Deferred tax assets (liabilities):
Foreign loss carryforwards ......................... $ 18 $ 16
U.S. NOL C/F - 382 Limit ........................... 159 188
U.S. NOL Carryforward .............................. 113 66
AMT credit carryforwards ............................ 74 74
Deferred income ..................................... -- 4
Deferred expenses ................................... 3 19
Other, net .......................................... 15 26
Lease accounting .................................... (2) 26
Other comprehensive income .......................... -- --
Foreign unremitted earnings ......................... -- 2
----- -----
Gross deferred tax assets (liabilities) 380 421
Less: valuation allowance ........................... (380) (421)
----- -----
Net deferred tax liabilities ......................... $ -- --
===== =====
In connection with fresh-start accounting, Comdisco, Inc.'s assets and
liabilities were recorded at their respective fair market values. Deferred tax
assets and liabilities were recognized for the tax effects of the differences
between the fair values and the tax bases of the Company's assets and
liabilities. In addition, deferred tax assets were recognized for future use of
the company's net operating losses and other tax credits.
To the extent that management believes the pre-emergence net deferred tax
asset will more likely than not be realized, a reduction in the valuation
allowance established in fresh-start accounting will be recorded. The reduction
in this valuation allowance (if any) will increase additional paid-in capital.
At September 30, 2004, the Company had not made such a determination.
In connection with the reorganization, the Company realized a gain from the
extinguishment of certain indebtedness. This gain was not taxable since the gain
resulted from the reorganization under the Bankruptcy Code. However, the Company
was required, as of the beginning of its 2003 taxable year, to reduce certain of
its tax attributes. Net operating loss carryforwards were the only tax attribute
which were reduced. However, the Company had provided a full valuation allowance
against this asset.
The reorganization of the Company on the Effective Date constituted an
ownership change under section 382 of the Internal Revenue Code and the use of
any of the Company's NOLs and tax credits generated prior to the ownership
change, that are not reduced pursuant to the provisions discussed above, will be
subject to an overall annual limitation. However, the Company has provided a
valuation allowance for the entire value of the net operating loss as it does
not foresee utilizing the carryforwards in the future.
For financial reporting purposes, the Company has approximately $52 million
of foreign net operating loss carryforwards, most of which have no expiration
date. The Company has recognized a valuation allowance of $18 million to offset
this deferred tax asset. At September 30, 2004, the Company has available for
U.S. federal income tax purposes the following carryforwards (in millions):
SUCCESSOR
Year Net
scheduled operating
to expire loss
--------- ---------
2008 $ 10
2018 9
2019 27
2021 394
---------
382 Limit $ 440
=========
2022 39
2023 257
2024 24
---------
$ 320
=========
For U.S. federal income tax purposes, the Company has approximately $74
million of alternative minimum tax ("AMT") credit carryforwards available to
reduce regular taxes in future years. AMT credit carryforwards do not have an
expiration date. The use of the Company's alternative minimum tax credits will
be subject to the Section 382 limitation discussed above. As such, the Company
has recognized a valuation allowance of $74 million to offset this deferred tax
asset.
The Company does not expect to have U.S. tax on foreign earnings as a
result of the winddown of their operations.
The Company undergoes audits by foreign, state and local tax jurisdictions.
As of September 30, 2004, no material assessments have been made by these tax
authorities.
Note 14 - 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:
The Company's available-for-sale security holdings were as follows (in
millions):
Gross Gross
unrealized unrealized Market
Cost gains losses value
---- ---------- ---------- ------
September 30, 2004 $ 1 $ 8 $ - $ 9
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 15 of Notes to Consolidated Financial
Statements). At September 30, 2004, the Company held securities of six
publicly-traded companies; Atheros Communications, Inc., Blue Nile, Inc.,
Cytokinetics, Inc., NuVasive, Inc., Salesforce.com and Volterra Semiconductor
Corporation. Each of these holdings are subject to lock-up periods, which
restrict the Company's ability to sell in the near term. At September 30, 2003,
the Company held securities of one publicly-traded company, iPass, Inc.
("iPass"). The Company sold its holdings of 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 is included in other revenue in
the consolidated statements of earnings (loss) for the nine months ended June
30, 2004.
Equity investments in private companies:
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 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 is being provided by Windspeed.
The Company's policy for equity investments in privately held companies,
which are non-quoted investments, is, in consultation with Windspeed, 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. Write-downs of equity securities totaled $2 million and $25 million
during fiscal year 2004 and 2003, respectively.
Note 15 - Common Stock and Other Comprehensive Income
When the Company emerged from bankruptcy, 4,200,000 shares of new common
stock were issued. As of September 30, 2004, the Company had 4,196,022 shares of
common stock outstanding and 3,978 shares of common stock held in treasury.
The Predecessor company's common stock was cancelled on August 12, 2002.
The Predecessor company's common shareholders were entitled to distributions of
Contingent Distribution Rights under the Plan. However, to have been eligible to
receive any distribution of Contingent Distribution Rights, those former common
shareholders must have properly completed a transmittal form and have
surrendered all of their shares of the Predecessor company's common stock to
Mellon Investors Services LLC prior to August 12, 2003.
In May 2003, the Company distributed approximately $308 million to
stockholders in the form of a dividend paid on the Company's Common Stock. In
June 2003, the Company distributed approximately $60 million to stockholders in
the form of a dividend paid on the Company's Common Stock. In September 2003,
the Company distributed approximately $200 million to stockholders in the form
of a dividend paid on the Company's Common Stock. On November 20, 2003, the
Company declared a cash dividend of $12 per share (an aggregate distribution of
approximately $50 million) on the outstanding shares of its Common Stock, paid
on December 11, 2003, to stockholders of record on December 1, 2003. In May
2004, the Company distributed approximately $49 million to stockholders in the
form of a dividend paid on the Company's Common Stock. Comdisco intends to treat
the dividend distributions for federal income tax purposes as part of a series
of liquidating distributions in complete liquidation of the Company.
The Company's Common Stock share amounts for basic and diluted earnings
(loss) per share calculations were as follows (in thousands):
SUCCESSOR | PREDECESSOR
Two | Ten
Year ended months ended | months ended
September 30, September 30, | July 31,
2004 2003 2002 | 2002
----- ----- ------------- | ------------
Average common shares issued 4,200 4,200 4,200 | 225,555
Average common shares held |
in treasury (3) (1) -- | (74,996)
----- ----- ------------- | ------------
4,197 4,199 4,200 | 150,559
===== ===== ============= | ============
For the ten months ended July 31, 2002, options to purchase 18,179,186
shares of common stock were not included in the calculation of the diluted
shares outstanding because their effects would have been antidilutive.
There are no adjustments to net earnings to common stockholders for basic
and diluted earnings per share calculations for any of the periods presented
above.
Components of other comprehensive earnings (loss) consists of the
following (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
Year ended months ended | months ended
September 30, September 30, | July 31,
2004 2003 2002 | 2002
----- ----- ------------- | ------------
Foreign currency translation adjustments $ -- $ (2) $ 4 | $ 24
Unrealized gains (losses) on derivative instruments -- -- -- | (2)
Unrealized gains (losses) on securities: |
Unrealized holding gains (losses) arising |
during the period 7 13 -- | 18
Reclassification adjustment for gains |
included in earnings (losses) before |
income taxes (benefit) (10) (2) -- | (16)
----- ----- ------------- | ------------
Net unrealized gains (losses), before |
income taxes (benefit) (3) 11 -- | 2
Income taxes (benefit) -- -- -- | 1
----- ----- ------------- | ------------
Net unrealized gains (losses) (3) 11 -- | 1
----- ----- ------------- | ------------
Other comprehensive income (loss) (3) 9 4 | 23
Net earnings (loss) 23 100 224 | (541)
----- ----- ------------- | ------------
Total comprehensive income (loss) $ 20 $ 109 $ 228 | $ (518)
===== ===== ============= | ============
Accumulated other comprehensive income (loss) presented below and in the
accompanying consolidated balance sheets consists of the following (in
millions):
SUCCESSOR Unrealized
Foreign gain on Unrealized Accumulated
currency available- gain on other
translation for-sale derivative comprehensive
adjustment securities instruments income (loss)
----------- ----------- ----------- -------------
Balance at September 30, 2002 $ 4 $ -- $ -- $ 4
Pretax amount (2) 11 -- 9
Income taxes -- -- -- --
----------- ----------- ----------- -------------
Balance at September 30, 2003 2 11 -- 13
Pretax amount -- (3) -- (3)
Income taxes -- -- -- --
----------- ----------- ----------- -------------
Balance at September 30, 2004 $ 2 $ 8 $ -- $ 10
=========== =========== =========== =============
Note 16 - Employee Benefit Plans
All stock option plans, the Employee Stock Ownership Plan, the Non-Employee
Directors' stock option plan and the 1996 Deferred Fee Option Plan were
cancelled effective July 31, 2002.
The Company had a profit sharing plan which, together with the Employee
Stock Ownership Plan (the "Plans"), covered substantially all domestic
employees. Company contributions to the Plans were based on a percentage of
employees' compensation. Benefits were accumulated on an individual employee
basis.
The Company has filed with the Internal Revenue Service to terminate its
401(k) Plan. As soon as the Company has received approval, the remaining Plan
assets will be distributed to the respective participants.
Comdisco, Inc.'s stock option plans provided for the granting of incentive
stock options and/or nonqualified options to employees and agents to purchase
shares of common stock.
Additionally, under the 1999 Non-Employee Directors' Stock Option Plan,
each October 1, each individual who was a Non-Employee Director during the
fiscal year was automatically granted an option to purchase 9,450 shares of the
Old Common stock at the then fair market value. None were granted the ten months
ended July 31, 2002.
Under the 1996 Deferred Fee Option Plan, each Non-Employee Director
received options for 2,898 shares of Old Common stock on October 1, 2000 at an
option price of $1.00.
Comdisco, Inc. applied APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Had compensation cost for Comdisco,
Inc.'s stock option plans been determined consistent with SFAS No. 123,
Comdisco, Inc.'s net earnings (loss) available to common stockholders and
earnings (loss) per common and common equivalent share would have been reduced
to the pro forma amounts indicated below (in millions except per share data):
PREDECESSOR
Ten
months ended
July 31,
2002
-------------
Net earnings (loss) to common stockholders
As reported $ (541)
Pro forma (546)
Earnings (loss) per Common share:
As reported-basic (3.59)
Pro forma-basic (3.63)
As reported-diluted (3.59)
Generally, under the stock option plans, the exercise price of each option
equaled the market price of the Old Common stock on the date of grant. For
purposes of calculating the compensation cost consistent with SFAS 123, the fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model. As a result of the reorganization of the
Company, all outstanding stock options were cancelled effective July 31, 2002.
Note 17 - Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments are as
follows as of September 30 (in millions):
2004 2003
----------------- -----------------
Carrying Fair Carrying Fair
amount value amount value
-------- ----- -------- -----
Assets:
Cash and cash equivalents ............. $ 157 $ 157 $ 97 $ 97
Marketable equity securities .......... 9 9 12 12
Equity investments in private companies 5 20 6 12
Notes receivable ...................... 2 2 27 27
Fair values were determined as follows:
The carrying amounts of cash and cash equivalents, and notes payable
approximates fair value because of the short-term maturity of these instruments.
In accordance with the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," marketable equity securities (equity
securities having a readily determinable fair value) have a carrying value and a
fair value based on quoted market prices. The Company's investment in warrants
of public companies were valued at the bid quotation. The Company's investment
in marketable equity securities of $12 million at September 30, 2003 was
primarily in one company (iPass, Inc.) and was subject to market price risk. The
Company's practice is to sell its marketable equity securities upon the
expiration of the lock-up period. The lock-up period for iPass expired in late
January 2004. The Company sold its holdings of 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.
Equity investments in private companies consist primarily of small
investments in approximately two hundred private companies and are all
non-quoted securities. Common stock and preferred stock investments are carried
at the lower of cost or fair market value in the Company's financial statements.
Warrants in non-public companies are carried at zero value. These investments
are subject to significant volatility and are difficult to value. The fair value
of the Company's equity investments in private companies, including warrants,
was determined in consultation with Windspeed based on a variety of factors,
including, but not limited to, quoted trading levels for publicly-traded
securities in similar industries and/or markets, industry and company multiples,
industry acceptance in the market place, liquidity discounts due to lock ups,
estimated revenue, and customer, product and market share growth by the
respective companies in the portfolio. Substantially all of these factors are
outside the control of the Company and are subject to significant volatility.
There can be no assurance that the Company will be able to realize the estimated
fair market value. Furthermore, the current estimated fair market value is
subject to significant concentration risk, as 89 percent of the estimated fair
market value of the entire portfolio is concentrated in less than fifteen
individual companies and approximately 29 percent of the estimated amount is in
one company.
Notes receivable are estimated by discounting future cash flows using the
current rates at which similar loans would be made to borrowers with similar
business profiles.
Note 18 - Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the fiscal years ended
September 30, 2004 and 2003, are as follows (in millions except per share data):
SUCCESSOR
Quarter ended
---------------------------------------------------------------------
December 31, March 31, June 30, September 30,
--------------- --------------- --------------- ---------------
2003 2002 2004 2003 2004 2003 2004 2003
------ ------ ------ ------ ------ ------ ------ ------
Total revenue $ 46 $ 95 $ 36 $ 68 $ 21 $ 77 $ 7 $ 63
Earnings (loss) from continuing
operations 26 (12) 26 16 (2) 1 (13) 15
Earnings (loss) from discontinued
operations (12) 21 (8) 21 10 39 (3) --
------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss) to common
stockholders $ 14 $ 9 $ 18 $ 37 $ 8 $ 40 $ (16) $ 15
====== ====== ====== ====== ====== ====== ====== ======
Earnings (loss) from continuing
operations-diluted $ 6.16 $(2.77) $ 6.00 $ 3.64 $(0.41) $ 0.24 $(3.14) $ 3.68
Earnings (loss) from discontinued
operations (2.87) 4.86 (1.80) 5.03 2.29 9.25 (0.83) (0.02)
------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss) per common
share-diluted $ 3.29 $ 2.09 $ 4.20 $ 8.67 $ 1.88 $ 9.49 $(3.97) $ 3.66
====== ====== ====== ====== ======== ====== ====== ======
Note 19 - Other Financial Information
Legally restricted cash represents cash and cash equivalents that are
restricted solely for use as collateral in secured borrowings, cash and cash
equivalents received by the Company from non-owned lease portfolios serviced by
the Company, cash and cash equivalents related to the Company's employee
incentive compensation plans, and cash and cash equivalents held in escrow or in
similar accounts as a result of the various proposed or completed assets sales.
Legally restricted cash is comprised of the following at September 30, 2004 and
September 30, 2003 (in millions):
2004 2003
----- -----
SunGard escrow $ -- $ 1
Letters of credit -- 3
Incentive compensation escrow 9 37
Other 1 1
----- -----
$ 10 $ 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 during the year ended September 30, 2004 under the Company's Bankruptcy
court approved compensation plans.
Other assets at September 30 were as follows (in millions):
2004 2003
----- -----
Deferred costs $ 3 $ 5
Other 1 6
----- -----
$ 4 $ 11
===== =====
Other liabilities at September 30 were as follows (in millions):
2004 2003
----- -----
Accrued compensation $ 12 $ 62
CDRs 70 44
Other:
Customer advances, deposits -- 7
Taxes other than income 1 2
Other 1 3
----- -----
Total Other 2 12
----- -----
$ 84 $ 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 $12 million at September 30, 2004 is primarily the result
of payments made by the Company under its Bankruptcy court approved management
incentive compensation plans. (See Item 1 "Wind-down of Operations: Management
Incentive Compensation Plans and End of Term designation").
From October 2003 to September 2004, the Company made payments to holders
of CDRs totaling approximately $23 million. CDR expense was approximately $49
million for fiscal 2004. Accordingly, the liability for CDRs has increased from
$44 million to $70 million from September 30, 2003 to September 30, 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 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
book equity value as the basis for remaining asset value, reduced for estimated
operating expenses and increased for two items which did not impact book equity
for financial reporting purposes at September 30, 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 assuming Disputed Claims
are either: 1) allowed at the amount estimated for the Disputed Claim, or; 2)
allowed at an approved amount where a settlement agreement or Bankruptcy court
order exists ("Approved Claims"). Any estimates exceeding the Approved Claims
would be considered disallowed for purposes of the CDR liability. 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.
Estimated Disputed Claims consisted of $289 million as of September 30,
2004. On November 15, 2004, a distribution from the Disputed Claims Reserve in
connection with approximately $85 million of estimated Disputed Claims was made
to creditors, which consisted of approximately $30 million of claims allowed and
paid to new claimholders and approximately $55 million of claims disallowed
resulting in the associated funds being redistributed to all unsecured creditors
through a supplemental distribution. The CDR liability calculation reflected the
actual disposition for claims involved in the November 15, 2004 distribution.
After the distribution, the remaining estimated Disputed Claims totaled
approximately $204 million. The Disputed Claim Reserve consisted of $207 million
in cash and approximately 218,000 shares of Common Stock.
Since the November 15, 2004 distribution, $182 million of the $204 million
remaining estimated Disputed Claims have been resolved by the Company either
through a settlement with certain parties, or the issuance of a Bankruptcy court
order, leaving only $22 million unresolved at the date of this filing. These $22
million in estimated Disputed Claims have been considered allowed for purposes
of the CDR liability. If the $22 milllion is ultimately ruled as disallowed, the
CDR liability would increase by approximaely $8 million
$60 million of the approximately $182 million of Approved Claims are
expected to be ultimately disallowed. A portion of the $60 million estimated
Disputed Claims are under appeal as of the date of this filing. Any detrimental
ruling to the Company under appeal may materially reduce the CDR liability as of
September 30, 2004 and could negatively impact future CDR distributions. If the
$60 million is ultimately ruled as allowed, the CDR liability would be reduced
by approximately $18 million.
On December 9, 2004, the Bankruptcy court approved the settlement between
the Company and the bank group relating to its unconditional guarantee on the
Shared Investment Plan ("SIP"). While the settlement resulted in an Allowed
Claim of $133 million, the SIP Lenders agreed to receive a reduced cash amount
of approximately $123 million, which is net of an approximately $3 million
offset due Comdisco. The SIP Lenders waived their rights to any consideration in
excess of the $123 million cash payment. For purposes of the CDR liability, the
Company converted the $123 million cash payment into an equivalent estimated
claim amount of $122 million. The excess estimated Disputed Claim has been
considered as part of the $60 million of estimated Disputed Claims ultimately
disallowed for purposes of the CDR liability.
Note 20 - Industry Segment and Operations by Geographic Areas
Following the Company's emergence from bankruptcy on August 12, 2002, the
Company's operations were reorganized into four reportable business groups.
These business groups are: (i) US Leasing, which included leasing operations in
the US and Canada and was managed by Comdisco, Inc.; (ii) European IT Leasing,
which was 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 was 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 were managed through
Comdisco, Inc.
For financial reporting purposes, the assets ($4 million) and liabilities
(nominal) of the Company's US Leasing operations as of September 30, 2004 are
included in the balance sheet as assets of discontinued operations and
liabilities related to assets of discontinued operations and the results of
operations of the Company's US Leasing operations for all the periods presented
are included in the statement of earnings (loss) as discontinued operations.
As a result of the substantial wind-down of operations, the declaration of
End of Term for purposes of each business units' management incentive plan and
the consolidation of the management structure, the Company believes that
business segment results have become substantially irrelevant and, accordingly,
the Company has consolidated its business units and has ceased to report
independent business segment results (See Item 1 "Wind-down of Operations:
Management Incentive Compensation Plans and End of Term designation").
The following table presents total revenue by geographic location based on
the location of the Company's offices (in millions):
SUCCESSOR | PREDECESSOR
Two | Ten
Year ended months ended | months ended
September 30, September 30, | July 31,
2004 2003 2002 | 2002
----- ----- ------------- | ------------
North America $ 77 $ 196 $ 38 | $ 518
Europe 31 97 12 | 107
Pacific Rim -- 10 9 | 120
----- ----- ------------- | ------------
$ 108 $ 303 $ 59 | $ 745
===== ===== ============= | ============
The following table presents total assets and cash by geographic location
based on the location of the Company's offices as of September 30 (in millions):
2004 2003
------------- ------------
Total Total
Assets Cash Assets Cash
------ ---- ------ ----
North America $ 191 $162 $ 286 $128
Europe 7 5 84 10
Pacific Rim -- -- 3 1
------ ---- ------ ----
Total $ 198 $167 $ 373 $139
====== ==== ====== ====
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Randolph I. Thornton, the sole officer of the Company, 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 sole officer has concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
Change in Internal Controls
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fourth fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
As discussed in Part I above, all the individuals serving on the Board of
Directors resigned their position as directors on August 12, 2004 except for
Randolph I. Thornton who has continued on as sole director. Also, on the same
date, all the officers of the Company resigned their respective officer
positions. Before resigning their positions as directors, the Board of Directors
appointed Randolph I. Thornton as Chief Executive Officer, President and
Secretary of the Company and the Company's Initial Disbursing Agent. As Initial
Disbursing Agent, Mr. Thornton has assumed the roles and responsibilities
performed by the former Board of Directors and officers of the Company,
including all measures which are necessary to complete the administration of the
reorganized Debtors' Plan and Chapter 11 cases. The Company's Board of Directors
took this action as the next step in the liquidation and dissolution of the
Company and to simplify and expedite the Company's operations. Because the
Company's equity securities are not listed on any stock exchange or traded on
Nasdaq, the Company is not required to comply with the corporate governance
requirements mandated by stock exchanges, Nasdaq and the Securities and Exchange
Commission.
Former Director
Ronald C. Mishler (Age 44 - Director from August 12, 2002 through August
12, 2004)
Mr. Mishler was appointed chairman, chief executive officer and president
of the Company in August 2002. He had been serving as president and chief
operating officer of Comdisco, Inc. since April 2002. Mr. Mishler was appointed
senior vice president and chief financial officer in September 2001. Mr. Mishler
joined Comdisco, Inc. in July 2001 as senior vice president and treasurer. Prior
to working for Comdisco, Inc. he served as senior vice president and treasurer
of Old Kent Financial Corporation from 1998 to 2001. From 1996 to 1998 he was
vice president and treasurer of USF&G Corporation. From 1984 to 1996, he held
various financial analysis and management positions at Heller International
Corporation. Mr. Mishler resigned as director on August 12, 2004.
Sole Officer and Director
Randolph I. Thornton (Age 59 - Director since August 2002)
Effective August 12, 2004, Mr. Thornton was appointed Chief Executive
Officer, President and Secretary of the Company as well as Initial Disbursing
Agent and sole director. He was a managing director and senior credit officer of
Citigroup, Inc. where he managed hundreds of corporate reorganization matters in
a thirty-three year career. Mr. Thornton retired from Citigroup in February
2004. He is also currently a member of the board of directors of Looking Glass
Networks, Inc., National Energy & Gas Transmission, Inc. and Core-Mark
International, Inc. (where he also serves as non-executive Chairman).
Authorized Representatives
Effective August 12, 2004 the following persons were appointed as
authorized representatives of the Company. These persons derive their authority
from Mr. Thornton as sole director and officer of the Company and report
directly to him. Mr. Thornton is the sole person charged with policy-making
responsibility for the Company.
Lloyd J. Cochran (Age 35)
Lloyd J. Cochran was named executive vice president, finance of the Company
in October 2003 and served in that capacity until August 12, 2004. In August
2002 he was named senior vice president, financial planning and analysis, of the
Company. He had been serving as senior vice president, financial planning, of
Comdisco, Inc. since March 2002. Mr. Cochran joined Comdisco, Inc. in September
1999 as vice president of finance for Comdisco Healthcare Group. Prior to
working for Comdisco, Inc., he worked in public accounting from 1991 to 1999,
most recently for KPMG from 1994 to 1999 where he served in various positions,
including senior manager from 1997 to 1999.
Robert E. T. Lackey (Age 56)
Robert E. T. Lackey was named executive vice president, chief legal officer
and secretary of the Company in August 2002 and served in that capacity until
August 12, 2004. From January 1, 2003, Mr. Lackey was also responsible for
leading the Ventures business. He joined Comdisco, Inc. in June 2001 as senior
vice president, chief legal officer and secretary. Mr. Lackey served as vice
president, secretary and general counsel of Burns International Services
Corporation, from 1997 to 2000. From 1991 to 1995, he was the vice president,
secretary and general counsel for Transamerica Commercial Finance Corporation
and, from 1985 to 1991, he worked in various legal and management positions for
Heller Financial, Inc.
David S. Reynolds (Age 51)
David S. Reynolds was named senior vice president and controller of the
Company in August 2002 and served in that capacity until August 12, 2004. Mr.
Reynolds held the position of controller for Comdisco, Inc. since March 2002. He
was named acting controller for Comdisco, Inc. in July 2001. From November 1997
through June 2001, he was North American controller, responsible for all US and
Canada accounting functions as well as all internal and external financial
reporting, including SEC reporting. Mr. Reynolds joined Comdisco, Inc. in August
1981 and held various positions within the Accounting and Finance departments,
including assistant controller and manager of financial reporting. Before
joining Comdisco, Inc., he worked in public accounting for Ernst & Ernst from
1976 to 1981.
Caroline Walters (Age 44)
Caroline Walters was named senior vice president and treasurer of the
Company in August 2002 and served in that capacity until August 12, 2004. Ms.
Walters joined Comdisco, Inc. in 1986 and has held leadership positions in the
Treasury department. Prior to joining Comdisco, Inc., she was director of
communications for Rayan, Inc. and a high school teacher.
Audit Committee Financial Expert
Until August 12, 2004, the Audit Committee of the Board of Directors was
comprised entirely of independent outside directors. Since August 12, 2004, Mr.
Thornton has been performing the functions of the Audit Committee. Mr. Thornton
qualifies as an "audit committee financial expert" as defined in Item 401(h) of
Regulation S-K, but is not considered independent as that term is used in Item
7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934. The
Company is not required to have a three-person audit committee consisting of
independent directors because its equity securities are not listed on a stock
exchange or traded on Nasdaq.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who beneficially own more than 10 percent of a registered
class of our equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of our Common Stock and any
changes in that ownership with the SEC. Based solely on our review of copies of
the reports filed with the SEC and written representations of our directors and
officers, we believe all persons subject to Section 16(a) reporting filed the
required reports on time in fiscal year 2004.
Code of Ethics
The Company has adopted a code of conduct, entitled the Employee Code of
Conduct, applicable to all Comdisco employees, officers and directors (until
August 12, 2004), its authorized representatives and sole director and officer
(since August 12, 2004) and a code of ethics, entitled the Senior Executives
Code of Conduct, for its Senior Executives, including but not limited to, its
chief executive officer, principal financial officer and corporate controller
(until August 12, 2004), and effective August 12, 2004, entitled Chief Executive
Officer and Authorized Representatives Code of Conduct, for its Chief Executive
Officer and Authorized Representatives, a copy of which is available on the
Company's website. Any waivers from the Company's Chief Executive Officer and
Authorized Representatives Code of Conduct or amendments to the Chief Executive
Officer and Authorized Representatives Code of Conduct, by the Company will be
disclosed through its website at www.comdisco.com and in future filings. To
date, Company has granted no such waivers.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
This table shows the compensation paid to (i) Randolph I. Thornton, the
Company's sole officer and current Chief Executive Officer and President, (ii)
Ronald C. Mishler, Chairman, Chief Executive Officer and President through
August 12, 2004 and (iii) Lloyd J. Cochran and Robert E. T. Lackey who served as
executive officers until August 12, 2004. The persons named in this table and in
this section are referred to as the "named executive officers."
Long-Term
Annual Compensation Compensation
------------------------------------------------ ------------
Payouts
Other under non-
Annual stock price- All Other
Name and Principal Compensation based plans Compensation
Position Year Salary($) Bonus($) ($) ($) ($)
- --------------------- ---- -------- -------- ------------ ------------ ------------
Randolph I. Thornton 2004 83,900 (1) -- -- -- --
Chief Executive 2003 -- -- -- -- --
Officer 2002 -- -- -- -- --
Ronald C. Mishler 2004 364,114 259,009 (2) -- 2,668,650 (7) 17,662 (6)
Former Chairman, Chief 2003 400,000 600,000 (2) -- -- 1,623 (5)
Executive Officer, 2002 343,750 545,000 (3) 5,500 (4) -- 1,635 (5)
President
Lloyd Cochran 2004 165,416 591,742 (2) -- -- 220 (5)
Authorized 2003 148,333 224,027 (2) -- -- 623 (5)
Representative 2002 119,754 159,173 (3) -- -- 847 (5)
Robert E. T. Lackey 2004 300,774 318,375 (2) -- 1,306,440 (8) 1,220 (5)
Authorized 2003 300,000 450,000 (2) -- -- 1,623 (5)
Representative 2002 288,542 410,000 (3) -- -- 635 (5)
- ----------------------------------------------------------------------------------------------------------
(1) Amount reflects total payments made to Mr. Thornton pursuant to the
Disbursing Agent Agreement from June 2004 through September 2004. Mr.
Thornton is not an employee of the Registrant.
(2) Includes amounts earned under the Semiannual Bonus Plan component of
the Management Incentive Plan (as described below in the section
entitled Bankruptcy court-approved Compensation Plans). Under the terms
and conditions of the Semiannual Bonus Plan, and through the August 15,
2004 payment, participants were paid half their earned amount for the
period and half was deferred until job elimination. For Messrs. Cochran
and Lackey, one-half of the amounts deferred through August 15, 2004
were paid to the respective individual on September 15, 2004. Deferred
payments remaining will be forfeited if the participant voluntarily
resigns or is terminated for cause.
(3) Includes quarterly amounts earned under the annual incentive plans,
commission plans and the chairman's discretionary fund plans that were
in place prior to April 1, 2002. Also includes amounts earned under the
Semiannual Bonus Plan component of the Management Incentive Plan (as
described below in the section entitled Bankruptcy court Approved
Compensation Plans) for the period April 1, 2002 through September 30,
2002. Under the terms and conditions of the Semiannual Bonus Plan,
participants were paid half their earned amount for the period and half
was deferred until job elimination. For Messrs. Cochran and Lackey,
one-half of the amounts deferred through August 15, 2004 were paid to
the respective individual on September 15, 2004. Deferred payments
remaining will be forfeited if the participant voluntarily resigns or is
terminated for cause.
(4) Amounts reflect car allowance payments.
(5) Amounts reflect contributions by the Company to the 401(k) Retirement
Plan for the benefit of the named executive officer.
(6) Amounts reflect contributions by the Company to the 401(k) Retirement
Plan for the benefit of Mr. Mishler and paid vacation time benefits of
$16,442.
(7) Represents a Consolidated Corporate Upside Sharing Plan advance payment
made by the Company based on 115% of plan achievement. There are no
maximum payouts under the Upside Sharing plan component of the MIP. The
consolidated corporate Upside Sharing plan includes a pre-established
present value recovery threshold and target. For purposes of this
Summary Compensation Table, the assumed ultimate achievement relevant to
plan target is 131.9%. This would represent a $643,498 potential
additional upside sharing payout less any applicable payment adjustment
as defined in the Bankruptcy court approved compensation plan.
(8) Represents the Ventures Upside Sharing Plan payment made by the Company
which was based on 110.57% of plan target. There are no maximum
payouts under the Upside Sharing plan component of the MIP. Amount
reflected in the table is net of any applicable payment adjustment as
defined in the Bankruptcy court approved compensation plan.
Option/SAR Grants/Exercises in the Last Fiscal Year
No stock options or stock appreciation rights ("SARs") were outstanding nor
were any granted to or exercised by the named executive officers in fiscal 2004.
The Company does not plan to issue any options or SARs in the foreseeable
future.
Aggregated Option/SAR Exercise and Fiscal Year-End Options/SAR Values
No stock options or SARs were outstanding as of September 30, 2004. The
Company does not plan to issue any options or SARs in the foreseeable future.
Bankruptcy Court-Approved Compensation Plans: Management Incentive and Stay
Bonus Plans
In order to continue to maximize recoveries under the Plan, it is essential
that critical employees be retained and remain motivated to execute the
Company's post-emergence run-off strategies. Specifically, management and the
Board of Directors of the Company continue to administer the comprehensive
compensation program that includes the Management Incentive Plan (the "MIP"),
which was designed to retain key employees and give them incentive to maximize
the value of the assets and the Stay Bonus Plan, which was designed to retain
essential support and professional staff. These compensation plans were approved
by the Bankruptcy court on June 18, 2002 with a retroactive effective date of
April 1, 2002. (The MIP and Stay Bonus plans comprise the "Compensation Plans,"
which are incorporated by reference to Exhibit 10.1, Exhibit 10.2 and Exhibit
10.3 filed with the Company's Annual Report on Form 10-K dated September 30,
2002, as filed with the Commission on January 14, 2003, file No. 0-49968.) In
addition, on October 3, 2003, the Board of Directors approved non-material
adjustments to some components of the MIP. The Board of Directors also approved
a Special Performance Bonus plan for certain key individuals, none of whom were
executives, in the Stay Bonus plan effective October 1, 2003 and, effective
April 1, 2004, all remaining Stay Bonus participants, none of whom were
executives, became eligible to participate in the Special Performance Bonus
plan.
The Stay Bonus Plan is a retention program that covered 86 U.S. employees
for all or part of the period October 1, 2003 through September 30, 2004 and was
designed to retain essential support and professional personnel who assist
managers and key employees most directly responsible for the success of the
Plan. Eligible participants under this compensation plan accrue one week's
salary for each two weeks of work. One-half of such accrued benefit was paid in
four quarterly installments each year on or about February 15, May 15, August
15, and November 15 (with the first such payment made on November 15, 2002).
Effective with the November 15, 2004 bonus payment, one-half of the accrued
benefit ceased being withheld except for amounts being held pending SIP
obligation resolution. Any remaining balance is paid upon job elimination or SIP
obligation resolution. The total cost of the Stay Bonus Plan was $1.4 million
for period October 1, 2003 until September 30, 2004, which includes $.9 million
paid to employees and $.5 million deferred until job elimination or SIP
obligation resolution.
The Company's MIP covers key managers and employees directly responsible
for the overall direction of a particular business unit and the results achieved
within that business unit. Additionally, the MIP covers key corporate employees
whose services are required to facilitate business operations and to administer
claims and related bankruptcy matters. Employees who voluntarily terminate their
employment prior to their respective payment dates under the MIP or who are
terminated for cause are not eligible for any payments from these plans that
have not already been paid.
The MIP is tailored to provide appropriate levels of compensation to key
employees in each of the Company's business units - US Leasing (accounted for
within discontinued operations), Ventures, and CAM - as well as at the
corporate level. While the award opportunities differ for each of these units,
the MIP, as a whole, is intended to provide adequate compensation for retention
of key employees within a unit as that unit moves toward its post-emergence
business targets and to provide additional performance-based reward
opportunities if those targets are exceeded.
The MIP establishes varying levels of incentive compensation depending upon
whether a given business unit reaches its "threshold target" or "business plan
target." A threshold target and a higher business plan target have been
established for each of the business units. For purposes of measuring
achievement relative to threshold or plan, cash flows will be discounted using
rates specified for each business unit.
The Company agreed to pay active employees as of September 1, 2004 up
to fifty-percent of their deferred Rabbi Trust balance. There were a total of 19
eligible employees and the total payout of $1,024,930 was made on September 15,
2004. None of the eligible employees were SIP participants.
The following table presents compensation paid and deferred in fiscal 2004
for participants in the Semiannual Bonus plan, Upside Sharing Bonus plan, Stay
Bonus plan and Special Performance Bonus plan. Amounts reflect payment
adjustments made to the MIP bonus plans in accordance with the Bankruptcy court
approved compensation plans.
Bonus Plan Participants (#) Total Earned ($) Total Paid ($) Total Deferred ($)(1)
- -------------------------- ---------------- --------------- -------------- ------------------
MIP (Semiannual Bonus) 39 $ 4,081,123 $ 2,557,115 $ 1,524,008
MIP (Upside Sharing Bonus) 56 39,252,401 36,885,177 2,367,224
--------------- -------------- ------------------
Total MIP 43,333,524 39,442,292 3,891,232
Stay 86 1,379,978 926,781 453,197
Special Performance 20 563,334 366,185 197,149
--------------- -------------- ------------------
Totals $ 45,276,836 $ 40,735,258 $ 4,541,578
=============== ============== ==================
- --------------------------------------------------------------------------------------------------------------------
(1) Effective with the November 15, 2004 bonus payment, one-half of the
accrued benefit ceased being withheld for the Compensation Plans
except for amounts being held pending SIP obligation resolution.
Each of the business unit's management team participated in the MIP. The
MIP included two components: Semiannual Performance Bonuses ("SAB") and Upside
Sharing opportunities for specified employees. The following table presents
MIP bonuses earned in each of the business units:
- ---------------------------------------------------------------------------
Percent-
age of
Partic- Plan Target Total
pants Achieved Earned
Division Plan (#) (%) ($)
- ----------- --------------- ------ ----------- ---------
US Leasing
Semiannual
Performance
Bonus 3 -- 29,557
Upside Sharing 22 115.78 23,535,290
- ---------------------------------------------------------------------------
Ventures
Semiannual
Performance Bonus 11 -- 258,796
Upside Sharing 25 110.57 10,690,738
- ---------------------------------------------------------------------------
CAM
Semiannual
Performance Bonus 3 -- 146,838
Upside Sharing 4 121.86 1,786,236
- ---------------------------------------------------------------------------
Electronics
Inventory
Semiannual
Performance Bonus 3 -- 48,296
Upside Sharing 3 81.00 103,987
- ---------------------------------------------------------------------------
Consolidated
Corporate
Semiannual
Performance Bonus 19 -- 3,597,636
Upside Sharing 2 -- 3,136,150
- ---------------------------------------------------------------------------
Totals $43,333,524
===========
- ---------------------------------------------------------------------------
The Board of Directors declared End of Term ("EOT"), as defined in the
Bankruptcy court approved Upside Sharing Compensation Plans, for all the
business units with the exception of consoldiated corporate. EOT for Electronics
Inventory was declared February 13, 2004 with an effective date of March 31,
2004. EOT for Ventures and CAM was declared May 6, 2004 with an effective date
of April 30, 2004. EOT for US Leasing was declared June 4, 2004 with an
effective date of May 31, 2004. Consolidated corporate EOT has not been declared
and the plan will remain in effect until EOT is declared. MIP Payment
Adjustments were made according to the Bankruptcy court approved compensation
plans.
There are eight participants who are eligible to participate in an
incentive sharing pool based on reducing off-balance sheet claims (excluding SIP
claims) and tax claims filed, none of whom were participants in any upside
sharing plan. Upon reducing such claims to a plan target level, participants are
eligible to share in a $0.6 million incentive sharing pool. As claims are
reduced below threshold, the Company has escrowed funds to be distributed at End
of Term, as defined in the Bankruptcy court approved compensation plans, to all
eligible participants in accordance with the MIP.
Long-Term Incentive Plans - Awards in Last Fiscal Year
There were no long-term incentive plan awards made to named executive
officers in fiscal 2004. Neither Mr. Thornton nor Mr. Cochran were a participant
in any of the upside sharing plans. Mr. Lackey participated in the Ventures
Upside Sharing Plan and has been paid in accordance with the Ventures
declaration of EOT. Mr. Mishler is a participant in the consolidated corporate
Upside Sharing Plan and was paid an advanced payment of $2,668,650 based on 115%
of plan target. The assumed ultimate achievement of plan target would result in
a $643,498 potential additional upside sharing payout, less any applicable
payment adjustment as defined in the Bankruptcy court approved compensation
plan.
Defined benefit or acturial plan disclosure.
Not applicable.
Compensation of Directors
Until August 12, 2004, non-employee directors were paid a quarterly
retainer of $6,000, a board meeting fee of $2,000 plus expenses, and a committee
meeting fee of $1,000 plus expenses if the committee meeting was not held on the
same day as a Board of Directors meeting. Employee directors received no
additional compensation for serving on the Board of Directors or its committees.
Directors were reimbursed for customary and usual travel expenses. In fiscal
2004, in addition to its regularly scheduled quarterly meetings, the Board of
Directors of Comdisco Holding Company, Inc. met nineteen times prior to August
12, 2004. All directors attended 75 percent or more of the Board meetings and
meetings of the committees on which they served during fiscal 2004. There have
been no Board meetings subsequent to August 12, 2004.
Mr. Thornton, as the sole continuing director, will not receive
compensation for his services as a director, but will receive compensation
pursuant to the Disbursing Agent Agreement for his services as Chief Executive
Officer, President and Initial Disbursing Agent.
Employment Contracts, Termination of Employment and Change-In-Control
Arrangements.
There are no employment contracts as of September 30, 2004. Mr. Thornton's
appointment as Initial Disbursing Agent became effective August 12, 2004
pursuant to the Disbursing Agent Agreement (filed herewith as Exhibit 10.9) Mr.
Thornton is not an employee of the registrant. As Initial Disbursing Agent, he
assumed the roles and responsibilities performed by the former Board of
Directors and officers of the Company, including all measures which are
necessary to complete the administration of the reorganized debtors' Plan and
Chapter 11 cases.
Report on repricing of options/SARs
Not applicable.
Additional Information with Respect to Compensation Committee Interlocks and
Insider Participation in Compensation Decisions
Until August 12, 2004, Mr. McIntosh, Mr. Chefitz, and Mr. Thornton were the
three members of the Compensation Committee of the Board of Directors. Mr.
McIntosh was the Chairperson of the Compensation Committee. No member of the
Compensation Committee was at any time an officer or employee of the Company or
its subsidiaries. During the last fiscal year, there was no director or
executive officer who was a member of any other company, partnership or other
entity's compensation committee or similar committee or otherwise was involved
in making decisions regarding compensation of other entities' executives. See
Item 13, Certain Relationships and Related Transactions, for additional
information regarding Mr. Thornton and his relationship with Citigroup.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee met seven times during fiscal year 2004 prior to
August 12, 2004 when all members of this committee resigned from the Board,
except for Mr. Thornton. The Company is not required to have a three-person
Compensation Committee consisting of independent directors because its equity
securities are not listed on a stock exchange or traded on the Nasdaq.
The purpose of the Compensation Committee was to ensure that the employees
of the Company and its wholly-owned subsidiaries were compensated effectively in
a manner consistent with the stated compensation strategy of the Company in
furtherance of the Plan and requirements of the appropriate regulatory bodies.
Per the charter, the duties and responsibilities of the committee included (but
were not limited to): (a) reviewing the Company's compensation strategy, (b)
reviewing and determining the individual elements of total compensation for the
Chief Executive Officer, (c) reviewing and approving appropriate discretionary
bonus recommendations by the Chief Executive Officer for managers and officers,
(d) reviewing and approving disposition of forfeited monies as a result of
voluntary resignation or for-cause termination for the MIP and Stay Bonus Plan,
and (e) reviewing employee benefit plans of the Company.
The Compensation Committee reviewed the SAB objectives and the assessments
of achievements relative to those objectives for Mr. Mishler and his direct
reports, including all of the officers listed in the Summary Compensation Table,
for the four periods ending December 31, 2003, March 31, 2004, June 30, 2004,
and August 12, 2004, 2004. The SAB objectives were comprised of corporate and
business unit cash flow objectives based on recoveries achieved during the
period as well as individual performance objectives. Actual cash flow recoveries
exceeded plan targets (with the exception of the Electronics Inventory group for
the three months ended December 31, 2003 and March 31, 2004).
Pursuant to the Compensation Committee's responsibility to review and
approve the chief executive officer's compensation and corporate and business
unit cash-flow results, the Compensation Committee approved the SAB objectives
and assessed the achievement relative to those objectives for Mr. Mishler for
the four periods ending December 31, 2003, March 31, 2004, June 30, 2004, and
September 30, 2004. Mr. Mishler's SAB was based 50 percent on cash flow targets
and 50 percent on individual performance objectives. Mr. Mishler met
substantially all the objectives for each respective three-month period. Mr.
Mishler had the following individual performance objectives: (i) maintaining
compliance with bankruptcy court orders, debt indentures, corporate
organizational documents and corporate policies; (ii) timely and accurate
financial reporting; (iii) maintaining adequate corporate governance processes;
(iv) managing sales, general and administrative expenses within plan levels; (v)
securing and maintaining corporate insurance, and; (vi) developing exit
strategies for each business unit.
The Board of Directors engaged independent legal counsel to provide a
summary of all components of the Compensation Plans and to assist the Board in
determining that the Compensation Plans were implemented in compliance with the
intent of the agreement with the statutory creditors' committee and the
Compensation Plans .
The Board of Directors also engaged KPMG to assist the Company in
evaluating the amounts accrued, paid and deferred by Comdisco in accordance with
the provisions of the MIP and the Stay Bonus Plan the first three quarterly
periods of fiscal 2004. KPMG applied agreed-upon procedures in accordance with
standards established by the American Institute of Certified Public Accountants
in their evaluations.
SUBMITTED BY RANDOLPH I. THORNTON
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Common Stock Owned by Certain Beneficial Owners
The following table reflects the number of shares of Common Stock
beneficially owned on December 1, 2004 by all persons whom we know to be
beneficial owners of 5 percent or more of our Common Stock, based on a review of
public filings.
Stockholders Owning at Least 5 percent of the Company's Common Stock
Shares Percent of
Name and Address Beneficially Owned Class
----------------------------------- ------------------ -----
Berkshire Hathaway, Inc. (1)
1440 Kiewit Plaza
Omaha, Nebraska 68131 1,452,548 34.61%
Davidson Kempner Partners (2)
885 Third Avenue
New York, New York 10022 855,515 20.38%
Kinetics Asset Management, Inc. (3)
470 Park Avenue South
4th Floor South,
New York, NY, 10016 217,911 5.19%
Horizon Asset Management, Inc. (4)
470 Park Avenue South
4th Floor South
New York, NY, 10016 266,140 6.34%
Halcyon Management Company LLC and (5)
Halcyon Offshore Management Company LLC
477 Madison Avenue
New York, New York 10022. 289,118 6.89%
(1) The information with respect to 1,452,548 shares of Common Stock
beneficially owned by Berkshire Hathaway, Inc. is based on an Amended
Report on Schedule 13D dated October 1, 2002 and filed with the SEC on
October 21, 2002.
(2) The information with respect to 855,515 shares of Common Stock
beneficially owned by Davidson Kempner Partners is based on a Report
on Schedule 13D dated July 16, 2003 and filed with the SEC on July 24,
2003.
(3) The information with respect to 217,911 shares of Common Stock
beneficially owned by Kinetics Asset Management, Inc. is based on a
Report on an Amended Schedule 13G dated June 14, 2004 and filed with
the SEC on June 14, 2004.
(4) The information with respect to 266,140 shares of Common Stock
beneficially owned by Horizon Asset Management, Inc. is based on a
Report on Schedule 13G dated June 14, 2004 and filed with the SEC on
June 14, 2004.
(5) The information with respect to 289,118 shares of Common Stock
beneficially owned by Halcyon is based on an Amended Report on
Schedule 13G dated March 5, 2004 and filed with the SEC on
March 8, 2004.
Common Stock Owned by Directors and Executive Officers
Neither the (i) sole director of the Company, or (ii) any of the named
executive officers as set forth above in the Summary Compensation Table (the
"Named Executive Officers") beneficially owned shares of the Registrants Common
Stock as of December 1, 2004. The address of the sole director and named
executive officers is c/o Comdisco Holding Company, Inc., 5600 North River Road,
Rosemont, Illinois 60018.
Equity Compensation Plan Information
The Company has not reserved any equity securities for compensation to its
key employees and officers.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Randolph I. Thornton, who has been a member of the Company's Board of
Directors and the Compensation Committee since August 2002, was a Managing
Director within the Institutional Recovery Management Department within
Citigroup until his retirement from Citigroup in February 2004. Citigroup was a
creditor of Comdisco, Inc. and Mr. Thornton was a co-chair of the statutory
creditors' committee. On September 30, 2002, as part of the initial distribution
to holders of allowed Class C-4 Claims conducted in accordance with the Plan,
Citigroup received approximately $35.3 million in cash, $6.3 million and $10.3
million of Senior Notes and Subordinated Notes, respectively, and 66,521 shares
of the Company's Common Stock. Citigroup adopted certain procedures to govern
disclosure by Mr. Thornton of the Company's confidential information.
There was no indebtedness of management to the registrant during fiscal
2004.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Committee of the Board of Directors
The Audit Committee and the Board of Directors adopted a charter, setting
forth the structure, powers and responsibilities of the Audit Committee. Three
independent directors served as members prior to August 12, 2004. The Audit
Committee met six times in fiscal 2004. Mr. Thornton, as sole director and
Initial Disbursing Agent, has been performing the functions of the Audit
Committee since August 12, 2004. The Company is not required to have a
three-person committee consisting of independent directors because its equity
securities are not listed on a stock exchange or trade on Nasdaq.
One of the Mr. Thornton's primary responsibilities is to provide oversight
of the integrity of the Company's financial statements and financial reporting
process. To fulfill these oversight responsibilities, the Mr. Thornton has
reviewed and discussed with management and the independent auditors the audited
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2004, and has reviewed and discussed with
the independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as amended. In
addition, Mr. Thornton received from the independent auditors written reports
disclosing that they are not aware of any relationships between the auditors and
the Company that, in their professional judgment, may reasonably be thought to
bear on their independence, consistent with Independence Standards Board
Standard Number 1, Independence Discussions with Audit Committees. Mr. Thornton
also reviewed and discussed with the independent auditors all relationships the
auditors have with the Company to determine and satisfy itself regarding the
auditors' objectivity and independence. Mr. Thornton has also considered whether
the provision of non-audit services by the independent auditors to the Company
for the most recent fiscal year and the fees and costs billed and expected to be
billed by the independent auditors for those services are compatible with
maintaining their independence.
Based on the review and discussions described in this report, Mr. Thornton
determined that the Company's audited consolidated financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2004, for filing with the SEC.
Mr. Thornton, as sole director and Disbursing Agent, appointed KPMG LLP as
independent auditors for the Company for fiscal 2005.
Principal Accountant Audit Fees and Services Fees
The following table describes fees for professional audit services rendered
by KPMG, the Company's principal accountant, for the audit of our annual
financial statements for the years ended September 30, 2004 and September 30,
2003 and fees billed for other services rendered by KPMG during those periods.
Type of Fee 2004 2003
- ---------------------- ---------- ----------
Audit Fees (1) $ 699,000 $1,393,000
Audit Related Fees (2) 201,000 1,104,000
Tax Fees (3) 235,000 805,000
All Other Fees (4) 54,000 161,000
- ---------------------- ---------- ----------
Total $1,188,000 $3,463,000
========== ==========
(1) Audit Fees, including those for statutory audits, include the
aggregate fees paid by the Company during the fiscal year indicated
for professional services rendered by KPMG for the audit of the
Company's annual financial statements and review of financial
statements included in the Company's Forms 10-Q.
(2) Audit Related Fees include the aggregate fees paid by the Company
during the fiscal year indicated for assurance and related services by
KPMG that are reasonably related to the performance of the audit or
review of the Company's financial statements and not included in Audit
Fees. Also included in Audit Related Fees are fees for accounting
advice.
(3) Tax Fees include the aggregate fees paid by the Company during the
fiscal year indicated for professional services rendered by the
principal accountant for tax compliance, tax advice and tax planning.
(4) All Other Fees include the aggregate fees paid by the Company during
the fiscal year indicated for products and services provided by KPMG,
other than the services reported above.
Procedures For Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditor
Pursuant to its charter and until August 12, 2004, the Audit Committee of
Comdisco Holding Company's Board of Directors was responsible for reviewing and
approving, in advance, any audit and any permissible non-audit engagement or
relationship between Comdisco and its independent auditors. Since then, Mr.
Thornton, as sole director and Initial Disbursing Agent, has assumed that
responsibility. KPMG's engagement to conduct the audit of Comdisco Holding
Company, Inc. was approved by the Audit Committee. Additionally, each
permissible non-audit engagement or relationship between Comdisco and KPMG
entered into between May 2, 2003 and August 12, 2004 has been reviewed and
approved by the Audit Committee, as provided in its charter. Since then, Mr.
Thornton, as sole director and Initial Disbursing Agent, has assumed that
responsibility.
We have been advised by KPMG that all of the work done in conjunction with
its audit of Comdisco Holding Company's financial statements for the most
recently completed fiscal year was performed by permanent full time employees
and partners of KPMG.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List of documents filed as part of this report:
1. Financial Statements
See Index to Financial Statements contained in Item 8, Financial Statements
and Supplementary Data, above.
2. Financial Statement Schedules
All Financial Statement Schedules have been omitted because (i) the
required information is not present in amounts sufficient to require submission
of the schedule, (ii) the information required is included in the Financial
Statements or the Notes thereto or (iii) the information required in the
schedules is not applicable to the Company.
3. Exhibits
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Commission:
Exhibit No. Description of Exhibit
- ----------- -----------------------------------------------------------------
2.1 Joint Plan of Reorganization of Comdisco, Inc. and its Affiliated
Debtors and Debtors in Possession (Incorporated by reference to
Exhibit 99.3 filed with Comdisco, Inc.'s Current Report on Form
8-K dated April 26, 2002, as filed with the Commission on May 10,
2002, File No. 1-7725).
2.2 First Amended Joint Plan of Reorganization of Comdisco,Inc. and
its Affiliated Debtors and Debtors in Possession (Incorporated by
reference to Exhibit 2.2 filed with Comdisco, Inc.'s Current
Report on Form 8-K dated July 30, 2002, as filed with the
Commission on August 9, 2002, File No. 1-7725).
2.3 Findings of Fact, Conclusions of Law, and Order Under 11 U.S.C.
ss.ss.1129(a) and (b) and Fed. R. Bankr. P. 3020 Confirming the
First Amendment Plan of Reorganization of Comdisco, Inc. and its
Affiliated Debtors and Debtors in Possession (Incorporated by
reference to Exhibit 2.1 filed with Comdisco, Inc.'s Current
Report on Form 8-K dated July 30, 2002, as filed with the
Commission on August 9, 2002, File No. 1-7725).
3.1 Certificate of Incorporation of Registrant, dated August 8, 2002
and as amended August 12, 2004 (Filed herewith)
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 on Form 10-K dated September 30, 2002, as filed with the
Commission on January 14, 2003, File No. 0-49968).
4.1 Rights Agent Agreement between th Registrant and Mellon Investor
Services L.L.C., as Rights Agent, dated as of August 12, 2002
(Incorporated by reference to Exhibit 4.5 filed with the
Company's Annual Report on Form 10-K dated September 30, 2002, as
filed with the Commission on January 14, 2003, File No. 0-49968)
10.1* Motion, dated as of May 24, 2002, and Order, dated as of June 18,
2002, Pursuant to 11 U.S.C. Sections 105(a) and 363(b)(1)
Approving and Authorizing the Debtors' Stay Bonus Plan and
Management Incentive Plan, dated June 18, 2002 (Incorporated by
reference to Exhibit 10.1 filed with the Company's Annual Report
of Form 10-K dated September 30, 2002, as filed with the
Commission on January 14, 2003, File No. 0-49968).
10.2* First Letter from Ronald C. Mishler to the Official Committee of
Unsecured Creditors of Comdisco, Inc., dated May 29, 2002
(Incorporated by reference to Exhibit 10.2 filed with the
Company's Annual Report of Form 10-K dated September 30, 2002, as
filed with the Commission on January 14, 2003, File No. 0-49968).
10.3* Second Letter from Ronald C. Mishler to the Official Committee of
Unsecured Creditors of Comdisco, Inc., dated July 3, 2002
(Incorporated by reference to Exhibit 10.3 filed with the
Company's Annual Report of Form 10-K dated September 30, 2002, as
filed with the Commission on January 14, 2003, File No. 0-49968).
10.5 Agreed Motion for Dismissal With Prejudice, dated March 7, 2002,
and Agreed Order for Dismissal with Prejudice, dated March 14,
2002 (Incorporated by reference to Exhibit 10.5 filed with the
Company's Annual Report of Form 10-K dated September 30, 2002, as
filed with the Commission on January 14, 2003, File No. 0-49968).
10.6 Motion for an Order in Furtherance of the First Amended Joint
Plan of Reorganization of Comdisco, Inc. and its Affiliates
Seeking Authority to Complete the Administration of the
Reorganized Debtors' Reorganization Plan and Chapter 11 Cases,
dated February 17 2004, (Incorporated by reference to Exhibit
99.2 filed with the Company's Report on Form 8-K dated February
17, 2004, as filed with the Commission on February 18, 2004, File
No. 0-49968)
10.7 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 B, LLC (Incorporated by reference to
Exhibit 99.1 filed with the Company's Report on Form 8-K dated
February 23, 2004, as filed with the Commission on February 23,
2004, File No. 0-49968)
10.8 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 Report on Form 8-K dated February 23,
2004, as filed with the Commission on February 23, 2004, File No.
0-49968)
10.9 Disbursing Agent Agreement (Filed herewith).
10.10 Asset Acquistion Agreement, dated as of January 31, 2002,
between Comdisco, Inc. and T-Systems, Inc. (Incorporated by
reference to Exhibit 10.13 filed with the Company's Annual Report
of Form 10-K dated September 30, 2002, as filed with the
Commission on January 14, 2003, File No. 0-49968).
10.11 Asset Purchase Agreement, dated as of August 25, 2003, by and
between Bay4 Capital Partners, LLC and Comdisco, Inc.
(Incorporated by reference to Exhibit 99.1 filed with the
Company's Current Report on Form 8-K dated September 9, 2003, as
filed with the Commission on September 24, 2003, File No.
0-49968)
11.1 Statement re computation of per share earnings (Filed herewith).
21.1 Subsidiaries of the registrant (Filed herewith).
31.1 Certification of Chief Executive Officer and Principal Financial
Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Filed herewith).
32.1 Certification of the Chief Executive Officer and Principal
Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Furnished herewith).
- --------------------------------------------------------------------------------
* Management contract or compensatory plan or arrangement.
(b) Exhibits
The response to this portion of Item 15 is submitted as a separate section
of this report. See Item 15(a)(3) above.
(c) Financial Statement Schedules
The response to this portion of Item 15 is submitted as a separate section
of this report. See Item 15(a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMDISCO HOLDING COMPANY, INC.
Dated: December 14, 2004 By: /s/ Randolph I. Thornton
----------------------------------
Name: Randolph I. Thornton
Title: Chief Executive Officer and
President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on December 14, 2004.
SIGNATURE DATE
/s/ Randolph I. Thornton December 14, 2004
- ---------------------------------
Name: Randolph I. Thornton
Title: Chief Executive Officer and
President
(Principal Financial and
Accounting Officer)
Sole Director