Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For
the quarterly period ended December 31, 2009
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 Identification No.)
|
incorporation
or organization)
|
5600
North River Road
Suite
800
Rosemont,
Illinois 60018
(Address
of principal executive offices) (Zip code)
Registrant's
telephone number, including area code: (847) 698-3000
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
[X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
[ ] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act (check
one):
Large
accelerated filer [ ]
|
|
Accelerated
filer [ ]
|
Non-accelerated
filer [ ] (Do not check if a smaller reporting
company)
|
Smaller
reporting
company [X]
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
[ ] No[X]
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 4,029,055 shares of the
registrant's Common Stock, $0.01 par value per share, were outstanding on
January 31, 2010.
COMDISCO
HOLDING COMPANY, INC.
INDEX
Page
PART
I.
|
FINANCIAL
INFORMATION
|
1
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
1
|
|
Consolidated
Statements of Operations – Three months ended December 31, 2009 and 2008
(Unaudited)
|
2
|
||
Consolidated
Balance Sheets – December 31, 2009 (Unaudited) and September 30, 2009
(Audited)
|
3
|
||
Consolidated
Statements of Cash Flows – Three months ended December 31, 2009 and 2008
(Unaudited)
|
4
|
||
Consolidated
Statements of Cash Flows (Unaudited) - Continued
|
5
|
||
Notes
to Consolidated Financial Statements (Unaudited)
|
6
|
||
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
12
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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20
|
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
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20
|
|
PART
II.
|
OTHER
INFORMATION
|
20
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
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20
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|
ITEM
1A.
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RISK
FACTORS RELATING TO THE COMPANY
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20
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|
ITEM
2.
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UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
23
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
24
|
|
ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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24
|
|
ITEM
5.
|
OTHER
INFORMATION
|
24
|
|
ITEM
6.
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EXHIBITS
|
24
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SIGNATURES
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25
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PART
I. FINANCIAL
INFORMATION
Forward-Looking
Statements
This
quarterly report on Form 10-Q contains, and our periodic filings with the
Securities and Exchange Commission (the "SEC") and written and oral statements
made by the Company's sole officer and director or any authorized
representative, 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 below in Part II, Item 1A, Risk Factors. Many of the risk factors that
could affect the results of the Company's operations are beyond our ability to
control or predict.
ITEM
1. FINANCIAL
STATEMENTS
THE
COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE
PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN
ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE
COMPANY'S FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE "PLAN") AND
RESTRICTIONS CONTAINED IN THE COMPANY'S CERTIFICATE OF INCORPORATION (THE
“CERTIFICATE”), 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.
1
Comdisco
Holding Company, Inc.
Consolidated
Statements of Operations – Three months ended December 31, 2009 and 2008
(Unaudited)
(in
thousands except per share data)
Three
months ended
December
31,
|
||||||||
2009
|
2008
|
|||||||
Revenue
|
||||||||
Gain
on sale of equity and warrant securities
|
$ | 8 | $ | 92 | ||||
Interest
income
|
27 | 281 | ||||||
Foreign
exchange gain
|
144 | -- | ||||||
Miscellaneous
income
|
1 | 8 | ||||||
Total
revenue
|
180 | 381 | ||||||
Costs
and expenses
|
||||||||
Selling,
general and administrative
|
1,408 | 1,341 | ||||||
Write-down
of equity securities
|
16 | -- | ||||||
Contingent
distribution rights
|
(60 | ) | (391 | ) | ||||
Bad
debt recoveries
|
(28 | ) | (1,942 | ) | ||||
Foreign
exchange loss
|
-- | 633 | ||||||
Total
costs and expenses
|
1,336 | (359 | ) | |||||
Earnings
(loss) before income taxes
|
(1,156 | ) | 740 | |||||
Income
tax expense
|
81 | 812 | ||||||
Net
loss
|
$ | (1,237 | ) | $ | (72 | ) | ||
Basic
and diluted net loss per common share
|
$ | (0.31 | ) | $ | (0.02 | ) |
See
accompanying notes to consolidated financial statements.
2
Comdisco
Holding Company, Inc.
|
Consolidated
Balance Sheets – December 31, 2009 (Unaudited) and September 30, 2009
(Audited)
(in
thousands except share data)
December
31, 2009
|
September
30, 2009
|
|||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 65,426 | $ | 66,065 | ||||
Cash
– legally restricted
|
4,981 | 4,994 | ||||||
Equity
investments
|
1,036 | 1,052 | ||||||
Income
tax receivables
|
4,230 | 4,105 | ||||||
Receivables
for securities sold
|
359 | 361 | ||||||
Other
assets
|
279 | 313 | ||||||
Total
assets
|
$ | 76,311 | $ | 76,890 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Accounts
payable
|
$ | 474 | $ | 246 | ||||
Income
tax payables
|
10,666 | 10,235 | ||||||
Other
liabilities
|
||||||||
Accrued
compensation
|
1,223 | 1,167 | ||||||
Contingent
distribution rights
|
21,371 | 21,431 | ||||||
Other
liabilities
|
348 | 346 | ||||||
Total
other liabilities
|
22,942 | 22,944 | ||||||
Total
liabilities
|
34,082 | 33,425 |
Stockholders’
equity
|
||||||||
Common
stock $.01 par value. Authorized
10,000,000
shares; issued 4,200,000 shares;
4,029,055
shares outstanding at both December 31,
2009
and September 30, 2009
|
72 | 72 | ||||||
Additional
paid-in capital
|
44,136 | 44,136 | ||||||
Accumulated
other comprehensive income
|
24 | 23 | ||||||
Retained
earnings
|
2,318 | 3,555 | ||||||
Common
stock held in treasury, at cost; 170,945
shares
at both December 31, 2009 and
September
30, 2009
|
(4,321 | ) | (4,321 | ) | ||||
Total
stockholders’ equity
|
42,229 | 43,465 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 76,311 | $ | 76,890 |
See
accompanying notes to consolidated financial statements.
3
Comdisco
Holding Company, Inc.
Consolidated
Statements of Cash Flows – Three months ended December 31, 2009 and 2008
(Unaudited)
(in
thousands)
Three
months ended
December
31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Equity
and warrant proceeds, net of fees
|
$ | 11 | $ | 73 | ||||
Interest,
recoveries and other revenue
|
60 | 479 | ||||||
Selling,
general and administrative expenses
|
(1,089 | ) | (1,237 | ) | ||||
Income
tax
|
23 | 5,456 | ||||||
Net
cash provided by (used in) operating activities
|
(995 | ) | 4,771 | |||||
Effect
of exchange rates on cash and cash equivalents
|
356 | (378 | ) | |||||
Net
increase (decrease) in cash and cash equivalents
|
(639 | ) | 4,393 | |||||
Cash
and cash equivalents at beginning of period
|
66,065 | 57,554 | ||||||
Cash
and cash equivalents at end of period
|
$ | 65,426 | $ | 61,947 |
See
accompanying notes to consolidated financial statements.
4
Comdisco
Holding Company, Inc.
Consolidated
Statements of Cash Flows (Unaudited) - Continued
(in
thousands)
Three
months ended
December
31,
|
||||||||
2009
|
2008
|
|||||||
Reconciliation
of net loss to net cash provided by
(used
in) operating activities:
|
||||||||
Net
loss
|
$ | (1,237 | ) | $ | (72 | ) | ||
Adjustments
to reconcile net loss to net cash
provided
by (used in) operating activities:
|
||||||||
Income
taxes
|
104 | 6,268 | ||||||
Contingent
distribution rights
|
(60 | ) | (391 | ) | ||||
Receivables
|
2 | (1,751 | ) | |||||
Selling,
general and administrative
|
317 | 104 | ||||||
Write-down
of equity securities
|
16 | -- | ||||||
Other,
including foreign exchange
|
(137 | ) | 613 | |||||
Net
cash provided by (used in) operating activities
|
$ | (995 | ) | $ | 4,771 |
See
accompanying notes to consolidated financial statements.
5
COMDISCO
HOLDING COMPANY, INC.
Notes
to Consolidated Financial Statements (Unaudited)
December
31, 2009
The
following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 2 in Part I and in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 2009, and with the
Consolidated Financial Statements and related notes in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 2009.
1. Reorganization
On
July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the Northern District of
Illinois, Eastern Division (the "Bankruptcy court") (consolidated case number
01-24795). Comdisco Holding Company, Inc., as the successor company to Comdisco,
Inc., emerged from bankruptcy under the Plan that became effective on August 12,
2002. For financial reporting purposes only, however, the effective date for
implementation of fresh-start reporting was July 31, 2002.
Comdisco
Holding Company, Inc. was formed on August 8, 2002 for the purpose of selling,
collecting or otherwise reducing to money in an orderly manner the remaining
assets of the Company and all of its direct and indirect subsidiaries, including
Comdisco, Inc. The Company's business purpose is limited to the orderly sale or
collection of all its remaining assets. Pursuant to the Plan and restrictions
contained in its Certificate, the Company is specifically prohibited from
engaging in any business activities inconsistent with its limited business
purpose.
Litigation Trust: In
February 1998, pursuant to the Shared Investment Plan (“SIP”), the participants
in the SIP (the “SIP Participants”) took out full recourse, personal loans to
purchase approximately six million shares of Comdisco, Inc.’s common stock. In
connection therewith, Comdisco, Inc. executed a guaranty dated February 2, 1998
(the “Guaranty”) providing a guaranty of the loans in the event of default by
the SIP Participants to the lenders under the SIP (the “SIP Lenders”). On
November 29, 2001, the SIP Lenders filed a master proof of claim in the
Comdisco, Inc. bankruptcy in the amount of $133 million (“SIP Guaranty Claim”).
The Company and the SIP Lenders subsequently reached a settlement that was
approved by the Bankruptcy court on December 9, 2004. The Plan and the litigation trust agreement provided
that, under certain circumstances, subrogation rights that the Company may have
against the SIP Participants who participated in the SIP and their respective
promissory notes be placed in a trust for the benefit of the C-4 creditors (the
"Trust Assets"). Under the Plan, the Litigation Trust is solely
responsible for collection of amounts due on the promissory notes of the SIP
Participants who did not take advantage of the SIP Relief (as defined in the
Plan). The Company has a limited indemnification obligation to the
litigation trustee under the litigation trust agreement. Six of the
SIP Participants filed personal bankruptcy. On February 4, 2005, the
Litigation Trust commenced both state and federal lawsuits to collect
on the remaining SIP Participants’ promissory
notes.
A federal district court judge has entered summary
judgments (and amended judgments) against all but one of the SIP Participants
who are defendants in the federal cases on their respective SIP promissory
notes and the Litigation Trust has commenced collection actions against
them. Additionally, the federal district court judge has entered
orders ordering that certain CDRs and related proceeds held by the estate
of Comdisco, Inc. and BNY Mellon (holder of CDRs) on behalf of those SIP
Participants be turned over to the Litigation Trust. Pursuant to these
orders, the Company has turned over CDRs and related proceeds and will continue
to do so if additional orders are entered. The SIP
Participants have filed appeals on those judgments. A briefing
schedule on the appeals on those judgments has been ordered with all briefing to
be completed by March 15, 2010. As of the date of the
filing, no date has been set for any oral arguments.
The Litigation Trust has filed summary judgments against
all of the SIP Participants who are defendants in the state cases. On December
18, 2009, the SIP Participants filed their response and the Litigation Trust
will file its reply by February 11, 2010. Three of the SIP Participants
filed Motions for Leave to file Cross Motions for Summary Judgment. The
hearing for this motion is on February 11, 2010.
6
As reported in the Twenty-First Status Report of
Comdisco Litigation Trustee filed on January 29, 2010, twenty-two
of the SIP Participants in federal court and two of the SIP Participants in the
state court have settled with the Litigation Trust. The Litigation Trust is in ongoing settlement discussions with other SIP
Participants.
Please
refer to the quarterly reports filed by the Litigation Trust in the bankruptcy
court for more details. Any proceeds collected by the Litigation Trust, net of
expenses, will be considered Trust Assets and distributed in accordance with the
Plan and litigation trust agreement.
2. Basis
of Presentation
In
this quarterly report on Form 10-Q, references to "the Company," "Comdisco
Holding," "we," "us" and "our" mean Comdisco Holding Company, Inc., its
consolidated subsidiaries, including Comdisco, Inc., Comdisco Ventures Fund A,
LLC (formerly 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.
During
the quarter ended December 31, 2008, management determined that it had not
correctly accounted for one of the inputs of the CDR liability calculation and
certain severance costs of a limited number of remaining employees. As a
result, the financial position and results of operations for the three months
ended December 31, 2008 reflect an increase to contingent distribution rights
expense and corresponding contingent distribution rights liability in the amount
of approximately $219,000 and a reduction to selling, general and administrative
expenses and accrued compensation of approximately $52,000. Management
determined that the impact of these errors on previously issued interim and
annual consolidated financial statements was not material and determined that
the impact of correcting these errors in the interim consolidated financial
statements for the three months ended December 31, 2008 was not material, and
therefore reflected the corrections in the three months ended December 31,
2008.
3. Equity
Investments
Windspeed
Acquisition Fund GP, LLC ("Windspeed"), a professional management group which
the Company engaged in February 2004, manages the Company's investments in
equity securities on an ongoing basis. Windspeed receives fixed and declining
management fees. Additionally, Windspeed shares in the net receipts from the
sale of the Company's investments in equity securities at a set percentage.
Through December 31, 2009, the Company had received approximately $67,863,000 in
proceeds (prior to Windspeed’s management fees, sharing and target bonus award)
since the inception of the management agreement with Windspeed. Windspeed has
received approximately $11,433,000 in combined management fees, sharing and
target bonus award through December 31, 2009. Management fees are expensed when
incurred, and realized gains on the sale of equity securities are reduced by
sharing amounts under the management agreement.
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 revenue in the consolidated
statements of operations.
Marketable
equity securities:
The
Company's available-for-sale security holdings were as follows (in
thousands):
Cost
|
Gross
unrealized
gains
|
Market
value
|
||||||||||
September
30, 2009
|
$ | - | $ | 23 | $ | 23 | ||||||
December
31, 2009
|
$ | - | $ | 24 | $ | 24 |
7
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 5 of Notes to Consolidated Financial Statements). At December
31, 2009, the Company held securities in three publicly-traded companies:
Medidata Solutions, Inc. and two minor positions in securities valued under
$100. The fair market value of Medidata Solutions, Inc. is
approximately $24,000 as of December 31, 2009, and the Company sold these shares
on January 4, 2010 for $24,000.
The
Company's practice is to work in conjunction with Windspeed to sell its
marketable equity securities upon the expiration of the lockup period utilizing
various timing strategies which seek to maximize the return to the Company.
However, in the future, there is no assurance as to whether or
not the Company either will be able to liquidate such positions held
for any lock-up period, or realize any amount on such positions.
Equity
investments in private companies:
The
Company's policy for assessing the carrying value of equity investments in
privately held companies is, in consultation with Windspeed, to regularly review
and estimate the fair value of these securities. 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. During the quarter ended December 31, 2009, the Company
wrote-down $16,000 in one investment portfolio. All write-downs are
considered permanent impairments for financial reporting purposes.
4. Income
Taxes
The
Company files income tax returns in the U.S. federal jurisdiction, the State of
Illinois and foreign jurisdictions.
As
of the date of this filing, the federal tax years open to examination are fiscal
years ended September 30, 2005 through September 30, 2008.
On
November 6, 2009, the Worker, Homeownership and Business Assistance Act of 2009
(the “WHB Act”) was passed and signed into law. The WHB Act allows businesses
with net operating losses (“NOLs”) for 2008 and 2009 to carry back losses for up
to five years and suspends the 90% limitation on the use of any alternative
minimum tax NOL deduction attributable to carrybacks of the applicable
NOL. Due to the incremental selling, general and administrative costs
that would be incurred if there was an extended time period associated with the
reopening of certain tax years, the Company has chosen not to elect the
carryback option at this time.
In
the State of Illinois, the Company’s audits for the tax years ended September
30, 2006 and 2007 were closed on December 24, 2009 with no
adjustments. There are no other significant state audits in
progress.
The
Company's Canadian subsidiary, Comdisco Canada Limited, currently is in the
process of resolving several tax matters with federal and provincial tax
authorities in Canada. The more significant tax matters include, but are not
limited to, a tax audit performed by the Canada Revenue Agency ("CRA") for tax
years ended September 30, 2001 through 2003 which was completed September 29,
2008 and amended tax returns and "Notices of Objection" to reassessments filed
for several other tax years. The Company continues to advance matters with the
province of Ontario in respect to Notices of Objection and amended tax returns
filed for several tax years. The open federal tax years for the Canadian
subsidiary are tax years ended September 30, 1998, 1999, 2002, and 2005 through
2008. The open tax years for the province of Ontario are tax years ended
September 30, 1998 and 2004 through 2008. The open tax year for the province of
Quebec is the tax year ended September 30, 1999. The open tax year for the
province of Alberta is the tax year ended September 30, 1999.
The
Company’s UK subsidiary, Equiplease, has open tax years in Canada for the years
ended August 19, 1990 through August 19, 2009. The open tax year in
the UK is the year ended August 19, 2008.
Comdisco,
Inc., as a result of its former business operations in Puerto Rico, has open tax
years in Puerto Rico for the years ended September 30, 2001 through September
30, 2008.
8
During
the quarter ended June 30, 2009, the Company was contacted by the
Mexican Ministry of Finance to perform an audit of the 2003 tax year. As
of the date of this filing, there has been a meeting with the auditor where
additional information as well as copies of documentation were requested.
With the assistance of its local advisor, the Company will respond to requests
for additional information or documentation as well as
questions. The open tax years for the Mexican subsidiary are the tax
years ended December 31, 2000 through December 31, 2008.
During
the quarter ended December 31, 2008, the Company received an income tax refund
from the Mexican Ministry of Finance in the amount of approximately $128,000 and
wrote down, for financial reporting purposes, the remaining income tax
receivable balance of approximately $770,000. On November 9, 2009,
the Company filed an appeal in Mexican Tax Court to challenge the
positions of the Ministry of Finance regarding the remaining income tax credits
that have yet to be refunded. The Company continues to uphold
the merits of its income tax positions, but the time involved and costs
associated with the pursuit of the refunds may not allow the Company to realize
their full value.
As
of December 31, 2009, the Company has recorded liabilities for uncertain tax
positions in the amount of approximately $4,666,000. The entire balance, if not
realized, would impact the effective tax rate.
In
the next twelve months, the Company’s effective tax rate and the amount of
unrecognized tax benefits could be affected positively or negatively by the
resolution of ongoing tax audits and the expiration of certain statutes of
limitation. The Company is unable to project the potential range of tax impacts
at this time. During the three months ended December 31, 2009,
approximately $33,000 was received from income tax refunds related to the
Company's Canadian subsidiary. During the twelve months ended
September 30, 2009, approximately $6,000,000 was received from income tax
refunds related to the Company's Canadian subsidiary. Such receipts
are anticipated to be used to satisfy Canadian taxes payable.
The
Company recognizes accrued interest and penalties related to uncertain tax
positions in the income tax provision. As of December 31, 2009,
accrued interest and penalties amounted to approximately
$3,259,000.
5. Stockholders' Equity
When
the Company emerged from bankruptcy, 4,200,000 shares of Common Stock were
issued. As of December 31, 2009, the Company had 4,029,055 shares of Common
Stock outstanding and 170,945 shares of Common Stock held in
treasury.
Stockholders'
equity consists of the following (in thousands):
Common
stock
|
Additional
paid-in capital
|
Accumulated
other comprehensive income
|
Retained
earnings
|
Common
stock in treasury
|
Total
|
|||||||||||||||||||
Balance
at September 30, 2009
|
$ | 72 | $ | 44,136 | $ | 23 | $ | 3,555 | $ | (4,321 | ) | $ | 43,465 | |||||||||||
Net
loss
|
(1,237 | ) | (1,237 | ) | ||||||||||||||||||||
Change
in net unrealized gains
|
1 | 1 | ||||||||||||||||||||||
Balance
at December 31, 2009
|
$ | 72 | $ | 44,136 | $ | 24 | $ | 2,318 | $ | (4,321 | ) | $ | 42,229 |
9
Total
comprehensive income (loss) consists of the following (in
thousands):
Three
months ended
December
31,
|
||||||||
2009
|
2008
|
|||||||
Unrealized
gains (losses) on securities:
|
||||||||
Unrealized
holding gains (losses) arising
during the period |
$ | 1 | $ | -- | ||||
Reclassification
adjustment for gains included in
earnings before income taxes |
-- | (55 | ) | |||||
Change
in net unrealized gains (losses) (A)
|
1 | (55 | ) | |||||
Other
comprehensive income (loss)
|
1 | (55 | ) | |||||
Net
loss
|
(1,237 | ) | (72 | ) | ||||
Total
comprehensive loss
|
$ | (1,236 | ) | $ | (127 | ) | ||
(A)
– No income tax effect on these gains (losses)
|
6. Other
Financial Information
Legally
restricted cash is comprised of the following at December 31, 2009 and September
30, 2009 (in thousands):
December
31, 2009
|
September
30, 2009
|
|||||||
Incentive
compensation escrow
|
$ | 456 | $ | 455 | ||||
Indemnification
reserve
|
4,000 | 4,000 | ||||||
Other
escrows
|
525 | 539 | ||||||
$ | 4,981 | $ | 4,994 |
The
incentive compensation escrow is deferred compensation defined by the Plan held
until an employee terminates with the Company. The
indemnification reserve is a specific reserve set aside by the Company for any
potential indemnified losses in lieu of the litigation trustee purchasing
insurance coverage. Other escrows include management fee escrows and
a bank guaranty held in the Netherlands.
Other
liabilities consist of the following (in thousands):
December
31, 2009
|
September
30, 2009
|
|||||||
Accrued
compensation
|
$ | 1,223 | $ | 1,167 | ||||
CDRs
|
21,371 | 21,431 | ||||||
Other
liabilities
|
348 | 346 | ||||||
$ | 22,942 | $ | 22,944 |
The
liability for accrued compensation includes payroll and estimated amounts
payable under the Plan. Other liabilities include an accrued
liability of approximately $187,000 for a bank guaranty held in the
Netherlands.
The
amounts due to CDR holders follow the formula described in “Critical Accounting
Policies”.
10
7. Financial
Information by Geographic Area
The
following table presents total revenue by geographic location based on the
location of the Company's offices (in thousands):
Three
months ended
December
31,
|
||||||||
2009
|
2008
|
|||||||
North
America
|
$ | 179 | $ | 377 | ||||
Europe
|
1 | 4 | ||||||
Total
|
$ | 180 | $ | 381 |
The
following table presents total assets and cash by geographic location based on
the location of the Company's offices (in thousands):
December
31, 2009
|
September
30, 2009
|
|||||||||||||||
Total
Assets
|
Cash
|
Total
Assets
|
Cash
|
|||||||||||||
North
America
|
$ | 75,859 | $ | 70,005 | $ | 76,427 | $ | 70,648 | ||||||||
Europe
|
452 | 402 | 463 | 411 | ||||||||||||
Total
|
$ | 76,311 | $ | 70,407 | $ | 76,890 | $ | 71,059 |
8. Fair
Value Measurements
On
October 1, 2008, the Company adopted ASC Subtopic 820-10 for all financial
instruments and non-financial instruments accounted for at fair value on a
recurring basis. Fair value is defined by ASC Subtopic 820-10 as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. ASC
Subtopic 820-10 establishes a three-level fair value hierarchy that prioritizes
the inputs used to measure fair value. The hierarchy requires entities to
maximize the use of observable inputs and minimize the use of unobservable
inputs. The three levels of inputs used to measure fair value are as
follows:
·
|
Level
1 – Quoted prices in active markets for identical assets and
liabilities.
|
·
|
Level
2 – Quoted prices in active markets for similar assets and liabilities, or
other inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial
instrument.
|
·
|
Level
3 – Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets and liabilities.
This includes certain pricing models, discounted cash flow methodologies
and similar techniques that use significant unobservable
inputs.
|
All
of the Company’s financial assets that are measured at fair value on a recurring
basis are measured using Level 1 inputs. However, the Company records
the carrying value of its private equity investments at lower of cost or fair
market value which is measured using Level 3 inputs. The Company has not
included a tabular disclosure as the Company’s only financial assets that are
measured at fair value on a recurring basis in the consolidated balance sheet as
of December 31, 2009 are money market funds comprising approximately $54,790,000
of the cash and cash equivalents balance and equity investments in three public
companies, which are measured at fair value based upon Level 1 inputs. The
Company holds no financial liabilities that are measured at fair value on a
recurring basis.
On
October 1, 2008, the Company adopted ASC Subtopic
825-10 but did not elect the fair value option.
11
Fair
values were determined as follows:
The
carrying amounts of cash and cash equivalents approximates fair value because of
the short-term maturity of these instruments.
In
accordance with the provisions of ASC Topic 320, “Accounting for Certain
Investments in Debt and Equity Securities,” marketable equity investments
(equity investments 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
practice is to sell its marketable equity investments upon the expiration of the
lock-up period.
9. Subsequent
Events
The
Company has evaluated events and transactions subsequent to the balance sheet
date through the issuance of these Consolidated Financial Statements on Form
10-Q with the United States Securities and Exchange Commission. Based
on this evaluation, the Company is not aware of any events or transactions that
occurred subsequent to the balance sheet date but prior to filing that would
require recognition or disclosure in its Consolidated Financial
Statements.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere in this
Quarterly Report on Form 10-Q and in the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 2009, and with the information under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2009.
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 AMENDED JOINT PLAN OF REORGANIZATION (THE "PLAN")
AND RESTRICTIONS CONTAINED IN THE COMPANY'S CERTIFICATE OF INCORPORATION (the
“CERTIFICATE”), 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.
General
Wind-Down
of Operations
Since
emerging from bankruptcy proceedings on August 12, 2002, the Company has,
pursuant to the Plan, focused on the monetization of its remaining assets.
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 the date of this filing, the Company
12
had
a total of five employees (one full-time and four part-time), a decrease of
approximately 99 percent from approximately 600 employees upon emergence on
August 12, 2002. Approximately eight former employees continue to
periodically assist the Company on a consulting basis.
On
August 12, 2004, 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.
See
"Risk Factors Relating to the Company-Uncertainties Relating to the Wind-down of
Operations" in Part II, Item 1A.
Overview
On
July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries voluntarily
filed for 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 Company, Inc. became the
successor to Comdisco, Inc.
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, 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 maintains sufficient cash reserves for the potential CDR liability and
any potential recoveries and net distributions by the Litigation Trust to C-4
creditors. The outcome and timing of the actual net distributions by
the Litigation Trust will impact both the timing and the amount of future
dividends and CDR payments. See below for “Critical Accounting
Policies” and the risk factors discussed in Part II, Item
1A, “Impact of Recoveries by Litigation Trust on the Company’s
Obligation To Make Payments in Respect of Contingent Distribution Rights,”
“Uncertainties Inherent in the CDR Liability Calculation” and “Uncertainties
Inherent in the Determination of Fair Market Value of the Remaining
Portfolio”.
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 collection 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, resolved all litigation 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 and completed all regulatory
filings. At that point, the Company will cease operations.
The
Company's revenues are generated primarily by sales of equity securities and
interest income on cash balances. Because of the Company's declining assets,
revenue will continue to decline and, because of the Company's limited business
purpose, this trend is expected to continue. The Company's expenses are
primarily CDRs, and selling, general and administrative expenses. 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 expense
associated with the liability for CDRs and the timing of payments related to
selling, general and administrative expenses.
The
Company's operations continued to wind down during the three months ended
December 31, 2009 compared to prior periods. The Company's assets at December
31, 2009 consisted primarily of cash, tax receivables, and equity securities.
The timing of collections on the tax receivables and the sale of equity
securities is uncertain. The equity securities portfolio requires liquidity
events before certain of these assets can be converted to cash. The Company
expects that proceeds from the disposition of equity securities will provide
future cash flows in excess of the current carrying value of these assets. In
addition, the Company, as a former lessor, has a number of leases in default
whereby collection efforts are underway to support a recovery on those accounts.
Receipts, if any, will be in
13
excess
of the respective carrying value of these assets because the related lease
receivables were previously written-off.
Equity Investments:
The Company holds common stock, preferred stock and warrants (collectively
"Equity Investments"). 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.
Any write-downs in the carrying value of such Equity Investments in private
companies are considered permanent for financial reporting purposes. See Note 3
of Notes to Consolidated Financial Statements and "Critical Accounting
Policies". It is management's expectation that the amount in private company
investments ultimately realized on Equity Investments will, in the aggregate,
exceed the amount reflected in the financial statements as of December 31, 2009,
which is approximately $1,012,000. The Company's estimate of the fair value of
its private company investments 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. The Windspeed management agreement was extended on March
16, 2009 until February 20, 2011. The Company estimates that the
realizable value, net of management fees and sharing with Windspeed (see table
below), at December 31, 2009 for its Equity Investments in private companies is
approximately $2,013,000. 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 Part II,
Item 1A, "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."
The
following table summarizes the changes in the value of the Company's Equity
Investments since September 30, 2009 (in thousands):
Public
Companies
(1)
(3)
|
Private
Companies
(2)
(3)
|
|||||||
September
30, 2009 estimated realizable value
|
$ | 23 | $ | 2,215 | ||||
Increase
(decrease) in unrealized estimated value
|
1 | (202 | ) | |||||
December
31, 2009 estimated realizable value
|
$ | 24 | $ | 2,013 |
(1)
|
Carrying
value of public companies for financial statements is market value. See
Note 3 of Notes to Consolidated Financial Statements. The
Company sold these shares on January 4, 2010 for
$24,000.
|
|
(2)
|
Carrying
value of private companies for financial statements is the lower of cost
or fair value, or approximately $1,012,000. The decrease in
unrealized estimated value is a result of changes in market
conditions.
|
|
(3)
|
Net
of fees and sharing with Windspeed including additional fees under the
extended management agreement.
|
Collections and
recoveries: The Company has potential collections and recoveries on
accounts previously written off. A substantial number of such recoveries involve
prior lessees or debtors now in bankruptcy and against whom the Company has
filed and is pursuing claims to maximize its recoveries. The Company's cost
basis in these accounts is nominal. The amount and timing of such collections
and recoveries, if any, are subject to the risk factors discussed in Part II,
Item 1A, "Uncertainties in Collections and Recoveries."
Critical
Accounting Policies
The
Company's consolidated financial statements are prepared in accordance with U.S.
generally accepted accounting principles. The preparation of these financial
statements requires management 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.
14
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:
|
·
|
CDRs and CDR
Liability: The Plan entitles holders of Comdisco Holding's CDRs 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.
|
The
Company estimates the CDR liability based on the net equity of the Company after
taking into consideration future operating costs and expenses, and other
expected cash inflows in excess of book value, including estimated future
interest income, estimated recoveries and any potential net distributions from
the Litigation Trust which are currently estimated to be nominal. See
the risk factors discussed in Part II, Item 1A, particularly the risks entitled
“Uncertainties Inherent in the CDR Liability Calculation” and “Uncertainties
Inherent in the Determination of Fair Market Value of the Remaining
Portfolio.”
|
·
|
Equity Investments In
Private Companies: Equity investments in private
companies consist primarily of small investments in approximately 45
private companies. 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 values 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. At December 31, 2009,
the carrying value of the Company's equity investments in private
companies was approximately $1,012,000, and the estimated fair market
value was approximately $2,013,000.
|
|
·
|
Income
Taxes: The Company establishes liabilities or reduces
assets for uncertain tax positions when the Company believes certain tax
positions are not more likely than not of being sustained if
challenged. Each fiscal quarter, the Company evaluates these
uncertain tax positions and adjusts the related tax assets and liabilities
in light of changing facts and
circumstances.
|
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.
Recent
Developments
SIP
Joinder Action
On
January 27, 2006, certain of the SIP participants filed a joint action in the
Circuit Court of Cook County, Illinois, County Department, Law Division, Case
Number 2006L001006 and captioned Bryant Collins, et al v. Nicholas Pontikes, et
al. against certain directors of the former Comdisco, Inc. During the
quarter ended September 30, 2009, a settlement was reached in the
action. All settlement documents have been executed, and a
Stipulation and Agreed Order of Voluntary Dismissal With Prejudice was entered
by the court on October 28, 2009. The nominal settlement amount was
paid by the former Comdisco, Inc.’s directors and officer’s insurance policy
coverage.
15
Litigation
Trust Termination Motion
On
March 16, 2006, a motion was filed in the Bankruptcy court for the Northern
District of Illinois on behalf of certain SIP Participants who had filed proofs
of claim in the Comdisco, Inc. bankruptcy ("SIP Claimants"). The motion sought
an order from the Bankruptcy court terminating the Litigation Trust. On July 20,
2006, the Bankruptcy court judge denied the motion of the SIP Claimants. On
August 18, 2006, the SIP Claimants appealed the Bankruptcy court judge's denial
of their motion. On January 30, 2007, the federal district court judge affirmed
the denial of the motion. The SIP Claimants appealed the denial to the US
Circuit Court of Appeals for the 7th Circuit. A mandatory mediation was held on
April 20, 2007. The mediation was adjourned and no settlement was achieved by
the parties. The parties briefed the appeal and oral arguments were held before
the Appellate Court on November 26, 2007. On August 13, 2008, the Appellate Court ruled and
dismissed the appeal for want of jurisdiction. As of the date of this filing,
there have been no further proceedings on this matter.
Litigation
Trust Summary Judgments
The
Plan and the litigation trust agreement provided that, under certain
circumstances, subrogation rights that the Company may have against the SIP
Participants who participated in the SIP and their respective promissory notes
be placed in a trust for the benefit of the C-4 creditors (the "Trust
Assets"). Under the Plan, the Litigation Trust is solely responsible
for collection of amounts due on the promissory notes of the SIP Participants
who did not take advantage of the SIP Relief (as defined in the
Plan). The Company has a limited indemnification obligation to the
litigation trustee under the litigation trust agreement. Six of the
SIP Participants filed personal bankruptcy. On February 4, 2005, the
Litigation Trust commenced both state and federal lawsuits to collect
on the remaining SIP Participants’ promissory
notes.
A federal district court judge has entered summary
judgments (and amended judgments) against all but one of the SIP Participants
who are defendants in the federal cases on their respective SIP promissory
notes and the Litigation Trust has commenced collection actions against
them. Additionally, the federal district court judge has entered
orders ordering that certain CDRs and related proceeds held by the estate
of Comdisco, Inc. and BNY Mellon (holder of CDRs) on behalf of those SIP
Participants be turned over to the Litigation Trust. Pursuant to these
orders, the Company has turned over CDRs and related proceeds and will continue
to do so if additional orders are entered. The SIP Participants have
filed appeals on those judgments. A briefing schedule on the appeals
on those judgments has been ordered with all briefing to be completed by March
15, 2010. As of the date of the filing, no date has been
set for any oral arguments.
The Litigation Trust has filed summary judgments against
all of the SIP Participants who are defendants in the state cases. On December
18, 2009, the SIP Participants filed their response and the Litigation Trust
will file its reply by February 11, 2010. Three of the SIP Participants
filed Motions for Leave to file Cross Motions for Summary Judgment. The
hearing for this motion is on February 11, 2010.
As reported in the Twenty-First Status Report of
Comdisco Litigation Trustee filed on January 29, 2010, twenty-two
of the SIP Participants in federal court and two of the SIP Participants in the
state court have settled with the Litigation Trust. The Litigation Trust is in ongoing settlement discussions with other SIP
Participants.
Please
refer to the quarterly reports filed by the Litigation Trust in the bankruptcy
court for more details. Any proceeds collected by the Litigation Trust, net of
expenses, will be considered Trust Assets and distributed in accordance with the
Plan and litigation trust agreement.
16
Results
of Operations
Three
Months Ended December 31, 2009 compared to the Three Months Ended December 31,
2008
Revenue
Changes in total revenue for the three
months ended December 31, 2009 compared to the three months ended December 31,
2008 were as follows (in thousands):
Three
months ended
December
31,
|
Percent
Increase
(Decrease)
|
Explanation
of Change
|
|||||
2009
|
2008
|
||||||
Gain
on sale of equity and
warrant
securities
|
$ 8
|
$ 92
|
(91)%
|
Equity
securities, which are managed by Windspeed, represent the primary
remaining revenue generating asset. See “Overview”
for additional information. (A)
|
|||
Interest
income
|
27
|
281
|
(90%)
|
Interest
earned on cash balances. (B)
|
|||
Foreign
exchange gain
|
144
|
--
|
100%
|
Translation
gains for foreign entities that have been substantially liquidated.
(C)
|
|||
Miscellaneous
income
|
1
|
8
|
(88%)
|
Miscellaneous
receipts.
|
|||
Total
revenue
|
$ 180
|
$ 381
|
(53)%
|
A)
|
The
decrease in gains on sale of equity holdings for the quarter ended
December 31, 2009 relates to less liquidations or escrows of certain
positions held compared to the quarter ended December 31,
2008.
|
|
B)
|
Interest
income earned in the quarter ended December 31, 2009 is lower compared to
the prior year quarter primarily due to lower interest
rates.
|
|
C)
|
Foreign
exchange gain primarily relates to the weakening of the U.S. dollar
against the Canadian Dollar and Mexican Peso as the Company’s foreign
subsidiaries held monetary assets denominated in those
currencies.
|
Costs
and Expenses
Changes
in total costs and expenses for the three months ended December 31, 2009
compared to the three months ended December 31, 2008 were as follows (in
thousands):
Three
months ended
December
31,
|
Percent
Increase
(Decrease)
|
Explanation
of Change
|
|||||
2009
|
2008
|
||||||
Selling,
general and
administrative |
$ 1,408
|
$ 1,341
|
5%
|
Increase
in professional fees incurred during the quarter primarily related to the
continued wind-down of operations.
|
|||
Write-down
of equity securities
|
16
|
--
|
N/A
|
||||
Contingent
distribution rights
|
(60)
|
(391)
|
(85%)
|
(A)
|
|||
Bad
debt recoveries
|
(28)
|
(1,942)
|
(99%)
|
Collections
and recoveries.(B)
|
|||
Foreign
exchange loss
|
--
|
633
|
100%
|
Translation
losses for foreign entities that have been substantially liquidated.
(C)
|
|||
Total
costs and expenses
|
$ 1,336
|
$ (359)
|
(100%)
|
17
(A)
|
The
decrease in CDR benefit is primarily the result of a decrease in the
estimated future interest income cash flows and an increase in estimated
future selling, general and administrative costs. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Critical Accounting Policies" for more
information.
|
|
(B)
|
The
decrease in recoveries during the quarter ended December 31, 2009 is
primarily due to a settlement agreement in the Just for Feet bankruptcy
estate of approximately $1,750,000 received in December
2008.
|
|
(C)
|
Foreign
exchange loss primarily relates to the strengthening of the U.S. dollar
during December 2008 against the Canadian Dollar and Mexican Peso as the
Company’s foreign subsidiaries held monetary assets denominated in those
currencies.
|
Income
Taxes
The
Company recorded no U.S. federal income tax expense for the three months ended
December 31, 2009 and $14,000 U.S. federal income tax expense for the three
months ended December 31, 2008.
The
Company recorded $81,000 of income tax expense for its Canadian subsidiary for
the three months ended December 31, 2009. The Company recorded
$28,000 in income tax expense for its Canadian subsidiary for the three months
ended December 31, 2008.
The
Company recorded no income tax expense for its Mexican subsidiary for the three
months ended December 31, 2009 and $770,000 of income tax expense for its
Mexican subsidiary for the three months ended December 31, 2008 due to the
write-off of a tax receivable that was determined uncollectible.
Net
Loss
Net
loss was approximately ($1,237,000), or ($0.31) per share-basic and diluted, for
the three months ended December 31, 2009 compared to a net loss of approximately
($72,000), or ($0.02) per share-basic and diluted, for the three months ended
December 31, 2008.
Off-Balance
Sheet Arrangements
The
Company does not maintain any off-balance sheet arrangements, transactions,
obligations or other relationships with unconsolidated entities that could be
expected to have a material current or future effect upon the Company's
financial condition or results of operations.
Liquidity
and Capital Resources
The
Company's liquidity generally depends on cash on hand. The Company's
cash flow from operating activities is dependent on a number of variables,
including, but not limited to, market conditions for the sale of Equity
Investments, control of operating costs and expenses and the ability of the
Company to dispose or otherwise convert to cash its remaining assets. All funds
generated from the collection of remaining assets are required by the Plan to be
used to satisfy liabilities of the Company and, to the extent funds are
available, to pay dividends on the Company's Common Stock and to make
distributions with respect to the CDRs in the manner and priorities set forth in
the Plan. Because of the composition and nature of its remaining assets, the
Company expects to generate funds from the sale or collection of its remaining
assets at a decreasing rate over time.
At
December 31, 2009, the Company had unrestricted cash and cash equivalents of
approximately $65,426,000 a decrease of approximately $639,000 compared to
September 30, 2009. Net cash used in operating activities for the
three months ended December 31, 2009 was approximately $995,000. The
effect of exchange rate changes on cash balances held in foreign currencies was
an increase in cash and cash equivalents of approximately $356,000 for the three
months ended December 31, 2009.
18
During
the three months ended December 31, 2009, approximately $11,000 of proceeds were
generated from the Windspeed managed warrant and equity portfolio, approximately
$60,000 was received from interest income and bad debt recoveries and
approximately $33,000 was received from income tax refunds related to the
Company's Canadian subsidiary, and the Company paid U.S. federal taxes of
approximately $10,000. The Company's cash expenditures were primarily
operating expenses of approximately $1,089,000 (principally professional
services and employees’ compensation).
The
Company's current and future liquidity depends on cash on hand, and may be
augmented by proceeds from the sale of Equity Investments, recoveries, if
any, and interest income. The Company expects its cash on hand 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.
See
"Risk Factors Relating to the Company-The Company's Liquidity is Dependent on a
Number of Factors" in Part II, Item 1A.
Dividends
There
were no dividends paid during the quarter ended December 31, 2009. The Company
intends to treat any future dividend distributions for federal income tax
purposes as part of a series of liquidating distributions in complete
liquidation of the Company.
See
"Risk Factors Relating to the Company-The Payment of Dividends and Distributions
and Limited Public Market for Common Stock" in Part II, Item 1A.
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
to certain C-4 creditors in the bankruptcy estate of Comdisco, Inc. As of
December 31, 2009, the sharing percentage was 37%, which is the maximum sharing
percent. As of the date of this filing, there were 1,921 holders of
record of the Company’s CDRs and there were 148,448,188 outstanding
CDRs.
The
Company maintains sufficient cash reserves for operations and the potential CDR
liability arising from the Company’s equity and any potential net distributions
from the Litigation Trust to the C-4 creditors. The outcome and the
timing of the actual net distributions from the Litigation Trust will impact
both the timing and the amount of future dividends and CDR
payments.
Since
September 30, 2008, the Company has estimated, and will continue to estimate,
the CDR liability based on the net equity of the Company after taking into
consideration future operating costs and expenses, and other expected cash
inflows in excess of book value, including estimated future interest income,
estimated recoveries and any potential net distributions from the Litigation
Trust which are currently estimated to be nominal. See
“Risk Factors Relating to the Company” in Part II, Item 1A, particularly the
risks entitled “Uncertainties Inherent in the CDR Liability Calculation” and
“Uncertainties Inherent in the Determination of Fair Market Value of the
Remaining Portfolio” and “Limited Public Market for Contingent Distribution
Rights."
CDR
Payment
There
were no CDR payments during the quarter ended December 31, 2009.
19
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable
ITEM
4. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Randolph
I. Thornton, the sole director 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 sole director of
the Company has concluded that the Company's disclosure controls and procedures
are effective as of December 31, 2009 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
has been no change 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 Company's first fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART
II. OTHER
INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Recent Developments" for a discussion of a settlement of a lawsuit
styled as a joint action filed against former members of the Board of Directors
of Comdisco, Inc., the motion of certain SIP claimants to terminate the
Litigation Trust and the motion by the Litigation Trust to obtain summary
judgments against certain SIP defendants.
ITEM
1A. RISK
FACTORS RELATING TO THE COMPANY
The
following risk factors and other information included in this Quarterly Report
on Form 10-Q should be carefully considered. The risks and uncertainties
described below are not the only ones the Company
confronts. Additional risks and uncertainties not presently known to
it or that it currently deems immaterial also may impair the Company's business
operations and the implementation of the Plan. If any of the
following risks actually occurs, the Company's business, financial condition,
operating results and the implementation of the Plan could be materially
adversely affected.
Uncertainties
Inherent in the CDR Liability Calculation
The
CDR liability is management’s estimate of the amount of the net equity of the
Company to be shared by holders of CDRs at the sharing percentage of 37%. The
formula used to calculate the net equity of the Company includes variables (e.g.
future operating costs and expenses, estimated future interest income, estimated
recoveries, actual asset values realized, currency fluctuations, etc.) which are
not under the control of the Company. Such variables are inherently uncertain
due to the impact of influences such as time, inflation or deflation, interest
rate changes, foreign currency exchange rate changes, third party credit risks,
international and domestic events, court or tax rulings contrary to the
Company’s expectations, and timing and amounts of distributions to C-4 creditors
by the Litigation Trust.
20
Impact of
Recoveries by Litigation Trust on the Company’s Obligation to Make Payments in
Respect of Contingent Distribution Rights
As
the present value of distributions to certain C-4 creditors have reached the
100% threshold level of percentage recovery established pursuant to the Plan,
holders of CDRs are entitled to receive payments from the Company equal to 37%
of each dollar available to be distributed to Comdisco C-4
creditors in accordance with the Plan. All payments by the Company in
respect of CDRs are made from the Company’s available cash-on-hand and not from
funds distributed by the Litigation Trust. The Company expects to maintain cash
reserves sufficient to make any required payments pursuant to its CDR liability
arising from either the Company’s equity or net distributions from the
Litigation Trust. Any actual net distributions by the Litigation
Trust to the C-4 creditors will increase the Company’s liability to CDR
holders. As of the date of this filing, a reasonable estimate of
future net distributions is not determinable.
The
Company Faces a Number of Uncertainties Around the Settlement of Domestic and
International Tax Positions
The
Company continues to wind down its domestic and international operations. Prior
to a subsidiary being dissolved, the Company may have to obtain tax clearances
at the state level domestically and on an international level in the country in
which the subsidiary was incorporated. The Company, in consultation with its
third party tax service providers, has estimated the amounts for such tax
settlements; however, actual settlements could differ from such estimates and
will be reflected as adjustments in future financial statements when probable
and estimable.
Uncertainties
Inherent in the Determination of Fair Market Value of the Remaining
Portfolio
The
determination of the fair value of the remaining portfolio of the Company is
management’s estimate of such fair value at a moment in time based on
information available to management at that time. The estimate of fair value is
inherently uncertain due to external factors that could impact the value of
assets remaining in the portfolio. Some of the external factors include time,
inflation and deflation, changes in interest and foreign currency exchange
rates, third party credit risks, domestic and international events, court or tax
rulings contrary to the Company’s expectations and liquidation events in the
equity portfolio.
Market Conditions
Have Made It Difficult and May Continue to Make it Difficult for the Company To
Timely Realize the Value of its Warrant and Equity Securities (collectively,
“Equity Investments”)
Market
conditions have adversely affected, and could adversely affect in the future,
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 Investments. Additionally,
the public market for high technology and other emerging growth companies is
extremely volatile. Such volatility has adversely affected, and could continue
to adversely affect, the ability of the Company to realize value from its Equity
Investments. Exacerbating these conditions is the fact that some of the Equity
Investments held by the Company may be subject to lockup agreements restricting
its ability to sell until several months after an initial public offering.
Without an available liquidity event, the Company may be unable to sell its
Equity Investments. 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 Investments 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 could continue to have, an adverse impact
on the value of the Company’s Equity Investments. For those Equity Investments
without a public trading market, the realizable value of the Company’s Equity
Investments could 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, last round valuation for privately held
securities, industry and company multiples, industry acceptance in the market
place, liquidity discounts due to lock ups, estimated revenue, and
21
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 of December 31, 2009, 94 percent of the estimated fair market value of
the entire portfolio is concentrated in ten individual companies and
approximately 79 percent of the estimated amount is in three individual
companies.
Uncertainties in
Collections and Recoveries
The
Company believes that its collections and recoveries on accounts previously
written off could provide future but diminishing cash flows. The
amount and timing of such collections and recoveries are dependent upon many
factors including any offsets or counterclaims that may be asserted against the
Company and the ability of a former 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 Payment of
Dividends and Distributions
All
funds generated from the Company’s remaining asset portfolios are required by
the Plan to be used to satisfy liabilities of the Company and, to the extent
funds are available, to pay dividends on the Company’s Common Stock and to make
distributions with respect to the CDRs in the manner and priorities set forth in
the Plan. Because of the composition and nature of its asset portfolios, the
Company expects to generate funds from the sale or run-off of its asset
portfolios at a decreasing rate over time. The Company has material restrictions
on its ability, and does not expect or intend, to make any significant
investments in new or additional assets. Accordingly, the amount of funds
potentially available to pay dividends on the Company’s Common Stock and to make
distributions with respect to the CDRs is limited to the funds in excess of the
Company’s liabilities that may be generated from the remaining asset
portfolios.
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, 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 Quarterly Report may affect the actual financial results of the
Company’s operations.
22
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 authorizing the organizational systems
infrastructure wind down is dependent on numerous factors, including the timing
and amount of cash received from the monetization of its assets, 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.
The Company’s
Liquidity is Dependent on a Number of Factors
The
Company’s liquidity generally depends on cash on hand. The Company’s cash flow
from operating activities is dependent on a number of variables, including, but
not limited to, market conditions for the sale of equity securities, global
economic and political conditions, control of operating costs and expenses and
the ability of the Company to dispose or otherwise convert to cash its remaining
assets.
Limited Public
Market for Common Stock
There
is currently a limited public market for the Company’s Common Stock. Holders of
the Company’s Common Stock may, therefore, have difficulty selling their Common
Stock, should they decide to do so. In addition, there can be no assurances that
such markets will continue or that any shares of Common Stock which may be
purchased may be sold without incurring a loss. Any such market price of the
Common Stock may not necessarily bear any relationship to the Company’s book
value, assets, past operating results, financial condition or any other
established criteria of value, and may not be indicative of the market price for
the Common Stock in the future. Further, the market price of the Common Stock
may be volatile depending on a number of factors, including the status of the
Company’s business performance, its limited business purpose, industry dynamics,
news announcements or changes in general economic conditions.
Limited Public
Market for Contingent Distribution Rights
There
is currently a limited public market for the Company’s CDRs. Holders of the
Company’s CDRs may, therefore, have difficulty selling their CDRs, should they
decide to do so. In addition, there can be no assurances that such markets will
continue or that any CDRs which may be purchased may be sold without incurring a
loss. Any such market price of the CDRs may not necessarily bear any
relationship to the Company’s book value, assets, past operating results,
financial condition or any other established criteria of value, and may not be
indicative of the market price for the CDRs in the future. Further, the market
price of the CDRs may be volatile depending on a number of factors, including
the status of the Company’s business performance, industry dynamics, news
announcements or changes in general economic conditions.
Impact
of Interest Rates and Foreign Exchanges Rates
Increases
in interest rates could impact the value of certain of the Company’s assets and
a strengthening of the US dollar could impact the value of the Company’s
remaining net foreign assets consisting primarily of tax receivables and tax
liabilities, a bank guarantee in the Netherlands and recoveries on two former
lease receivables in Europe.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent
Sales of Unregistered Securities
None.
23
Repurchases
of Common Stock
The
Company does not regularly repurchase shares nor does the Company have a share
repurchase plan.
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
None
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM
5. OTHER
INFORMATION
None
ITEM
6. EXHIBITS
Exhibit
No.
|
Description of
Exhibit
|
3.1
|
Certificate
of Incorporation of Registrant dated August 8, 2002 and as Amended August
12, 2004 (Incorporated by reference to Exhibit 3.1 filed with the
Company's Annual Report on Form 10-K dated September 30, 2004, as filed
with the Commission on December 14, 2004, File No.
0-49968).
|
3.2
|
By-Laws
of Registrant, adopted as of August 9, 2002 (Incorporated by reference to
Exhibit 3.2 filed with the Company's Annual Report on Form 10-K dated
September 30, 2002, as filed with the Commission on January 14, 2003, File
No. 0-49968).
|
11.1
|
Statement
re computation of per share earnings (Filed herewith).
|
31.1
|
Certification
of Principal 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 Principal Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Filed
herewith).
|
24
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
COMDISCO HOLDING COMPANY, INC. | |||
Dated:
February 10, 2010
|
By:
|
/s/
Randolph I. Thornton
|
|
Name:
|
Randolph
I. Thornton
|
||
Title:
|
Chief
Executive Officer and President (Principal Financial and Accounting
Officer)
|
25