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.
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.
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.
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.
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.
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.
ITEM 7.
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.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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)
See accompanying notes to consolidated financial statements
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS (in millions except number of shares and per share data)
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in millions)
Predecessor
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in millions)
Successor
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions)
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions)
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) --------- 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
PREDECESSOR
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 ----- 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 ----- Fair value adjustment to assets $ 65 Excess fair value of net assets over reorganization value 271 Recognition of accumulated other comprehensive loss 70 ----- 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):
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:
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):
Accumulated other comprehensive income (loss) presented below and in the accompanying consolidated balance sheets consists of the following (in millions):
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, ------------- 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):
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
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.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10.
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.
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."
(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.
(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:
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.
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.
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.
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.
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