UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2014
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 000-499-68
COMDISCO HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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54-2066534 |
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(State or other jurisdiction of |
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(I.R.S. employer |
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incorporation or organization) |
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identification no.) |
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5600 North River Road |
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Rosemont, Illinois |
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60018 |
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(Address of principal executive offices) |
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(Zip code) |
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Registrant’s telephone number, including area code: (847) 698-3000 | |
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Securities registered pursuant to Section 12(b) of the Act: | |
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Title of Each Class |
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Name of Each Exchange on Which Registered |
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N/A |
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N/A |
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Securities registered pursuant to Section 12(g) of the Act: |
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Common Stock, par value $0.01 per share |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer [ ] |
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Accelerated filer [ ] |
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Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
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Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of common stock held by non-affiliates of the registrant was approximately $3,300,000 based on its closing price per share of $4.90 on March 31, 2014. On March 31, 2014, there were 4,028,951 shares of common stock outstanding. No officer or director beneficially held shares of the Company’s Common Stock as of December 3, 2014. Shareholders who owned 5 percent or more of the outstanding common stock at that time have been excluded in that such persons may be deemed affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
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Title of Each Class |
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Number of Shares Outstanding at December 3, 2014 | |
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Common Stock, par value |
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4,028,951 | |
DOCUMENTS INCORPORATED BY REFERENCE: NONE
COMDISCO HOLDING COMPANY, INC.
2014 ANNUAL REPORT ON FORM 10-K
2014 ANNUAL REPORT ON FORM 10-K
Disclosure Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains, and our periodic filings with the Securities and Exchange Commission (the “SEC”) and written and oral statements made by the Company’s sole officer and director to press, potential investors, securities analysts and others, will contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are not historical facts, but rather are predictions and generally can be identified by use of statements that include phrases such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “foresee,” “looking ahead,” “is confident,” “should be,” “will,” “predicted,” “likely” or other words or phrases of similar import. Similarly, statements that describe or contain information related to matters such as our intent, belief, or expectation with respect to financial performance, claims resolution under the Plan (as defined below), cash availability and cost-cutting measures are forward-looking statements. These forward-looking statements often reflect a number of assumptions and involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those currently anticipated in these forward-looking statements. In light of these risks and uncertainties, the forward-looking events might or might not occur, which may affect the accuracy of forward-looking statements and cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements.
In this 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, Inc., Comdisco Ventures Fund A, LLC (formerly Comdisco Ventures, Inc.) and its predecessors, except in each case where the context indicates otherwise. References to “Comdisco, Inc.” mean Comdisco, Inc. and its subsidiaries, prior to the Company’s emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise.
Important factors that could cause actual results to differ materially from those suggested by these written or oral forward-looking statements, and that could adversely affect our future financial performance, include the risk factors discussed in Item 1A, “Risk Factors”. Many of the risk factors that could affect the results of the Company’s operations are beyond our ability to control or predict.
Available Information
The Company’s website address is www.comdisco.com. The Company makes available through its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the SEC. The Company also makes available through the website its press releases, the Code of Conduct Applicable to its Chief Executive Officer and Authorized Representatives, the Employee Code of Conduct, the Audit Committee Charter, the Disclosure Controls Committee Charter and the Compensation Committee Charter, as well as contact information for the Audit Committee. Information contained on the Company’s website is not intended to be part of this Annual Report on Form 10-K.
THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE COMPANY’S FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE “PLAN”) AND RESTRICTIONS CONTAINED IN THE COMPANY’S CERTIFICATE OF INCORPORATION (THE “CERTIFICATE”), THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS IN THE MANNER AND
PRIORITIES SET FORTH IN THE PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS. 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. CAPITALIZED TERMS USED BUT NOT DEFINED IN THE ANNUAL REPORT ON FORM 10-K HAVE THE MEANINGS AS DEFINED IN THE PLAN.
General Development of Business
Comdisco Holding Company, Inc. was formed on August 8, 2002 for the purpose of selling, collecting or otherwise reducing to money in an orderly manner the remaining assets of the Company and all of its direct and indirect subsidiaries, including Comdisco, Inc. The Company’s business purpose is limited to the orderly sale or run-off of all its remaining assets. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose.
Since emerging from bankruptcy proceedings on August 12, 2002 (See Reorganized Corporate History), the Company has, pursuant to the Plan, focused on the monetization of its remaining assets and the wind down of operations, including, reducing organizational size, distributions to creditors, resolution of outstanding litigation and claims, the settlement of any tax obligations to various taxing authorities and jurisdictions, and the liquidation of legal entities of the Company.
The Company expects total revenue and net cash provided by operating activities to continue to decrease until the completion of the wind down of its operations. The Company cannot accurately predict the actual net amount to be realized, or the timing of such realization, from the continued monetization of its remaining assets. The Company also expects operating expenses to continue as it pursues its business purpose under the Plan. 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. During 2008, the Company received permission to begin the process of abandoning and destroying certain of its stored paper and electronic records for periods prior to January 1, 1997. As of the date of this filing, the Company destroyed substantially all of those records. As of December 3, 2014, the Company had a total of five employees (one full-time and four part-time), a decrease of approximately 99 percent from approximately 600 employees upon emergence from bankruptcy proceedings on August 12, 2002. Approximately four consultants continue to periodically assist the Company on a consulting basis.
On August 12, 2004, Randolph I. Thornton’s appointment as Initial Disbursing Agent became effective. As Initial Disbursing Agent, Mr. Thornton performs the roles and responsibilities of the Board of Directors and officers of the Company, including all measures that are necessary to complete the administration of the reorganized debtors’ Plan and Chapter 11 cases. Mr. Thornton serves as Chief Executive Officer, President and Secretary and is the sole director and executive officer of the Company.
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”). Comdisco, Inc. emerged as a wholly-owned subsidiary of Comdisco Holding. As a result, 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.
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, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose. Capitalized terms used but not defined in this section shall have the meanings as defined in the Plan.
In very general terms, the Plan contemplated six different classes of claims against the Comdisco, Inc. bankruptcy estate with the only remaining relevant classes of claims being described below:
· “Class C-4” Claims. The largest class of claims against the Comdisco, Inc. bankruptcy estate, this class was comprised of general unsecured claims other than Class C-3 Claims and included holders of Comdisco, Inc. notes, bonds, credit lines and other trade debt (the “C-4 creditors”).
· “Class C-5A” Claims. This class was 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.
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 C-4 creditors in the bankruptcy estate of Comdisco, Inc. 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.”
Pursuant to a Bankruptcy court order dated March 27, 2003, approximately 4,388,000 CDRs were held by the Company’s transfer agent and any distributions relating to these rights are held by the estate of Comdisco, Inc., pending resolution of the Class C-5A Claims related to the shares purchased pursuant to Comdisco, Inc.’s Shared Investment Plan (the “SIP”). Approximately 2,868,000 of the CDRs related to Class C-5A have been assigned to the Litigation Trust (as defined in the Plan) either in conjunction with settlements achieved with certain of the Federal or State SIP Defendants (as defined below), or turned over to the litigation trustee pursuant to an order entered by a Federal Court authorizing turnover of CDR assets. Approximately 868,000 CDRs were assigned to individuals or other trustees. Additionally, 92,000 CDRs related to Class C-5A Claims have been cancelled during the bankruptcy by the Company. The balance of approximately 560,000 CDRs are currently being held by the Company’s transfer agent and any distributions relating to these rights are being held by the estate of Comdisco, Inc.
Litigation Trust
The Plan provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants (the “SIP Participants”) be placed in a trust for the benefit of C-4 creditors (the “Trust Assets”). Under the Plan, the Litigation Trust is solely responsible for collection of amounts due on the promissory notes of the SIP Participants who did not accept the SIP Relief (as defined in the Plan).
In February 1998, pursuant to the SIP, 106 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”). The Company and the SIP Lenders subsequently reached a settlement on the Guaranty that was approved by the Bankruptcy court on December 9, 2004. The Plan and the litigation trust agreement provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants and their respective promissory notes be placed in a trust for the benefit of the C-4 creditors (the “Trust Assets”). Under the Plan, the Litigation Trust is solely responsible for collection of amounts due on the promissory notes of the sixty-nine SIP Participants who did not accept the SIP Relief (as defined in the Plan). The Company has a limited indemnification obligation to the litigation trustee under the litigation trust agreement.
SIP Litigation: On February 4, 2005, the Litigation Trust commenced lawsuits both in the United States District Court for the Northern District of Illinois (the “Federal SIP Lawsuits”) and in the Circuit Court of Cook County Illinois (the “State SIP Lawsuits”) to collect on the remaining SIP Participants’ promissory notes.
Federal SIP Lawsuits: The Litigation Trust filed and a federal district court judge entered summary judgments (and amended judgments) against all but one of the SIP Participants who were defendants in the federal cases (the “Federal SIP Defendants”) on their respective SIP promissory notes, and the Litigation Trust commenced collection actions against them. Additionally, the federal district court judge entered orders directing that certain CDRs and related proceeds held by the estate of Comdisco, Inc. and Computershare (f/k/a BNY Mellon) (holder of CDRs) on behalf of those Federal SIP Defendants be turned over to the Litigation Trust. Pursuant to such orders, the Company turned over CDRs and related proceeds and will continue to do so if additional orders are entered.
The Federal SIP Defendants filed appeals on those judgments. On October 18, 2010, the Seventh Circuit affirmed the rulings in favor of the Litigation Trust, but remanded certain fraud issues to the trial court. On November 1, 2010, the Federal SIP Defendants filed a petition for a hearing before the full appellate panel. On June 28, 2011, the Seventh Circuit vacated the summary judgments and remanded the cases for further proceedings.
Following a series of motions, hearings and the completion of discovery, at a hearing on July 8, 2013, Judge Robert Gettleman set a trial date for September 23, 2013. The trial’s actual start date was September 24, 2013 and the witness testimony and evidentiary phase was substantially completed on October 10, 2013. On March 27, 2014 the post-trial briefing was completed by the parties. The judge heard oral arguments on April 16, 2014 and took the matter under advisement and would alert the parties when he came to either a partial or complete decision. On October 21, 2014, the judge orally ruled and entered judgment in favor of the Federal SIP Defendants. The basis of the judge’s ruling and judgment was his finding that both the bank and the Company committed an arranging violation under the applicable margin lending regulations. Therefore, the judge ruled that the promissory notes were void and unenforceable. On October 29, 2014, the litigation trustee filed an appeal of the judgment to the United States Court of Appeals for the Seventh Circuit. On November 6, 2014, the court scheduled a settlement conference for December 9, 2014. On November 7, 2014, the court issued a briefing schedule setting January 9, 2015 as the date for the litigation trustee to file a brief and short appendix, February 9, 2015 for the SIP federal defendants to file a brief, and February 23, 2015 for the litigation trustee to file a reply brief. On November 20, 2014, the Federal SIP Defendants filed a Notice of Appeal of the October 21, 2014 judgment and of an order entered on August 12, 2013. On December 10, 2014, the court suspended the briefing schedule for all of the appeals filed. Also, on November 20, 2014, the Federal SIP Defendants filed a Motion for Extension of Time to file Bills of Costs. On December 4, 2014, the judge approved this motion and allowed the Federal SIP Defendants to file their Bills of Costs after all appeals have been completed.
State SIP Lawsuits: The Litigation Trust filed summary judgments against all of the SIP Participants who are defendants in the state cases (the “State SIP Defendants”, and, together with the Federal SIP Defendants, the “SIP Defendants”). Three of the State SIP Defendants filed Cross Motions for Summary Judgment. A hearing in the Circuit Court of Cook County on all of the summary judgment motions in the state cases was held on May 12, 2010, and the judge granted the summary judgments in favor of the Litigation Trust and denied the various motions for summary judgments filed by the State SIP Defendants.
After a series of hearings, motions and counter-motions, amended pleadings and individual bankruptcies and settlements, the remaining State SIP Defendants and the litigation trustee entered into an agreed Stipulation And Order (the “Stipulation”) which, among other things, stays the trials in the state cases pending the resolution and any appeal of the trial in the federal cases. On August 12, 2013, the Stipulation was approved by Judge Tailor. On September 30, 2014, the judge set the next status hearing for December 16, 2014.
On July 26, 2013, Nisen and Elliot, LLC, an outside legal firm for the Company, filed a Petition to Intervene and a Motion for Protective Order in the state cases in order to preserve the Company’s attorney-client work product privilege in that litigation. The judge has continued this motion to December 16, 2014.
Litigation Trust Reports: By early 2005, sixty-nine SIP Participant’s promissory notes were transferred to the Litigation Trust. As reported in various Status Reports of Comdisco Litigation Trustee, of the sixty-nine SIP Participants: forty-one have settled or otherwise resolved their obligation; twelve have filed personal bankruptcy; and, sixteen notes remain outstanding (five in the federal court and eleven in the state court). During the quarter
ended September 30, 2014, the Litigation Trust did not reach any settlements, which leaves the total number of promissory notes settled or otherwise resolved by the Litigation Trust at forty-one.
For more details regarding the Litigation Trust and related proceedings, please refer to the Status Reports of Comdisco Litigation Trustee filed quarterly in the Bankruptcy court. Any proceeds collected by the Litigation Trust, net of expenses, will be considered Trust Assets and distributed in accordance with the Plan and the litigation trust agreement.
Changes in Governance
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, Randolph I. Thornton became the sole director and officer of the Company and his appointment as Initial Disbursing Agent became effective. As Initial Disbursing Agent, Mr. Thornton 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 December 13, 2013, Randolph I. Thornton renewed the appointment of the following employees, Robert E. T. Lackey, Deborah L. Dompke, Susan Long, Mary Ann Bolster and Michael J. Salerno, as Authorized Representatives of the Company. These individuals derive their authority from Mr. Thornton as sole director and officer of the Company, and 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.
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 its existing asset portfolios. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose. Since emerging from bankruptcy, the Company has not engaged in any new leasing or financing activities, except for previously existing customer commitments and to restructure existing equipment leases and loans to maximize the value of the Company’s assets.
Principal Business Location
The Company’s operations are primarily conducted through its principal office in Rosemont, Illinois which occupies leased short-term furnished executive office space.
Customers and Competition
Due to the Company’s limited business purpose, the Company is not dependent upon a single customer or group of customers to generate future investment or revenue opportunities. In addition, the Company’s reorganization plan specifically prohibits the Company from engaging in any business activities inconsistent with its limited business purpose.
Employees
On September 30, 2014, the Company had five U.S. employees (one full-time and four part-time). No employees are represented by a labor union. The Company anticipates further reductions in its workforce as the wind down continues. Approximately four consultants periodically assist the Company on a consulting basis.
Other
The Company does not own any patents, trademarks, licenses, franchises or concessions that it considers to be material to the Company’s business.
The Company’s business is not seasonal; however, quarter-to-quarter results from operations can vary significantly.
The Company’s estimate of the fair value of its private company investments was made in consultation with Windspeed Acquisition Fund GP, LLC (“Windspeed”), a professional management group which the Company engaged in February 2004 to manage the Company’s investments in equity securities on an ongoing basis. Windspeed shares in the net receipts from the sale of the Company’s investments in equity securities at a set percentage in certain designated portions of the portfolio of companies (referred to as “Management Sharing”). The Windspeed management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011) until February 20, 2013 (the “Initial Extension”). The Windspeed management agreement was again extended effective February 21, 2013 through February 20, 2015 (the “Second Extension”). Prior to the Initial Extension, Windspeed received fixed and declining management fees. Under the terms of the Initial and Second Extensions, Windspeed is not, and will not, be paid any ongoing management fees. In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio will go to Windspeed.
During the quarter ended September 30, 2014, it was announced that Ebates, one of the Company’s private company Equity Investments, would be acquired by Rakuten, a Japanese company. The Plan of Merger was signed on September 24, 2014, pending various conditions, including regulatory approval. As of September 30, 2014, the Company concluded that the offer price should be the primary input into the fair value measurement of Ebates.
On October 9, 2014, Rakuten completed the acquisition and on October 29, 2014, the Company received the initial distribution. The gross proceeds distributed were approximately $17,720,000 of which the Company received approximately $15,145,000 in net proceeds and Windspeed received approximately $2,575,000 in Management Sharing pursuant to the management agreement. The remaining fair market value amount of approximately $1,911,000, before Management Sharing, is being held pursuant to the merger documents in an escrow until January 2016. The actual amount to be distributed from the escrow may be impacted by provisions of, and claims asserted against, the escrow.
If the Ebates transaction had closed before the quarter ended September 30, 2014, the CDR liability would have been increased by approximately $5,300,000 on an after tax basis. See Notes 5, 7 and 11 of Notes to Consolidated Financial Statements, which are incorporated in this section by reference, for information about Equity Investments, Fair Value Measurements and Subsequent Events, respectively.
Financial Information about Geographic Areas
See Note 10 of Notes to Consolidated Financial Statements, which is incorporated in this section by reference, for information about foreign and domestic operations.
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 Inherent in the CDR Liability Calculation
The CDR liability is management’s estimate of the amount of the net equity of the Company to be shared by holders of CDRs at the sharing percentage of 37%. The formula used to calculate the net equity of the Company includes variables (e.g., future operating costs and expenses, estimated future interest income, actual asset values realized, etc.) which are not under the control of the Company. Such variables are inherently uncertain due to the impact of influences such as time, inflation or deflation, interest rate changes, third party credit risks, domestic events, court or tax rulings contrary to the Company’s expectations, timing and amounts of distributions to C-4 creditors by the Litigation Trust, and matters that could impact the timing on the wind down of the Company. Changes in the fair value of investments or recoveries greater than book value are not reflected in the CDR liability until the sale is realized.
Impact of Recoveries by Litigation Trust on the Company’s Obligation to Make Payments in Respect of Contingent Distribution Rights
As the present value of distributions to certain C-4 creditors has reached the 100% threshold level of percentage recovery established pursuant to the Plan, holders of CDRs are entitled to receive payments from the Company equal to 37% of each dollar available to be distributed to Comdisco C-4 creditors in accordance with the Plan. All payments by the Company in respect of CDRs are made from the Company’s available cash-on-hand and not from funds distributed by the Litigation Trust. The Company expects to maintain cash reserves sufficient to make any required payments pursuant to its CDR liability arising from either the Company’s equity or net distributions from the Litigation Trust. Any actual net distributions by the Litigation Trust to the C-4 creditors will increase the Company’s liability to CDR holders. However, estimates of such net distributions are currently not determinable.
Final Tax Clearances
The ability of the Company to effectuate timely assessments and receive final tax clearances from the applicable state and federal taxing authorities to allow for the closure of the bankruptcy estate.
Uncertainties Inherent in the Determination of Fair Market Value of the Remaining Portfolio of Equity Investments (the “Equity Investments”)
The determination of the fair value of the remaining portfolio of the Company is management’s estimate of such fair value at a moment in time based on information available to management at that time. The estimate of fair value is inherently uncertain due to external factors that could impact the value of assets remaining in the portfolio. Some of the external factors include time, inflation and deflation, changes in interest rates, third party credit risks, domestic events, court or tax rulings contrary to the Company’s expectations and liquidation events in the equity portfolio.
Market Conditions Have Made It Difficult and May Continue to Make it Difficult for the Company To Timely Realize the Value of its Equity Investments
Market conditions have adversely affected, and could adversely affect in the future, the opportunities for the acquisition/merger of the Internet-related, communications and other high technology and emerging growth companies that make up the substantial majority of the Company’s Equity Investments. Additionally, the public market for high technology and other emerging growth companies is extremely volatile. Such volatility has adversely affected, and could continue to adversely affect, the ability of the Company to realize value from its Equity Investments. Exacerbating these conditions is the fact that some of the Equity Investments held by the Company may be subject to lockup agreements restricting its ability to sell until several months after an initial public offering. Without an available liquidity event, the Company may be unable to sell its Equity Investments. As a result, the Company, or Windspeed, a professional investment management group which the Company engaged to manage the Company’s Equity Investments on an ongoing basis in February 2004, on behalf of the Company, may not be able to generate gains or receive proceeds from the sale of Equity Investments and the Company’s business and financial results may suffer. Additionally, liquidation preferences may continue to be offered by companies in the Company’s portfolio to parties willing to lend to such companies. The liquidation preferences have had, and could continue to have, an adverse impact on the value of the Company’s Equity Investments. For those Equity
Investments without a public trading market, the realizable value of the Company’s Equity Investments could prove to be lower than the carrying value currently reflected in the financial statements. The estimated fair market value of the Company’s Equity Investments was determined in consultation with Windspeed based on a variety of factors, including, but not limited to, quoted trading levels for publicly-traded securities, merger documents, last round valuation for privately held securities, industry and company multiples, industry acceptance in the market place, liquidity discounts due to lock ups and escrows, 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, as of September 30, 2014, the total portfolio of three companies, which had an estimated gross fair market value of approximately $20,379,000, will be reduced by expected Management Sharing of approximately $2,965,000. Approximately 96% of such value was in one individual company, Ebates. Subsequent to September 30, 2014, cash was received at an amount equal to such fair value of Ebates, less a fair market value amount of approximately $1,911,000 which will be held in escrow until January 2016. The actual amount to be distributed from the escrow may be impacted by provisions of, and claims asserted against, the escrow.
The Payment of Dividends and Distributions
All funds generated from the Company’s remaining asset portfolios are required by the Plan to be used to satisfy liabilities of the Company and, to the extent funds are available, to pay dividends on the Company’s Common Stock and to make distributions with respect to the CDRs in the manner and priorities set forth in the Plan. Because of the composition and nature of its asset portfolios, the Company expects to generate funds from the sale or run-off of its asset portfolios at a decreasing rate over time. The Company has material restrictions on its ability, and does not expect or intend, to make any significant investments in new or additional assets. Accordingly, the amount of funds potentially available to pay dividends on the Company’s Common Stock and to make distributions with respect to the CDRs is limited to the funds in excess of the Company’s liabilities that may be generated from the remaining asset portfolios.
Uncertainties in Collections and Recoveries
The Company believes that its collections and recoveries on accounts previously written off could provide future but diminishing cash flows. The amount and timing of such collections and recoveries are dependent upon many factors including any offsets or counterclaims that may be asserted against the Company and the ability of a former lessee or debtor or its respective estate to pay the claim or any portion thereof. Some of these factors are beyond the control of the Company.
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 operations are limited to an orderly run-off or sale of its remaining assets. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business plan. This business plan is based on numerous assumptions including the anticipated future performance of the Company in running off its operations, the time frame for the run-off, general business and economic conditions, and other matters, many of which are beyond the control of the Company and some of which may not materialize. As a result, the Company’s ability to effectively complete this business plan is inherently uncertain. In addition, unanticipated events and circumstances occurring subsequent to the date of this Annual Report may affect the actual financial results of the Company’s operations.
The Company’s Liquidity is Dependent on Cash on Hand
The Company’s liquidity generally depends on cash on hand.
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 could be sold without incurring a loss. Any such market price of the Common Stock may not necessarily bear any relationship to the Company’s book value, assets, past operating results, financial condition or any other established criteria of value, and may not be indicative of the market price for the Common Stock in the future. Further, the market price of the Common Stock may be volatile depending on a number of factors, including the status of the Company’s business performance, its limited business purpose, industry dynamics, news announcements or changes in general economic conditions.
Limited Public Market for Contingent Distribution Rights
There is currently a limited public market for the Company’s CDRs. Holders of the Company’s CDRs may, therefore, have difficulty selling their CDRs, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any CDRs which may be purchased could be sold without incurring a loss. Any such market price of the CDRs may not necessarily bear any relationship to the Company’s book value, assets, past operating results, financial condition or any other established criteria of value, and may not be indicative of the market price for the CDRs in the future. Further, the market price of the CDRs may be volatile depending on a number of factors, including the status of the Company’s business performance, industry dynamics, news announcements or changes in general economic conditions.
Uncertainties Relating to the Wind Down of Operations
The Company has reduced the size and complexity of its organizational and systems infrastructure concurrently with the monetization of its assets. The success of the Company’s continuing wind down of operations and implementation of the Order entered by the Bankruptcy court authorizing the organizational systems infrastructure wind down is dependent upon the ability of the Company to effectively consolidate its management structure and maintain its operations with limited personnel.
Impact of Interest Rates
Changes in interest rates could impact the value of certain of the Company’s assets.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Since October 31, 2004, the Company has leased short-term furnished executive office space for all of its operations at 5600 N. River Road 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. The Company does not own any property.
Bankruptcy Proceeding
The Company continues to appear before the Bankruptcy court from time to time to clarify and administer matters related to the Plan and the wind down of the operations of the Company. On June 28, 2011, the bankruptcy case of Comdisco, Inc., case no. 01-24795, was reassigned from Judge Bruce Black to Judge Jack Schmetterer. The judge held a status hearing on November 5, 2012. As of the date of this filing, the judge has not set another status hearing.
The litigation trustee has engaged in settlement discussions with certain defendants in the note enforcement cases and attended a series of meetings on November 13 and 27, 2012, December 6, 2012, January 4 and 25, 2013, February 15, 2013, and March 8, 2013 in the bankruptcy proceedings with Judge Schmetterer which were intended to facilitate such discussions. However, as of the date of this filing, the Company has not been notified of any other mediation meeting being scheduled by the judge.
Litigation Trust Ongoing Litigation
The Plan and the litigation trust agreement provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants and their respective promissory notes be placed in a trust for the benefit of the C-4 creditors (the “Trust Assets”). Under the Plan, the Litigation Trust is solely responsible for collection of amounts due on the promissory notes of the SIP Participants who did not accept the SIP Relief (as defined in the Plan). The Company has a limited indemnification obligation to the litigation trustee under the litigation trust agreement.
SIP Litigation - On February 4, 2005, the Litigation Trust commenced lawsuits both in the United States District Court for the Northern District of Illinois (the “Federal SIP Lawsuits”) and in the Circuit Court of Cook County Illinois (the “State SIP Lawsuits”) to collect on the remaining SIP Participants’ promissory notes.
Federal SIP Lawsuits: The Litigation Trust filed and a federal district court judge entered summary judgments (and amended judgments) against all but one of the SIP Participants who were defendants in the federal cases (the “Federal SIP Defendants”) on their respective SIP promissory notes, and the Litigation Trust commenced collection actions against them. Additionally, the federal district court judge entered orders directing that certain CDRs and related proceeds held by the estate of Comdisco, Inc. and Computershare (f/k/a BNY Mellon) (holder of CDRs) on behalf of those Federal SIP Defendants be turned over to the Litigation Trust. Pursuant to such orders, the Company turned over CDRs and related proceeds and will continue to do so if additional orders are entered.
The Federal SIP Defendants filed appeals on those judgments. On October 18, 2010, the Seventh Circuit affirmed the rulings in favor of the Litigation Trust, but remanded certain fraud issues to the trial court. On November 1, 2010, the Federal SIP Defendants filed a petition for a hearing before the full appellate panel. On June 28, 2011, the Seventh Circuit vacated the summary judgments and remanded the cases for further proceedings.
Following a series of motions, hearings and the completion of discovery, at a hearing on July 8, 2013, Judge Robert Gettleman set a trial date for September 23, 2013. The trial’s actual start date was September 24, 2013 and the witness testimony and evidentiary phase was substantially completed on October 10, 2013. On March 27, 2014 the post-trial briefing was completed by the parties. The judge heard oral arguments on April 16, 2014 and took the matter under advisement. On October 21, 2014, the judge orally ruled and entered judgment in favor of the Federal SIP Defendants. The basis of the judge’s ruling and judgment was his finding that both the bank and the Company committed an arranging violation under the applicable margin lending regulations. Therefore, the judge ruled that the promissory notes were void and unenforceable. On October 29, 2014, the litigation trustee filed an appeal of the judgment to the United States Court of Appeals for the Seventh Circuit. On November 6, 2014, the court scheduled a settlement conference for December 9, 2014. On November 7, 2014, the court issued a briefing schedule setting January 9, 2015 as the date for the litigation trustee to file a brief and short appendix, February 9, 2015 for the SIP federal defendants to file a brief, and February 23, 2015 for the litigation trustee to file a reply brief. On November 20, 2014, the Federal SIP Defendants filed a Notice of Appeal of the October 21, 2014 judgment and of an order entered on August 12, 2013. On December 10, 2014, the court suspended the briefing schedule for all of the appeals filed. Also, on November 20, 2014, the Federal SIP Defendants filed a Motion for Extension of Time to file Bills of Costs. On December 4, 2014, the judge approved this motion and allowed the Federal SIP Defendants to file their Bills of Costs after all appeals have been completed.
State SIP Lawsuits: The Litigation Trust filed summary judgments against all of the SIP Participants who are defendants in the state cases (the “State SIP Defendants”, and, together with the Federal SIP Defendants, the “SIP Defendants”). Three of the State SIP Defendants filed Cross Motions for Summary Judgment. A hearing in the Circuit Court of Cook County on all of the summary judgment motions in the state cases was held on May 12, 2010, and the judge granted the summary judgments in favor of the Litigation Trust and denied the various motions for summary judgments filed by the State SIP Defendants.
After a series of hearings, motions and counter-motions, amended pleadings and individual bankruptcies and settlements, the remaining State SIP Defendants and the litigation trustee entered into an agreed Stipulation And Order (the “Stipulation”) which, among other things, stays the trials in the state cases pending the resolution and any appeal of the trial in the federal cases. On August 12, 2013, the Stipulation was approved by Judge Tailor. On September 30, 2014, the judge set the next status hearing for December 16, 2014.
On July 26, 2013, Nisen and Elliot, LLC, an outside legal firm for the Company, filed a Petition to Intervene and a Motion for Protective Order in the state cases in order to preserve the Company’s attorney-client work product privilege in that litigation. The judge has continued this motion to December 16, 2014.
Litigation Trust Reports: By early 2005, sixty-nine SIP Participant’s promissory notes were transferred to the Litigation Trust. As reported in various Status Reports of Comdisco Litigation Trustee, of the sixty-nine SIP Participants: forty-one have settled or otherwise resolved their obligation; twelve have filed personal bankruptcy; and, sixteen notes remain outstanding (five in the federal court and eleven in the state court). During the quarter ended September 30, 2014, the Litigation Trust did not reach any settlements, which leaves the total number of promissory notes settled or otherwise resolved by the Litigation Trust at forty-one.
For more details regarding the Litigation Trust and related proceedings, please refer to the Status Reports of Comdisco Litigation Trustee filed quarterly in the Bankruptcy court. Any proceeds collected by the Litigation Trust, net of expenses, will be considered Trust Assets and distributed in accordance with the Plan and the litigation trust agreement.
Litigation Trust Termination Motion
On March 16, 2006, a motion was filed in the Bankruptcy court for the Northern District of Illinois on behalf of certain SIP Participants who had filed proofs of claim in the Comdisco, Inc. bankruptcy (the “SIP Claimants”). The motion sought an order from the Bankruptcy court terminating the Litigation Trust. On July 20, 2006, the Bankruptcy court judge denied the motion of the SIP Claimants. On August 18, 2006, the SIP Claimants appealed the Bankruptcy court judge’s denial of their motion. On January 30, 2007, the federal district court judge affirmed the denial of the motion. The SIP Claimants appealed the denial to the US Circuit Court of Appeals for the 7th Circuit. A mandatory mediation was held on April 20, 2007. The mediation was adjourned and no settlement was achieved by the parties. The parties briefed the appeal and oral arguments were held before the Appellate Court on November 26, 2007. On August 13, 2008, the Appellate Court ruled and dismissed the appeal for want of jurisdiction. As of the date of this filing, there have been no further proceedings on this matter.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s Common Stock currently trades on the OTCQB under the symbol “CDCO”. In addition, the CDRs currently trade on the OTCQB under the symbol “CDCOR”. OTCQB quotations reflect inter-dealer prices, without retail mark-up, markdown 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 historically 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 3, 2014, there were 228 shareholders of record of the Company’s Common Stock. The following table sets forth the adjusted high and low sales prices for the Common Stock of Comdisco Holding Company, Inc. and cash dividends paid during fiscal 2014 and 2013.
|
2014 |
|
2013 |
| ||||||||||
|
Quarter |
|
High |
|
Low |
|
Dividends |
|
High |
|
Low |
|
Dividends |
|
|
First |
|
$ 5.50 |
|
$ 4.32 |
|
$ 0 |
|
$ 5.25 |
|
$ 4.57 |
|
$ 0 |
|
|
Second |
|
5.30 |
|
4.90 |
|
0 |
|
4.99 |
|
4.58 |
|
0 |
|
|
Third |
|
5.10 |
|
4.75 |
|
0 |
|
5.10 |
|
4.58 |
|
0 |
|
|
Fourth |
|
6.50 |
|
4.88 |
|
0 |
|
4.95 |
|
4.25 |
|
0 |
|
The Company’s transfer agent and registrar is Computershare (f/k/a BNY Mellon), 480 Washington Boulevard, Jersey City, New Jersey, 07310. The shareholder relations telephone number is (800) 851-9677 and the internet address is http://www.computershare.com.
The Company 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 to the date of this report were as follows (in thousands):
|
|
|
Aggregate |
| |
|
May 2003 |
|
$ |
307,773 |
|
|
June 2003 |
|
60,019 |
| |
|
September 2003 |
|
199,782 |
| |
|
December 2003 |
|
50,365 |
| |
|
May 2004 |
|
48,267 |
| |
|
March 2005 |
|
52,447 |
| |
|
January 2006 |
|
20,172 |
| |
|
December 2006 |
|
25,748 |
| |
|
April 2011 |
|
12,600 |
| |
|
|
|
$ |
777,173 |
|
Contingent Distribution Rights
For financial reporting purposes, the Company records CDRs as a liability and as an operating expense although the CDRs trade over-the-counter.
The Plan entitles holders of CDRs to share at increasing percentages in the proceeds realized from the Company’s assets based upon the present value of distributions to certain C-4 creditors in the bankruptcy estate of Comdisco, Inc. As of September 30, 2014, the sharing percentage was 37%, which is the maximum sharing percent. As of December 3, 2014, there were 1,845 holders of record of the Company’s CDRs and 148,448,188 outstanding CDRs.
The Company continues to maintain sufficient cash reserves for operations and any potential additional CDR liability arising from any potential net distributions from the Litigation Trust to C-4 creditors. The outcome and timing of the actual net distributions from the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments.
Aggregate total distributions to the date of this report with respect to the CDRs were as follows (in thousands):
|
|
|
Aggregate |
|
Per CDR |
| |
|
May 2003 |
|
$ |
2,730 |
|
$.01793 |
|
|
June 2003 |
|
2,468 |
|
.01621 |
| |
|
September 2003 |
|
13,370 |
|
.08780 |
| |
|
December 2003 |
|
7,827 |
|
.05140 |
| |
|
March 2004 |
|
2,848 |
|
.01870 |
| |
|
May 2004 |
|
11,892 |
|
.07810 |
| |
|
December 2004 |
|
14,953 |
|
.09820 |
| |
|
March 2005 |
|
22,171 |
|
.14560 |
| |
|
January 2006 |
|
5,558 |
|
.03650 |
| |
|
March 2006 |
|
3,761 |
|
.02470 |
| |
|
December 2006 |
|
6,852 |
|
.04500 |
| |
|
September 2007 |
|
22,841 |
|
.15000 |
| |
|
September 2008 |
|
893 |
|
.00602 |
| |
|
September 2008 reallocation |
|
0 |
|
.01984 |
| |
|
April 2011 |
|
7,400 |
|
.04985 |
| |
|
Total CDR payments |
|
$125,564 |
|
$.84585 |
| |
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.
Recent Sales of Unregistered Securities
None.
Repurchases of Common Stock
There were no repurchases of Common Stock in the fourth quarter of fiscal 2014 or during the fiscal year 2014. The Company does not regularly repurchase shares nor does the Company have a share repurchase plan.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
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, 2014. 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 FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE “PLAN”) AND RESTRICTIONS CONTAINED IN THE COMPANY’S CERTIFICATE OF INCORPORATION (THE “CERTIFICATE”), THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS IN THE MANNER AND PRIORITIES SET FORTH IN THE PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS. 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. CAPITALIZED TERMS USED BUT NOT DEFINED IN THE ANNUAL REPORT ON FORM 10-K HAVE THE MEANINGS AS DEFINED IN 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
The Company’s operations continued to wind down during the fiscal year 2014. The Company’s assets at September 30, 2014 consist primarily of cash and cash-equivalents and equity securities. The timing of collections on the sale of equity securities is uncertain due to the fact that such equity securities portfolio requires liquidity events before assets can be converted to cash. The Company expects that proceeds from the disposition of equity securities may provide future cash flows in excess of the current carrying value of these assets. In addition, the Company has a few remaining bankruptcy claims and judgments against former customers and collection efforts are underway to recover on those limited number of accounts. Receipts, if any, will be in excess of the carrying value of these assets because the related lease receivables were previously written-off.
Equity Investments: The Company holds preferred stock in other companies (the “Equity Investments”). The Company carries its 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 write-downs in the carrying value of such Equity Investments in private companies are considered permanent for financial reporting purposes. See Note 5 of Notes to Consolidated Financial Statements and “Critical Accounting Policies”. It is management’s expectation that the amount in private company investments ultimately realized on Equity Investments will, in the aggregate, exceed the amount reflected in the financial statements as of September 30, 2014, which was approximately $697,000.
As of September 30, 2014, the Company estimated that the fair market value for its Equity Investments in private companies, on a gross basis was approximately $20,379,000, which will be reduced by expected Management Sharing of approximately $2,965,000. The balance net of Management Sharing with Windspeed, as of September 30,
2014 was approximately $17,414,000. During the quarter ended September 30, 2014, it was announced that Ebates, one of the Company’s private company Equity Investments, would be acquired by Rakuten, a Japanese company. The Plan of Merger was signed on September 24, 2014, pending various conditions, including regulatory approval. As of September 30, 2014, the Company concluded that the offer price should be the primary input into the fair value measurement of Ebates. As of September 30, 2014, the Company did not own any shares in publicly-traded companies within Equity Investments as presented on the balance sheet. However, the Company holds a limited number of securities in trust for a deferred compensation plan which are not available for distribution under the Plan. The following table summarizes the changes in the value of the Company’s Equity Investments since September 30, 2013 (in thousands):
|
|
|
Public |
|
Private |
|
|
September 30, 2013 estimated net realizable value (3) |
$ |
0 |
$ |
8,875 |
|
|
Realized – net of fees |
|
(1,588) |
|
0 |
|
|
Increase in unrealized estimated value |
|
1,588 |
|
11,504 |
|
|
|
|
|
|
|
|
|
September 30, 2014 estimated gross realizable value (4) |
$ |
0 |
$ |
20,379 |
|
(1) Carrying value of public companies for financial statements is market value. See Note 5 of Notes to Consolidated Financial Statements.
(2) Carrying value of private companies for financial statements is either the lower of cost or fair value, or approximately $697,000. The increase in unrealized estimated value is a result of changes in marketability.
(3) At the beginning of the fiscal year, fair market value was reflected on a net basis (net of Management Sharing paid to Windspeed pursuant to the management agreement).
(4) At the end of the fiscal year, fair market value is now shown on a gross basis (prior to payment of Management Sharing to Windspeed pursuant to the management agreement).
The Company’s estimate of the fair value of its private company investments was made in consultation with Windspeed, a professional management group which the Company engaged in February 2004 to manage the Company’s investments in equity securities on an ongoing basis. Windspeed shares in the net receipts from the sale of the Company’s investments in equity securities at a set percentage in certain designated portions of the portfolio of companies (referred to as “Management Sharing”). The Windspeed management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011) until February 20, 2013 (the “Initial Extension”). The Windspeed management agreement was again extended effective February 21, 2013 through February 20, 2015 (the “Second Extension”). Prior to the Initial Extension, Windspeed received fixed and declining management fees. Under the terms of the Initial and Second Extensions, Windspeed is not, and will not, be paid any ongoing management fees. In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio will go to Windspeed.
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 Item 1A, “Risk Factors”, entitled “Market Conditions Have Made It Difficult and May Continue to Make It Difficult for the Company to Timely Realize on the Value of Its Equity Investments”.
Collections and recoveries: The Company has potential collections and recoveries on a small number of previously written off accounts. Recoveries involve prior lessees or debtors now in bankruptcy and against whom the Company has filed and is pursuing claims to maximize its recoveries. The Company’s cost basis in these accounts is nominal. The amount and timing of such collections and recoveries, if any, are subject to the risk factors discussed in Item 1A, “Risk Factors”, particularly the risk entitled “Uncertainties in Collections and Recoveries.” Additionally, the Company, periodically, recovers unclaimed property from various states.
Subsidiaries: The Company has significantly reduced the number of its domestic and international subsidiaries from ninety-four to two subsidiaries as of December 3, 2014. To the extent that such subsidiaries were Reorganized Debtors, the Company has closed the related estates.
Trust Assets and Litigation Trust
Pursuant to the Plan, the Litigation Trust is solely responsible for collecting from, and has filed lawsuits against, all SIP Participants who had not accepted relief. Any judgments against the SIP Participants, net of fees and expenses, are considered Trust Assets as defined in the Plan, and will be distributed by the Litigation Trust in accordance with the Plan. The Litigation Trust files periodic reports with the Bankruptcy court. These reports provide more information on the litigation being conducted by the Litigation Trust.
Holders of CDRs will earn an amount resulting from any distributions from the net proceeds of Trust Assets to C-4 creditors in accordance with the Plan. The Litigation Trust is solely responsible for distributing the net proceeds from Trust Assets to C-4 creditors, while the Company is solely responsible for making CDR payments.
Emergence from Bankruptcy
Since the Company emerged from Chapter 11 bankruptcy proceedings on August 12, 2002, the Company’s business activities have been limited to the orderly sale or run-off of all of its existing asset portfolios. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose. Since emerging from bankruptcy, the Company has not engaged in any new leasing or financing activities, except for previously existing customer commitments and to restructure existing equipment leases and loans to maximize the value of the Company’s assets.
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. The Company paid no dividends during the fiscal years ended September 30, 2014 and 2013. The Company made no payment to CDR holders during the fiscal years ended September 30, 2014 and 2013. See Item 1, “General Terms of the Plan of Reorganization” and Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”. Other than the estimated gross realizable value from the Ebates transaction, the Company expects to generate funds from the sale or collection of its other remaining assets at a decreasing rate over time.
The Company continues to maintain sufficient cash reserves for any potential additional CDR liability arising from any potential net distributions from the Litigation Trust to the C-4 creditors. The outcome and timing of the actual net distributions from the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments. See below for “Critical Accounting Policies” and Item 1A, “Risk Factors” for a discussion of the “Impact of Recoveries by Litigation Trust on the Company’s Obligation To Make Payments in Respect of Contingent Distribution Rights” and “Uncertainties Inherent in the CDR Liability Calculation”.
The Company has material restrictions on its ability, and does not expect, to make significant investments in new or additional assets. The Company continually evaluates opportunities for the orderly sale and collection of its remaining assets. Accordingly, within the next few years, it is anticipated that the Company will have reduced all of its assets to cash, determined its final CDR liability after the resolution of the appeal of the SIP litigation, resolved its final federal and state tax obligations and made distributions of all available cash to holders of its Common Stock and CDRs in the manner and priorities set forth in the Plan and completed all regulatory filings. At that point, the Company will cease operations.
Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company’s management to use estimates and assumptions that affect reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities. These estimates are subject to known and unknown risks, uncertainties and other factors that could materially impact the amounts reported and disclosed in the consolidated financial statements.
The SEC issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” which recommends that companies provide additional disclosure and analysis of those accounting policies considered most critical.
The Company believes the following to be among the most critical judgment areas in the application of its accounting policies:
· CDRs and CDR Liability: The Plan entitled holders of Comdisco Holding’s CDRs to share at increasing percentages in the proceeds realized from the monetization of the Company’s assets based upon the present value of distributions to certain C-4 creditors pursuant to the bankruptcy estate of Comdisco, Inc. As of September 30, 2014, the sharing percentage was 37%, which is the maximum sharing percent.
The Company estimates the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, estimated future interest income and any potential net distributions from the Litigation Trust for which estimates are currently not determinable. Changes in the fair value of investments or recoveries greater than book value are not reflected in the CDR liability until the sale is realized. See the risk factors discussed in Item 1A, “Risk Factors”, particularly the risks entitled “Uncertainties Inherent in the CDR Liability Calculation”.
· Equity Investments In Private Companies: Equity investments consist primarily of preferred stock holdings in three private companies which are carried at the lower of cost or estimated fair market value in the financial statements. The Company, in consultation with Windspeed, which provides ongoing management of the Company’s portfolio in equity investments, regularly estimates the value of Equity Investments and adjusts carrying values when market and customer specific events and circumstances indicate that such assets might be impaired. All write-downs are considered permanent impairments for financial reporting purposes. At September 30, 2014, the carrying value of the Company’s equity investments in private companies was approximately $697,000 and the estimated gross fair market value was approximately $20,379,000, with Management Sharing of $2,965,000 and net fair market value of $17,414,000.
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
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 and Comdisco Ventures, Inc. (renamed to Comdisco Ventures Fund A LLC), and its predecessors, except in each case where the context indicates otherwise. References to “Comdisco, Inc.” mean Comdisco, Inc. and its subsidiaries, prior to the Company’s emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise.
Recent Developments
Bankruptcy Proceeding
Status Hearings: The Company continues to appear before the Bankruptcy court from time to time to clarify and administer matters related to the Plan and the wind down of the operations of the Company. On June 28, 2011, the bankruptcy case of Comdisco, Inc., case no. 01-24795, was reassigned from Judge Bruce Black to Judge Jack Schmetterer. The Judge held a status hearing on November 5, 2012. The litigation trustee has engaged in settlement discussions with certain defendants in the note enforcement cases and attended a series of meetings on November 13 and 27, 2012, December 6, 2012, January 4 and 25, 2013, February 15, 2013, and March 8, 2013 in the bankruptcy proceedings with Judge Schmetterer intended to facilitate such discussions. As of the date of this filing, the Company has not been notified whether another mediation meeting has been scheduled by the judge.
Litigation Trust Ongoing Litigation
The Plan and the litigation trust agreement provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants and their respective promissory notes be placed in a trust for the benefit of the C-4 creditors (the “Trust Assets”). Under the Plan, the Litigation Trust is solely responsible for collection of amounts due on the promissory notes of the SIP Participants who did not accept the SIP Relief (as defined in the Plan). The Company has a limited indemnification obligation to the litigation trustee under the litigation trust agreement.
SIP Litigation: On February 4, 2005, the Litigation Trust commenced lawsuits both in the United States District Court for the Northern District of Illinois (the “Federal SIP Lawsuits”) and in the Circuit Court of Cook County Illinois (the “State SIP Lawsuits”) to collect on the remaining SIP Participants’ promissory notes.
Federal SIP Lawsuits: The Litigation Trust filed and a federal district court judge entered summary judgments (and amended judgments) against all but one of the SIP Participants who were defendants in the federal cases (the “Federal SIP Defendants”) on their respective SIP promissory notes, and the Litigation Trust commenced collection actions against them. Additionally, the federal district court judge entered orders directing that certain CDRs and related proceeds held by the estate of Comdisco, Inc. and Computershare (f/k/a BNY Mellon) (holder of CDRs) on behalf of those Federal SIP Defendants be turned over to the Litigation Trust. Pursuant to such orders, the Company turned over CDRs and related proceeds and will continue to do so if additional orders are entered.
The Federal SIP Defendants filed appeals on those judgments. On October 18, 2010, the Seventh Circuit affirmed the rulings in favor of the Litigation Trust, but remanded certain fraud issues to the trial court. On November 1, 2010, the Federal SIP Defendants filed a petition for a hearing before the full appellate panel. On June 28, 2011, the Seventh Circuit vacated the summary judgments and remanded the cases for further proceedings.
Following a series of motions, hearings and the completion of discovery, at a hearing on July 8, 2013, Judge Robert Gettleman set a trial date for September 23, 2013. The trial’s actual start date was September 24, 2013 and the witness testimony and evidentiary phase was substantially completed on October 10, 2013. On March 27, 2014 the post-trial briefing was completed by the parties. The judge heard oral arguments on April 16, 2014 and took the matter under advisement. On October 21, 2014, the judge orally ruled and entered judgment in favor of the Federal SIP Defendants. The basis of the judge’s ruling and judgment was his finding that both the bank and the Company committed an arranging violation under the applicable margin lending regulations. Therefore, the judge ruled that the promissory notes were void and unenforceable. On October 29, 2014, the litigation trustee filed an appeal of the judgment to the United States Court of Appeals for the Seventh Circuit. On November 6, 2014, the court scheduled a settlement conference for December 9, 2014. On November 7, 2014, the court issued a briefing schedule setting January 9, 2015 as the date for the litigation trustee to file a brief and short appendix, February 9, 2015 for the SIP federal defendants to file a brief, and February 23, 2015 for the litigation trustee to file a reply brief. On November 20, 2014, the Federal SIP Defendants filed a Notice of Appeal of the October 21, 2014 judgment and of an order entered on August 12, 2013. On December 10, 2014, the court suspended the briefing schedule for all of the appeals filed. Also, on November 20, 2014, the Federal SIP Defendants filed a Motion for Extension of Time to file Bills of Costs. On December 4, 2014, the judge approved this motion and allowed the Federal SIP Defendants to file their Bills of Costs after all appeals have been completed.
State SIP Lawsuits: The Litigation Trust filed summary judgments against all of the SIP Participants who are defendants in the state cases (the “State SIP Defendants”, and, together with the Federal SIP Defendants, the “SIP Defendants”). Three of the State SIP Defendants filed Cross Motions for Summary Judgment. A hearing in the Circuit Court of Cook County on all of the summary judgment motions in the state cases was held on May 12, 2010, and the judge granted the summary judgments in favor of the Litigation Trust and denied the various motions for summary judgments filed by the State SIP Defendants.
After a series of hearings, motions and counter-motions, amended pleadings and individual bankruptcies and settlements, the remaining State SIP Defendants and the litigation trustee entered into an agreed Stipulation And Order (the “Stipulation”) which, among other things, stays the trials in the state cases pending the resolution and any appeal of the trial in the federal cases. On August 12, 2013, the Stipulation was approved by Judge Tailor. On September 30, 2014, the judge set the next status hearing for December 16, 2014.
On July 26, 2013, Nisen and Elliot, LLC, an outside legal firm for the Company, filed a Petition to Intervene and a Motion for Protective Order in the state cases in order to preserve the Company’s attorney-client work product privilege in that litigation. The judge has continued this motion to December 16, 2014.
Litigation Trust Reports: By early 2005, sixty-nine SIP Participant’s promissory notes were transferred to the Litigation Trust. As reported in various Status Reports of Comdisco Litigation Trustee, of the sixty-nine SIP Participants: forty-one have settled or otherwise resolved their obligation; twelve have filed personal bankruptcy; and, sixteen notes remain outstanding (five in the federal court and eleven in the state court). During the quarter ended September 30, 2014, the Litigation Trust did not reach any settlements, which leaves the total number of promissory notes settled or otherwise resolved by the Litigation Trust at forty-one.
For more details regarding the Litigation Trust and related proceedings, please refer to the Status Reports of Comdisco Litigation Trustee filed quarterly in the Bankruptcy court. Any proceeds collected by the Litigation Trust, net of expenses, will be considered Trust Assets and distributed in accordance with the Plan and the litigation trust agreement.
Litigation Trust Termination Motion
On March 16, 2006, a motion was filed in the Bankruptcy court for the Northern District of Illinois on behalf of certain SIP Participants who had filed proofs of claim in the Comdisco, Inc. bankruptcy (“SIP Claimants”). The motion sought an order from the Bankruptcy court terminating the Litigation Trust. On July 20, 2006, the Bankruptcy court judge denied the motion of the SIP Claimants. On August 18, 2006, the SIP Claimants appealed the Bankruptcy court judge’s denial of their motion. On January 30, 2007, the federal district court judge affirmed the denial of the motion. The SIP Claimants appealed the denial to the US Circuit Court of Appeals for the 7th Circuit. A mandatory mediation was held on April 20, 2007. The mediation was adjourned and no settlement was achieved by the parties. The parties briefed the appeal and oral arguments were held before the Appellate Court on November 26, 2007. On August 13, 2008, the Appellate Court ruled and dismissed the appeal for want of jurisdiction. As of the date of this filing, there have been no further proceedings on this matter.
Records Destruction
On June 26, 2008, the Company obtained an order from the Bankruptcy court authorizing it to destroy or transfer certain of its stored paper and electronic records attributed to periods prior to January 1, 1997. As of the date of this filing, the Company destroyed substantially all of those records.
Subsidiary Changes
The Company’s Canadian subsidiary was liquidated during the fiscal year ended September 30, 2014. The Company’s Mexican subsidiary was liquidated during the fiscal year ended September 30, 2013.
Results of Operations
Fiscal Year Ended September 30, 2014 Compared to the Fiscal Year Ended September 30, 2013
|
Revenue |
|
Year ended
|
|
Increase |
|
| |||||
|
|
|
2014 |
|
2013 |
|
(Decrease) |
|
Explanation of Change | |||
|
Gain on sale of equity investments |
|
$ |
1,590 |
|
$ |
112 |
|
$ |
1,478 |
|
Equity investments, which are primarily managed by Windspeed, represent the primary remaining revenue generating asset. See “Overview” for additional information. (A) |
|
Miscellaneous income |
|
100 |
|
0 |
|
100 |
|
(B) | |||
|
Interest income |
|
65 |
|
88 |
|
(23) |
|
Interest earned on cash balances. (C) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
1,755 |
|
$ |
200 |
|
$ |
1,555 |
|
|
(A) The net gain on sale of equity holdings, after payment of a fee to a third party recovery firm, for the fiscal year ended September 30, 2014 was the result of the Company’s sale of its shares of Concur Technologies, Inc. compared to fewer liquidations of equity holdings in the fiscal year ended September 30, 2013.
(B) Miscellaneous income recorded in the fiscal year ended September 30, 2014 was from the sale of an investment in India that was previously written off.
(C) Interest income earned in the fiscal year ended September 30, 2014 is slightly lower compared to the prior fiscal year due to lower interest rates.
|
Costs and Expenses (in thousands) |
|
Year ended
|
|
Increase |
|
| |||||
|
|
|
2014 |
|
2013 |
|
(Decrease) |
|
Explanation of Change | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
$ |
2,480 |
|
$ |
2,102 |
|
$ |
378 |
|
(A) |
|
Contingent distribution rights |
|
(869) |
|
(33) |
|
(836) |
|
(B) | |||
|
Foreign exchange loss |
|
312 |
|
188 |
|
124 |
|
(C) | |||
|
Bad debt recoveries |
|
|
(473) |
|
|
(207) |
|
|
(266) |
|
Collections and recoveries. (D) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,450 |
|
$ |
2,050 |
|
$ |
(600) |
|
|
(A) SG&A expense in the fiscal year ended September 30, 2013 included the reversal of $340,000 for a previously accrued liability for a bank guaranty in The Netherlands.
(B) The reduction in CDR expense in the twelve months ended September 30, 2014 is primarily the result of higher estimated future SG&A expenses due to: the delay in realizing on certain Equity Investments; the need to reach closure on outstanding and anticipated state and federal taxes; and, the lack of final resolution of the SIP Litigation, all of which are needed to determine the ultimate CDR liability offset partially by: the gain on sale of equity investments, the reversal of income tax liabilities related to Comdisco Canada Limited (“CCL”) and the receipt of an indemnity escrow fund. The reduction in CDR expense during 2013 was primarily the result of an increase in estimated future selling, general and administrative costs partially offset by a Canadian net tax benefit recorded during 2013. See Item 7 “Critical Accounting Policies” for a discussion of the potential
liability from any future recoveries and distributions by the Litigation Trust. See the risk factors discussed in Item 1A, “Risk Factors”, particularly the risks entitled “Uncertainties Inherent in the CDR Liability Calculation”.
(C) Foreign exchange loss primarily related to the strengthening of the U.S. dollar against the Canadian Dollar in the twelve months ended September 30, 2014 as the Company’s foreign subsidiaries held monetary assets denominated in Canadian dollars. As of September 30, 2014, the Company no longer has assets denominated in Canadian dollars.
(D) The recoveries received during the twelve months ending September 30, 2014 included the receipt of a final outstanding indemnity escrow related to a 2002 sales of its business in France.
Selling, General and Administrative Expenses
The following table summarizes selling, general and administrative expenses (in thousands):
|
|
|
Year ended September 30, |
| |||
|
|
|
2014 |
|
2013 |
| |
|
Employee Compensation and benefits |
|
$ 1,259 |
|
|
$ 1,186 |
|
|
Outside professional services |
|
535 |
|
|
657 |
|
|
Other expenses |
|
686 |
|
|
259 |
|
|
|
|
$ 2,480 |
|
|
$ 2,102 |
|
For the year ended September 30, 2013, other expenses included a reversal of $340,000 for a previously accrued liability for a bank guaranty in The Netherlands.
Income Taxes
See Note 4 – Income Taxes of Notes to Consolidated Financial Statements for details about the Company’s income tax provision (benefit).
The Company’s U.S. federal taxes are impacted from its wind down activities, including the liquidation and repatriation of foreign assets. During the fiscal year ended September 30, 2014, the Company recorded $185,000 U.S. tax expense and paid $18,000 estimated payments to the Internal Revenue Service (“IRS”) and paid $ 77,000 in estimated payments to the Illinois Department of Revenue. During the fiscal year ended September 30, 2013, the Company recorded no U.S. tax expense and made no estimated payments to the IRS.
During the fiscal year ended September 30, 2014, the Company liquidated CCL and recorded a net income tax benefit of approximately $735,000 due to the reversal of income tax liabilities as a result of the liquidation. During the fiscal year ended September 30, 2013, the Company recorded a net income tax benefit of approximately $675,000 for CCL, including interest expense and penalties in the statement of comprehensive (loss), which was primarily driven by successful negotiations with the Ontario Ministry of Finance on a refund of arrears interest.
During the fiscal year ended September 30, 2013, the Company liquidated its Mexican subsidiary.
Net Earnings (Loss)
Net earnings were approximately $855,000, or $0.21 per share-basic and diluted, for the fiscal year ended September 30, 2014 compared to a net loss of approximately $1,175,000, or $(0.29) per share-basic and diluted, for the fiscal year ended September 30, 2013.
Off-Balance Sheet Arrangements
The Company does not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon the Company’s financial condition or results of operations.
Liquidity and Capital Resources
The Company’s liquidity generally depends on cash on hand. The Company’s cash flow from operating activities is dependent on a number of variables, including, but not limited to, operating costs and expenses to affect the wind down, income tax obligations, market conditions for the sale of Equity Investments and the ability of the Company to dispose or otherwise convert to cash any other remaining assets. All funds generated from the collection of remaining assets are required by the Plan to be used to satisfy liabilities of the Company and, to the extent funds are available, to pay dividends on the Company’s Common Stock and to make distributions with respect to the CDRs in the manner and priorities set forth in the Plan. Because of the composition and nature of its remaining assets, except for the estimated gross realizable value from the Ebates transaction, the Company expects to generate funds from the sale or collection of its remaining assets at a decreasing rate over time.
At September 30, 2014, the Company had unrestricted cash and cash equivalents of approximately $31,992,000, an increase of approximately $4,321,000 compared to September 30, 2013. These funds are held in the United States. Net cash provided by operating activities for the fiscal year ended September 30, 2014 was approximately $353,000. Net cash provided by investing activities for the fiscal year ended September 30, 2014 was approximately $4,003,000 from the redemption of a short-term investment in Canada. The effect of exchange rate changes on cash balances held in foreign currencies was a decrease in cash and cash equivalents of approximately $35,000 for the fiscal year ended September 30, 2014.
Cash provided by operating activities primarily consisted of approximately $1,590,000 in proceeds from the Equity Investments net of sharing fees; approximately $733,000 of income tax refunds from its Canadian subsidiary; and, approximately $628,000 of proceeds received from interest income, bad debt recoveries and other revenue. This cash flow was partially offset by cash expenditures, which were primarily operating expenses of approximately $2,244,000 (principally professional services and employee compensation and benefits). The Company paid $259,000 in Canadian income and withholding tax payments, paid $18,000 to the IRS and paid $77,000 to the Illinois Department of Revenue.
The Company’s current and future liquidity depends on cash on hand and may be augmented by proceeds from the sale of Equity Investments, recoveries, if any, and interest income. The Company expects its cash on hand to be sufficient to fund operations and to meet its obligations (including its obligation to make distributions to its Common Stockholders and make payments to CDR holders) under the Plan for the foreseeable future.
Dividends
The Company 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 to the date of this report were as follows (in thousands):
|
|
|
Aggregate | |
|
May 2003 |
|
$307,773 |
|
|
June 2003 |
|
60,019 |
|
|
September 2003 |
|
199,782 |
|
|
December 2003 |
|
50,365 |
|
|
May 2004 |
|
48,267 |
|
|
March 2005 |
|
52,447 |
|
|
January 2006 |
|
20,172 |
|
|
December 2006 |
|
25,748 |
|
|
April 2011 |
|
12,600 |
|
|
|
|
$777,173 |
|
Contingent Distribution Rights
For financial reporting purposes, the Company records CDRs as a liability and as an operating expense although the CDRs trade over-the-counter.
The Plan entitles holders of CDRs to share at increasing percentages in the proceeds realized from the Company’s assets based upon the present value of distributions to certain C-4 creditors in the bankruptcy estate of Comdisco, Inc. As of December 3, 2014, the sharing percentage was 37%, which is the maximum sharing percent and there were 1,845 holders of record of the Company’s CDRs and there were 148,448,188 outstanding CDRs.
The Company maintains sufficient cash reserves for operations and the potential CDR liability arising from either the Company’s equity and any potential net distributions from the Litigation Trust to the C-4 creditors. The outcome and the timing of the actual net distributions from the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments.
Aggregate total distributions to the date of this report with respect to the CDRs were as follows (in thousands):
|
|
|
Aggregate |
|
Per CDR |
|
|
May 2003 |
|
$ 2,730 |
|
$.01793 |
|
|
June 2003 |
|
2,468 |
|
.01621 |
|
|
September 2003 |
|
13,370 |
|
.08780 |
|
|
December 2003 |
|
7,827 |
|
.05140 |
|
|
March 2004 |
|
2,848 |
|
.01870 |
|
|
May 2004 |
|
11,892 |
|
.07810 |
|
|
December 2004 |
|
14,953 |
|
.09820 |
|
|
March 2005 |
|
22,171 |
|
.14560 |
|
|
January 2006 |
|
5,558 |
|
.03650 |
|
|
March 2006 |
|
3,761 |
|
.02470 |
|
|
December 2006 |
|
6,852 |
|
.04500 |
|
|
September 2007 |
|
22,841 |
|
.15000 |
|
|
September 2008 |
|
893 |
|
.00602 |
|
|
September 2008 reallocation |
|
0 |
|
.01984 |
|
|
April 2011 |
|
7,400 |
|
.04985 |
|
|
Total CDR payments |
|
$125,564 |
|
$.84585 |
|
Since September 30, 2008, the Company has estimated, and will continue to estimate, the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, estimated future interest income, and any potential net distributions from the Litigation Trust for which estimates are currently not determinable. Changes in the fair value of investments or recoveries greater than book value are not reflected in the CDR liability until the sale is realized. See the risk factors discussed in Item 1A, “Risk Factors”, particularly the risks entitled “Uncertainties Inherent in the CDR Liability Calculation” and “Uncertainties Inherent in the Determination of Fair Market Value of the Remaining Portfolio.”
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Comdisco Holding Company, Inc.:
We have audited the accompanying consolidated balance sheets of Comdisco Holding Company, Inc. and subsidiaries (the “Company”) as of September 30, 2014 and 2013, and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company’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.
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, 2014 and 2013, and the results of their operations and their cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.
(signed) KPMG LLP
Chicago, Illinois
December 11, 2014
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
|
|
|
Year ended |
|
Year ended |
| ||
|
|
|
2014 |
|
2013 |
| ||
|
Revenue |
|
|
|
|
| ||
|
Gain on sale of equity investments |
|
$ |
1,590 |
|
$ |
112 |
|
|
Miscellaneous income |
|
100 |
|
0 |
| ||
|
Interest income |
|
65 |
|
88 |
| ||
|
Total revenue |
|
1,755 |
|
200 |
| ||
|
Costs and expenses |
|
|
|
|
| ||
|
Selling, general and administrative |
|
2,480 |
|
2,102 |
| ||
|
Contingent Distribution Rights |
|
(869) |
|
(33) |
| ||
|
Foreign exchange loss |
|
312 |
|
188 |
| ||
|
Bad debt recoveries |
|
(473) |
|
(207) |
| ||
|
Total costs and expenses |
|
1,450 |
|
2,050 |
| ||
|
Net earnings (loss) before income taxes |
|
305 |
|
(1,850) |
| ||
|
Income tax (benefit) |
|
(550) |
|
(675) |
| ||
|
Net earnings (loss) |
|
855 |
|
(1,175) |
| ||
|
|
|
|
|
|
| ||
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
| ||
|
Unrealized gains (losses) on securities: |
|
|
|
|
| ||
|
Unrealized holding gains arising during the period |
|
1,400 |
|
3 |
| ||
|
Reclassification adjustment for gains included in earnings |
|
(1,406) |
|
0 |
| ||
|
|
|
|
|
|
| ||
|
Other comprehensive income (loss) |
|
(6) |
|
3 |
| ||
|
Comprehensive income (loss) |
|
$ |
849 |
|
$ |
(1,172) |
|
|
Basic and diluted earnings (loss) per common share |
|
$ |
0.21 |
|
$ |
(0.29) |
|
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and per share data)
|
|
|
September 30, |
|
September 30, |
|
|
ASSETS |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
31,992 |
$ |
27,671 |
|
|
Cash – legally restricted |
|
4,000 |
|
4,000 |
|
|
Short-term investment |
|
0 |
|
4,340 |
|
|
Equity investments |
|
697 |
|
697 |
|
|
Income tax receivable |
|
0 |
|
753 |
|
|
Assets held in trust for deferred compensation plan |
|
501 |
|
490 |
|
|
Other assets |
|
248 |
|
353 |
|
|
Total assets |
$ |
37,438 |
$ |
38,304 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
Accounts payable |
$ |
103 |
$ |
88 |
|
|
Income taxes payable |
|
90 |
|
1,076 |
|
|
Other liabilities: |
|
|
|
|
|
|
Accrued compensation |
|
1,429 |
|
1,304 |
|
|
Contingent Distribution Rights |
|
10,437 |
|
11,306 |
|
|
Other liabilities |
|
168 |
|
168 |
|
|
Total other liabilities |
|
12,034 |
|
12,778 |
|
|
Total liabilities |
|
12,227 |
|
13,942 |
|
|
Stockholders’ equity |
|
|
|
|
|
|
Common Stock $.01 par value. Authorized 10,000,000 shares; originally issued 4,200,000 shares; 4,028,951 shares issued and outstanding at September 30, 2014 and 2013 |
|
70 |
|
70 |
|
|
Additional paid-in capital |
|
28,414 |
|
28,414 |
|
|
Accumulated other comprehensive income (loss) |
|
(3) |
|
3 |
|
|
Accumulated deficit |
|
(3,270) |
|
(4,125) |
|
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
25,211 |
|
24,362 |
|
|
|
$ |
37,438 |
$ |
38,304 |
|
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
|
|
|
Common |
|
Additional |
|
Accumulated |
|
Retained |
|
Total |
| |||
|
Balance at September 30, 2012 |
|
$ |
70 |
|
$ 28,414 |
|
$ |
0 |
|
$ |
(2,950) |
|
$ 25,534 |
|
|
Net (loss) |
|
|
|
|
|
|
|
(1,175) |
|
(1,175) |
| |||
|
Other comprehensive income |
|
|
|
|
|
3 |
|
|
|
3 |
| |||
|
Total comprehensive (loss) |
|
|
|
|
|
|
|
|
|
(1,172) |
| |||
|
Balance at September 30, 2013 |
|
70 |
|
28,414 |
|
3 |
|
(4,125) |
|
24,362 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Net earnings |
|
|
|
|
|
|
|
855 |
|
855 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Other comprehensive (loss) |
|
|
|
|
|
(6) |
|
|
|
(6) |
| |||
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
849 |
| |||
|
Balance at September 30, 2014 |
|
$ |
70 |
|
$ 28,414 |
|
$ |
(3) |
|
$ |
( 3,270) |
|
$ 25,211 |
|
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
Year Ended |
|
Year Ended |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from operating activities: |
|
|
|
|
| ||
|
Equity investment proceeds net of management sharing |
|
$ |
1,590 |
|
$ |
112 |
|
|
Interest, bad debt recoveries and other revenue |
|
628 |
|
302 |
| ||
|
Selling, general and administrative expenses |
|
(2,244) |
|
(2,369) |
| ||
|
Income tax receipts |
|
733 |
|
14 |
| ||
|
Income tax payments |
|
(354) |
|
0 |
| ||
|
|
|
|
|
|
| ||
|
Net cash provided by (used in) operating activities |
|
353 |
|
(1,941) |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from investing activities: |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Redemption of short-term investment |
|
4,003 |
|
(55) |
| ||
|
Decrease in legally restricted cash |
|
0 |
|
342 |
| ||
|
|
|
|
|
|
| ||
|
Net cash provided by investing activities |
|
4,003 |
|
287 |
| ||
|
|
|
|
|
|
| ||
|
Effect of exchange rates on cash and cash equivalents |
|
(35) |
|
(24) |
| ||
|
|
|
|
|
|
| ||
|
Net increase (decrease) in cash and cash equivalents |
|
4,321 |
|
(1,678) |
| ||
|
Cash and cash equivalents at beginning of period |
|
27,671 |
|
29,349 |
| ||
|
|
|
|
|
|
| ||
|
Cash and cash equivalents at end of period |
|
$ |
31,992 |
|
$ |
27,671 |
|
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
Year Ended |
|
Year Ended |
| ||
|
Reconciliation of net earnings (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
| ||
|
Net earnings (loss) |
|
$ 855 |
|
$ (1,175) |
| ||
|
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
| ||
|
Taxes payable and other tax balances |
|
90 |
|
101 |
| ||
|
Change in Canadian income tax receivables |
|
(261) |
|
(762) |
| ||
|
Contingent Distribution Rights |
|
(869) |
|
(33) |
| ||
|
Selling, general, and administrative expenses |
|
236 |
|
(293) |
| ||
|
Receivables |
|
7 |
|
(2) |
| ||
|
Other, including foreign exchange |
|
295 |
|
223 |
| ||
|
Net cash provided by (used in) operating activities |
|
$ 353 |
|
$ (1,941) |
| ||
See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014, and 2013
Note 1 - Reorganization
On July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court (consolidated case number 01-24795) (the “Filing”). Comdisco Holding Company, Inc., as the successor company to Comdisco, Inc., emerged from bankruptcy under a confirmed plan of reorganization (the First Amended Joint Plan of Reorganization (the “Plan”) that became effective on August 12, 2002 (the “Effective Date”). For financial reporting purposes only, however, the effective date for implementation of fresh-start reporting was July 31, 2002.
Comdisco Holding Company, Inc. was formed on August 8, 2002 for the purpose of selling, collecting or otherwise reducing to money in an orderly manner the remaining assets of the Company and all of its direct and indirect subsidiaries, including Comdisco, Inc. 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, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose.
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 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, prior to the Company’s emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise.
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. The Company reports its results of operations in one reporting segment.
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. Due to the substantially complete liquidation of its foreign subsidiaries, translation adjustments were included in revenue if the adjustments were a gain and in cost and expenses if the adjustments were a loss in the
consolidated statements of comprehensive income (loss). As of September 30, 2014, the Company no longer has assets or liabilities denominated in any foreign currency.
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 settlement carrying amount of existing assets and liabilities and their respective tax basis. The Company continues to provide a valuation allowance for the remaining value of the deferred tax assets due to uncertainties regarding future earnings.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid debt instruments with original maturities of 90 days or less.
Short-term Investments
Short-term investments are comprised of investments which are highly liquid fixed-income investments with an original maturity greater than three months but less than one year.
Equity Investments
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 and reported in accumulated other comprehensive income (loss). As of the date of this filing, the Company does not hold any marketable equity securities.
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 Acquisition Fund GP, LLC (“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. The Company did not record any write-downs of equity securities for the years ended September 30, 2014 and 2013. All write-downs are considered permanent impairments for financial reporting purposes.
Contingent Distribution Rights
The Company estimates the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, estimated future interest income and the potential net distributions from the Litigation Trust for which estimates are currently not determinable. Changes in the fair value of investments or recoveries greater than book value are not reflected in the CDR liability until the sale is realized. See the risk factors discussed in Item 1A, “Risk Factors”, particularly the risk entitled “Uncertainties Inherent in the CDR Liability Calculation”.
Basic and Diluted Earnings Per Common Share
Earnings per common share basic and diluted are computed by dividing the net earnings (loss) to common stockholders by the weighted average number of common shares outstanding for the period.
Note 3 – Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption.
In April 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. generally accepted accounting principles (“U.S. GAAP”) but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein.
The Company will adopt ASU 2013-07 beginning the quarter ended December 31, 2014 and begin reporting its financial results on the liquidation basis of accounting. The reporting will disclose the Company’s estimate of the value of the net assets available in liquidation for the Common Shareholders. The value of the net assets will be the Company’s estimate of the expected cash proceeds of the assets less appropriate deductions for all projected costs and expenses to be incurred during the time period required to complete the liquidation under the First Amended Joint Plan of Reorganization (the “Plan”), including amounts expected to be paid related to the CDR liability. There is inherent uncertainty with these estimates and projections and, accordingly, the estimates and projections could change materially based on a number of factors both within and outside of the Company’s control. Such factors, include but are not limited to, the timing of the sales and the realization on the value of the assets, any delay in the liquidation process and any changes in the underlying assumptions of projected costs, expenses and cash flows. The Company is currently completing its analysis of the impact of adopting this new basis of accounting.
Note 4 - Income Taxes
The geographical sources of income (loss) before income taxes were as follows (in thousands):
|
|
|
Year ended September 30, |
| ||||
|
|
|
2014 |
|
2013 |
| ||
|
United States |
|
$ |
632 |
|
$ |
(1,848) |
|
|
Outside United States |
|
(327) |
|
(2) |
| ||
|
|
|
$ |
305 |
|
$ |
(1,850) |
|
During the fiscal year ended September 30, 2014, the earnings before income taxes in the United States was primarily a result of gain on equity investments and reduction in CDR expense. During the fiscal year ended September 30, 2014, the loss before income taxes outside the United States was primarily a result of foreign exchange loss. During the fiscal year ended September 30, 2013, the loss before income taxes was primarily a result of selling, general and administrative costs of the estate, which were higher than revenues.
The components of the income tax (benefit) were as follows (in thousands):
|
|
|
Year ended September 30, |
| |||
|
|
|
2014 |
|
2013 |
| |
|
Current: |
|
|
|
|
| |
|
United States |
|
$ 185 |
|
|
$ 0 |
|
|
Outside United States |
|
(735) |
|
(675) |
| |
|
|
|
$ (550) |
|
|
$ (675) |
|
The Company paid the Internal Revenue Service (“IRS”) $18,000 and paid the Illinois Department of Revenue $77,000 during the fiscal year ended September 30, 2014. The Company made no payment to the IRS in the fiscal year ended September 30, 2013. During the fiscal year ended September 30, 2014, the Company’s Canadian subsidiary received tax refunds totaling approximately $733,000 from the provincial government of Ontario, Canada, paid a withholding tax to the Canada Revenue Agency (“CRA”) on the liquidating distribution in the amount of approximately $257,000 and paid approximately $2,000 in income tax to the provincial government of Alberta, Canada. The Company received approximately $14,000 from the provincial government of Alberta, Canada during the fiscal year ended September 30, 2013.
The reasons for the difference between the U.S. federal income tax rate and the effective income tax rate for earnings were as follows:
|
|
|
Year ended September 30, |
| ||||
|
|
|
2014 |
|
2013 |
| ||
|
U.S. federal income tax rate |
|
34% |
|
34% |
| ||
|
Increase (reduction) resulting from: |
|
|
|
|
| ||
|
State income taxes, net of U.S. federal tax benefit |
|
53 |
|
0 |
| ||
|
Final determinations and unrecognized tax benefit activity(1) |
|
(242) |
|
34 |
| ||
|
Non-deductible CDR expenses |
|
(97) |
|
1 |
| ||
|
Unrealized gain (loss) on foreign exchange |
|
35 |
|
(3) |
| ||
|
Change in valuation allowance |
|
(187) |
|
(31) |
| ||
|
Miscellaneous income (sale of investment in India) |
|
218 |
|
0 |
| ||
|
Other, net |
|
6 |
|
2 |
| ||
|
Effective income tax rate |
|
(180)% |
|
37% |
| ||
(1) Final determinations include final agreements with tax authorities.
Deferred tax assets at September 30, 2014 and 2013 were as follows (in thousands):
|
|
|
2014 |
|
2013 |
| |||||
|
Deferred tax assets: |
|
|
|
|
| |||||
|
Foreign loss carryforwards |
|
$ 0 |
|
$ 265 |
| |||||
|
U.S. and state NOL carryforward |
|
112,902 |
|
111,947 |
| |||||
|
AMT credit carryforwards |
|
75,622 |
|
75,588 |
| |||||
|
|
|
|
|
|
| |||||
|
Gross deferred tax assets |
|
188,524 |
|
187,800 |
| |||||
|
Less: valuation allowance |
|
(188,524) |
|
(187,800) |
| |||||
|
|
|
|
|
|
| |||||
|
Net deferred tax assets |
|
$ 0 |
|
$ 0 |
| |||||
The Company provides a valuation allowance for the remaining value of the deferred tax assets due to it being more likely than not that they will not be utilized in the future.
As of September 30, 2014, the company has federal net operating loss (“NOL”) carryforwards of approximately $106,428,000 expiring between years 2023 and 2033 and domestic state NOL carryforwards of approximately $6,474,000 expiring between years 2016 and 2025.
At September 30, 2014, the Company has available for U.S. federal income tax purposes the following carryforwards (in thousands):
|
Year scheduled |
|
Net operating |
|
|
|
|
|
2023 |
|
$ 237,996 |
|
2024 |
|
37,101 |
|
2025 |
|
34,055 |
|
2031 |
|
657 |
|
2032 |
|
1,572 |
|
2033 |
|
1,742 |
|
|
|
$ 313,123 |
For U.S. federal income tax purposes, the Company has $75,622,000 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 Company does not believe that it is more likely than not that the Company will generate sufficient future taxable income to realize the benefit of the AMT credit carryforwards. As such, the Company has recognized a valuation allowance of $75,622,000 to offset this deferred tax asset.
The Company files income tax returns in the U.S. federal jurisdiction and the State of Illinois.
As of the date of this filing, the only federal tax years open to exam are fiscal years ended September 30, 2011 through September 30, 2013.
The Company’s Canadian subsidiary, CCL, was liquidated during the fiscal year ended September 30, 2014 and recorded approximately $735,000 of net income tax benefit due to the reversal of income tax liabilities. CCL filed its final Canadian tax return and received the final Notice of Assessment dated July 17, 2014 showing a zero balance. During the year ended September 30, 2013, the Company completed final negotiations with the Ontario Ministry of Finance related to its Notices of Objection and recorded a net income tax benefit of approximately $675,000.
During the fiscal year ended September 30, 2013, the Company liquidated its Mexican subsidiary.
Uncertain Tax Positions:
As of September 30, 2014, the Company no longer has any uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands) (excluding interest and penalties):
|
|
September 30, |
|
September 30, |
|
|
2014 |
|
2013 |
|
Beginning balance |
$ 1,371 |
|
$ 1,438 |
|
Decreases related to settlements of certain tax audits |
0 |
|
0 |
|
Increases related to settlements of certain tax audits |
0 |
|
0 |
|
Decreases related to prior year tax positions |
(1,371) |
|
0 |
|
Increases related to prior year tax positions |
0 |
|
0 |
|
Other |
0 |
|
(67) |
|
Ending balance |
$0 |
|
$ 1,371 |
Note 5 – Equity Investments
The Company’s estimate of the fair value of its private company investments was made in consultation with Windspeed, a professional management group which the Company engaged in February 2004, who manages the Company’s investments in equity securities on an ongoing basis. Windspeed shares in the net receipts from the sale of the Company’s investments in equity securities at a set percentage in certain designated portions of the portfolio of companies (referred to as “Management Sharing”). The Windspeed management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011) until February 20, 2013 (the “Initial Extension”). The Windspeed management agreement was again extended effective February 21, 2013 through February 20, 2015 (the “Second Extension”). Prior to the Initial Extension, Windspeed received fixed and declining management fees. Under the terms of the Initial and Second Extensions, Windspeed is not, and will not, be paid any ongoing management fees. In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio will go to Windspeed. Additionally, Windspeed shares in the net receipts from the sale of the Company’s investments in certain of the Company’s equity securities at a set percentage. As of September 30, 2014, the Company has received approximately $71,042,000 in proceeds (prior to management fees and sharing) since the inception of the management agreement with Windspeed. Windspeed has received a combined $12,779,000 in management fees and sharing through September 30, 2014.
Equity investments consist primarily of preferred stock holdings in three private companies which are carried at the lower of cost or fair market value in the Company’s financial statements. The most significant of which is an investment in Ebates. The carrying value of equity investments in private companies is $697,000 and the fair market value is approximately $20,379,000. During the quarter ended September 30, 2014, it was
announced that Ebates would be acquired by Rakuten, a Japanese company. The Plan of Merger was signed on September 24, 2014, pending various conditions, including regulatory approval. As of September 30, 2014, the Company concluded that the offer price should be the primary input into the fair value measurement of Ebates.
On October 9, 2014, Rakuten completed the acquisition of Ebates and on October 29, 2014, the Company received the initial distribution. The gross proceeds distributed were approximately $17,720,000 of which the Company received approximately $15,145,000 in net proceeds and Windspeed received approximately $2,575,000 in Management Sharing pursuant to the management agreement. As of the date of this filing, the Company has received approximately $88,762,000 in proceeds (prior to management fees and sharing) since the inception of the management agreement with Windspeed.
Marketable equity investments:
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). At September 30, 2014, the Company did not own any shares in publicly-traded companies within Equity Investments as presented on the balance sheet. The Company’s practice is to sell its marketable equity securities within a reasonable period of time after the lock-up period ends.
However, the Company holds a limited number of securities in trust for a deferred compensation plan which are not available for distribution under the Plan.
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. Currently, realized gains net of Management Sharing fees are included in revenue in the consolidated statements of comprehensive (loss). During the fiscal year ended September 30, 2014, the Company received $1,590,000 in net proceeds (after fees paid to a third party recovery firm) and realized a gain of $1,590,000 on the sale of marketable equity investments. During the fiscal year ended September 30, 2013, the Company received $129,000 in proceeds, paid $17,000 in Management Sharing and realized a gain of $112,000 on the sale of marketable equity investments.
Equity investments in private companies:
The Company’s policy for assessing the carrying value of equity investments in privately held companies is, in consultation with Windspeed, to regularly review the assumptions underlying the operating performance and cash flow forecasts. The Company identifies and records impairment losses on Equity Investments 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. The carrying value of the Company’s equity investments in private companies was $697,000 at September 30, 2014 and 2013.
There were no write-downs of equity securities in the fiscal years ended September 30, 2014 and 2013.
Note 6 - Common Stock
As of September 30, 2014, the Company had 4,028,951 shares of Common Stock issued and outstanding.
Consistent with past practices, the Company intends to treat any future dividend distribution 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 per share calculations were as follows (in thousands):
|
|
|
Year ended September 30, |
| ||||
|
|
|
2014 |
|
2013 |
| ||
|
Average common shares issued |
|
4,200 |
|
4,200 |
| ||
|
Average common shares retired |
|
(171) |
|
(171) |
| ||
|
|
|
4,029 |
|
4,029 |
| ||
|
Net earnings (loss) to common stockholders |
|
$ |
855 |
|
$ |
(1,175) |
|
|
Basic and diluted earnings (loss) per common share |
|
$ |
0.21 |
|
$ |
(0.29) |
|
Note 7 - Fair Value Measurements
The three levels of inputs used to measure fair value are as follows:
|
• |
|
Level 1 – Quoted prices in active markets for identical assets and liabilities. |
|
|
|
|
|
• |
|
Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
|
|
|
|
|
• |
|
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes merger documents, certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
The Company’s financial assets that are measured at fair value on a recurring basis are measured using Level 1 and Level 2 inputs. The Company records the carrying value of its private equity investments at lower of cost or fair market value which is measured using Level 2 inputs for the Company’s investment in Ebates. The Company used the offer price from the Plan of Merger (a Level 2 input) to measure such fair value of Ebates. For the remaining two investments in private companies, the Company records the carrying value of its private equity investments at lower of cost or fair market value which is measured using Level 3 inputs.
The Company has included a tabular disclosure for financial assets that are measured at fair value on a recurring basis in the consolidated balance sheet as of September 30, 2014 and 2013. The Company holds no financial liabilities that are measured at fair value on a recurring basis.
|
|
|
| |||||||||||
|
|
|
September 30, 2014 | |||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
| ||||
|
Money market accounts |
|
$ |
31,791,000 |
|
$ |
0 |
|
$ |
0 |
|
$ |
31,791,000 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Certificates of deposit (A) |
|
0 |
|
0 |
|
0 |
|
0 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Equity investments (B) |
|
0 |
|
19,631,000 |
|
748,000 |
|
20,379,000 |
| ||||
|
Assets held in trust for deferred compensation plan (D) |
|
501,000 |
|
0 |
|
0 |
|
501,000 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total |
|
$ |
32,292,000 |
|
$ |
19,631,000 |
|
$ |
748,000 |
|
$ |
52,671,000 |
|
|
|
|
| |||||||||||
|
|
|
| |||||||||||
|
|
|
September 30, 2013 | |||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
| ||||
|
Money market accounts |
|
$ |
26,845,000 |
|
$ |
0 |
|
$ |
0 |
|
$ |
26,845,000 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Certificates of deposit (A) |
|
0 |
|
4,340 ,000 |
|
0 |
|
4,340,000 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Equity investments (C) |
|
0 |
|
0 |
|
8,875,000 |
|
8,875,000 |
| ||||
|
Assets held in trust for deferred compensation plan (D) |
|
490,000 |
|
0 |
|
0 |
|
490,000 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total |
|
$ |
27,335 ,000 |
|
$ |
4,340 ,000 |
|
$ |
8,875,000 |
|
$ |
40,550,000 |
|
(A) Certificates of deposit were held in Canada and were redeemed during February 2014.
(B) Equity investments for Level 2 and 3 are made up of stock in three privately held companies; FMV on a gross basis is $20,379,000 with Management Sharing of $2,965,000 and a net fair value balance of $17,414,000.
(C) Equity investments for Level 3 are made up of stock in three privately held companies; FMV on a gross basis is $10,388,000 with Management Sharing of $1,513,000 and a net fair value balance of $8,875,000
(D) Assets held in trust for deferred compensation plan are made up of bonds, equity and money market funds that are actively traded.
These assets are held in a Rabbi Trust for the benefit of deferred employee compensation not available for distribution under the Plan.
Reconciliation of financial assets measured at fair value on a recurring basis using Level 3 inputs for the years ended September 30, 2014 and 2013 is as follows:
|
|
|
Fair Value |
|
Realized |
|
Change in |
|
Decrease due to |
|
Increase due to
|
|
Decrease in cost |
|
Decrease due to |
|
Fair Value |
|
|
Level 3 only Equity investments |
|
$8,875,000 |
|
$ 0 |
|
$ 11,504,000 |
|
$ 0 |
|
$ 0 |
|
$ 0 |
|
$ (19,631,000) |
|
$748,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Realized |
|
Change in |
|
Decrease due to |
|
Increase due to |
|
Decrease in cost |
|
Decrease due to |
|
Fair Value |
|
|
Level 3 only Equity investments |
|
$5,166,000 |
|
$ (112,000) |
|
$3,821,000 |
|
$ 0 |
|
$ 0 |
|
$ 0 |
|
$ 0 |
|
$8,875,000 |
|
In accordance with the provisions of ASC Topic 320, “Accounting for Certain Investments in Debt and Equity Securities,” marketable equity investments (equity investments having a readily determinable fair value) would have a carrying value and a fair value based on quoted market prices. The Company’s practice is to sell its marketable equity investments upon the expiration of the lock-up period.
These investments are subject to significant volatility and are difficult to value. The fair value of the Company’s equity investments in private companies was determined in consultation with Windspeed based on the market approach, including, but not limited to, quoted trading levels for publicly-traded securities in similar industries and/or markets, merger documents, industry and company multiples, industry acceptance in the market place, liquidity discounts due to lock ups and escrows, 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, as of September 30, 2014, the total portfolio of three companies which has an estimated fair market value of $20,379,000, will be reduced by expected Management Sharing of approximately $2,965,000. Approximately 96% of such value is in one individual company, Ebates. Subsequent to September 30, 2014, cash was received at an amount equal to such fair value of Ebates, less, fair market value amount of approximately $1,911,000 which will be held in escrow until January 2016. The actual amount to be distributed from the escrow may be impacted by provisions of, and claims asserted against, the escrow.
Note 8 – Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the fiscal years ended September 30, 2014 and 2013, are as follows (in thousands except per share data):
|
|
|
Quarter ended |
| |||||||||||||||
|
|
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
| |||||||||
|
|
|
2013 |
|
2012 |
|
2014 |
|
2013 |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
Total revenue |
|
$ 30 |
|
$ 142 |
|
$ 1,703 |
|
$ 26 |
|
|
$ 11 |
|
$ 7 |
|
$ 11 |
|
$ 25 |
|
|
Net earnings (loss) |
|
$(1,219) |
|
$ (593) |
|
$ 1,249 |
|
$ (555 |
) |
|
$ 633 |
|
$ (349) |
|
$ 192 |
|
$ 322 |
|
|
Basic and diluted earnings (loss) per common share |
|
$ (0.30) |
|
$ (0.15) |
|
$ 0.31 |
|
$ (0.14 |
) |
|
$ 0.16 |
|
$ (0.08) |
|
$ 0.04 |
|
$ 0.08 |
|
Note 9 - Other Financial Information
Legally restricted cash represents cash and cash equivalents that are held in an indemnification reserve.
The indemnification reserve is a specific reserve set aside by the Company for any potential indemnified losses in lieu of the litigation trustee purchasing insurance coverage.
Other liabilities consist of the following (in thousands):
|
|
|
September 30, |
|
September 30, |
|
|
Accrued compensation |
$ |
1,429 |
$ |
1,304 |
|
|
CDRs |
|
10,437 |
|
11,306 |
|
|
Other liabilities |
|
168 |
|
168 |
|
|
|
$ |
12,034 |
$ |
12,778 |
|
The liability for accrued compensation includes payroll and estimated amounts payable under the Company’s Bankruptcy court approved compensation plans.
The Company estimates the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, estimated future interest income and the potential net distributions from the Litigation Trust for which estimates are currently not determinable. Changes in the fair value of investments or recoveries greater than book value are not reflected in the CDR liability until the sale is realized. See the risk factors
discussed in Item 1A, “Risk Factors”, particularly the risk entitled “Uncertainties Inherent in the CDR Liability Calculation”.
Ebates, one of the private company Equity Investments, was acquired by Rakuten, a Japanese company and the transaction closed on October 9, 2014. If the Ebates transaction had closed before the quarter ended September 30, 2014, the CDR liability would have been increased by approximately $5,300,000 on an after tax basis.
Note 10 - Operations by Geographic Areas
Since the year ended September 30, 2013, all revenue and assets are in North America.
Note 11 - Subsequent Events
During the quarter ended September 30, 2014, it was announced that Ebates would be acquired by Rakuten, a Japanese company. The Plan of Merger was signed on September 24, 2014, pending various conditions, including regulatory approval. As of September 30, 2014, the Company concluded that the offer price should be the primary input into the fair value measurement of Ebates.
On October 9, 2014, Rakuten completed the acquisition and on October 29, 2014, the Company received the initial distribution. The gross proceeds distributed were approximately $17,720,000 of which the Company received approximately $15,145,000 in net proceeds and Windspeed received approximately $2,575,000 in Management Sharing pursuant to the management agreement. The remaining fair market value amount of approximately $1,911,000, before Management Sharing, is being held pursuant to the merger documents in an escrow until January 2016. The actual amount to be distributed from the escrow may be impacted by provisions of, and claims asserted against, the escrow.
If the Ebates transaction had closed before the quarter ended September 30, 2014, the CDR liability would have been increased by approximately $5,300,000 on an after tax basis.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(1) Evaluation of Disclosure Controls and Procedures
Randolph I. Thornton, the principal executive officer and principal financial 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, Mr. Thornton has concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its president and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(2) Management Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Company’s sole officer and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the sole director of the Company; and
· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-An Integrated Framework.
Based on management’s assessment, management believes that, as of September 30, 2014, the Company’s internal control over financial reporting is effective.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Pursuant to the Securities and Exchange Commission’s exemption of smaller reporting companies, the Company is permitted to provide only management’s report in the annual report.
(3) Change in Internal Controls
There has not been any change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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. Mr. Thornton’s appointment as the Company’s Initial Disbursing Agent also became effective at this time. 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 wind down of operations pursuant to the Plan. 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 and NASDAQ.
Sole Officer and Director
Randolph I. Thornton (Age 69 - 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. Prior to his retirement in January 2004, he was a Managing Director and Senior Credit Officer of Citigroup, Inc. where he managed hundreds of corporate reorganization
matters in a thirty-four year career. He currently serves as non-executive Chairman and a member of the board of both Core-Mark International, Inc. and National Energy & Gas Transmission, Inc. Additionally, on November 20, 2014, he became a member of the board of directors of Ivanhoe Energy, Inc.
Audit Committee Financial Expert
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 407(d)(5)(ii) of Regulation S-K, but is not considered independent as that term is defined in Item 407 of Regulation S-K. 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 director and executive officer, 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 director and officer, we believe all persons subject to Section 16(a) reporting filed the required reports on time in fiscal year 2014.
Code of Ethics
On June 30, 2014, the Company updated and made effective its revised Code of Conduct Applicable to the Chief Executive Officer and Authorized Representatives. The Company updated and made effective its revised Code of Conduct for its employees in June 2014. Copies are available on the Company’s website at www.comdisco.com. Any waivers from the Codes of Conduct, or amendments thereto, by the Company will be disclosed through its website and in future filings. To date, the Company has granted no such waivers.
ITEM 11. EXECUTIVE COMPENSATION
Effective August 12, 2004, Randolph I. Thornton was appointed Chief Executive Officer, President and Secretary of the Company as well as Initial Disbursing Agent and sole director. Mr. Thornton is the sole executive officer and is referred to in this section as the “named executive officer.”
Compensation Discussion and Analysis
All payments to Mr. Thornton are made pursuant to the Disbursing Agent Agreement which specifies an hourly rate for the services provided by the Disbursing Agent and is set at $400 per hour. This approach is consistent with the Company’s overall objective of efficiently selling, collecting and otherwise reducing to money the remaining assets of the Company and its subsidiaries. The rate does not vary and does not depend on corporate performance.
Summary Compensation Table
|
Name and Principal Position |
|
Fiscal |
|
Salary($) |
|
All Other |
|
Total ($) |
|
|
Randolph I. Thornton |
|
2014 |
|
-- |
|
104,900 |
|
104,900 |
|
|
Chief Executive Officer, |
|
2013 |
|
-- |
|
101,400 |
|
101,400 |
|
|
President and Secretary |
|
2012 |
|
-- |
|
87,700 |
|
87,700 |
|
(1) Amount reflects total payments earned by Mr. Thornton pursuant to the Disbursing Agent Agreement at the rate of $400 per hour.
Plan-Based Awards, Equity Awards and Options
The Company does not have any plan-based awards, equity awards or stock options available to the named executive officer. Accordingly, no plan-based awards, equity awards or stock options were outstanding or aggregated by
the named executive officer during fiscal year 2014. The Company does not plan to issue any plan-based awards, equity awards or stock options to the named executive officer in the future.
Pension Benefits, Deferred Compensation and Potential Payments
The Company did not provide any pension benefits or deferred compensation to the named executive officer during fiscal year 2014. The Company does not plan to provide any pension benefits or deferred compensation to the named executive officer in the future. The Disbursing Agent Agreement does not provide for any potential payments other than the hourly rate described above.
Compensation of Directors
The Disbursing Agent’s compensation for the fiscal year ended September 30, 2014 is set forth in the compensation table above. Mr. Thornton did not receive additional compensation for serving as a director in fiscal year 2014.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
Common Stock Owned by Certain Beneficial Owners
The following table reflects the number of shares of Common Stock beneficially owned on December 3, 2014 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
|
Name and Address |
|
Shares |
|
Percent of |
|
Berkshire Hathaway, Inc. 1440 Kiewit Plaza Omaha, Nebraska 68131 |
(1) |
1,538,377 |
|
38.18% |
|
Davidson Kempner Partners 885 Third Avenue New York, New York 10022 |
(2) |
946,785 |
|
23.50% |
|
Haphazard Investors LLC 141 Heather Lane Mill Neck, NY 11765 |
(3) |
378,576 |
|
9.4% |
|
Firefly Value Partners, LP 601 West 26th Street, Suite 1520 New York, NY 10001 |
(4) |
216,587 |
|
5.4% |
(1) The information with respect to 1,538,377 shares of Common Stock beneficially owned by Berkshire Hathaway, Inc. is based on its Form 13F for the period ended December 31, 2011, filed with the SEC on February 14, 2012.
(2) The information with respect to 946,785 shares of Common Stock beneficially owned by Davidson Kempner Partners is based on a Report on its amended Schedule 13G, dated and filed with the SEC on February 14, 2006.
(3) The information with respect to 378,576 shares of Common Stock beneficially owned by Haphazard Investors LLC is based on a Report on its amended Schedule 13G, dated and filed with the SEC on December 23, 2013.
(4) The information with respect to 216,587 shares of Common Stock beneficially owned by Firefly Value Partners, LP is based on a Report on its amended Schedule 13G, dated and filed with the SEC on February 14, 2014.
Common Stock Owned by Directors and Executive Officers
Mr. Thornton (who is the Company’s sole officer and director) does not beneficially own any shares of the Company’s common stock in the Company as of December 3, 2014. 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 employees or its sole officer.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
During the Company’s prior fiscal year, the Company did not participate in any transaction in which any related person had or would have a direct or indirect material interest. No such transaction is currently proposed. Section 3.4 of the Disbursing Agent Agreement prohibits the Disbursing Agent from directly or indirectly selling or otherwise transferring any of the assets of the Company to a related person.
Randolph I. Thornton, sole director of the Company, is not considered independent as that term is defined in Item 407 of Regulation S-K.
ITEM 14. PRINCIPAL ACCOUNTANT 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. The Audit Committee met four times in fiscal year 2014. Mr. Thornton, as sole director and Initial Disbursing Agent, performed the functions of the Audit Committee for the fiscal year 2014. 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 traded on NASDAQ.
One of 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, 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, 2014, and has reviewed and discussed with the independent auditors the matters required to be discussed by applicable auditing standards adopted by the Public Company Accounting Oversight Board (“PCAOB”). 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, required by PCAOB Auditing Standard No. 16, “Communication With Audit Committees,” as amended. 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.
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, 2014, for filing with the SEC.
This report is submitted on behalf of the Audit Committee:
Randolph I. Thornton
Principal Accountant Audit Fees and Services Fees
The following table describes fees for professional audit services rendered by KPMG LLP (“KPMG”), the Company’s principal accountant, for the audit of the Company’s annual financial statements for the fiscal years ended September 30, 2014 and September 30, 2013 and fees billed for other services rendered by KPMG during those periods.
|
Type of Fee |
|
2014 |
|
2013 |
|
|
Audit Fees (1) |
|
$184,000 |
|
$175,310 |
|
|
|
|
|
|
|
|
|
Total |
|
$184,000 |
|
$175,310 |
|
(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.
Procedures For Audit Committee Pre-Approval of Audit
Pursuant to its charter, the Audit Committee of the Company’s Board of Directors is responsible for reviewing and approving, in advance, any audit engagement or relationship between the Company and its independent auditors. Mr. Thornton, as sole director and Initial Disbursing Agent, has assumed that responsibility. KPMG’s engagement to conduct the audit of the Company was approved by the Audit Committee.
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 |
|
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 Amended 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 amended as of August 12, 2004 (Incorporated by reference to Exhibit 3.1 filed with the Company’s Annual Report on Form 10-K dated September 30, 2004, as filed with the Commission on December 14, 2004, File No. 0-49968). |
|
3.2 |
|
By-Laws of Registrant, adopted as of August 9, 2002 (Incorporated by reference to Exhibit 3.2 filed with the Company’s Annual Report on Form 10-K dated September 30, 2002, as filed with the Commission on January 14, 2003, File No. 0-49968). |
|
4.1 |
|
Rights Agent Agreement between the 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 on 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 on 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 on Form 10-K dated September 30, 2002, as filed with the Commission on January 14, 2003, File No. 0-49968). |
|
10.4 |
|
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) |
|
10.5 |
|
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) |
|
10.6 |
|
Limited Liability Company Agreement of Comdisco Ventures Fund B, LLC, dated as of |
|
Exhibit |
|
Description of Exhibit |
|
|
|
|
|
|
|
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) |
|
10.7* |
|
Disbursing Agent Agreement. (Incorporated by reference to Exhibit 10.9 filed with the Company’s Annual Report on Form 10-K dated December 14, 2004 as filed with the Commission on December 14, 2004, File No. 0-49968.) |
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10.8 |
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Second Amended and Restated Limited Liability Company Agreement of Comdisco Ventures Fund A, LLC, dated as of April 11, 2006, by and among Comdisco, Inc., Windspeed Acquisition Fund GP, LLC and Comdisco Ventures Fund B, LLC (Incorporated by reference to Exhibit 10.1 filed with the Company’s Report on Form 8-K dated April 11, 2006, as filed with the Commission on April 11, 2006, File No. 0-49968) |
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10.9 |
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Amended and Restated Limited Liability Company Agreement of Comdisco Ventures Fund B, LLC, dated as of April 11, 2006, by and among Comdisco, Inc., Windspeed Acquisition Fund GP, LLC and Windspeed Acquisition Fund, L.P. (Incorporated by reference to Exhibit 10.2 filed with the Company’s Report on Form 8-K dated April 11, 2006, as filed with the Commission on April 11, 2006, File No. 0-49968) |
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10.10 |
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Third Amended and Restated Limited Liability Company Agreement of Comdisco Ventures Fund A, LLC, dated as of March 16, 2009, by and among Comdisco, Inc., Windspeed Acquisition Fund GP, LLC and Comdisco Ventures Fund B, LLC (Incorporated by reference to Exhibit 10.1 filed with the Company’s Report on Form 8-K dated March 19, 2009, as filed with the Commission on March 19, 2009, File No. 0-49968) |
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10.11 |
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Fourth Amended and Restated Limited Liability Company Agreement of Comdisco Ventures Fund A, LLC, dated as of April 5, 2011, by and among Comdisco, Inc., Windspeed Acquisition Fund GP, LLC, Comdisco Ventures Fund B, LLC and Windspeed Acquisition Fund, L.P. (Incorporated by reference to Exhibit 10.1 filed with the Company’s Report on Form 8-K dated April 5, 2011, as filed with the Commission on April 7, 2011, File No. 0-49968) |
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10.12 |
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Fifth Amended and Restated Limited Liability Company Agreement of Comdisco Ventures Fund A, LLC, effective February 21, 2013, by and among Comdisco, Inc., Windspeed Acquisition Fund GP, LLC, Comdisco Ventures Fund B, LLC and Windspeed Acquisition Fund, L.P. (Incorporated by reference to Exhibit 10.1 filed with the Company’s Report on Form 10-Q dated February 14, 2013, as filed with the Commission on February 14, 2013, File No. 0-49968) |
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21.1 |
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Subsidiaries of the registrant (Filed herewith). |
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31.1 |
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Certification of Chief Executive 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). |
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32.1 |
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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). |
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101.INS** |
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Instance document (Filed herewith). |
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101.SCH** |
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Schema document (Filed herewith). |
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101.CAL** |
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Calculation linkbase document (Filed herewith). |
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101.LAB** |
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Labels linkbase document (Filed herewith). |
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101.PRE** |
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Presentation linkbase document (Filed herewith). |
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101.DEF** |
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Definition linkbase document (Filed herewith). |
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* Management contract or compensatory plan or arrangement.
** Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
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.
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Dated: December 11, 2014 |
By: |
/s/ Randolph I. Thornton |
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Name: |
Randolph I. Thornton |
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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 11, 2014.
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SIGNATURE |
DATE | ||
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| ||
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By: |
/s/ Randolph I. Thornton |
December 11, 2014 | |
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Name: |
Randolph I. Thornton |
| |
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Title: |
Chief Executive Officer and President (Principal Financial and Accounting Officer) Sole Director |
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Exhibit 31.1
CERTIFICATION
I, Randolph I. Thornton, certify that:
1. I have reviewed this annual report on Form 10-K of Comdisco Holding Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. As the sole officer of the registrant, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. As the sole officer of the registrant, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Dated: December 11, 2014 | ||
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| ||
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By: |
/s/ Randolph I. Thornton |
|
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Name: |
Randolph I. Thornton |
|
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Title: |
Chief Executive Officer and President |
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|
|
Principal Executive Officer and Principal Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Form 10-K of Comdisco Holding Company, Inc. (the “Company”) for the period ending September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Dated: December 11, 2014 |
By: /s/ |
Randolph I. Thornton | |
|
|
Name: |
Randolph I. Thornton | |
|
|
Title: |
Chief Executive Officer and President | |
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|
| ||
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Dated: December 11, 2014 |
By: /s/ |
Randolph I. Thornton | |
|
|
Name: |
Randolph I. Thornton | |
|
|
Title: |
Chief Executive Officer and President (Principal Financial and Accounting Officer) |
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This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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Subsequent Events (Details) (USD $)
|
12 Months Ended | 0 Months Ended | 1 Months Ended | 0 Months Ended | ||
|---|---|---|---|---|---|---|
|
Sep. 30, 2014
|
Sep. 30, 2013
|
Oct. 29, 2014
Subsequent Event
Ebates
|
Oct. 09, 2014
Subsequent Event
Ebates
|
Jan. 31, 2016
Subsequent Event
Ebates
Future
|
Oct. 29, 2014
Subsequent Event
Ebates
Windspeed
Management agreement With Windspeed
|
|
| Subsequent Events | ||||||
| Proceeds from sale of equity investments prior to management sharing | $ 17,720,000 | $ 1,911,000 | ||||
| Equity investment proceeds net of management sharing | 1,590,000 | 112,000 | 15,145,000 | |||
| Payment for Management Sharing | 17,000 | 2,575,000 | ||||
| Increase in CDR liability if Ebates transaction had closed before the quarter ended September 30, 2014 | $ 5,300,000 | |||||