-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CBpHON8UI363XZR/0XVskFCWeD6//5QsPVLkO56+BgySa+kucsQz8fv5h2MnqV0P hAHq/zR0wQCRVtQeznP58Q== 0001341004-07-003146.txt : 20071214 0001341004-07-003146.hdr.sgml : 20071214 20071214171334 ACCESSION NUMBER: 0001341004-07-003146 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070930 FILED AS OF DATE: 20071214 DATE AS OF CHANGE: 20071214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMDISCO HOLDING CO INC CENTRAL INDEX KEY: 0001179484 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER RENTAL & LEASING [7377] IRS NUMBER: 542066534 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-49968 FILM NUMBER: 071308086 BUSINESS ADDRESS: STREET 1: 5600 N RIVER RD, SUITE 800 CITY: ROSEMONT STATE: IL ZIP: 60018 BUSINESS PHONE: 8476983000 MAIL ADDRESS: STREET 1: 5600 NORTH RIVER RD, SUITE 800 CITY: ROSEMONT STATE: IL ZIP: 60018 10-K 1 form10k2007final.txt SEPTEMBER 30, 2007 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, 2007 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission file number 000-499-68 COMDISCO HOLDING COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 54-2066534 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 5600 North River Road Rosemont, Illinois 60018 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (847) 698-3000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered --------------------- ----------------------------------------- N/A N/A Securities registered pursuant to Section 12(g) of the Act: Title of Each Class - ------------------------------------------------------------------------------- Common Stock, par value $0.01 per share Contingent Distribution Rights Indicate by check mark 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Indicated by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer and large accelerated file" in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [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 $13 million based on its closing price per share of $12.30 on March 31, 2007. On March 31, 2007, there were 4,029,369 shares of common stock outstanding. No officer or director beneficially held shares of the Company's Common Stock as of December 1, 2007. 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 by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes |X| No |_| Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Title of Each Class Number of Shares Outstanding at December 1, 2007 - -------------------- ------------------------------------------------ Common Stock, par value 4,029,066 $0.01 per share DOCUMENTS INCORPORATED BY REFERENCE: NONE ================================================================================ COMDISCO HOLDING COMPANY, INC. 2007 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PAGE PART I ITEM 1. BUSINESS..............................................................3 ITEM 1A. RISK FACTORS..........................................................9 ITEM 1B. UNRESOLVED STAFF COMMENTS............................................11 ITEM 2. PROPERTIES...........................................................11 ITEM 3. LEGAL PROCEEDINGS....................................................12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES....................13 ITEM 6. SELECTED FINANCIAL DATA..............................................14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................16 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................27 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................................47 ITEM 9A. CONTROLS AND PROCEDURES..............................................47 ITEM 9B. OTHER INFORMATION ...................................................48 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE............48 ITEM 11. EXECUTIVE COMPENSATION...............................................49 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS .....................................50 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.........................................................51 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES...............................51 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES .............................53 SIGNATURES....................................................................55 2007 ANNUAL REPORT ON FORM 10-K PART I Disclosure Regarding Forward-Looking Statements This Annual Report on Form 10-K contains, and our periodic filings with the Securities and Exchange Commission (the "SEC") and written and oral statements made by the Company's 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. Important factors that could cause actual results to differ materially from those suggested by these written or oral forward-looking statements, and could adversely affect our future financial performance, include the risk factors discussed in Item 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 and the Compensation Committee Charter, as well as contact information for the Audit Committee and an employee hotline number. Information contained on the Company's website is not intended to be part of this Annual Report on Form 10-K. ITEM 1. BUSINESS THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE COMPANY'S FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE "PLAN") AND RESTRICTIONS CONTAINED IN THE COMPANY'S CERTIFICATE OF INCORPORATION, THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS IN THE MANNER AND PRIORITIES SET FORTH IN THE PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS AND NO FURTHER DISTRIBUTIONS WILL BE MADE. THE COMPANY FILED ON AUGUST 12, 2004 A CERTIFICATE OF DISSOLUTION WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE TO FORMALLY EXTINGUISH COMDISCO HOLDING COMPANY, INC.'S CORPORATE EXISTENCE WITH THE STATE OF DELAWARE EXCEPT FOR THE PURPOSE OF COMPLETING THE WIND DOWN CONTEMPLATED BY THE PLAN. 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.), the former Comdisco Global Holding Company, Inc., the former Comdisco Domestic Holding Company, Inc. and its predecessors, except in each case where the context indicates otherwise. References to "Comdisco, Inc." mean Comdisco, Inc. and its subsidiaries, other than the Prism entities, prior to the Company's emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise. 3 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 of incorporation, 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, the Company has, pursuant to the Plan, focused on the monetization of its remaining assets. The Company expects total revenue and net cash provided by operating activities to continue to decrease until the wind down of its operations is completed; however, the Company cannot accurately predict the net amount to be realized, or the timing of such realization, from the continued monetization of its assets. Therefore, comparisons of quarter-to-quarter or year-to-year results of operations should not be relied upon as an indication of the Company's future performance. The Company has reduced, and expects to continue to reduce, the size and complexity of its organizational and systems infrastructure concurrently with the monetization of its assets. As of December 1, 2007, the Company had a total of six employees (three full-time and three part-time), a decrease of approximately 99 percent from approximately 600 employees upon emergence from bankruptcy proceedings on August 12, 2002. Approximately fifteen former employees continue to periodically assist the Company on a consulting basis. During 2008, the Company intends to seek permission to begin the process of abandoning and destroying certain of its and Prism's stored paper and electronic records. 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. Prior to the bankruptcy, Comdisco, Inc. provided technology services worldwide to help its customers maximize technology functionality, predictability and availability, while freeing them from the complexity of managing their technology. Comdisco, Inc. leased information technology equipment to a variety of industries and more specialized equipment to key vertical industries, including semiconductor manufacturing and electronic assembly, healthcare, telecommunications, pharmaceutical, biotechnology and manufacturing. Through its Ventures group (as defined below), Comdisco, Inc. provided equipment leasing and other financing and services to venture capital-backed companies. Implementation of the Plan resulted in the reorganization of Comdisco, Inc. and its domestic and foreign subsidiaries into Comdisco Holding and three new primary subsidiaries: (i) Comdisco Global Holding Company, Inc. (dissolved on September 27, 2004), which managed the sale and run-off of the Company's reorganized European IT Leasing operations and assets; (ii) Comdisco, Inc., which managed the sale and run-off of the Company's reorganized US Leasing operations and assets; and (iii) Comdisco Ventures, Inc. (renamed Comdisco Ventures Fund A LLC), which managed the sale and run-off of the Company's venture financing operations and assets ("Ventures"). The Company's Corporate Asset Management, or CAM, group was responsible for the sale and run-off of certain corporate and leasing assets that remained after certain pre-emergence bankruptcy asset sales. The CAM group's operations were managed through Comdisco, Inc. Implementation of the Plan also resulted in the reorganization of Prism Communication Services, Inc. and its subsidiaries ("Prism"); as a consequence, Prism became a direct wholly-owned subsidiary of Comdisco Domestic Holding Company, Inc., which was itself a direct wholly-owned subsidiary of Comdisco, Inc. The assets of the Prism entities have been liquidated and the proceeds realized from such liquidation were distributed to creditors of Prism in accordance with the Plan. The Prism estates were closed by order of the Bankruptcy court on February 26, 2004. 4 General Terms of the Plan of Reorganization As more fully described in the Plan, the Company's business purpose is limited to the orderly sale or run-off of all of its remaining assets. Pursuant to the Plan and restrictions contained in its certificate of incorporation, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose. In very general terms, the Plan contemplated six different classes of claims against the Comdisco, Inc. bankruptcy estate: o "Class C-1" Claims. This class was comprised of secured claims against Comdisco, Inc. o "Class C-2" Claims. This class was comprised of certain priority claims against Comdisco, Inc., but did not include Administrative Claims or Priority Tax Claims (as each were defined in the Plan) although such claims had the same priority as Class C-2 Claims. o "Class C-3" Claims. This class was comprised of general unsecured convenience claims against Comdisco, Inc. that were $15,000 or less and claims in excess of $15,000, but whose holder elected to reduce his or her claims to $15,000 in the aggregate and have the reduced single claim reclassified as a general unsecured convenience claim. o "Class C-4" Claims. The largest class of claims against the Comdisco, Inc. bankruptcy estate, this class was comprised of general unsecured claims other than Class C-3 Claims and includes holders of Comdisco, Inc. notes, bonds, credit lines and other trade debt. o "Class C-5A" Claims. This class 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. o "Class C-5B" Claims. This class was comprised of subordinated claims against Comdisco, Inc. The Plan provided that holders of Allowed Class C-1 Claims, Allowed Class C-2 Claims, Administrative Claims and Priority Tax Claims were unimpaired. Class C-1 Claims primarily related to discounted lease rentals where the Company generated cash proceeds by selling the future rental payments for specific domestic lease contracts on a non-recourse basis. On August 12, 2002, pursuant to the Plan, the Company, along with its direct wholly-owned subsidiary, Comdisco, Inc., co-issued variable rate senior secured notes due 2004 (the "Senior Notes") in the principal amount of $400 million and 11 percent subordinated secured notes due 2005 (the "Subordinated Notes") in the principal amount of $650 million. Further, on September 30, 2002, the Company issued 4.2 million shares of common stock, $0.01 par value per share (the "Common Stock"). On September 30, 2002, the Company made an initial distribution to holders of Allowed Class C-4 Claims based upon an aggregate allowed amount of approximately $3.628 billion. Allowed Claims for Class C-4 creditors received a pro rata distribution comprised of cash, Senior Notes, Subordinated Notes, new Common Stock of the Company and rights to the Trust Assets (as defined below). In addition, Allowed Claims for Class C-5A received contingent distribution rights ("CDRs") that entitle holders to share at increasing percentages in the proceeds realized from the monetization of the Company's assets based upon the present value of distributions made to the general unsecured creditors in the bankruptcy estate of Comdisco, Inc. If and when any Class C-5B claims are allowed, holders of such Allowed Claims also will receive CDRs. Pursuant to a Bankruptcy court order dated March 17, 2003, approximately 8.1 million CDRs, and any distributions relating to these rights, are being held by the Company's transfer agent pending resolution of the Class C-5A and the Class C-5B claims. Approximately, 808,000 (Class C-5A) CDR's have been assigned to the litigation trust in conjunction with settlements reached between the Litigation Trustee and three of the 67 remaining senior managers (the "SIP Participants") who participated in Comdisco, Inc.'s Shared Investment Plan ("SIP"). No Class C-5B claims have been allowed to date. See Recent Developments "Withdrawal of Certain SIP Claims" for additional information. Additional information on the CDRs can be found in a Registration Statement on Form 8-A filed by the Company on August 12, 2002 with the SEC and in the section entitled "Contingent Distribution Rights" in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Approximately $1.347 billion of outstanding claims as of the initial distribution were Disputed Claims. Pursuant to the Plan, the Company established a reserve for Disputed Claims in the amount of $450 million (the "Disputed Claims Reserve"), which was funded based upon a Bankruptcy court order granting authority to Comdisco, Inc. to estimate certain claims. The Disputed Claims Reserve was established to fund a claim once the claim is deemed an Allowed Claim so long as funds are available in the Disputed Claims Reserve. The process of resolving the Disputed Claims is ongoing. If a Disputed Claim is not settled consensually, it will ultimately be heard and determined by the Bankruptcy court. The Company cannot predict with accuracy when the claims resolution process will be completed or what the total amount of Allowed Claims will be 5 upon completion. Payments and distributions from the Disputed Claims Reserve have been made as appropriate to the holder of any Disputed Claim that has become an Allowed Claim, on the next Quarterly Distribution Date (as defined in the Plan) after the date the Disputed Claim becomes an Allowed Claim. Such distributions are based upon the cumulative distributions that would have been made to the holder of such a claim under the Plan if the Disputed Claim had been allowed on the Effective Date (as defined by the Plan) and are not limited by the Disputed Claim amounts previously reserved with respect to such Disputed Claim to the extent that additional amounts are available in the Disputed Claims Reserve. On each Quarterly Distribution Date, the Disputed Claims Reserve is reduced by an amount equal to the amount reserved with respect to each Disputed Claims that has been resolved during the period. As of December 1, 2007, approximately $1 million is left in the Disputed Claim Reserve. SIP Bankruptcy Claims: In February 1998, pursuant to the SIP, the SIP Participants took out full recourse, personal loans to purchase approximately six million shares of Comdisco, Inc.'s common stock. In connection therewith, Comdisco, Inc. executed a guaranty dated February 2, 1998 (the "Guaranty") providing a guaranty of the loans in the event of default by the SIP Participants to the lenders under the SIP (the "SIP Lenders"). On November 29, 2001, the SIP Lenders filed a master proof of claim in the Comdisco, Inc. bankruptcy in the amount of $133 million ("SIP Guaranty Claim"). The Company and the SIP Lenders subsequently reached a settlement that was approved by the Bankruptcy court on December 9, 2004. 48 of the remaining 51 Disputed Claims relate to Proofs of Claims filed by certain SIP Participants in the bankruptcy estate of Comdisco, Inc. The Company has objected to such Proofs of Claim. The Company is responsible for its legal fees and expenses related to these matters. Based on an order entered on May 16, 2007 by the Bankruptcy court subordinating the claims of the SIP Participants, any resolution would be handled through the disputed interests reserve which is a specific pool of CDR's allocated for the allowed claims in the C-5B Class. Not all of the SIP Participants filed Proofs of Claim in the Bankruptcy. On September 20, 2007, the attorneys representing 43 of the SIP Claimants (the "Certain SIP Claimants") filed a motion to withdraw their respective SIP Claims in the bankruptcy without prejudice. After negotiations among the parties, on November 8, 2007, the Bankruptcy court entered an order that allowed for the withdrawal of their SIP Claims without prejudice subject to specific conditions. Such conditions include a bar to refiling, amending or reinstating the SIP Claims, or any other claims related to the SIP and executing a covenant not to sue. The Company is awaiting the executed covenants not to sue which are anticipated to be received by year end. SIP Relief: Pursuant to the Plan, the Company was authorized to provide various levels of relief (the "SIP Relief") to the SIP Participants on account of any subrogation claims which the Company may have against the SIP Participants. On November 27, 2002, the Bankruptcy court approved the offering by the Company of SIP Relief of 70 percent to seventy-two terminated employees and 80 percent to twenty-three go-forward employees who remained with the Company following its emergence from bankruptcy, provided that such employees executed waivers and releases in favor of the Company, made irrevocable and unconditional agreements to pay their unreleased SIP Subrogation Claims (as defined in the Plan) and fulfilled certain other conditions. The SIP Relief offer generally expired on December 31, 2002 and five of seventy-two terminated employees and twenty-one of twenty-three go-forward employees have executed a Waiver, Release And Settlement Agreement to pay and provided additional documentation in support of the fulfillment of certain other conditions. Once the Company settled with the SIP Lenders, the Company notified the twenty-six participants who accepted relief of their amount due. The Company collected from twenty-three of the twenty-six who previously agreed to settle with the Company. Two of the three remaining SIP participant's notes were transferred to the Litigation Trust because they did not fulfill their obligation under the terms of the settlement agreement. The Company is still pursuing the collection of one European participant who accepted the enhanced SIP relief. The European participant's SIP obligation was assumed by his employer. Comdisco is in discussions with the employer regarding the method of payment. Litigation Trust: The Plan provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants who participated in the SIP be placed in a trust for the benefit of creditors (the "Trust Assets"). Under the Plan the litigation trust is solely responsible for collection of amounts due on the promissory notes of the SIP Participants who did not take advantage of the SIP Relief. The litigation trustee has commenced both state and federal lawsuits to collect on such SIP Participants' promissory notes. Five of the 67 SIP Participants filed personal bankruptcy. Also, two SIP Participants who previously settled with the Company were transferred to the litigation trust because of their inability to fulfill the terms of their respective agreements and the litigation trustee has commenced lawsuits against them. One of the two SIP Participants settled with the litigation trust. Any proceeds collected by the litigation trust, net of expenses, will be considered Trust Assets and distributed in accordance with the Plan and litigation trust agreement. The litigation trust files periodic reports with the Bankruptcy court. The Company has a limited indemnification obligation to the litigation trustee under the litigation trust agreement. SIP Joinder Action: As reported at Item 3. LEGAL PROCEEDINGS, a lawsuit was filed by certain SIP Participants against certain directors of the former Comdisco, Inc. The lawsuit was filed by 38 of the SIP participants as a joinder action. The matter has been referred to the former Comdisco, Inc.'s directors and officers insurance policy carriers. The Company may owe a duty of indemnification to some of the defendant directors. See Recent Developments "SIP Joinder Action" for additional information. 6 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, the following occurred: The officers of the Company resigned their respective officer positions; the Board of Directors appointed Randolph I. Thornton, as Chief Executive Officer, President and Secretary of Comdisco Holding Company, Inc.; the Company filed a Certificate of Amendment to its Certificate of Incorporation (the "Certificate") with the State of Delaware amending the Certificate to provide for a Board of Directors consisting of one member; four of the five individuals serving on the Board of Directors resigned their position as Directors (Randolph I. Thornton did not resign and continues as the sole director); and Randolph I. Thornton's 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 June 30, 2007, Randolph I. Thornton appointed the following employees, Robert E. T. Lackey, Deborah L. Dompke, Susan Long, Mary Ann Bolster, Michael J. Salerno and Kathy J. Smith, 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. Approximately fifteen former employees continue to periodically assist the Company on a consulting basis. Filing of Certificate of Dissolution Pursuant to and in furtherance of the Order, the Company filed on August 12, 2004 a Certificate of Dissolution with the Secretary of State of the State of Delaware to formally extinguish Comdisco Holding Company, Inc.'s corporate existence with the State of Delaware except for the purpose of completing the wind down contemplated by the Plan. Sales of Assets See Note 4 of Notes to Consolidated Financial Statements for information on the sale of assets by the Company during the four-year period ended September 30, 2007. See section Narrative Description of Business (below), for a discussion of the Company's principal business segments after emergence. As of September 30, 2006, the only remaining property owned by the Company was an 11,500 square foot day care facility adjacent to its former headquarters, was sold in March 2007 for approximately $500,000. Discontinued Operations The following operations for the reasons stated have been treated as discontinued operations and the amounts in the financial statements and related notes for all historical periods were restated to report such operations as discontinued operations: o As a result of certain asset sales, the Company's Australian, New Zealand, Austrian, French and Swiss (collectively, "International Leasing"), German ("German Leasing Subsidiary") and US Leasing operations have been accounted for as discontinued operations. However, resolutions of tax matters relating to prebankruptcy are considered continuing operations. o In addition, the assets of the discontinued Prism entities have been liquidated and the proceeds realized from such liquidation were distributed to creditors of Prism in accordance with the Plan and the estates are closed. 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 of incorporation, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose. Since emerging from bankruptcy, the Company has not engaged in any new leasing or financing activities, except for previously existing customer commitments and to restructure existing equipment leases and loans to maximize the value of the Company's assets. 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. 7 Former Business Segments As a result of the substantial wind down of operations and the consolidation of the management structure, the Company determined that business segment results were substantially irrelevant and, accordingly, the Company consolidated its business units and ceased to report independent business segment results beginning with its quarterly report on Form 10-Q for the quarter ended June 30, 2004. The timing of the consolidation coincided with the consolidation of the management structure, and was due to the substantial wind down of operations in each of the business segments. The following is a narrative description of the US Leasing (which, for financial reporting purposes, was classified as discontinued operations effective September 30, 2004), European IT Leasing, Ventures and CAM business segments, for which the Company reported results from emergence until consolidation in the third quarter of fiscal 2004. US Leasing Prior to the bankruptcy, the Company provided a variety of leasing products and related services to its customers. These services included acquisition management, expenditure tracking, asset tracking and reselling of third party services. The Company bought, sold, leased and remarketed technology equipment made by most of the leading manufacturers. Specifically, the Company leased PCs, point of sale, server, enterprise, network, telecommunications and other equipment. The Company's strategy for the distributed systems market was to provide financing, asset management, reconditioning services and software tools to its customers. The Company offered a variety of leasing products to the marketplace and often the leases were enhanced with service products for its customers. The Company differentiated itself from competitors through a number of service offerings tied into the assets on lease. For example, the Company's asset management services included procurement, tracking, help desk and break/fix services for the assets on lease. See Note 4 of Notes to Consolidated Financial Statements for information regarding the sale of US Leasing. European IT Leasing The European IT Leasing segment's operations, assets and business strategy were substantially similar to those of the US Leasing segment. However, the European IT Leasing segment offered a different variety of leasing products to the marketplace than those of US Leasing. For example, the technology refresh option product, offered primarily in Europe, involved long-term funding commitments and allowed customers to reduce technology risk while maintaining a predictable spending pattern. See Note 4 of Notes to Consolidated Financial Statements for information regarding the sale of certain European IT Leasing assets and subsidiaries. Ventures Prior to bankruptcy, the Ventures group structured financial relationships specific to a company's needs and provided services specific to the company's stage of development. The Ventures group served as a strategic financing source to compliment venture capital and commercial banking relationships and provided a means for leveraging the equity capital invested. The Ventures group invested in various stages of companies from seed stage to pre-IPO companies and offered financing products that included leasing, subordinated debt, secured debt (e.g., lines of credit, working capital), bridge loans, expansion loans, acquisition financing, landlord guarantees, and convertible debt and equity. The Ventures group provided financing to companies providing Internet services, and in industries that included software and computer services, communications and networking, hardware, semiconductors, biotechnology and medical devices, and others. See Note 7 of Notes to Consolidated Financial Statements for information on the ongoing liquidation of the sole remaining assets of Comdisco Ventures Fund A, LLC consisting of equity investments under management by Windspeed Acquisition Fund GP, LLC. The Corporate Asset Management ("CAM") Group CAM group was established as a separate business unit pursuant to the Plan, operating as a division of Comdisco, Inc. CAM group's business purpose was limited to the orderly sale or run-off of all of the remaining assets not otherwise being liquidated by other business segments. See Note 4 of Notes to Consolidated Financial Statements for information regarding the sales of assets formerly managed by CAM. 8 Customers and Competition Due to the Company's limited business purpose, the Company does not expect to be dependent upon a single customer or group of customers to generate future investment or revenue opportunities. 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, 2007, the Company had six U.S. employees (three full-time and three part-time). No employees are represented by a labor union. The Company anticipates further reductions in its workforce as the wind down continues. Approximately fifteen former employees continue to 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 businesses. The Company's businesses are not seasonal; however, quarter-to-quarter results from operations can vary significantly. Because of the nature of the Company's business, the Company is not required to carry significant amounts of inventory either for delivery requirements or to assure continuous availability of goods from suppliers. Financial Information about Geographic Areas See Note 13 of Notes to Consolidated Financial Statements, which is incorporated in this section by reference, for information about foreign and domestic operations. ITEM 1A. RISK FACTORS The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones the Company confronts. Additional risks and uncertainties not presently known to it or that it currently deems immaterial also may impair the Company's business operations and the implementation of the Plan. If any of the following risks actually occurs, the Company's business, financial condition, operating results and the implementation of the Plan could be materially adversely affected. Uncertainties Relating to the Bankruptcy Plan and the Limited Business Plan The Company has incurred and will continue to incur significant costs associated with the administration of the estate of Comdisco, Inc. and in completing the wind down of operations. The amount of these costs, which are being expensed as incurred, are expected to have a significant adverse affect on the results of operations and on the Company's cash position. The Company's post-bankruptcy business plan is limited to an orderly run-off or sale of its remaining assets. Pursuant to the Plan and restrictions contained in its certificate of incorporation, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business plan. This business plan is based on numerous assumptions including the anticipated future performance of the Company in running off its operations, the time frame for the run-off, general business and economic conditions, and other matters, many of which are beyond the control of the Company and some of which may not materialize. As a result, the Company's ability to effectively complete this business plan is inherently uncertain. In addition, unanticipated events and circumstances occurring subsequent to the date of this Annual Report may affect the actual financial results of the Company's operations. Uncertainties Relating to the Wind down of Operations The Company has reduced the size and complexity of its organizational and systems infrastructure concurrently with the monetization of its assets. The success of the Company's continuing wind down of operations and implementation of an Order entered by the Bankruptcy court authorizing the organizational systems infrastructure wind down is dependent on numerous factors, including the timing and amount of cash received from the monetization of its assets, the resolution of the remaining Disputed Claims, the ability of the Disbursing Agent to fulfill the positions of the previous Board of Directors and executive officers and the ability of the Company to effectively consolidate its management structure and maintain its operations with limited personnel. 9 The Company's Liquidity is Dependent on a Number of Factors The Company's liquidity generally depends on cash on hand and cash provided by operating activities. The Company's cash flow from operating activities is dependent on a number of variables, including, but not limited to, market conditions for the sale of equity securities, global economic and political conditions, control of operating costs and expenses and the ability of the Company to dispose or otherwise convert to cash its remaining assets. Impact of Recoveries by Litigation Trust on the Company's Obligation To Make Payments in Respect of Contingent Distribution Rights Because the present value of distributions to certain former creditors of Comdisco, Inc. 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 stakeholders 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 released from the Disputed Claims Reserve or litigation trust. The Company expects to maintain cash reserves sufficient to make any required payments on the CDRs. While the impact of either the allowance or disallowance of Disputed Claims has been significantly decreased as a result of the August 15, 2007 distribution of funds from the Disputed Claim Reserve (See Recent Developments "Distribution of Funds from the Disputed Claims Reserve"), the amount of recoveries and distributions by the litigation trust could have an impact on the Company's liability to CDR holders. Market Conditions Have Made It Difficult and May Continue to Make it Difficult for the Company To Timely Realize the Value of its Warrant and Equity Securities (collectively, "Equity Securities") 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 Securities. 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 Securities. Exacerbating these conditions is the fact that some of the Equity Securities held by the Company are subject to lockup agreements restricting its ability to sell until several months after an initial public offering. Without an available liquidity event, the Company is unable to sell its Equity Securities. As a result, the Company, or Windspeed on behalf of the Company, may not be able to generate gains or receive proceeds from the sale of Equity Securities and the Company's business and financial results may suffer. Additionally, liquidation preferences may continue to be offered by companies in the Company's portfolio to parties willing to lend to such companies. The liquidation preferences have had, and could continue to have, an adverse impact on the value of the Company's Equity Securities. For those Equity Securities without a public trading market, the realizable value of the Company's Equity Securities could prove to be lower than the carrying value currently reflected in the financial statements. The estimated fair market value of the Company's equity securities was determined in consultation with Windspeed based on a variety of factors, including, but not limited to, quoted trading levels for publicly-traded securities, last round valuation for privately held securities, industry and company multiples, industry acceptance in the market place, liquidity discounts due to lock ups, estimated revenue, and customer, product and market share growth by the respective companies in the portfolio. Substantially all of these factors are outside the control of the Company and are subject to significant volatility. There can be no assurance that the Company will be able to realize the estimated fair market value. Furthermore, the current estimated fair market value is subject to significant concentration risk, as of September 30, 2007, 90 percent of the estimated fair market value of the entire portfolio is concentrated in 10 individual companies and approximately 52 percent of the estimated amount is in three individual companies. Uncertainties in Collections and Recoveries The Company believes that its collections on leases in default 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 the ability of the Company to recover and liquidate any of its collateral, any offsets or counterclaims that may be asserted against the Company and the ability of a lessee or debtor or its respective estate to pay the claim or any portion thereof. Some of these factors are beyond the control of the Company. 10 The Payment of Dividends and Distributions All funds generated from the Company's remaining asset portfolios are required by the Plan to be used to satisfy liabilities of the Company and, to the extent funds are available, to pay dividends on the Company's Common Stock and to make distributions with respect to the Contingent Distribution Rights in the manner and priorities set forth in the Plan. Because of the composition and nature of its asset portfolios, the Company expects to generate funds from the sale or run-off of its asset portfolios at a decreasing rate over time. The Company has material restrictions on its ability, and does not expect or intend, to make any significant investments in new or additional assets. Accordingly, the amount of funds potentially available to pay dividends on the Company's Common Stock and to make distributions with respect to the Contingent Distribution Rights is limited to the funds (in excess of the Company's liabilities) that may be generated from the remaining asset portfolios. The Company Faces a Number of Uncertainties Around the Settlement of Domestic and International Tax Positions. The Company continues to wind down its domestic and international operations. Prior to a subsidiary being dissolved, the Company may have to obtain tax clearances at the state level domestically and on an international level in the country in which the subsidiary was incorporated. The Company has estimated the amounts for such tax settlements; however, actual settlements could differ from such estimates and will be reflected as adjustments in future financial statements when probable and estimable. In conjunction with the wind down of its operations, the Company has outsourced the domestic and international tax functions to a third party service provider. Limited Public Market for Common Stock There is currently a limited public market for the Company's Common Stock. Holders of the Company's Common Stock may, therefore, have difficulty selling their Common Stock, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any shares of Common Stock which may be purchased may be sold without incurring a loss. Any such market price of the Common Stock may not necessarily bear any relationship to the Company's book value, assets, past operating results, financial condition or any other established criteria of value, and may not be indicative of the market price for the Common Stock in the future. Further, the market price of the Common Stock may be volatile depending on a number of factors, including the status of the Company's business performance, its limited business purpose, industry dynamics, news announcements or changes in general economic conditions. Limited Public Market for Contingent Distribution Rights There is currently a limited public market for the Company's Contingent Distribution Rights. Holders of the Company's Contingent Distribution Rights may, therefore, have difficulty selling their Contingent Distribution Rights, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any Contingent Distribution Rights which may be purchased may be sold without incurring a loss. Any such market price of the Contingent Distribution Rights may not necessarily bear any relationship to the Company's book value, assets, past operating results, financial condition or any other established criteria of value, and may not be indicative of the market price for the Contingent Distribution Rights in the future. Further, the market price of the Contingent Distribution Rights may be volatile depending on a number of factors, including the status of the Company's business performance, industry dynamics, news announcements or changes in general economic conditions. Impact of Interest Rates and Foreign Exchanges Rates Increases in interest rates would negatively impact the value of certain of the Company's assets and a strengthening of the US dollar would negatively impact the value of the Company's net foreign assets. Impact of Reconsideration and/or Allowance of Newly Filed Claims, Late Filed Claims or Previously Disallowed Claims The reconsideration and/or allowance by the Bankruptcy court of newly filed claims, late filed claims, or previously disallowed claims, in full or in part, may negatively impact future distributions. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2. PROPERTIES The Company no longer owns any property. The last such property, an 11,500 square foot day care facility adjacent to its former headquarters, was sold in March 2007 for approximately $500,000. Leased Properties 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. 11 ITEM 3. LEGAL PROCEEDINGS Bankruptcy Proceeding The Company continues to appear before the Bankruptcy court from time to time for the purposes of: clarification and administration of Plan matters and the administration of the Disputed Claims Reserve; the claims resolution process; and the wind down of the operations of the Company. SIP Joinder Action On January 27, 2006, certain of the SIP claimants filed a joint action in the Circuit Court of Cook County, Illinois, County Department, Law Division, Case Number 2006L001006 and captioned Bryant Collins, et al v. Nicholas Pontikes, et al., against certain directors of the former Comdisco, Inc. The defendants filed a Motion to Dismiss the suit on December 5, 2006 and the parties have fully briefed the motion. A hearing on the motion on November 30, 2007 was continued by the court until December 21, 2007. The matter has been referred to the former Comdisco, Inc.'s directors and officers insurance policy carriers. On November 8, 2007, the Company received a reservation of rights letter (dated October 16, 2007) from the carriers asserting that the carriers were reserving the right to deny coverage based on certain allegations in the complaint and due to the fact that a former officer of Comdisco was a named plaintiff. On December 4, 2007, the Company responded to the letter challenging the reservation of rights by the carriers. However, as of the date of this filing, the Company and the carriers have not resolved the dispute. The Company may owe a duty of indemnification to some of the defendant directors. 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 judge denied the motion of the SIP Claimants. On August 18, 2006, the SIP Claimants appealed the Bankruptcy judge's denial of their motion. On January 30, 2007, the District Court judge affirmed the denial of the Motion. The SIP Claimants have 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 have briefed the appeal and oral arguments were held before the Appellate Court on November 26, 2007. A ruling is anticipated by March 31, 2008. Distribution of Funds from the Disputed Claims Reserve On June 25, 2007, the Company filed a motion with the Bankruptcy court to permit the distribution of approximately $35 million from the Disputed Claims Reserve. On July 18, 2007, the SIP Claimants objected to the motion. The parties fully briefed the matter and argued the motion on August 1, 2007. On that date, the Bankruptcy court entered an order approving the Company's motion. The distribution of the funds was made on August 15, 2007. Withdrawal of Certain SIP Claims On September 20, 2007, the attorneys representing 43 of the SIP Claimants (the "Certain SIP Claimants") filed a motion to withdraw their respective SIP Claims in the bankruptcy without prejudice. After negotiations among the parties, on November 8, 2007, the Bankruptcy court entered an order that allowed for the withdrawal of their SIP Claims without prejudice subject to specific conditions. Such conditions include a bar to refiling, amending or reinstating the SIP Claims, or any other claims related to the SIP and executing a covenant not to sue. The Company is awaiting the executed covenants not to sue which are anticipated to be received by year end. Litigation Trust Summary Judgments Litigation trust is awaiting rulings on motions it filed in two cases in the US District Court For the Northern District of Illinois Eastern Divison, against James Duncan and Lyssa Kaye Paul seeking summary judgments on their respective SIP note obligations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the three months ended September 30, 2007. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES In connection with the September 30, 2002 initial distribution under the Plan, the Company issued approximately 3.74 million shares of Common Stock to holders of Allowed Claims in Class C-4. Also, approximately 460,000 additional shares of Common Stock were deposited in the Disputed Claims Reserve for future distribution pending the outcome of Disputed Claims (approximately 1,600 shares remain in the Disputed Claims Reserve as of December 1, 2007). The Company's Common Stock currently trades on the Over-the-Counter Bulletin Board system under the symbol "CDCO.OB". In addition, the Contingent Distribution Rights currently trade on the Over-the-Counter Bulletin Board system under the symbol "CDCOR.OB". Over-the-Counter Bulletin Board quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The Plan authorizes, but does not require, the issuance of additional shares of the Company's Common Stock to make distributions to holders of CDRs. The Company has chosen to distribute cash to holders of CDRs in lieu of shares of Common Stock (see discussion following for distributions made to holders of CDRs). More information on distributions to holders of CDRs can be found in a Registration Statement on Form 8-A filed by the Company on August 12, 2002 with the SEC and in the section Contingent Distribution Rights in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Common Stock As of December 1, 2007, there were 249 shareholders of record of the Company's Common Stock. The following table sets forth the dividend adjusted high and low sales prices for the Common Stock of Comdisco Holding Company, Inc. and cash dividends paid during fiscal 2007 and 2006. 2007 2006 ----------------------------- ----------------------------- QUARTER High Low Dividends High Low Dividends - ------- ------ ------ --------- ------- ------ --------- First $12.14 $10.78 $ 6.39 $ 14.57 $12.64 $ -- Second 12.75 11.31 -- 16.61 14.02 5.00 Third 14.00 12.30 -- 17.24 14.03 -- Fourth 14.56 12.00 -- 18.90 15.27 -- - ------------------------------------------------------------------------------- The Company's transfer agent and registrar is Mellon Investor Services, L.L.C., 480 Washington Boulevard Jersey City, New Jersey, 07310. The shareholder relations telephone number is (800) 851-9677 and the internet address is http://www.melloninvestor.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 were as follows (in millions): Aggregate Payment --------- May 2003 .................. $ 308 June 2003 ................. 60 September 2003 ............ 200 December 2003 ............. 50 May 2004 .................. 49 March 2005 ................ 53 January 2006............... 20 December 2006.............. 25 --------- $ 765 ========= Contingent Distribution Rights For financial reporting purposes, the Company records CDRs as a liability and as an operating expense although the CDRs trade over-the-counter. The Plan entitles holders of CDRs to share at increasing percentages in the proceeds realized from the Company's assets based upon the present value of distributions made to the general unsecured creditors in the bankruptcy estate of Comdisco, Inc. As of December 1, 2007, there were 2,131 holders of record of the Company's CDRs, 152,272,188 outstanding CDRs and the percentage of sharing was 37%. 13 The Company maintains sufficient cash reserves for operations and the potential CDR liability associated with the eventual allowance or disallowance of the remaining Disputed Claims. The outcome and the timing of the resolution of the remaining Disputed Claims and the recoveries and distributions from the litigation trust will impact both the timing and the amount of future dividends and CDR payments. Aggregate total distributions with respect to the CDRs were as follows (in millions): Aggregate Per Payment CDR --------- ------- May 2003 .................. $ 3 $.01793 June 2003 ................. 2 .01621 September 2003 ............ 13 .08780 December 2003 ............. 8 .05140 March 2004 ................ 3 .01870 May 2004 .................. 12 .07810 December 2004 ............. 15 .09820 March 2005 ................ 22 .14560 January 2006 .............. 6 .03650 March 2006................. 4 .02470 December 2006.............. 7 .04500 September 2007............. 23 .15000 --------- ------- Total CDR payments $ 118 $.77014 ========= ======= See Critical Accounting Policies and Contingent Distribution Rights in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for information on the CDR liability and the impact of the resolution of Disputed Claims on the operations of the Company. Recent Sales of Unregistered Securities None. Repurchases of Common Stock There were no repurchases of Common Stock in the fourth quarter of fiscal 2007. The Company does not regularly repurchase shares nor does the Company have a share repurchase plan. ITEM 6. SELECTED FINANCIAL DATA Upon its emergence from bankruptcy on August 12, 2002, the Company adopted fresh-start reporting in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") effective as of July 31, 2002 for financial reporting purposes. SOP 90-7 requires the Company to allocate the reorganization value of the reorganized Company to its assets, and to state liabilities existing at the Plan confirmation date at present values of amounts to be paid determined at appropriate current interest rates. As a result, the adjustments made in accordance with SOP 90-7 materially impacted the financial statements of the Company. For financial reporting purposes only, the "effective date" of the emergence from bankruptcy was selected as the close of business on July 31, 2002. Accordingly, the effects of the adjustments on the reported amounts of individual assets and liabilities resulting from the adoption of fresh-start reporting were reflected in the Company's financial statements as of July 31, 2002. As a result of the reorganization and the recording of the restructuring transaction and the implementation of fresh-start reporting pursuant to SOP 90-7, the Company's results of operations after July 31, 2002 are not comparable to results reported in prior periods for Comdisco, Inc. Under fresh-start reporting, the final consolidated balance sheet as of July 31, 2002 became the opening consolidated balance sheet of the reorganized Company. Since fresh-start reporting has been reflected in the accompanying consolidated balance sheets as of September 30, 2007, 2006, 2005, 2004 and 2003, the consolidated balance sheets as of those dates are not comparable in certain material respects to any such balance sheet for any period prior to July 31, 2002. In addition, Comdisco, Inc.'s results of operations prior to July 31, 2002 are not comparable to the Company's results of operations after its emergence from bankruptcy due to the adoption of fresh-start reporting. The selected consolidated financial data of the Company for the years ended September 30, 2007, 2006, 2005, 2004 and 2003 has been derived from the Company's audited consolidated financial statements. This information should be read in conjunction with the consolidated financial statements and the related notes thereto appearing elsewhere in this Report and in conjunction with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. 14
Years ended September 30, ---------------------------------------------------------------------- (in millions except per share data) 2007 2006 2005 2004 2003 ---------- ----------- ---------- ----------- ----------- Consolidated summary of earnings (losses) Revenue Leasing .................................... $ -- $ -- $ 1 $ 17 $ 135 Sales ...................................... -- -- 3 43 91 Technology services ........................ -- -- -- 1 15 Gain on sale of equity & warrant securities. 6 20 17 10 2 Sale of Properties ......................... -- -- -- 5 20 Agere lease participation payment .......... -- -- 2 25 -- Foreign exchange gain ...................... -- 3 -- -- 22 SIP recovery ............................... -- -- 6 -- -- Other ...................................... 5 5 8 7 18 ---------- ----------- ---------- ----------- ----------- Total revenue ......................... 11 28 37 108 303 Costs and expenses Leasing .................................... -- -- -- 8 109 Sales ...................................... -- -- 3 34 80 Technology services ........................ -- -- -- 1 8 Selling, general and administrative ........ 7 9 16 31 77 Contingent distribution rights ............. 1 7 13 49 52 Write-down of equity securities ............ -- -- 1 2 25 Bad debt recoveries......................... (4) (3) (6) (12) (92) Interest ................................... -- -- -- 1 25 ---------- ----------- ---------- ----------- ----------- Total costs and expenses .............. 4 13 27 114 284 Earnings (loss) from continuing operations.... 7 15 10 (6) 19 Income tax benefit ........................... -- -- 16 42 1 ---------- ----------- ---------- ----------- ----------- Earnings from continuing operations........... 7 15 26 36 20 Earnings (loss) from discontinued operations, net of income tax ........................... -- -- 3 (13) 80 ---------- ----------- ---------- ----------- ----------- Net earnings to common stockholders......... $ 7 $ 15 $ 29 $ 23 $ 100 ========== =========== ========== =========== =========== Per common share data: Earnings from continuing operations-diluted .......................... $ 1.83 $ 3.57 $ 6.33 $ 8.61 $ 4.80 Earnings (loss) from discontinued operations-diluted .......................... (0.01) 0.05 0.73 (3.21) 19.11 ---------- ----------- ---------- ----------- ----------- Net earnings to common stockholders-diluted ...................... $ 1.82 $ 3.62 $ 7.06 $ 5.40 $ 23.91 ========== =========== ========== =========== =========== Cash dividends paid on common stock (per share) ...................................... $ 6.39 $ 5.00 $ 13.00 $ 23.50 $ 135.23 Average common shares (in thousands)-diluted.. 4,029 4,031 4,067 4,197 4,199 Financial position: Total assets (1) ............................. $ 64 $ 110 $ 125 $ 199 $ 373 Stockholders' equity ......................... 47 64 73 103 182 Other data: Total rents of new leases .................... $ -- $ -- $ -- $ -- $ 6 Future leasing contractual cash flows ........ -- -- -- 12 148 (1) Total cash at September 30, 2007 and 2006 was $53 million and $102 million, respectively.
15 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, 2007. This discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in the sections of this Annual Report on Form 10-K entitled "Disclosure Regarding Forward-Looking Statements" and "Risk Factors Relating to the Company." - -------------------------------------------------------------------------------- THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE COMPANY'S PLAN AND RESTRICTIONS CONTAINED IN THE COMPANY'S CERTIFICATE OF INCORPORATION, THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS IN THE MANNER AND PRIORITIES SET FORTH IN THE PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS AND NO FURTHER DISTRIBUTIONS WILL BE MADE. THE COMPANY FILED ON AUGUST 12, 2004 A CERTIFICATE OF DISSOLUTION WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE TO FORMALLY EXTINGUISH COMDISCO HOLDING COMPANY, INC.'S CORPORATE EXISTENCE WITH THE STATE OF DELAWARE EXCEPT FOR THE PURPOSE OF COMPLETING THE WIND DOWN CONTEMPLATED BY THE PLAN. AS A RESULT OF THE REORGANIZATION AND THE IMPLEMENTATION OF FRESH-START REPORTING, AS FURTHER DESCRIBED HEREIN, THE COMPANY'S RESULTS OF OPERATIONS AFTER JULY 31, 2002 ARE NOT COMPARABLE TO RESULTS REPORTED IN PRIOR PERIODS FOR COMDISCO, INC. - -------------------------------------------------------------------------------- General The Company's operations slowed considerably during fiscal 2007 compared to prior years. The Company's periodic billing continued to decline and assets at September 30, 2007 consist primarily of cash, tax receivables, and equity securities. The timing on collections on the tax receivables and equity securities is uncertain. In certain cases, tax receivables will not be processed until a tax audit is conducted. The equity securities portfolio require liquidity events before these assets can be converted to cash. The Company expects that proceeds from the disposition of equity securities will provide future cash flows in excess of the current carrying value of these assets. In addition, the Company has a number of leases in default whereby collection efforts are underway to support a recovery on the account. Receipts, if any, will be in excess of the carrying value of these assets because the leases were previously written-off. Equity Securities: The Company holds common stock, preferred stock and warrants (collectively "Equity Investments"). The Company carries its common stock and preferred stock investments in public companies at fair market value and in private companies at the lower of cost or estimated fair market value in its financial statements. Any warrants held by the Company in private companies are carried at zero value . Any write-downs in the carrying value of such Equity Investments in private companies are considered permanent for financial reporting purposes. See Note 7 of Notes to Consolidated Financial Statements and "Critical Accounting Policies". It is management's expectation that the amount ultimately realized on Equity Investments will, in the aggregate, exceed the amount reflected in the financial statements as of September 30, 2007. The Company estimates that the realizable value, net of fees and sharing with Windspeed (see discussion below), at September 30, 2007 for its common stock, preferred stock and warrants in private companies is approximately $9.1 million. The Company's estimate of fair value was made in consultation with Windspeed Acquisition Fund GP, LLC ("Windspeed"), a professional management group which the Company engaged to manage the Company's Equity Investments on an ongoing basis in February 2004. As reported on Form 8-K filed by the Company on April 11, 2006, the management agreement was extended for an additional two years, to February 20, 2009. 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, particularly the risk factor 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 Warrant and Equity Securities." Collections and recoveries: The Company has potential collections and recoveries on accounts previously written off. A substantial number of such recoveries involve prior lessees or debtors now in bankruptcy and in whose respective case the Company has filed and is pursuing a claim to maximize its recovery. 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." The Company has significantly reduced the number of its domestic and international subsidiaries from ninety-four to seven as of December 1, 2007. To the extent that such subsidiaries were Reorganized Debtors, the Company has closed the related estates. 16 Change 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, the following occurred: The officers of the Company resigned their respective officer positions; the Board of Directors appointed Randolph I. Thornton, as Chief Executive Officer, President and Secretary of Comdisco Holding Company, Inc.; the Company filed a Certificate of Amendment to its Certificate of Incorporation (the "Certificate") with the State of Delaware amending the Certificate to provide for a Board of Directors consisting of one member; four of the five individuals serving on the Board of Directors resigned their position as Directors (Randolph I. Thornton did not resign and continues as the sole director); and Randolph I. Thornton's 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 June 30, 2007, Randolph I. Thornton appointed the following employees, Robert E. T. Lackey, Deborah L. Dompke, Susan Long, Mary Ann Bolster, Michael J. Salerno and Kathy J. Smith, 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. Approximately fifteen former employees continue to periodically assist the Company on a consulting basis. Consolidation of Business Units The Company consolidated its business units and ceased to report independent business segment results beginning with its quarterly report on Form 10-Q for the quarter ended June 30, 2004. The timing of the consolidation coincided with the consolidation of the management structure, and was due to the substantial wind down of operations in each of the business segments. Disputed Claims relating to the Comdisco, Inc. Bankruptcy estate Since emerging from bankruptcy proceedings on August 12, 2002, the Company has focused on the resolution of Disputed Claims. Upon emergence, and pursuant to the Plan, the Company established a Disputed Claims Reserve for Disputed Claims estimated in the amount of $450 million. See Item 1. Business--"General Development of Business" for a discussion of Disputed Claims, the Disputed Claims Reserve and the resolution process. Since emergence, the number of Disputed Claims has decreased from approximately 619 Disputed Claims to approximately 51 Disputed Claims and the estimated Disputed Claims amount has decreased from $450 million to approximately $1 million at December 1, 2007. Please see Recent Developments for a discussion of the withdrawal of claims by 43 SIP Claimants. The reduction in the Disputed Claims Reserve from $37 million, as of December 1, 2006, to approximately $1 million is from the settlement of one Disputed Claim related to severance and compensation issues and the release of funds from the Disputed Claims Reserve approved by the Bankruptcy court. Funds were disbursed from the Disputed Claim Reserve on August 15, 2007. See Recent Developments for more information. Trust Assets and Litigation Trust In accordance with the Plan, the Company collected from 23 of the 26 SIP Participants who agreed to settle with the Company. Two of the three remaining SIP Participants were transferred to the litigation trust because they did not fulfill their obligation under the terms of the agreement. The Company is still pursuing the collection of one European participant who accepted the SIP Relief. The European participant's SIP obligation was assumed by his employer. The Company is in discussions with the employer regarding the method of payment. The litigation trust is solely responsible for collecting from, and has filed suit against, all SIP Participants who did not accept relief. Any judgments against the SIP Participants, net of fees, 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. Contingent distribution rights (CDR) holders will earn an amount resulting from any distributions from the net proceeds of Trust Assets to Class C-4 holders. The litigation trust is solely responsible for distributing the net proceeds from Trust Assets, while the Company is solely responsible for making CDR payments. 17 Corporate History On July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries voluntarily filed for bankruptcy. Prior to the bankruptcy, Comdisco, Inc. provided technology services worldwide to help its customers maximize technology functionality, predictability and availability, while freeing them from the complexity of managing their technology. Comdisco, Inc. leased information technology equipment to a variety of industries and more specialized equipment to key vertical industries, including semiconductor manufacturing and electronic assembly, healthcare, telecommunications, pharmaceutical, biotechnology and manufacturing. Through its Ventures group, Comdisco, Inc. provided equipment leasing and other financing and services to venture capital-backed companies. Emergence from Bankruptcy Comdisco Holding Company, Inc., as the successor company to Comdisco, Inc., emerged from bankruptcy under a confirmed plan of reorganization that was effective on August 12, 2002. In accordance with the Plan and for SEC reporting purposes, Comdisco Holding became the successor to Comdisco, Inc. In addition, the Company's operations were reorganized into four reportable business groups: US Leasing; European IT Leasing; the Corporate Asset Management group ("CAM"); and Ventures. The Company ceased reporting them as four reportable business groups as of June 30, 2004. See Item 1, Business, above, for more details about the Company's business operations. Since the Company emerged from Chapter 11 bankruptcy proceedings on August 12, 2002, the Company's business activities have been limited to the orderly sale or run-off of all of its existing asset portfolios. Pursuant to the Plan and restrictions contained in its certificate of incorporation, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose. Since emerging from bankruptcy, the Company has not engaged in any new leasing or financing activities, except for previously existing customer commitments and to restructure existing equipment leases and loans to maximize the value of the Company's assets. All funds generated from the Company's remaining asset portfolios are required by the Plan to be used to satisfy liabilities of the Company and, to the extent funds are available, to pay dividends on the Company's Common Stock and to make distributions with respect to the CDRs in the manner and priorities set forth in the Plan. Dividends paid on Common Stock and payments to CDR holders were $25 million and $30 million, respectively, in the fiscal year ended September 30, 2007. Because of the composition and nature of its remaining assets, the Company expects to generate funds from the sale or collection of its remaining assets at a decreasing rate over time. The Company maintains sufficient cash reserves for the potential CDR liability associated with the eventual allowance or disallowance of the remaining Disputed Claims and recoveries and distributions by the litigation trust. The outcome and the timing of the resolution of the remaining Disputed Claims and recoveries and distributions by the litigation trust will impact both the timing and the amount of future dividends and CDR payments. See this Item 7 below for Critical Accounting Policies and Item 1A. Risk Factors for a discussion of the impact of Recoveries by Litigation Trust on the distributions. The Company has material restrictions on its ability, and does not expect, to make significant investments in new or additional assets. The Company continually evaluates opportunities for the orderly sale and 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, substantially or completely resolved the Disputed Claims in the bankruptcy estate of Comdisco, Inc. and made distributions of all available cash to holders of its Common Stock and CDRs in the manner and priorities set forth in the Plan. At that point, the Company will cease operations and no further distributions will be made. Critical Accounting Policies The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to use estimates and assumptions that affect reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities. These estimates are subject to known and unknown risks, uncertainties and other factors that could materially impact the amounts reported and disclosed in the consolidated financial statements. The SEC issued Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies" which recommends that companies provide additional disclosure and analysis of those accounting policies considered most critical. The Company believes the following to be among the most critical judgment areas in the application of its accounting policies: o CDRs and CDR Liability: The Plan entitles holders of Comdisco Holding's CDRs to share at increasing percentages in the proceeds realized from the Company's assets based upon the present value of distributions made to the general unsecured creditors pursuant to the bankruptcy estate of Comdisco, Inc. 18 Management has adopted a methodology for estimating the amount due to CDR holders following the provisions of Statement of Financial and Accounting Standards No. 5, Accounting For Contingencies ("SFAS No. 5"). Under SFAS No. 5, a liability must be booked that is probable and reasonably estimatable as of the balance sheet date. The amount due to CDR holders is based on the amount and timing of distributions made to former creditors of the Company's predecessor, Comdisco, Inc., and is impacted by both the value received from the orderly sale or run-off of Comdisco Holding's assets and the resolution of Disputed Claims still pending in the bankruptcy estate of Comdisco, Inc. While the amount does not reflect any potential recoveries and distributions by the litigation trustee to the general unsecured creditors (as such additional recoveries and distributions, if any, are neither probable nor reasonably estimable at this time), the Company is of the opinion that it retains sufficient cash to satisfy such liability. The Company is not able to definitively estimate either the ultimate value to be received for the remaining assets or the final resolution of the remaining Disputed Claims. Accordingly, the Company does not forecast these outcomes in calculating the liability. Instead, the liability calculation uses the Company's book equity value as the basis for remaining asset value, reduced for estimated future operating expenses. During the fiscal year ending September 30, 2007, the Company continued to forecast its operating expenses to allow for projected costs related to the ongoing SIP claim litigation and the projected duration of the ongoing liquidations of the Company's remaining assets. In addition, the liability for CDRs is calculated assuming Disputed Claims are allowed at the amount estimated for the Disputed Claim. Any estimates exceeding the Approved Claims would be considered disallowed for purposes of the CDR liability. The amounts due to CDR holders will be greater to the extent that Disputed Claims are disallowed. The disallowance of a Disputed Claim results in a distribution from the Disputed Claims Reserve to previously allowed creditors that is entirely in excess of the minimum percentage recovery threshold, above which recoveries to general unsecured creditors are shared with CDR holders. In contrast, the allowance of a Disputed Claim results in a distribution to a newly allowed creditor that is only partially in excess of the minimum percentage recovery threshold. Estimated Disputed Claims consisted of approximately $1 million as of December 1, 2007. The Disputed Claim Reserve consisted of approxi- mately $1 million in cash and approximately 1,600 shares of Common Stock. Approximately $35 million was disbursed from the Disputed Claims Reserve on August 15, 2007 as approved by the Bankruptcy court. Another Disputed Claim was allowed and disbursed on November 15, 2007 leaving approximately $1 million unresolved at the date of this filing. For purposes of the CDR liability, this approximately $1 million of estimated Disputed Claims has been considered allowed. If the $1 million is ultimately ruled as disallowed, the CDR liability would increase by approximately $600,000. o Equity Investments In Private Companies: Equity investments in private companies consist primarily of small investments in approximately 90 private companies. The Company carries its common stock and preferred stock investments in private companies at the lower of cost or estimated fair market value in the financial statements. Warrants in non-public companies are carried at zero value. The Company, in consultation with Windspeed, which provides ongoing management of the Equity Investment Portfolio, regularly estimates the value of investments in private companies and adjusts carrying values when market and customer specific events and circum- stances indicate that such assets 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 approximately $2.7 million at September 30, 2007. o Income Taxes: The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits of which future realization is not more likely than not. The Company formerly operated within multiple taxing jurisdictions and is subject to audit in these 19 jurisdictions. In management's opinion, adequate provisions for income taxes have been made for taxes estimated to be payable in all jurisdictions. The accrued tax liabilities resulting from tax expense recorded in previous periods have been evaluated by management in accordance with FASB No. 5, "Accounting for Contingencies." Accordingly, the ultimate amount refunded or paid may be more or less than the accrued tax receivables or liabilities recorded within the financial statements due to a number of factors including the uncertainties surrounding the wind-down of operations in all the Company's tax jurisdictions. 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, including the former Comdisco Global Holding Company, Inc. (dissolved September 27, 2004), Comdisco, Inc., the former Comdisco Domestic Holding Company, Inc. 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, other than the Prism entities, prior to the Company's emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise. Any differences in numbers may be driven by rounding up or down to millions in the accompanying financial statements and tables. The Company reclassified in the 2006 statement of earnings approximately $.2 million, or $0.05 per share basic and diluted, of income tax expense from discontinued operations to continuing operations. The reclassification had no impact on net earnings or net earnings per common share, basic and diluted. Recent Developments SIP Joinder Action On January 27, 2006, certain of the SIP claimants filed a joint action in the Circuit Court of Cook County, Illinois, County Department, Law Division, Case Number 2006L001006 and captioned Bryant Collins, et al v. Nicholas Pontikes, et al., against certain directors of the former Comdisco, Inc. The defendants filed a Motion to Dismiss the suit on December 5, 2006 and the parties have fully briefed the motion. A hearing on the motion scheduled on November 30, 2007 was continued by the court until December 21, 2007. The matter has been referred to the former Comdisco, Inc.'s directors and officers insurance policy carriers. On November 8, 2007, the Company received a reservation of rights letter (dated October 16, 2007) from the carriers asserting that the carriers were reserving the right to deny coverage based on certain allegations in the complaint and due to the fact that a former officer of Comdisco was a named plaintiff. On December 4, 2007, the Company responded to the letter challenging the reservation of rights by the carriers. However, as of the date of this filing, the Company and the carriers have not resolved the dispute. The Company may owe a duty of indemnification to some of the defendant directors. 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 judge denied the motion of the SIP Claimants. On August 18, 2006, the SIP Claimants appealed the Bankruptcy judge's denial of their motion. On January 30, 2007, the District Court judge affirmed the denial of the Motion. The SIP Claimants have 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 have briefed the appeal and oral arguments were held before the Appellate Court on November 26, 2007. A ruling is anticipated by March 31, 2008. 20 Distribution of Funds from the Disputed Claims Reserve On June 25, 2007, the Company filed a motion with the Bankruptcy court to permit the distribution of approximately $35 million from the Disputed Claims Reserve. On July 18, 2007, the SIP Claimants objected to the motion. The parties briefed the matter and argued the motion on August 1, 2007. On that date, the Bankruptcy court entered an order granting the Company's motion. The distribution of the funds was made on August 15, 2007. Approximately $1 million remains in the Disputed Claims Reserve. CDR Payment On December 12, 2006, the Company paid a cash payment of $.045 per right on the CDRs and on September 17, 2007, the Company paid a cash payment of $.15 per right on the CDRs. These distributions were based on a 100% present value recovery to general unsecured creditors as defined in the Plan. Withdrawal of Certain SIP Claims On September 20, 2007, the attorneys representing 43 of the SIP Claimants (the "Certain SIP Claimants") filed a motion to withdraw their respective SIP Claims in the bankruptcy without prejudice. After negotiations among the parties, on November 8, 2007, the Bankruptcy court entered an order that allowed for the withdrawal of their SIP Claims without prejudice subject to specific conditions. Such conditions include a bar to refiling, amending or reinstating the SIP Claims, or any other claims related to the SIP and executing a covenant not to sue. The Company is awaiting the executed covenants not to sue which are anticipated to be received by year end. Litigation Trust Summary Judgments Litigation trust is awaiting rulings on motions it filed in two cases in the US District Court For the Northern District of Illinois Eastern Divison, against James Duncan and Lyssa Kaye Paul seeking summary judgments on their respective SIP note obligations. 21 Results of Operations Certain reclassifications have been made to the prior period financial statements to conform to the presentation used in the September 30, 2007 consolidated financial statements. Fiscal Year Ended September 30, 2007 Compared to the Fiscal Year Ended September 30, 2006 and Fiscal Year Ended September 30, 2005 Revenue
Years ended September 30, Percent Percent ------------------------------ increase increase (in millions) (decrease) (decrease) 2007 2006 2005 2007/2006 2006/2005 Explanation of Change ------ ------ ------ --------- --------- ------------------------------- Leasing $ - $ - $ 1 -- (100%) (A) .................................................................................................................................... Sales - - 3 -- (100%) (A) .................................................................................................................................... Agere lease participation payment - - 2 -- (100%) Received in conjunction with GE Portfolio sales - (B) .................................................................................................................................... Gain on sale of equity and warrant securities 6 20 17 (70%) 18% Primary remaining revenue generating asset. - (C) .................................................................................................................................... Foreign exchange gain - 3 - (100%) N/A Foreign entity liquidation .................................................................................................................................... SIP recovery - - 6 -- (100%) SIP Relief recoveries - (D) .................................................................................................................................... Interest income 4 4 3 -- 33% Interest earned on cash balances .................................................................................................................................... Other: Receipt of pre-bankruptcy receivable set-off by claimant against amounts due - - 3 -- (100%) Settlement with SIP Lenders - (E) Other 1 1 2 -- (50%) Total other ------ ------ ------ -------- --------- 1 1 5 -- (80%) ------ ------ ------ -------- --------- .................................................................................................................................... Total revenue $ 11 $ 28 $ 37 (61%) (24%) ====== ====== ====== ======== ========= (A) The Company has been winding down operations since it emerged from bankruptcy in August 2002. The Company's charter does not allow any new investments. Accordingly, revenue generated from assets on lease, notes receivable and inventory have continued to decrease from the fiscal year ending September 30, 2005 through September 30, 2007. (B) Agere lease participation interest was recognized as revenue as cash was received. See Note 4 of Notes to Consolidated Financial Statements for information. (C) The decreases in revenue generated from the realized gains on equity holdings from September 30, 2006 through September 30, 2007 relate to a reduced portfolio and the timing of the liquidations of lock-up positions. (D) In February 1998, pursuant to the SIP, certain senior managers of Comdisco, Inc. took out full recourse, personal loans (the "SIP Loans") to purchase approximately six million shares of Comdisco, Inc.'s common stock. In connection therewith, Comdisco, Inc. executed a guaranty dated February 2, 1998 (the "Guaranty") providing a guaranty of the loans in the event of default by the SIP Participants to the lenders under the SIP (the "SIP Lenders"). On November 29, 2001, the SIP Lenders filed a master proof of claim in the Comdisco, Inc. bankruptcy in the amount of $133 million ("SIP Guaranty Claim"). On December 22, 2004, Comdisco settled the Guaranty on the SIP Loans. As part of the settlement, the individual notes signed by the SIP Participants were assigned to either the Company or the litigation trust. The notes assigned to the Company relate to individual SIP Participants who settled with the Company prior to the settlement with the SIP Lenders. During the three months ended December 31, 2004, Comdisco recorded approximately $5 million of SIP recovery revenue consisting of restricted cash formerly held by the Company and $1 million for receivables associated with the remaining note balances assigned to the Company. All remaining notes were assigned to the litigation trust and are considered "Trust Assets" as defined in the Plan. Please see Item 7 "Trust Assets and Litigation Trust" for more information. (E) In December 2004, in connection with the settlement of the SIP Guaranty Claim, the Company received from the Disputed Claims Reserve 129,788 shares of Common Stock which were placed in treasury stock. The shares were in partial payment of a pre- bankruptcy receivable of Comdisco, Inc. set-off by the claimant against amounts due the claimant under the SIP Guaranty. 22
Costs and Expenses
Percent Percent (in millions) Years ended September 30, increase increase ------------------------------ (decrease) (decrease) 2007 2006 2005 2007/2006 2006/2005 Explanation of Change ------ ------ ------ --------- ---------- ------------------------------------ Sales $ - $ - $ 3 -- (100%) Reduced assets on lease (A) .............................................................................................................. Selling, general and administrative 7 9 16 (22%) (43%) SG&A costs have decreased with the continued wind down of operations .............................................................................................................. Contingent distribution rights 1 7 13 (86%) (46%) See "Critical Accounting Policies" .............................................................................................................. Write down of privately held securities - - 1 -- (100%) Remaining basis $3 million (B) .............................................................................................................. Bad debt recoveries (4) (3) (6) 33% (50%) Collections & recoveries (C) .............................................................................................................. ------ ------ ------ --------- ---------- Total costs and expenses $ 4 $ 13 $ 27 (70%) (52%) ====== ====== ====== ========= ========== (A) The Company has been winding down operations since it emerged from bankruptcy in August 2002. The Company's charter does not allow any new investments. Accordingly, costs associated with assets on lease, and inventory have continued to decrease from the fiscal year ending September 30, 2005 to zero on September 30, 2007. (B) The decrease in costs associated with the write down of privately held securities from September 30, 2005 through September 30, 2007 is due to the limited remaining cost basis. Please see Item 7 "Critical Accounting Policies" for more information. (C) The increase in recoveries (net of bad debt provision) from September 30, 2006 through September 30, 2007 is due to higher collections in the remaining portfolio of potential recoveries. The majority of these accounts were distressed during the market downturn in 2000 and 2001. The remaining portfolio of potential recoveries is expected to decline in the future.
Selling, General and Administrative Expenses The following table summarizes selling, general and administrative expenses (in millions): Years ended -------------------------------- 2007 2006 2005 ------ ------ ------ Compensation and benefits ...... $ 2 $ 2 $ 5 Outside professional services .. 5 5 9 Other expenses ................. - 2 2 ------ ------ ------ $ 7 $ 9 $ 16 ====== ====== ====== Income Taxes See Note 6 of Notes to Consolidated Financial Statements, which is incorporated in this section by reference, for details about the Company's income tax provision. Income Taxes are subject to the risk factor "The Company Faces a Number of Uncertainties Around the Settlement of Domestic and International Tax Positions" discussed in Item 1A. Risk Factors. During the years ended September 30, 2007 and 2006, the Company recorded nominal US tax expense. During the year ended September 30, 2007, the Company recorded approximately $.5 million tax benefit for its Canadian operations. During the year ended September 30, 2005, the Company recorded a tax benefit of approximately $16 million, primarily as a result of significant progress in the settlement of certain income tax liabilities with certain global tax authorities, including authorities in Canada and Europe. Earnings from Continuing Operations Earnings from continuing operations were $7 million, or $1.83 per share- diluted, for the year ended September 30, 2007 compared to earnings from continuing operations of $15 million, or $3.57 per share-diluted, for the year ended September 30, 2006, and earnings from continuing operations of $26 million, or $6.33 per share-diluted, in the year ended September 30, 2005. Discontinued Operations Loss from discontinued operations were nominal, or $(0.01) per share-diluted, for the year ended September 30, 2007 compared to nominal earnings for the year ended September 30, 2006, or $0.05 per share-diluted and earnings from discontinued operations of $3 million, or $0.73 per share-diluted, for the year ended September 30, 2005. 23 Net Earnings Net earnings were $7 million, or $1.82 per share-diluted, for the year ended September 30, 2007 compared to net earnings of $15 million, or $3.62 per share-diluted, for the year ended September 30, 2006 and $29 million, or $7.06 per share-diluted, for the fiscal year ended September 30, 2005. 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. Table of Contractual Obligations The Company did not have any long term debt obligations, lease obligations, or any long-term liabilities reflected on the balance sheet as of September 30, 2007 or 2006. On October 24, 2007, the Company entered into a business center service agreement to lease furnished executive office space with various ending times and the amount is not considered material. Liquidity and Capital Resources The Company's liquidity generally depends on cash on hand and cash provided by operating activities. The Company's cash flow from operating activities is dependent on a number of variables, including, but not limited to, market conditions for the sale of equity securities, control of operating costs and expenses and the ability of the Company to dispose or otherwise convert to cash its remaining assets. All funds generated from the collection of remaining assets are required by the Plan to be used to satisfy liabilities of the Company and, to the extent funds are available, to pay dividends on the Company's Common Stock and to make distributions with respect to the CDRs in the manner and priorities set forth in the Plan. Because of the composition and nature of its remaining assets, the Company expects to generate funds from the sale or collection of its remaining assets at a decreasing rate over time. At September 30, 2007, the Company had unrestricted cash and cash equivalents of approximately $48 million, a decrease of approximately $49 million compared to September 30, 2006. Net cash used by operating activities for the year ended September 30, 2007 was $24 million. Net cash used in financing activities was $25 million for the year ended September 30, 2007. The Company's operating activities during the year ended September 30, 2007 were funded by cash on hand. During the year, approximately $6 million of proceeds were generated from the Windspeed managed warrant and equity portfolio, and approximately $9 million was received from interest income and bad debt recoveries. The Company's cash expenditures were primarily operating expenses of $7 million (principally professional services and compensation), $2 million tax payments related to the Company's Canadian and Dutch subsidiaries, dividends of $25 million, and payments of $30 million to CDR holders. The Company's current and future liquidity depends on cash on hand, interest income, recoveries, proceeds from the sale of Equity Securities and collection on remaining assets. The Company expects its cash on hand and cash flow from operations to be sufficient to fund operations and to meet its obligations (including its obligation to make payments to CDR holders) under the Plan for the foreseeable future. Net cash used by operating activities was $24 million in fiscal 2007 compared to net cash provided by operating activities of $14 million in fiscal 2006 and net cash used in operating activities of $4 million in fiscal 2005. 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 were as follows (in millions): Aggregate Payment --------- May 2003 .................. $ 308 June 2003 ................. 60 September 2003 ............ 200 December 2003 ............. 50 May 2004 .................. 49 March 2005 ................ 53 January 2006............... 20 December 2006.............. 25 --------- $ 765 ========= 24 Contingent Distribution Rights For financial reporting purposes, the Company records CDRs as a liability and as an operating expense although the CDRs trade over-the-counter. The Plan entitles holders of CDRs to share at increasing percentages in the proceeds realized from the Company's assets based upon the present value of distributions made to the general unsecured creditors in the bankruptcy estate of Comdisco, Inc. As of December 1, 2007, there were 2,131 holders of record of the Company's CDRs and there were 152,272,188 outstanding CDRs. Aggregate total distributions with respect to the CDRs were as follows (in millions except per share data): Aggregate Per Payment CDR --------- ------- May 2003 .................. $ 3 $.01793 June 2003 ................. 2 .01621 September 2003 ............ 13 .08780 December 2003 ............. 8 .05140 March 2004 ................ 3 .01870 May 2004 .................. 12 .07810 December 2004 ............. 15 .09820 March 2005 ................ 22 .14560 January 2006 .............. 6 .03650 March 2006 ................ 4 .02470 December 2006.............. 7 .04500 September 2007............. 23 .15000 --------- ------- Total CDR payments $ 118 $.77014 ========= ======= The Company maintains sufficient cash reserves for operations and the potential CDR liability associated with the eventual allowance or disallowance of the remaining Disputed Claims and recoveries and distribution by the litigation trust. The outcome and the timing of the resolution of the remaining Disputed Claims and recoveries and distribution by the litigation trust will impact both the timing and the amount of future dividends and CDR payments. Gross cash distributions related to general unsecured claims totaled $4.093 billion through December 1, 2007. The distributions funded claims allowed on the initial distribution date and the Disputed Claims Reserve where cash and Common Stock are being held pending the outcome of the remaining Disputed Claims. A portion of the original Disputed Claims have been allowed subsequent to the initial distribution date. As of December 1, 2007, there is approximately $1 million in cash and 1,600 shares in the Disputed Claims Reserve. Pursuant to the Rights Agent Agreement that established the terms of the CDRs distributed in accordance with the Plan, the Company agreed to provide information in its annual and quarterly reports regarding the Present Value of Distributions (as defined in the Rights Agent Agreement) made to certain former creditors of Comdisco, Inc. The Present Value of Distributions calculation requires the Company to discount the cash distributions to the initially allowed claimholders from the date the distribution is made to the date of the Company's emergence from bankruptcy on August 12, 2002. The gross distributions through December 1, 2007 of approximately $3.851 billion made to initially allowed claimholders equates to a present value of $3.649 billion on initially allowed claims of $3.628 billion. The associated percentage recovery has reached a present value recovery of 100% so future distributions will be shared between equity holders and CDR holders at the highest sharing percentage. Please refer to the Plan for more details on CDRs. See Item 7 "Critical Accounting Policies" for a further discussion of CDRs and the methodology for estimating the CDR liability and the potential impact of the resolution of Recoveries by Litigation Trust on liquidity. See Item 1A. Risk Factors--Impact of Recoveries by Litigation Trust on the Company's Obligation To Make Payments in Respect of Contingent Distribution Rights and Impact of Reconsideration and Potential Allowance of Newly Filed Claims or Late Filed Claims or Previously Disallowed Claims. 25 Recently Issued Professional Accounting Standards In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes," which clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective for the Company for the fiscal year beginning October 1, 2007. Please see Note 6 - Income Taxes for additional information. In September 2006, the FASB issued SFAS 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies to previous accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is evaluating the effect the adoption of SFAS 157 will have on its financial condition or results of operations for its fiscal year ending September 30, 2009. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk and Market Risk Presently, the Company invests its cash and cash equivalents in money market and other interest bearing accounts. Such cash and cash equivalents are essentially the only floating rate assets held by the Company. The remaining assets of the Company are fixed rate or non-interest bearing and are, therefore, subject to a decrease in value if market rates increase. Currently, the Company does not use derivative financial instruments to hedge this risk as the Company's business purpose is to monetize all remaining assets. At September 30, 2007, the Company held securities of four publicly-traded companies: Akamaii Technologies, Inc., comScore Inc., Veraz Networks, Inc. and ShoreTel, Inc. Each of these holdings are subject to lock-up periods, which restrict the Company's ability to sell in the near term but not longer than one year. The Company's practice is to sell its marketable equity securities within a reasonable period of time after the lock-up period ends. Additionally, as of the date of this filing, the Company owns warrants that are out of the money in approximately six public companies and holds minor positions in approximately two other public companies. Subsequent to September 30, 2007, the Company liquidated part of its holdings in one public company: Veraz Networks, Inc. The Company has equity investments in approximately 90 private companies consisting of small investments. Common stock and preferred stock investments are carried at the lower of cost or estimated fair market value in the Company's financial statements. Warrants in non-public companies are carried at zero value. These investments are subject to significant volatility and are difficult to value. Foreign Exchange Risk The Company's business purpose is limited to the orderly sale or run-off of all of its remaining assets, including assets denominated in foreign currencies. Accordingly, the Company is exposed to the risk of future currency exchange rate fluctuations, which is accounted for as an adjustment to stockholders' equity until realized. Therefore, changes from reporting period to reporting period in the exchange rates between various foreign currencies and the U.S. Dollar have had and will continue to have an impact on the accumulated other comprehensive loss component of stockholders' equity reported by the Company, and such effect may be material in any individual reporting period. In addition, exchange rate fluctuation will have an impact on the US dollar value realized from the repatriation of assets denominated in foreign currencies. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm .........................................28 Consolidated Statements of Earnings for the years ended September 30, 2007, 2006 and 2005 .........................................................29 Consolidated Balance Sheets as of September 30, 2007 and 2006 ..................................30 Consolidated Statements of Stockholders' Equity for the years ended September 30, 2007, 2006 and 2005 .........................................................31 Consolidated Statements of Cash Flows for the years ended September 30, 2007, 2006, and 2005 ..............................................................32 Notes to Consolidated Financial Statements.......................................................34
27 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of 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, 2007 and 2006, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended September 30, 2007. 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 the Company and subsidiaries as of September 30, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2007, in conformity with U.S. generally accepted accounting principles. KPMG LLP Chicago, Illinois December 14, 2007 28 COMDISCO HOLDING COMPANY, INC. CONSOLIDATED STATEMENTS OF EARNINGS (in millions except per share data)
Year ended September 30, ------------------------------------ 2007 2006 2005 --------- --------- --------- Revenue Leasing ....................................................... $ -- $ -- $ 1 Sales ......................................................... -- -- 3 Agere lease participation payment ............................. -- -- 2 Gain on sale of equity and warrant securities.................. 6 20 17 Foreign exchange gain ......................................... -- 3 -- SIP recovery .................................................. -- -- 6 Interest income ............................................... 4 4 3 Other ......................................................... 1 1 5 --------- --------- --------- Total revenue ......................................... 11 28 37 --------- --------- --------- Costs and expenses Sales ......................................................... -- -- 3 Selling, general and administrative ........................... 7 9 16 Contingent distribution rights ................................ 1 7 13 Write-down of privately held securities ....................... -- -- 1 Bad debt recoveries............................................ (4) (3) (6) --------- --------- --------- Total costs and expenses .............................. 4 13 27 --------- --------- --------- Earnings from continuing operations before income taxes benefit ............................................... 7 15 10 Income tax benefit............................................. -- -- 16 --------- --------- --------- Earnings from continuing operations ........................... 7 15 26 Earnings (loss) from discontinued operations, net of tax ...... -- -- 3 --------- --------- --------- Net earnings .................................................. $ 7 $ 15 $ 29 ========= ========= ========= Basic earnings per common share: Earnings from continuing operations ......................... $ 1.83 $ 3.57 $ 6.33 Earnings (loss) from discontinued operations ................ (0.01) 0.05 0.73 --------- --------- --------- Net earnings ................................................ $ 1.82 $ 3.62 $ 7.06 ========= ========= ========= Diluted earnings per common share: Earnings from continuing operations ......................... $ 1.83 $ 3.57 $ 6.33 Earnings (loss) from discontinued operations ................ (0.01) 0.05 0.73 --------- --------- --------- Net earnings ................................................ $ 1.82 $ 3.62 $ 7.06 ========= ========= =========
See accompanying notes to consolidated financial statements. 29 COMDISCO HOLDING COMPANY, INC. CONSOLIDATED BALANCE SHEETS (in millions except number of shares and per share data)
September 30, September 30, 2007 2006 ------------- ------------ ASSETS Cash and cash equivalents ............................... $ 48 $ 97 Cash - legally restricted ............................... 5 5 Equity securities ....................................... 8 7 Income tax receivable ................................... 3 1 ------------- ------------ $ 64 $ 110 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable ....................................... $ 1 $ 1 Income taxes: Current ............................................... -- 1 Other liabilities: Accrued compensation .................................. 1 1 Contingent distribution rights ........................ 15 43 ------------- ------------ Total other liabilities .............................. 16 44 ------------- ------------ 17 46 Stockholders' equity: Common stock $.01 par value. Authorized 10,000,000 shares; issued 4,200,000 shares. 4,029,066 shares outstanding at September 30, 2007; 4,029,369 shares outstanding at September 30, 2006 ... -- -- Additional paid-in capital ............................ 44 50 Accumulated other comprehensive income ................ 5 4 Retained earnings ..................................... 2 14 Common stock held in treasury, at cost; 170,934 shares at September 30, 2007 (170,631 at September 30, 2006)... (4) (4) ------------- ------------ Total stockholders' equity ........................ 47 64 ------------- ------------ $ 64 $ 110 ============= ============ See accompanying notes to consolidated financial statements.
30 COMDISCO HOLDING COMPANY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in millions)
Additional Accumulated Common stock Common paid-in other compre- Retained placed in stock capital hensive income earnings treasury Total - ------------------------------------------- ----------- ---------- --------------- --------- ---------- ---------- Balance at September 30, 2004 $ -- $ 109 $ 10 $ (16) $ -- $ 103 Net earnings 29 29 Translation adjustment 1 1 Change in unrealized gain (3) (3) ---------- Total comprehensive income 27 Common Stock placed in treasury (4) (4) Liquidating dividends (49) (4) (53) - ------------------------------------------- ----------- ---------- --------------- --------- ---------- ---------- Balance at September 30, 2005 -- 60 8 9 (4) 73 Net earnings 15 15 Translation adjustment (3) (3) Change in unrealized gain (1) (1) ---------- Total comprehensive income 11 Liquidating dividends (10) (10) (20) - ------------------------------------------- ----------- ---------- --------------- --------- ---------- ---------- Balance at September 30, 2006 -- 50 4 14 (4) 64 Net earnings 7 7 Translation adjustment -- -- Change in unrealized gain 1 1 ---------- Total comprehensive income 8 Liquidating dividends (6) (19) (25) - ------------------------------------------- ----------- ---------- --------------- --------- ---------- ---------- Balance at September 30, 2007 $ -- $ 44 $ 5 $ 2 $ (4) $ 47 =========== ========== =============== ========= ========== ========== See accompanying notes to consolidated financial statements.
31 COMDISCO HOLDING COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions)
Year ended September 30, ---------------------------------------- 2007 2006 2005 --------- --------- ------------ Cash flows from operating activities: Operating lease and other leasing receipts .......... $ -- $ -- $ 1 Sales of equipment ................................. -- -- 4 Note receivable receipts ............................ -- -- 2 Equity and warrant proceeds ......................... 6 20 19 SIP Recovery ........................................ -- -- 6 Interest, recoveries and other revenue .............. 9 9 5 Selling, general and administrative expenses ........ (7) (9) (15) Contingent distribution rights payments ............. (30) (10) (37) Income taxes ........................................ (2) 4 5 --------- --------- ------------ Net cash (used) provided by continuing operations . (24) 14 (10) Net cash provided by discontinued operations ...... -- -- 6 --------- --------- ------------ Net cash (used) provided by operating activities .. (24) 14 (4) --------- --------- ------------ Cash flows from financing activities: Common Stock purchased and placed in treasury........ -- -- (4) Dividends paid on Common Stock ...................... (25) (20) (53) Decrease in legally restricted cash ................. -- -- 5 Other ............................................... -- -- 2 --------- --------- ------------ Net cash (used) in financing activities ........... (25) (20) (50) --------- --------- ------------ Net decrease in cash and cash equivalents .............. (49) (6) (54) Cash and cash equivalents at beginning of period ....... 97 103 157 --------- --------- ------------ Cash and cash equivalents at end of period ............. $ 48 $ 97 $ 103 ========= ========= ============
See accompanying notes to consolidated financial statements. 32 COMDISCO HOLDING COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions)
Year ended September 30, ------------------------------------- 2007 2006 2005 --------- --------- --------- Reconciliation of net earnings to net cash provided by operating activities: Net earnings ................................................... $ 7 $ 15 $ 29 Adjustments to reconcile net earnings to net cash provided by operating activities Cost of sales .............................................. -- -- 4 Income taxes ............................................... (2) 4 (11) Selling, general, and administrative expenses .............. -- -- (5) Contingent Distribution Rights ............................. (29) (3) (24) Equity and warrant proceeds in excess of income ............ -- -- 3 Other, net ................................................. -- (2) (3) Discontinued operations .................................... -- -- (3) --------- --------- --------- Net cash (used) provided by operating activities .... $ (24) $ 14 $ (10) ========= ========= ========= See accompanying notes to consolidated financial statements.
33 COMDISCO HOLDING COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2007, and 2006 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., for SEC filing purposes, emerged from bankruptcy under a confirmed plan of reorganization (the First Amended Joint Plan of Reorganization (the "Plan")) that became effective on August 12, 2002 (the "Effective Date"). For financial reporting purposes only, however, the effective date for implementation of fresh-start reporting was July 31, 2002. Implementation of the Plan resulted in the reorganization of Comdisco, Inc. and its domestic and foreign subsidiaries into Comdisco Holding Company, Inc. and three new primary subsidiaries: (i) Comdisco Global Holding Company, Inc. (dissolved on September 27, 2004), which managed the sale and run-off of the Company's reorganized European IT Leasing operations and assets; (ii) Comdisco, Inc., which managed the sale and run-off of the Company's reorganized US Leasing operations and assets; and (iii) Comdisco Ventures, Inc. (renamed Comdisco Ventures Fund A LLC), which managed the sale and run-off of the Company's venture financing operations and assets ("Ventures"). The Company's Corporate Asset Management group ("CAM") was responsible for the sale and run-off of certain assets that remained after certain pre-emergence bankruptcy asset sales. The CAM group's operations were managed through Comdisco, Inc. Implementation of the Plan also resulted in the reorganization of Prism Communication Services, Inc. and its subsidiaries ("Prism"). Comdisco Holding Company, Inc. was formed on August 8, 2002 for the purpose of selling, collecting or otherwise reducing to money in an orderly manner the remaining assets of the Company and all of its direct and indirect subsidiaries, including Comdisco, Inc. As more fully described in the Plan, the Company's business purpose is limited to the orderly sale or run-off of all its remaining assets. Pursuant to the Plan and restrictions contained in its certificate of incorporation, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose. Consummation of the Plan in August 2002 resulted in (i) the distribution of cash totaling approximately $2.2 billion; (ii) the issuance of variable rate senior secured notes due 2004 in aggregate principal amount of $400 million (the "Senior Notes"); (iii) the issuance of 11% subordinated secured notes due 2005 in aggregate principal amount of $650 million (the "Subordinated Notes"); (iv) the issuance of 4.2 million shares of new common stock ("Common Stock"); (v) the issuance of contingent distribution rights (the "CDRs") to holders of the Predecessor company's common stock; and (vi) the cancellation of the Predecessor company's notes, notes payable, common stock and stock options. Note 2 - Summary of Significant Accounting Policies Basis of Presentation In this annual report on Form 10-K, references to "the Company," "Comdisco Holding," "we," "us" and "our" mean Comdisco Holding Company, Inc., its consolidated subsidiaries, including the former Comdisco Global Holding Company, Inc., Comdisco, Inc., the former Comdisco Domestic Holding Company, Inc. and Comdisco Ventures, Inc., and its predecessors, except in each case where the context indicates otherwise. References to "Comdisco, Inc." mean Comdisco, Inc. and its subsidiaries, other than the Prism entities, prior to the Company's emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise. The Company reclassified in the 2006 statement of earnings approximately $.2 million, or $0.05 per share basic and diluted, of income tax expense from discontinued operations to continuing operations. The reclassification had no impact on net earnings or net earnings per common share, basic and diluted. Nature of Operations Comdisco Holding Company, Inc. was formed on August 8, 2002 for the purpose of selling, collecting or otherwise reducing to money in an orderly manner the remaining assets of the Company and all of its direct and indirect subsidiaries, including Comdisco, Inc. Prior to the bankruptcy, Comdisco, Inc. provided technology services worldwide to help its customers maximize technology functionality, predictability, and availability, while freeing them from the complexity of managing their technology. Comdisco, Inc. offered leasing to key vertical industries, including semiconductor manufacturing and electronic assembly, healthcare, telecommunications, pharmaceutical, biotechnology and manufacturing. Through its Comdisco Ventures group, Comdisco, Inc. provided equipment leasing and other financing and services to venture capital-backed companies. 34 Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated. Translation Adjustments All assets and liabilities denominated in foreign currencies are translated at the exchange rate on the balance sheet date. Revenues, costs and expenses are translated at average rates of exchange prevailing during the period. Translation adjustments are deferred as a separate component of stockholders' equity. Gains and losses resulting from foreign currency transactions are included in other revenue in the consolidated statements of earnings. Income Taxes The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance. The Company operates within multiple taxing jurisdictions and could be subject to audit in these jurisdictions. In management's opinion, adequate provisions for income taxes have been made for taxes estimated to be received or paid in all jurisdictions. The accrued tax liabilities resulting from tax expense recorded in previous periods have been evaluated by management in accordance with FASB No. 5, "Accounting for Contingencies." Accordingly, the ultimate amount refunded or paid may be more or less than the accrued tax receivables or liabilities recorded within the financial statements due to a number of factors including the uncertainties surrounding the wind-down of operations in all the Company's tax jurisdictions. Lease Accounting SFAS No. 13, "Accounting for Leases," requires that a lessor account for each lease by either the direct financing, sales-type or operating method. There were no leased assets for the fiscal year ended September 30, 2007 or 2006. Revenue, Costs and Expenses o Direct financing leases: Revenue consisted of interest earned on the present value of the lease payments and residual. Revenue was recognized periodically over the lease term as a constant percentage return on the net investment. There were no costs and expenses related to direct financing leases since leasing revenue is recorded on a net basis. o Sales-type leases: Revenue consisted of the present value of the total contractual lease payments which was recognized at lease inception. Costs and expenses consisted of the equipment's net book value at lease inception, less the present value of the residual. Interest earned on the present value of the lease payments and residual, which was recognized periodically over the lease term as a constant percentage return on the net investment, was included in direct financing lease revenue in the statement of earnings. o Operating leases: Revenue consisted of the contractual lease payments and was recognized on a straight-line basis over the lease term. Costs and expenses were principally depreciation of the equipment. Depreciation was recognized on a straight-line basis over the lease term to the Company's estimate of the equipment's fair market value at lease termination, also commonly referred to as "residual" value. In estimating the equipment's fair value at lease termination, the Company relied on historical experience by equipment type and manufacturer and, where available, valuations by independent appraisers, adjusted for known trends. The Company's estimates were reviewed continuously to ensure reasonableness. 35 Cash and Cash Equivalents Cash and cash equivalents are comprised of highly liquid debt instruments with original maturities of 90 days or less. Allowance for Credit Losses See Note 5 of Notes to Consolidated Financial Statements for a description of the policy for reserving for credit losses. Inventory of Equipment Inventory of equipment is stated at the lower of cost or market by categories of similar equipment. The Company sold the last pieces of inventoried equipment in fiscal 2006. Property, Plant and Equipment The Company no longer owns any property. The last such property, an 11,500 square foot day care facility adjacent to its former headquarters was sold in March 2007 for approximately $500,000. Equity Securities Marketable equity securities: The Company classifies all marketable equity securities as available-for-sale. These marketable equity securities are carried at fair value, based on quoted market prices, with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income (loss). Equity investments in private companies: Equity investments in private companies for which there is no readily determinable fair value are carried at the lower of cost or estimated fair market value as determined by the Company in consultation with Windspeed 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. All write-downs are considered permanent impairments for financial reporting purposes. Warrants: The Company's investments in warrants (received in connection with its lease or other financings) are initially recorded at zero cost and carried in the consolidated financial statements as follows: o Warrants that meet the criteria for classification as available-for-sale are carried at fair value based on quoted market prices with unrealized gains excluded from earnings and reported in accumulated other comprehensive income. o Warrants that do not meet the criteria for classification as available-for-sale continue to be carried at zero value. Contingent Distribution Rights See Note 12 of Notes to Consolidated Financial Statements for a description of the policy for recording the estimated liability to CDR holders. Earnings Per Common Share Earnings per common share-basic are computed by dividing the net earnings to common stockholders by the weighted average number of common shares outstanding for the period. Note 3 - Discontinued Operations Because of the sale of assets described in Note 4 of Notes to Consolidated Financial Statements, amounts in the consolidated financial statements and related notes for all periods shown have been restated to account for the US Leasing operations, International Leasing and German Leasing Subsidiary as discontinued operations. "International Leasing" refers to the Company's former French, Swiss, Austrian, Australian and New Zealand leasing operations. The Company sold the stock of its French, Swiss and Austrian subsidiaries and sold the assets of its Australian and New Zealand operations. Each of the aforementioned transactions resulted from an extensive offering and competitive bidding process run by the Company's independent investment banking firm. There were nominal revenues and net loss generated by discontinued operations during the fiscal year ended September 30, 2007 and there were nominal revenues and net earnings generated in the fiscal year ended 2006. All of the revenues and net earnings in the fiscal year ended September 30, 2005 were generated from the US Leasing operations. 36 Note 4 - Sale of Assets Sale of Assets US Leasing operations (Former business segment through June 30, 2004) On August 25, 2003, the Company announced that it had agreed to sell the assets of its US leasing business to Bay4 Capital Partners, LLC ("Bay4"). On September 9, 2003, the Company completed the sale to Bay4. Under the terms of the asset purchase agreement, and after completion of the post closing adjustments to the purchase price in October 2003, the Company received approximately $19.4 million in cash, and Bay4 assumed approximately $21.3 million in secured nonrecourse debt to third parties. The Company retained a secured nonrecourse interest of approximately $27.3 million in certain other leases. In addition, the Company received a note in the amount of approximately $39.9 million payable primarily from the realization of the residual value of the assets. Furthermore, the note evidenced the Company's right to share in the proceeds, if any, realized from the assets beyond the stated amount of the note. Through May 13, 2004, the Company had received approximately $29 million of payments on the residual note. On May 13, 2004, the remaining residual note balance and the Company's right to share were settled with Bay4 for $16.5 million. The Company realized a gain of approximately $6 million as a result of this transaction in the three months ended June 30, 2004. In April 2004, Bay4 paid Comdisco approximately $15 million in payment of principal on the Company's retained secured non-recourse interest in certain leases purchased by Bay4. The remaining principal balance, which was included in assets of discontinued operations, was approximately $4 million at September 30, 2004, including contractual lease payments of approximately $2.7 million due from a subsidiary of VarTec Telecom Inc. Vartec filed for Chapter 11 bankruptcy protection in November 2004. The Company received approximately $1 million on the remaining principal balance during fiscal year 2005. During fiscal year 2006, Vartec filed for Chapter 7 bankruptcy protection. The Company wrote-off the remaining balance of $300,000 as of September 30, 2006. 37 European IT Leasing (Former business segment through June 30, 2004) On April 30, 2003, the Company announced that it had completed the sale of the stock of its leasing subsidiary in Germany to Munich-based Comprendium Investment (Deutschland) GmbH, which is owned by Comprendium Investments S.A. ("Comprendium"), a Swiss company. Under the terms of the Amended Share Purchase Agreement, Comdisco received approximately Euro 285 million (approximately $316 million) at closing, and four additional payments totaling up to approximately Euro 38 million over the 42 months following closing, dependent upon specific portfolio performance criteria. On March 31, 2004, the Company accepted a discounted prepayment by Comprendium of the four remaining payments due from the sale. The Company received Euro 30.5 million in lieu of four payments of Euro 9.5 million each, scheduled for payment in April 2004, April 2005, May 2006 and December 2006. The four additional payments would have been subject to reduction if certain customers exercised contractual termination provisions. The Company recorded a charge of approximately $2 million ($0.47 per share) in the three months ended March 31, 2004 to reflect the difference between the prepaid amount and the carrying value of the four scheduled payments. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company recorded a charge of $6 million ($1.46 per share) in the first quarter of fiscal 2004 to reduce cost in excess of fair value to reflect the difference between carrying value and estimated proceeds from a sale or early buy-out. The Company sold a number of other subsidiaries prior to its fiscal 2004 including its former Austrian subsidiary, Swiss subsidiary, and French subsidiary. None of these sales affected the 2004 or 2005 financial statements. Corporate Asset Management (Former business segment through June 30, 2004) On August 4, 2003, the Company announced the completion of the post-closing review of the purchase price calculation for the sale of its Electronics, Laboratory and Scientific, and Healthcare leasing portfolios to GE Capital. These sales took place during the Company's 2002 fiscal year. The Company received approximately $25 million in the settlement of the purchase price holdbacks. On the same date, the Company also announced that it had agreed to a settlement with GE Capital regarding their future contingent payment obligations on the Electronics equipment leasing business (collectively, the "GE Settlement"). The Company received a single $40 million cash payment and other consideration valued by the Company at approximately $29 million. The other consideration primarily consisted of a participation interest in certain Agere Systems, Inc. ("Agere") lease payments previously purchased by GE Capital. The Company and GE Capital also agreed to a mutual release of substantially all potential indemnification claims under the sale agreements for the Electronics, Laboratory and Scientific, and Healthcare leasing portfolios. On January 7, 2004, the Company completed the sale of its participation interest in certain Agere lease payments (see above for description of the Agere lease payments). The aggregate purchase price was approximately $18 million. Approximately $15 million was received in cash and the remaining $3 million was placed in escrow. Approximately $1.2 million of the escrow was received by the Company on May 12, 2004, and the balance received by the Company on November 11, 2004. The participation interest was included in Comdisco's September 30, 2003 balance sheet in receivables at the present value of the minimum payments, or approximately $24 million and, in a like amount, in deferred income. During the year ended September 30, 2005, the Company received approximately $2 million from the escrow. All proceeds related to the participation interest have been reflected in Comdisco's earnings when received. In March 2007, the Company sold its only remaining property, which was an 11,500 square foot day-care facility adjacent to the Company's former headquarters, for approximately $500,000. 38 Note 5 - Receivables The Company had nominal receivables outstanding as of September 30, 2007 and September 30, 2006. Allowance The allowance for credit losses includes management's estimate of the amounts expected to be uncollectable on specific accounts and for losses on other as of yet unidentified accounts, including estimated losses on future non-cancelable lease rentals, net of estimated recoveries from remarketing of related leased equipment. In estimating the reserve component for unidentified losses inherent within the receivables and lease portfolio, management relies on historical experience, adjusted for any known trends, including industry trends, in the portfolio. Changes in the allowance for credit losses (combined Notes and Accounts receivable) for the Company for the fiscal years ended September 30, 2006 and 2005 were as follows (in millions): 2007 2006 ------ ----- Balance at beginning of period $ -- $ -- Provision for credit losses (5) (3) Net credit recoveries (losses) 5 3 ------ ----- Balance at end of period $ -- $ -- ====== ===== 39 Note 6 - Income Taxes The geographical sources of earnings from continuing operations before income taxes were as follows (in millions): Year ended September 30, 2007 2006 2005 ----- ----- ----- United States $ 7 $ 12 $ 8 Outside United States - 3 2 ----- ----- ----- $ 7 $ 15 $ 10 ===== ===== ===== Income tax benefit included in the consolidated statements of earnings were as follows (in millions): Year ended September 30, 2007 2006 2005 ----- ----- ----- Continuing operations $ -- $ -- $ 16 Discontinued operations -- -- -- ----- ----- ----- $ -- $ -- $ 16 ===== ===== ===== The components of the income tax benefit credited to continuing operations were as follows (in millions): Year ended September 30, 2007 2006 2005 ----- ----- ----- Current: United States $ -- $ -- $ -- Outside United States -- -- 16 ----- ----- ----- -- -- 16 Deferred: United States -- -- -- Outside United States -- -- -- ----- ----- ----- -- -- -- ----- ----- ----- $ -- $ -- $ 16 ===== ===== ===== 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, 2007 2006 2005 ------ ------ ------ U.S. Federal income tax rate (tax benefit) 34.0% 34.0% 35.0% Increase (reduction) resulting from: State income taxes, net of U.S. federal tax benefit -- -- -- Foreign income tax rate differential (2.4) (5.6) (4.4) Non-deductible CDR expenses 4.0 15.6 52.3 Non-deductible SIP recovery -- (0.6) (21.3) Exchange gain on previously taxed income -- 25.6 -- Change in valuation allowance (42.9) (68.5) ( 55.6) Change in tax contingency reserve due to completion of tax audits and expiration of statutes of limitation -- -- (168.3) Other, net 0.6 0.2 (4.2) ------ ------ ------ (6.7)% 0.7% (166.5)% ====== ====== ======
40 Deferred tax assets and liabilities at September 30, 2007 and 2006 were as follows (in millions): 2007 2006 ----- ----- Deferred tax assets (liabilities): Foreign loss carryforwards .......................... $ 18 $ 18 U.S. NOL C/F - 382 Limit ............................ 143 143 U.S. NOL Carryforward ............................... 140 141 AMT credit carryforwards ............................ 74 74 Capital Loss Carryforward............................ -- -- Deferred income ..................................... -- -- Deferred expenses ................................... (1) (1) Other, net .......................................... 3 6 Lease accounting .................................... (1) (2) Foreign unremitted earnings ......................... -- -- ----- ----- Gross deferred tax assets (liabilities) 376 379 Less: valuation allowance ........................... (376) (379) ----- ----- Net deferred tax liabilities ......................... $ -- $ -- ===== ===== In connection with fresh-start accounting, Comdisco, Inc.'s assets and liabilities were recorded at their respective fair market values. Deferred tax assets and liabilities were recognized for the tax effects of the differences between the fair values and the tax bases of the Company's assets and liabilities. In addition, deferred tax assets were recognized for future use of the company's net operating losses and other tax credits. The Company's emergence from bankruptcy on July 31, 2002 for financial statement purposes, constituted an ownership change under section 382 of the Internal Revenue Code and the use of any of the Company's NOLs and tax credits generated prior to the ownership change, that are not reduced pursuant to the provisions discussed above, will be subject to an overall annual limitation. However, the Company has provided a valuation allowance for the entire value of the fair value of the deferred tax assets due to uncertainties regarding future earnings. For financial reporting purposes, the Company has approximately $52 million of foreign net operating loss carryforwards, most of which have no expiration date. The Company has recognized a valuation allowance of $18 million to offset this deferred tax asset. At September 30, 2007, the Company has available for U.S. federal income tax purposes the following carryforwards (in millions): Year Net scheduled operating to expire loss --------- --------- 2010 10 2019 17 2021 394 --------- 382 Limit $ 421 ========= 2022 $ 41 2023 257 2024 37 2025 34 --------- $ 369 ========= For U.S. federal income tax purposes, the Company has approximately $74 million of alternative minimum tax ("AMT") credit carryforwards available to reduce regular taxes in future years. AMT credit carryforwards do not have an expiration date. The use of the Company's alternative minimum tax credits will be subject to the Section 382 limitation discussed above. As such, the Company has recognized a valuation allowance of $74 million to offset this deferred tax asset. The Company undergoes audits by foreign, state and local tax jurisdictions. As of September 30, 2007, no material assessments have been made by these tax authorities. In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes," which clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective for the Company for the fiscal year beginning October 1, 2007. The Company is still evaluating the impact that the adoption of FIN 48 will have on its financial statements. 41 Note 7 - Equity Securities On February 23, 2004, the Company announced that its subsidiary, Comdisco, Inc., entered into agreements (collectively, the "Agreements") with Windspeed for the ongoing management and liquidation of Comdisco Ventures, Inc.'s warrant and equity investment portfolio. The Agreement includes substantially all of the Company's warrant and equity investment portfolio. Windspeed is entitled to certain fixed and declining management fees. Additionally, Windspeed shares in the net receipts from the sale of the Company's investments in equity securities at various percentages. The Company has received approximately $53.6 million in proceeds (prior to management fees and sharing with Windspeed) since the inception of the management agreement with Windspeed. Windspeed has received a combined $8.6 million in management fees and sharing through September 30, 2007. Management fees are expensed when incurred, and realized gains on the sale of Equity Securities are reduced by sharing amounts under the management agreement. Copies of the Amended and Restated Limited Liability Company Agreement of Comdisco Ventures Fund A, LLC (the former Comdisco Ventures, Inc.), dated as of February 20, 2004 by and among Comdisco, Inc., Windspeed and Comdisco Ventures Fund B, LLC and the Limited Liability Company Agreement of Comdisco Ventures Fund B, LLC, dated as of February 20, 2004, by and among Comdisco, Inc., Windspeed and Windspeed Acquisition Fund, L.P. were filed with the SEC on a Form 8-K pursuant to Item 5 on February 23, 2004. As reported on Form 8-K filed by the company on April 11, 2006, the management agreement was extended for an additional two years, to February 20, 2009. As a result of the Agreements, the ongoing management of the Company's equity investments in private companies is being provided by Windspeed. Marketable equity securities: The Company's available-for-sale security holdings were as follows (in millions): Gross Gross unrealized unrealized Market Cost gains losses value ---- ---------- ---------- ------ September 30, 2007 $ - $ 5.5 $ - $ 5.5 September 30, 2006 $ - $ 4.2 $ - $ 4.2 Changes in the valuation of available-for-sale securities are included as changes in the unrealized holding gains (losses) in accumulated other comprehensive income. At September 30, 2007, the Company held securities in four publicly-traded companies: Akamaii Technologies, Inc., comScore Inc., Veraz Networks, Inc. and ShoreTel, Inc. Each of these holdings are subject to lock-up periods, which restrict the Company's ability to sell in the near term but not greater than one year. The Company's practice is to sell its marketable equity securities within a reasonable period of time after the lock-up period ends. Additionally, as of the date of this filing, the Company owns warrants that are out of the money in approximately six public companies and holds minor positions in approximately two other public companies. Subsequent to September 30, 2007, the Company liquidated part of its holding in one public company: Veraz Networks, Inc. Realized gains or losses are recorded on the trade date based upon the difference between the proceeds and the cost basis determined using the specific identification method. Net realized gains are included in revenue in the consolidated statements of earnings. During the fiscal year ended September 30, 2007, the Company received $6 million in proceeds and realized a gain of $6 million on the sale of marketable equity securities. 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 Securities when market and customer specific events and circumstances indicate the carrying value might be impaired. All write-downs are considered permanent impairments for financial reporting purposes. The carrying value of the Company's equity investments in private companies is $2.7 million at September 30, 2007 and $2.7 million at September 30, 2006. Write-downs of equity securities was approximately zero and $.2 million during fiscal years 2007 and 2006, respectively. Note 8 - Common Stock and Other Comprehensive Income When the Company emerged from bankruptcy, 4,200,000 shares of new common stock were issued. As of September 30, 2007, the Company had 4,029,066 shares of common stock outstanding and 170,934 shares of common stock held in treasury. 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. 42 The Company's Common Stock share amounts for basic and diluted earnings per share calculations were as follows (in thousands): Year ended September 30, 2007 2006 2005 ----- ----- ----- Average common shares issued 4,200 4,200 4,200 Average common shares held in treasury (171) (169) (133) ----- ----- ----- 4,029 4,031 4,067 ===== ===== ===== There are no adjustments to net earnings to common stockholders for basic and diluted earnings per share calculations for any of the periods presented above. Components of other comprehensive earnings consists of the following (in millions):
Year ended September 30, 2007 2006 2005 ----- ----- ----- Foreign currency translation adjustments $ -- $ (3) $ 1 Unrealized gains (losses) on securities: Unrealized holding gains arising during the period 6 7 5 Reclassification adjustment for gains included in earnings before income taxes benefit (5) (8) (8) ----- ----- ----- Net unrealized gains (losses) before income taxes 1 (1) (3) Income taxes -- -- -- ----- ----- ----- Net unrealized gains (losses) 1 (1) (3) ----- ----- ----- Other comprehensive gain (loss) 1 (4) (2) Net earnings 7 15 29 ----- ----- ----- Total comprehensive income $ 8 $ 11 $ 27 ===== ===== =====
Accumulated other comprehensive loss presented below and in the accompanying consolidated balance sheets consists of the following (in millions):
SUCCESSOR Unrealized Foreign gain on Accumulated currency available- other translation for-sale comprehensive adjustment securities income (loss) ----------- ----------- ----------- Balance at September 30, 2005 $ 3 $ 5 $ 8 Pretax amount (3) (1) (4) Income taxes -- -- -- ----------- ----------- ----------- Balance at September 30, 2006 -- 4 4 Pretax amount -- 1 1 Income taxes -- -- -- ----------- ----------- ----------- Balance at September 30, 2007 $ -- $ 5 $ 5 =========== =========== ===========
43 Note 9 - Employee Benefit Plans The Company's Retirement Plan covered substantially all domestic employees. Effective March 31, 2004, the Comdisco Board of Directors approved the termination of the Comdisco Retirement Plan. Other than a final forfeiture contribution made in July, 2004, no further employee or employer contributions have been made to the Retirement Plan. A request with the IRS was filed to ensure that the Retirement Plan remains "qualified" for distribution upon its termination. On July 8, 2005, the IRS determined that the termination of the Retirement Plan does not adversely affect its qualification for federal tax purposes. All participant accounts were distributed from the Comdisco Retirement Plan as of December 31, 2005. On August 10, 2005, the Retirement Plan Administrator on behalf of the Retirement Plan filed a claim in the Securities Litigation. On June 7, 2006, the Retirement Plan received funds from the settlement in the amount of $199,258. From November 2006 to March 2007, Mercer Trust Company, as the administrator of the Comdisco Retirement Plan, at the direction of the Company, notified and distributed the Settlement Funds (net of fees and expenses) to the eligible Retirement Plan participants. On March 20, 2007, pursuant to the direction of the Comdisco Retirement Plan Administrative Committee, any remaining plan participant account balances were automatically rolled over to a Putnam IRA. All funds in the Comdisco Retirement Plan have been distributed and the Comdisco Retirement Plan has been terminated by the Company. Note 10 - Fair Value of Financial Instruments The estimated fair value of the Company's financial instruments are as follows as of September 30 (in millions): 2007 2006 ----------------- ----------------- Carrying Fair Carrying Fair amount value amount value -------- ----- -------- ----- Assets: Unrestricted cash and cash equivalents $ 48.0 $ 48.0 $ 97.0 $ 97.0 Marketable equity securities .......... 5.5 5.5 4.2 4.2 Equity investments in private companies 2.7 9.1 2.7 20.5 Fair values were determined as follows: The carrying amounts of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments. In accordance with the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," marketable equity securities (equity securities having a readily determinable fair value) have a carrying value and a fair value based on quoted market prices. The Company's investment in warrants of public companies were valued at the bid quotation. The Company's practice is to sell its marketable equity securities upon the expiration of the lock-up period. Equity investments in private companies consist primarily of small investments in approximately ninety private companies. Common stock and preferred stock investments are carried at the lower of cost or fair market value in the Company's financial statements. Warrants in non-public companies are carried at zero value. These investments are subject to significant volatility and are difficult to value. The fair value of the Company's equity investments in private companies, including warrants, was determined in consultation with Windspeed based on a variety of factors, including, but not limited to, quoted trading levels for publicly-traded securities in similar industries and/or markets, industry and company multiples, industry acceptance in the market place, liquidity discounts due to lock ups, estimated revenue, and customer, product and market share growth by the respective companies in the portfolio. Substantially all of these factors are outside the control of the Company and are subject to significant volatility. There can be no assurance that the Company will be able to realize the estimated fair market value. Furthermore, the current estimated fair market value is subject to significant concentration risk, since as of September 30, 2007, 90 percent of the estimated fair market value of the entire portfolio is concentrated in 10 individual companies and approximately 52 percent of the estimated amount is in three individual companies. The decrease of $11 million from September 30, 2006 in the fair value of the private equity portfolio was a result in part due to the realization of value from certain companies in the portfolio in the amount of approximately $5 million. Furthermore, as a result of the ongoing valuation performed on the Company's private equity portfolio in conjunction with Windspeed, a determination was made to additionally adjust the private equity portfolio valuation downward approximately $6 million due to changes in the business results of one or more of the companies in the portfolio. 44 Note 11 - Quarterly Financial Data (Unaudited) Summarized quarterly financial data for the fiscal years ended September 30, 2007 and 2006, are as follows (in millions except per share data):
Quarter ended --------------------------------------------------------------------- December 31, March 31, June 30, September 30, --------------- --------------- --------------- --------------- 2007 2006 2007 2006 2007 2006 2007 2006 ------ ------ ------ ------ ------ ------ ------ ------ Total revenue $ 6 $ 7 $ 2 $ 8 $ 2 $ 6 $ 1 $ 7 Earnings from continuing operations 5 1 1 5 - 3 1 6 Earnings (loss) from discontinued operations -- -- -- -- - - 1 - ------ ------ ------ ------ ------ ------ ------ ------ Net earnings to common stockholders $ 5 $ 1 $ 1 $ 5 $ - $ 3 $ 2 $ 6 ====== ====== ====== ====== ====== ====== ====== ====== Earnings (loss) from continuing operations-diluted $ 1.32 $ 0.22 $ 0.17 $ 1.21 $(0.09) $ 0.73 $ 0.43 $ 1.41(A) Earnings (loss) from discontinued operations (0.01) -- (0.01) (0.02) (0.00) 0.04 0.01 0.03(A) ------ ------ ------ ------ ------ ------ ------ ------ Net earnings (loss) per common share-diluted $ 1.31 $ 0.22 $ 0.16 $ 1.19 $(0.09) $ 0.77 $ 0.44 $ 1.44 ====== ====== ====== ====== ====== ====== ====== ====== (A) As described in Note 2, the Company reclassified in the fourth quarter 2006 statement of earnings approximately $.2 million, or $0.05 per share basic and diluted, of income tax expense from discontinued operations to continuing operations. The reclassification had no impact on net earnings or net earnings per common share, basic and diluted. Accordingly, the impact on earnings per share, basic and diluted was a decrease in earnings per share from continuing operations of $0.05 and an increase in earnings per share from discontinued operations by $0.05.
Note 12 - Other Financial Information Legally restricted cash represents cash and cash equivalents that are related to the Company's employee incentive compensation plans, and cash and cash equivalents held in escrow or in similar accounts to ensure indemnification obligations of the Company. Legally restricted cash is comprised of the following at September 30, 2007 and September 30, 2006 (in millions): 2007 2006 ----- ----- Incentive compensation and escrows $ 1 $ 1 Other 4 4 ----- ----- $ 5 $ 5 ===== ===== Other liabilities at September 30 were as follows (in millions): 2007 2006 ----- ----- Accrued compensation $ 1 $ 1 CDRs 15 43 ----- ----- Total other $ 16 $ 44 ===== ===== The liability for accrued compensation includes payroll and estimated amounts payable under the Company's Bankruptcy court approved compensation plans. From October 2006 to September 2007, the Company made payments to holders of CDRs totaling approximately $29.7 million. CDR expense was approximately $.8 million for fiscal 2007. Accordingly, the liability for CDRs has decreased from $43.4 million to $14.5 million from September 30, 2006 to September 30, 2007, respectively. In the quarter ended September 30, 2007, the Company recorded additional expense and increased the CDR liability by approximately $0.5 million to reflect an adjustment to actual payments made to CDR holders in 2006. Management determined the impact to 2007 and 2006 financial statements was immaterial. 45 Management has adopted a methodology for estimating the amount due to CDR holders following the provisions of Statement of Financial and Accounting Standards No. 5, Accounting For Contingencies ("SFAS No. 5"). Under SFAS No. 5, a liability must be booked that is probable and reasonably estimatable as of the balance sheet date. The amount due to CDR holders is based on the amount and timing of distributions made to former creditors of the Company's predecessor, Comdisco, Inc., and is impacted by both the value received from the orderly sale or run-off of Comdisco Holding's assets and the resolution of Disputed Claims still pending in the bankruptcy estate of Comdisco, Inc. While the amount does not reflect any potential recoveries and distributions by the litigation trustee to the general unsecured creditors (as such additional recoveries and distributions, if any, are neither probable nor reasonably estimable at this time), the Company is of the opinion that it retains sufficient cash to satisfy such liability. The Company is not able to definitively estimate either the ultimate value to be received for the remaining assets or the final resolution of the remaining Disputed Claims. Accordingly, the Company does not forecast these outcomes in calculating the liability. Instead, the liability calculation uses the Company's book equity value as the basis for remaining asset value, reduced for estimated future operating expenses. During the fiscal year ending September 30, 2007, the Company continues to forecast its operating expenses to allow for projected costs related to the ongoing SIP claim litigation and the projected duration of the ongoing liquidations of the Company's remaining assets. In addition, the liability for CDRs is calculated assuming Disputed Claims are allowed at the amount estimated for the Disputed Claim. Any estimates exceeding the Approved Claims would be considered disallowed for purposes of the CDR liability. The amounts due to CDR holders will be greater to the extent that Disputed Claims are disallowed. The disallowance of a Disputed Claim results in a distribution from the Disputed Claims Reserve to previously allowed creditors that is entirely in excess of the minimum percentage recovery threshold, above which recoveries to general unsecured creditors are shared with CDR holders. In contrast, the allowance of a Disputed Claim results in a distribution to a newly allowed creditor that is only partially in excess of the minimum percentage recovery threshold. Estimated Disputed Claims consisted of approximately $1 million as of December 1, 2007. The Disputed Claim Reserve consisted of approximately $1 million in cash and approximately 1,600 shares of Common Stock. The approximately $1 million in estimated Disputed Claims has been considered allowed for purposes of the CDR liability. If the approximately $1 million is ultimately ruled as disallowed, the CDR liability would increase by approximately $600,000. Note 13 - Operations by Geographic Areas The following table presents total revenue by geographic location based on the location of the Company's offices (in millions): Year ended September 30, 2007 2006 ----- ----- North America $ 11 $ 28 Europe -- -- ----- ----- $ 11 $ 28 ===== ===== The following table presents total assets and cash by geographic location based on the location of the Company's offices as of September 30 (in millions): 2007 2006 ------------- ------------ Total Total Assets Cash Assets Cash ------ ---- ------ ---- North America $ 64 $ 53 $ 110 $102 Europe -- -- -- -- ------ ---- ------ ---- Total $ 64 $ 53 $ 110 $102 ====== ==== ====== ==== 46 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 sole officer of the Company, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Company's sole officer has concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act. (2) Management Report on Internal Control Over Financial Reporting As of March 31, 2006, the Company determined that it no longer remained an "accelerated filer" and that it is considered a "nonaccelerated filer" in accordance with Rule 12b-25(3)(iii) of the Exchange Act. Accordingly, the Company will not be required to include a report by management assessing the effectiveness of its internal controls over financial reporting until it files its Annual Report on Form 10-K for the fiscal year ending on or after December 15, 2007 and the deadline for an auditor's attestation report on Form 10-K for the fiscal year ending on or after December 15, 2008. (3) Change in Internal Controls There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 47 ITEM 9B. OTHER INFORMATION Not applicable. PART III 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 62 - 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-three year career. He is currently a member of the board of directors of Churchill Financial Holdings LLC. He also serves as non-executive Chairman for National Energy & Gas Transmission, Inc. and Core-Mark International, Inc., as well as a member of the Advisory Board of XRoads Solutions Group, LLC. Audit Committee Financial Expert Until August 12, 2004, the Audit Committee of the Board of Directors was comprised entirely of independent outside directors. Since August 12, 2004, Mr. Thornton has been performing the functions of the Audit Committee. Mr. Thornton qualifies as an "audit committee financial expert" as defined in Item 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 2007. Code of Ethics On December 3, 2007, 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 dated January 2007. Copies are available on the Company's website. Any waivers from the Codes of Conduct, or amendments thereto, by the Company will be disclosed through its website at www.comdisco.com and in future filings. To date, the Company has granted no such waivers. 48 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. The Board of Directors determined that the most efficient way to wind down the business was to adopt the compensation program set forth in the Disbursing Agent Agreement which specifies an hourly rate for the services provided by the Disbursing Agent. 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 Board of Directors set the hourly wage paid to the Disbursing Agent at $400 per hour in 2004. The rate does not vary and does not depend on corporate performance.
Summary Compensation Table ------------------------------------------------------------------------- All Other Name and Principal Salary Compensation Total Position Year ($) ($) ($) - --------------------- ---- ------- ------------ --------- Randolph I. Thornton 2007 -- 111,100 (1) 111,100 Chief Executive 2006 -- 105,100 (2) 105,100 Officer, President 2005 -- 138,700 (3) 138,700 and Secretary - --------------------------------------------------------------------------
(1) Amount reflects total payments earned by Mr. Thornton for 2007 pursuant to the Disbursing Agent Agreement at the rate of $400 per hour. (2) Amount reflects total payments earned by Mr. Thornton for 2006 pursuant to the Disbursing Agent Agreement at the rate of $400 per hour. (3) Amount reflects total payments earned by Mr. Thornton for 2005 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 2007. 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 2007. 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, 2007 is set forth in the compensation table above. Mr. Thornton did not receive additional compensation for serving as a director in 2007. Compensation Committee Interlocks and Insider Participation Mr. Thornton is the sole member of the Compensation Committee. Mr. Thornton is also the Chief Executive Officer, President and Secretary of the Company. Mr. Thornton is not considered independent as that term is defined in Item 407 of Regulation S-K. Compensation Committee Report The Compensation Committee has reviewed the Compensation Discussion and Analysis set forth above and has recommended that such section be included in this Form 10-K. SUBMITTED BY RANDOLPH I. THORNTON 49 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 1, 2007 by all persons whom we know to be beneficial owners of 5 percent or more of our Common Stock, based on a review of public filings. Stockholders Owning at Least 5 percent of the Company's Common Stock Shares Percent of Name and Address Beneficially Owned Class ----------------------------------- ------------------ ----- Berkshire Hathaway, Inc. (1) 1440 Kiewit Plaza Omaha, Nebraska 68131 1,537,866 38.17% Davidson Kempner Partners (2) 885 Third Avenue New York, New York 10022 946,753 23.50% Horizon Asset Management, Inc. (3) 470 Park Avenue South 4th Floor South, New York, NY, 10016 256,807 6.12% Kinetics Asset Management, Inc. (4) 470 Park Avenue South 4th Floor South, New York, NY, 10016 229,111 5.50% (1) The information with respect to 1,537,866 shares of Common Stock beneficially owned by Berkshire Hathaway, Inc. is based on a Report on Schedule 13F-HR dated September 30, 2007 and filed with the SEC on November 14, 2007. (2) The information with respect to 946,753 shares of Common Stock beneficially owned by Davidson Kempner Partners is based on a Report on an amended Schedule 13 G dated and filed with the SEC on February 14, 2006. (3) The information with respect to 256,807 shares of Common Stock beneficially owned by Horizon Asset Management, Inc. is based on a Report on Schedule 13G dated and filed with the SEC on April 21, 2006. (4) The information with respect to 229,111 shares of Common Stock beneficially owned by Kinetics Asset Management, Inc. is based on a Report on Schedule 13G dated and filed with the SEC on April 21, 2006. 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 1, 2007. 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. 50 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE During the Company's prior fiscal year, the Company has not participated in any transaction in which any related person had or will 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 ACCOUNTING FEES AND SERVICES Audit Committee of the Board of Directors The Audit Committee and the Board of Directors adopted a charter, setting forth the structure, powers and responsibilities of the Audit Committee. The Audit Committee met five times in fiscal 2007. Mr. Thornton, as sole director and Initial Disbursing Agent, performed the functions of the Audit Committee for the entire fiscal 2007. The Company is not required to have a three-person committee consisting of independent directors because its equity securities are not listed on a stock exchange or trade on Nasdaq. One of 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, 2007, and has reviewed and discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended. In addition, Mr. Thornton received from the independent auditors written reports disclosing that they are not aware of any relationships between the auditors and the Company that, in their professional judgment, may reasonably be thought to bear on their independence, consistent with Independence Standards Board Standard Number 1, Independence Discussions with Audit Committees. Mr. Thornton also reviewed and discussed with the independent auditors all relationships the auditors have with the Company to determine and satisfy itself regarding the auditors' objectivity and independence. Mr. Thornton has also considered whether the provision of non-audit services by the independent auditors to the Company for the most recent fiscal year and the fees and costs billed and expected to be billed by the independent auditors for those services are compatible with maintaining their independence. Based on the review and discussions described in this report, Mr. Thornton determined that the Company's audited consolidated financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2007, for filing with the SEC. Mr. Thornton, as sole director and Disbursing Agent, appointed KPMG LLP as independent auditors for the Company for the fiscal year 2008. 51 Principal Accountant Audit Fees and Services Fees The following table describes fees for professional audit services rendered by KPMG, the Company's principal accountant, for the audit of our annual financial statements for the years ended September 30, 2007 and September 30, 2006 and fees billed for other services rendered by KPMG during those periods. Type of Fee 2007 2006 - ---------------------- ---------- ---------- Audit Fees (1) $ 230,000 $ 290,000 Audit Related Fees -- -- Tax Fees (2) 27,800 107,200 All Other Fees -- -- - ---------------------- ---------- ---------- Total $ 257,800 $ 397,200 ========== ========== (1) Audit Fees, including those for statutory audits, include the aggregate fees paid by the Company during the fiscal year indicated for professional services rendered by KPMG for the audit of the Company's annual financial statements and review of financial statements included in the Company's Forms 10-Q. (2) Tax Fees include the aggregate fees paid by the Company during the fiscal year indicated for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning. Procedures For Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor Pursuant to its charter, the Audit Committee of Comdisco Holding Company's Board of Directors is responsible for reviewing and approving, in advance, any audit and any permissible non-audit engagement or relationship between Comdisco 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 Comdisco Holding Company, Inc. was approved by the Audit Committee. Additionally, each permissible non-audit engagement or relationship between Comdisco and KPMG has been reviewed and approved by the Audit Committee, as provided in its charter. We have been advised by KPMG that all of the work done in conjunction with its audit of Comdisco Holding Company's financial statements for the most recently completed fiscal year was performed by permanent full time employees and partners of KPMG. 52 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) List of documents filed as part of this report: 1. Financial Statements See Index to Financial Statements contained in Item 8, Financial Statements and Supplementary Data, above. 2. Financial Statement Schedules All Financial Statement Schedules have been omitted because (i) the required information is not present in amounts sufficient to require submission of the schedule, (ii) the information required is included in the Financial Statements or the Notes thereto or (iii) the information required in the schedules is not applicable to the Company. 3. Exhibits The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Commission: Exhibit No. Description of Exhibit - ----------- ----------------------------------------------------------------- 2.1 Joint Plan of Reorganization of Comdisco, Inc. and its Affiliated Debtors and Debtors in Possession (Incorporated by reference to Exhibit 99.3 filed with Comdisco, Inc.'s Current Report on Form 8-K dated April 26, 2002, as filed with the Commission on May 10, 2002, File No. 1-7725). 2.2 First Amended Joint Plan of Reorganization of Comdisco, Inc. and its Affiliated Debtors and Debtors in Possession (Incorporated by reference to Exhibit 2.2 filed with Comdisco, Inc.'s Current Report on Form 8-K dated July 30, 2002, as filed with the Commission on August 9, 2002, File No. 1-7725). 2.3 Findings of Fact, Conclusions of Law, and Order Under 11 U.S.C. ss.ss.1129(a) and (b) and Fed. R. Bankr. P. 3020 Confirming the First Amendment Plan of Reorganization of Comdisco, Inc. and its Affiliated Debtors and Debtors in Possession (Incorporated by reference to Exhibit 2.1 filed with Comdisco, Inc.'s Current Report on Form 8-K dated July 30, 2002, as filed with the Commission on August 9, 2002, File No. 1-7725). 3.1 Certificate of Incorporation of Registrant, dated August 8, 2002 and 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 of Form 10-K dated September 30, 2002, as filed with the Commission on January 14, 2003, File No. 0-49968). 10.2* First Letter from Ronald C. Mishler to the Official Committee of Unsecured Creditors of Comdisco, Inc., dated May 29, 2002 (Incorporated by reference to Exhibit 10.2 filed with the Company's Annual Report of Form 10-K dated September 30, 2002, as filed with the Commission on January 14, 2003, File No. 0-49968). 10.3* Second Letter from Ronald C. Mishler to the Official Committee of Unsecured Creditors of Comdisco, Inc., dated July 3, 2002 (Incorporated by reference to Exhibit 10.3 filed with the Company's Annual Report of Form 10-K dated September 30, 2002, as filed with the Commission on January 14, 2003, File No. 0-49968). 53 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 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.) 10.8 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) 10.9 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) 11.1 Statement re computation of per share earnings (Filed herewith). 21.1 Subsidiaries of the registrant (Filed herewith). 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a0 and Rule 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith). 32.1 Certification of the Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith). - -------------------------------------------------------------------------------- * Management contract or compensatory plan or arrangement. 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMDISCO HOLDING COMPANY, INC. Dated: December 14, 2007 By: /s/ Randolph I. Thornton ---------------------------------- Name: Randolph I. Thornton Title: Chief Executive Officer and President (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on December 14, 2007. SIGNATURE DATE /s/ Randolph I. Thornton December 14, 2007 - --------------------------------- Name: Randolph I. Thornton Title: Chief Executive Officer and President (Principal Financial and Accounting Officer) Sole Director 55 EX-11 2 exhibit11.txt EXHIBIT 11.1 Exhibit 11.1 COMDISCO HOLDING COMPANY, INC. COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (in thousands except per share data) Average shares used in computing earnings per common and common equivalent share were as follows:
Years ended September 30, (in thousands except per share data) 2007 2006 2005 2004 2003 ----------- ----------- ----------- ----------- ----------- Average common shares issued ................ 4,200 4,200 4,200 4,200 4,200 Average common shares held in treasury ...... (171) (169) (133) (3) (1) ----------- ----------- ----------- ----------- ----------- Total ..................................... 4,029 4,031 4,067 4,197 4,199 =========== =========== =========== =========== =========== Net earnings to common stockholders ......... $ 7,326 $ 14,577 $ 28,705 $ 23,690 $ 100,373 =========== =========== =========== =========== =========== Net earnings (loss) per common share: Earnings per common share-basic: Earnings from continuing operations ............................. $ 1.83 $ 3.57(A)$ 6.33 $ 8.61 $ 4.80 Earnings (loss) from discontinued operations ............................. (0.01) 0.05(A) 0.73 (3.21) 19.11 ----------- ----------- ----------- ----------- ----------- $ 1.82 $ 3.62 $ 7.06 $ 5.40 $ 23.91 =========== =========== =========== =========== =========== Net earnings (loss) per common share-diluted: Earnings from continuing operations ............................. $ 1.83 $ 3.57(A)$ 6.33 $ 8.61 $ 4.80 Earnings (loss) from discontinued operations ............................. (0.01) 0.05(A) 0.73 (3.21) 19.11 ----------- ----------- ----------- ----------- ----------- $ 1.82 $ 3.62 $ 7.06 $ 5.40 $ 23.91 =========== =========== =========== =========== =========== (A) The Company reclassified in the 2006 statement of earnings approximately $.2 million, or $0.05 per share basic and diluted, of income tax expense from discontinued operations to continuing operations. The reclassification had no impact on net earnings or net earnings per common share, basic and diluted. Accordingly, the impact on earnings per share, basic and diluted was a decrease in earnings per share from continuing operations of $0.05 and an increase in earnings per share from discontinued operations by $0.05.
In accordance with Statement of Financial Accounting Standards No. 128-Earnings Per Share, no potential common shares (the assumed exercise of stock options) are included in the computation of any diluted per share amount when a loss from continuing operations exists. EX-22 3 exhibit22.txt EXHIBIT 22.1 Exhibit 22.1 Comdisco Holding Company, Inc. Subsidiaries of the Registrant as of December 1, 2007 Subsidiary State or Sovereign Power of Incorporation Subsidiaries included in the Registrant's consolidated financial statements: Comdisco Australia Pty. Ltd......................................New South Wales Comdisco Canada Ltd......................................................Ontario Comdisco Canada Equipment Finance Limited Partnership....................Ontario Comdisco Investment Group, Inc. ........................................Delaware Comdisco Management GmbH ................................................Germany Comdisco, Inc. .........................................................Delaware Comdisco de Mexico, S.A. de C.V...........................................Mexico EX-31 4 exhibit31.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION Certification of Principal Executive Officer AND Certification of Principal Financial Officer I, Randolph I. Thornton, Chief Executive Officer, President and sole officer of the registrant, 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)) 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) 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 (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter 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. Dated: December 14, 2007 By: /s/ Randolph I. Thornton ---------------------------------- Name: Randolph I. Thornton Title: Chief Executive Officer and President (Principal Financial and Accounting Officer) EX-32 5 exhibit32.txt EXHIBIT 32.1 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, 2007 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. Dated: December 14, 2007 By: /s/ Randolph I. Thornton ---------------------------------- Name: Randolph I. Thornton Title: Chief Executive Officer and President Dated: December 14, 2007 By: /s/ Randolph I. Thornton ---------------------------------- Name: Randolph I. Thornton Title: Chief Executive Officer and President (Principal Financial and Accounting Officer) 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. -----END PRIVACY-ENHANCED MESSAGE-----