UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2014
Commission file number 000-499-68
COMDISCO HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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54-2066534 |
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(State or other jurisdiction of |
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(I.R.S. Employer Identification No.) |
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incorporation or organization) |
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5600 North River Road
Suite 800
Rosemont, Illinois 60018
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (847) 698-3000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
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Large accelerated filer [ ] |
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Accelerated filer [ ] |
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Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
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Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The registrant had 4,028,951 shares of common stock, $0.01 par value per share outstanding on July 30, 2014.
COMDISCO HOLDING COMPANY, INC.
Forward-Looking Statements
This quarterly report on Form 10-Q contains, and our periodic filings with the Securities and Exchange Commission (the “SEC”) and written and oral statements made by the Company’s sole officer and director or any authorized representative, to press, potential investors, securities analysts and others, will contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are not historical facts, but rather are predictions and generally can be identified by use of statements that include phrases such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “foresee,” “looking ahead,” “is confident,” “should be,” “will,” “predicted,” “likely” or other words or phrases of similar import. Similarly, statements that describe or contain information related to matters such as our intent, belief, or expectation with respect to financial performance, claims resolution under the Plan (as defined below), cash availability and cost-cutting measures are forward-looking statements. These forward-looking statements often reflect a number of assumptions and involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those currently anticipated in these forward-looking statements. In light of these risks and uncertainties, the forward-looking events might or might not occur, which may affect the accuracy of forward-looking statements and cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements.
In this quarterly report on Form 10-Q, references to “the Company,” “Comdisco Holding,” “we,” “us” and “our” mean Comdisco Holding Company, Inc., its consolidated subsidiaries, including Comdisco, Inc., and its predecessors, except in each case where the context indicates otherwise. References to “Comdisco, Inc.” mean Comdisco, Inc. and its subsidiaries prior to the Company’s emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise.
Important factors that could cause actual results to differ materially from those suggested by these written or oral forward-looking statements, and could adversely affect our future financial performance, include the risk factors discussed in the Company’s Annual Report on Form 10-K in Part I, Item 1A, Risk Factors and in the Company’s Quarterly Report on Form 10-Q in Part II, Item 1A, Risk Factors. Many of the risk factors that could affect the results of the Company’s operations are beyond our ability to control or predict.
THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE COMPANY’S FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE “PLAN”) AND RESTRICTIONS CONTAINED IN THE COMPANY’S CERTIFICATE OF INCORPORATION (THE “CERTIFICATE”), THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS (“CDRs”) IN THE MANNER AND PRIORITIES SET FORTH IN THE PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS AND NO FURTHER DISTRIBUTIONS WILL BE MADE. THE COMPANY FILED, ON AUGUST 12, 2004, A CERTIFICATE OF DISSOLUTION WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE TO FORMALLY EXTINGUISH COMDISCO HOLDING COMPANY, INC.’S CORPORATE EXISTENCE WITH THE STATE OF DELAWARE EXCEPT FOR THE PURPOSE OF COMPLETING THE WIND-DOWN CONTEMPLATED BY THE PLAN. CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS QUARTERLY REPORT ON FORM 10-Q HAVE THE MEANINGS AS DEFINED IN THE PLAN.
Comdisco Holding Company, Inc.
Consolidated Statements of Comprehensive Income (Loss) – Three and nine months ended June 30, 2014 and 2013 (Unaudited)
(in thousands, except per share data)
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Three months ended |
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Nine months ended |
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2014 |
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2013 |
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2014 |
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2013 |
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Revenue |
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Gain on sale of equity and warrant securities |
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$ |
0 |
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$ |
0 |
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$ |
1,590 |
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$ |
112 |
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Miscellaneous income |
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0 |
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0 |
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100 |
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0 |
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Interest income |
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11 |
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7 |
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54 |
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63 |
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Total revenue |
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11 |
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7 |
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1,744 |
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175 |
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Costs and expenses |
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Selling, general and administrative |
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575 |
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206 |
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1,925 |
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1,528 |
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Contingent Distribution Rights |
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(827) |
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87 |
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(141) |
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27 |
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Foreign exchange loss |
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0 |
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112 |
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312 |
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248 |
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Bad debt recoveries |
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(421) |
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(59) |
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(463) |
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(163) |
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Total costs and expenses |
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(673) |
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346 |
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1,633 |
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1,640 |
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Net earnings (loss) before income taxes |
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684 |
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(339) |
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111 |
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(1,465) |
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Income tax expense (benefit) |
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51 |
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10 |
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(552) |
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32 |
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Net earnings (loss) |
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633 |
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(349) |
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663 |
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(1,497) |
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Other comprehensive income (loss), net of tax: |
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Unrealized gains (loss) on securities: |
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Unrealized holding gains arising during the period |
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2 |
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3 |
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1,587 |
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3 |
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Reclassification adjustment for gains included in earnings |
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0 |
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0 |
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(1,588) |
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0 |
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Other comprehensive income (loss) |
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2 |
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3 |
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(1) |
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3 |
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Comprehensive income (loss) |
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$ |
635 |
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$ |
(346) |
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$ |
662 |
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$ |
(1,494) |
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Basic and diluted earnings (loss) per common share |
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$ |
0.16 |
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$ |
(0.08) |
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$ |
0.16 |
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$ |
(0.37) |
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See accompanying notes to consolidated financial statements.
Comdisco Holding Company, Inc.
Consolidated Balance Sheets – June 30, 2014 (Unaudited) and September 30, 2013
(in thousands, except share data)
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June 30, 2014 |
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September 30, 2013 |
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ASSETS |
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Cash and cash equivalents |
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$ |
32,526 |
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$ |
27,671 |
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Cash – legally restricted |
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4,000 |
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4,000 |
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Short-term investment |
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0 |
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4,340 |
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Equity investments |
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697 |
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697 |
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Income tax receivable |
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0 |
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753 |
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Assets held in trust for deferred compensation plan |
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503 |
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490 |
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Other assets |
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230 |
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353 |
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Total assets |
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$ |
37,956 |
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$ |
38,304 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Accounts payable |
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$ |
90 |
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$ |
88 |
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Income taxes payable |
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89 |
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1,076 |
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Other liabilities: |
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Accrued compensation |
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1,420 |
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1,304 |
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Contingent Distribution Rights |
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11,165 |
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11,306 |
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Other liabilities |
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168 |
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168 |
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Total other liabilities |
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12,753 |
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12,778 |
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Total liabilities |
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12,932 |
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13,942 |
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Stockholders’ equity |
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Common Stock $.01 par value. Authorized 10,000,000 shares; originally issued 4,200,000 shares; 4,028,951 shares issued and outstanding at June 30, 2014 and September 30, 2013 |
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70 |
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70 |
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Additional paid-in capital |
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28,414 |
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28,414 |
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Accumulated other comprehensive income |
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2 |
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3 |
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Accumulated deficit |
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(3,462) |
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(4,125) |
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Total stockholders’ equity |
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25,024 |
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24,362 |
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$ |
37,956 |
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$ |
38,304 |
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See accompanying notes to consolidated financial statements.
Comdisco Holding Company, Inc.
Consolidated Statements of Cash Flows – Nine months ended June 30, 2014 and 2013 (Unaudited)
(in thousands)
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Nine Months Ended |
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2014 |
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2013 |
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Cash flows from operating activities: |
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Equity investment proceeds net of sharing |
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$ |
1,590 |
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$ |
112 |
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Bad debt recoveries, interest and other revenue |
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613 |
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244 |
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Selling, general and administrative expenses |
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(1,695) |
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(1,770) |
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Income tax payments |
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(354) |
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0 |
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Income tax receipts |
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733 |
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0 |
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Net cash provided by (used in) operating activities |
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887 |
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(1,414) |
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Cash flows from investing activities: |
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Redemption of short –term investment |
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4,003 |
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(55) |
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Net cash provided by (used in) investing activities |
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4,003 |
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(55) |
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Effect of exchange rates on cash and cash equivalents |
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(35) |
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(30) |
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Net increase (decrease) in cash and cash equivalents |
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4,855 |
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(1,499) |
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Cash and cash equivalents at beginning of period |
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27,671 |
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29,349 |
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Cash and cash equivalents at end of period |
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$ 32,526 |
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$ |
27,850 |
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See accompanying notes to consolidated financial statements.
Comdisco Holding Company, Inc.
Consolidated Statements of Cash Flows (Unaudited) - Continued
(in thousands)
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Nine Months Ended |
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2014 |
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2013 |
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Reconciliation of net earnings (loss) to net cash provided by (used in) operating activities: |
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Net earnings (loss) |
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$ |
663 |
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$ |
(1,497) |
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Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: |
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Taxes payable and other tax balances |
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89 |
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32 |
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Change in Canadian income tax receivables/payables |
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(262) |
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0 |
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Contingent Distribution Rights |
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(141) |
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27 |
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Receivables |
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10 |
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3 |
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Selling, general and administrative expenses |
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230 |
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(267) |
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Other, including foreign exchange |
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298 |
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288 |
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Net cash provided by (used in) operating activities |
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$ |
887 |
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$ |
(1,414) |
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See accompanying notes to consolidated financial statements.
COMDISCO HOLDING COMPANY, INC.
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2014
The following discussion and analysis should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 2 of Part I and in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, and with the Consolidated Financial Statements and related notes in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013. Capitalized terms used but not defined in this Quarterly Report on Form 10-Q have the meanings as defined in the Company’s First Amended Joint Plan of Reorganization (the “Plan”).
1. Reorganization
On July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy court”) (consolidated case number 01-24795). Comdisco Holding Company, Inc., as the successor company to Comdisco, Inc., emerged from bankruptcy under the Plan that became effective on August 12, 2002. For financial reporting purposes only, however, the effective date for implementation of fresh-start reporting was July 31, 2002.
Comdisco Holding Company, Inc. (the “Company”) was formed on August 8, 2002 for the purpose of selling, collecting or otherwise reducing to money in an orderly manner the remaining assets of the Company and all of its direct and indirect subsidiaries, including Comdisco, Inc. The Company’s business purpose is limited to the orderly sale or collection of all its remaining assets. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose.
Litigation Trust: In February 1998, pursuant to Comdisco, Inc.’s Shared Investment Plan (the “SIP”), 106 employees (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”). The Company and the SIP Lenders subsequently reached a settlement on the Guaranty that was approved by the Bankruptcy court on December 9, 2004. The Plan and the litigation trust agreement provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants and their respective promissory notes be placed in a trust for the benefit of the C-4 creditors (the “Trust Assets”). Under the Plan, the Litigation Trust is solely responsible for collection of amounts due on the promissory notes of the sixty-nine SIP Participants who did not take advantage of the SIP Relief (as defined in the Plan). The Company has a limited indemnification obligation to the litigation trustee under the litigation trust agreement.
SIP Litigation: On February 4, 2005, the Litigation Trust commenced lawsuits both in the United States District Court for the Northern District of Illinois (the “Federal SIP Lawsuits”) and in the Circuit Court of Cook County Illinois (the “State SIP Lawsuits”) to collect on the remaining SIP Participants’ promissory notes.
Federal SIP Lawsuits: The Litigation Trust filed and a federal district court judge entered summary judgments (and amended judgments) against all but one of the SIP Participants who were defendants in the federal cases (the “Federal SIP Defendants”) on their respective SIP promissory notes, and the Litigation Trust commenced collection actions against them. Additionally, the federal district court judge entered orders directing that certain CDRs and related proceeds held by the estate of Comdisco, Inc. and Computershare (f/k/a BNY Mellon) (holder of CDRs) on behalf of those Federal SIP Defendants be turned over to the Litigation Trust. Pursuant to such orders, the Company turned over CDRs and related proceeds and will continue to do so if additional orders are entered.
The Federal SIP Defendants filed appeals on those judgments. On October 18, 2010, the Seventh Circuit affirmed the rulings in favor of the Litigation Trust, but remanded certain fraud issues to the trial court. On November 1, 2010, the Federal SIP Defendants filed a petition for a hearing before the full appellate panel. On June 28, 2011, the Seventh Circuit ruled vacating the summary judgments and remanding the cases for further proceedings.
Following a series of motions, hearings and the completion of discovery, at a hearing on July 8, 2013, Judge Robert Gettleman set a trial date for September 23, 2013. The trial’s actual start date was September 24, 2013 and the witness testimony and evidentiary phase was substantially completed on October 10, 2013. On December 17, 2013 the judge amended the post-trial briefing schedule with January 24, 2014 as the date Joint Submission of Facts were to be filed, February 7, 2014 as the date for opening post-trial briefs, February 28, 2014 as the date for response briefs to be filed and April 16, 2014 as the date for Oral Arguments. On January 27, 2014, the Joint Summary of Trial Record and Testimony was filed. On February 25 and 26, 2014, post-trial briefs were filed. On March 26 and 27, 2014 responsive briefs were filed. The judge heard oral arguments on April 16, 2014 and took the matter under advisement and would alert the parties when he came to either a partial or complete decision. As of the date of this filing, no ruling has been received from the judge.
State SIP Lawsuits: The Litigation Trust filed summary judgments against all of the SIP Participants who are defendants in the state cases (the “State SIP Defendants”, and, together with the Federal SIP Defendants, the “SIP Defendants”). Three of the State SIP Defendants filed Cross Motions for Summary Judgment. A hearing in the Circuit Court of Cook County on all of the summary judgment motions in the state cases was held on May 12, 2010, and the judge granted the summary judgments in favor of the Litigation Trust and denied the various motions for summary judgment filed by the State SIP Defendants.
On January 25, 2013, Judge Tailor set: March 1, 2013 as the deadline for served and pending discovery; the expert discovery cut-off date as May 31, 2013; and, a trial date for August 5 through 23, 2013. On July 11, 2013, an agreed order was entered changing the trial date to August 12, 2013.
The remaining State SIP Defendants and the litigation trustee entered into an agreed Stipulation And Order (the “Stipulation”) which, among other things, stays the trials in the state cases pending the resolution and any appeal of the trial in the federal cases. On August 12, 2013, the Stipulation was approved by Judge Tailor. On July 29, 2014, the judge set the next status hearing for September 30, 2014.
Litigation Trust Reports: By early 2005, sixty-nine SIP Participant’s promissory notes were transferred to the Litigation Trust. As reported in various Status Reports of Comdisco Litigation Trustee, of the sixty-nine SIP Participants: forty-one have settled or otherwise resolved their obligation; twelve have filed personal bankruptcy; and, sixteen notes remain outstanding (five in the federal court and eleven in the state court). During the quarter ended June 30, 2014, the Litigation Trust did not reach any settlements, which leaves the total number of promissory notes settled or otherwise resolved by the Litigation Trust at forty-one.
For more details regarding the Litigation Trust and related proceedings, please refer to the Status Reports of Comdisco Litigation Trustee filed quarterly in the Bankruptcy court. Any proceeds collected by the Litigation Trust, net of expenses, will be considered Trust Assets and distributed in accordance with the Plan and the litigation trust agreement.
2. Basis of Presentation and Recently Issued Accounting Pronouncements
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules of the SEC for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. The information furnished herein includes all adjustments, consisting of normal recurring adjustments except where indicated, which are, in the opinion of management, necessary for a fair presentation of the results of operations for these interim periods.
The results of operations for the three and nine months ended June 30, 2014 are not necessarily indicative of the results to be expected for the entire fiscal year ending September 30, 2014.
These financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended September 30, 2013 included in the Annual Report on Form 10-K, as filed with the SEC on December 11, 2013.
The preparation of 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 amounts reported in the consolidated financial statements and the related notes. Actual results could differ from these estimates and
may affect future results of operations and cash flows. We have evaluated subsequent events through the date of this filing. We do not believe there are any material subsequent events which would require further disclosure.
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption.
3. Equity Investments
The Company’s estimate of the fair value of its private company investments (“Equity Investments”) was made in consultation with Windspeed Acquisition Fund GP, LLC (“Windspeed”), a professional management group, who manages the Company’s Equity Investments on an ongoing basis. Windspeed shares in the net receipts from the sale of the Company’s Equity Investments at a set percentage in certain designated portions of the portfolio of companies. The Windspeed February 2004 management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011) until February 20, 2013 (the “Initial Extension”). The Windspeed management agreement was again extended effective February 21, 2013 through February 20, 2015 (the “Second Extension”). Prior to the Initial Extension, Windspeed received fixed and declining management fees. Under the terms of the Initial and Second Extensions, Windspeed is not, and will not, be paid any ongoing management fees. In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio will go to Windspeed. Realized gains on the sale of Equity Investments continue to be reduced by sharing amounts under the management agreement. Additionally, Windspeed shares in the net receipts from the sale of certain of the Company’s Equity Investments at a set percentage. The Company has received approximately $71,042,000 in proceeds (prior to management fees and sharing) since the inception of the management agreement with Windspeed. Windspeed has received a combined $12,779,000 in management fees and sharing through June 30, 2014. Management fees are expensed when incurred and realized gains on the sale of Equity Investments are reduced by sharing amounts under the management agreement.
Realized gains or losses are recorded on the trade date based upon the difference between the proceeds and the cost basis determined using the specific identification method. Net realized gains are included in revenue in the consolidated statements of operations.
Marketable equity securities:
Changes in the valuation of available-for-sale securities are included as changes in the unrealized holding gains (losses) in accumulated other comprehensive income (loss). At June 30, 2014, the Company did not own shares in any public company.
In addition, the Company holds a limited number of securities in trust for a deferred compensation plan which are not available for distribution under the Plan.
The Company’s practice is to work in conjunction with Windspeed to sell its marketable equity securities within a reasonable period of time after the expiration of the lockup period, utilizing various timing strategies which seek to maximize the return to the Company. However, in the future, there is no assurance as to whether or not the Company either will be able to liquidate such positions held for any lockup period or realize any amount on such positions.
Equity investments in private companies:
The Company’s policy for assessing the carrying value of Equity Investments is, in consultation with Windspeed, to regularly review and estimate the fair value of such Equity Investments.
The Company identifies and records impairment losses on Equity Investments when market and customer specific events and circumstances indicate the carrying value might be impaired. All write-downs are considered permanent impairments for financial reporting purposes.
4. Income Taxes
As of June 30, 2014, the Company files income tax returns in the U.S. federal jurisdiction and the State of Illinois. On May 20, 2014, the Company filed its final tax return in Canada.
As of the date of this filing, the federal tax years open to examination in the U.S. are fiscal years ended September 30, 2011 through September 30, 2013.
During the nine months ended June 30, 2014, the Company’s Canadian subsidiary, Comdisco Canada Limited (“CCL”), was liquidated and paid a withholding tax to the Canada Revenue Agency (“CRA”) on the liquidating distribution arising in the amount of approximately $257,000. The Company has filed its final Canadian tax return and received the final Notice of Assessment dated July 17, 2014 showing a zero balance.
Uncertain Tax Positions:
During the nine months ended June 30, 2014, the Company reversed income tax liabilities included in the Company’s consolidated balance sheets related to CCL of approximately $792,000.
5. Stockholders’ Equity
As of June 30, 2014, the Company had 4,028,951 shares of Common Stock issued and outstanding.
Stockholders’ equity consists of the following (in thousands):
|
|
|
Common |
|
Additional |
|
Accumulated |
|
Retained |
|
Total
|
| |||||
|
Balance at September 30, 2013 |
|
$ |
70 |
|
$ |
28,414 |
|
$ |
3 |
|
$ |
(4,125) |
|
$ |
24,362 |
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net earnings |
|
|
|
|
|
|
|
663 |
|
663 |
| |||||
|
Other comprehensive (loss) |
|
|
|
|
|
(1) |
|
|
|
(1) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Balance at June 30, 2014 |
|
$ |
70 |
|
$ |
28,414 |
|
$ |
2 |
|
$ |
(3,462) |
|
$ |
25,024 |
|
6. Other Financial Information
The Company holds legally restricted cash in the amount of $4,000,000 as of June 30, 2014 and September 30, 2013 which is an indemnification reserve set aside by the Company for any potential indemnified losses in lieu of the litigation trustee purchasing insurance coverage.
Other liabilities consist of the following (in thousands):
|
|
|
June 30, |
|
September 30, |
|
|
Accrued compensation |
$ |
1,420 |
$ |
1,304 |
|
|
CDRs |
|
11,165 |
|
11,306 |
|
|
Other liabilities |
|
168 |
|
168 |
|
|
|
$ |
12,753 |
$ |
12,778 |
|
The liability for accrued compensation includes payroll and estimated amounts payable under the Company’s Bankruptcy court approved compensation plans.
The Company estimates the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, and other expected cash inflows in excess of book value, including estimated future interest income, estimated recoveries and the potential net distributions from the Litigation Trust for which estimates are currently not determinable.
Other liabilities include an accrued VAT liability of approximately $168,000 for a foreign jurisdiction.
7. Financial Information by Geographic Area
Since the year ended September 30, 2013, all revenues generated and assets held are in North America.
8. Fair Value Measurements
The three levels of inputs used to measure fair value are as follows:
· Level 1 - Quoted prices in active markets for identical assets and liabilities
· Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
· Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The Company’s financial assets that are measured at fair value on a recurring basis are measured using Level 1 and Level 2 inputs. However, the Company records the carrying value of its private equity investments at lower of cost or fair market value which is measured using Level 3 inputs.
The Company has included a tabular disclosure for financial assets that are measured at fair value on a recurring basis in the consolidated balance sheet as of the period ending June 30, 2014 and the year ending September 30, 2013. The Company currently holds no financial liabilities that are measured at fair value on a recurring basis.
|
|
|
June 30, 2014 |
| ||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
| ||||
|
Money market accounts |
|
$ |
32,385,000 |
|
$ |
0 |
|
$ |
0 |
|
$ |
32,385,000 |
|
|
Certificates of deposit (A) |
|
0 |
|
0 |
|
0 |
|
0 |
| ||||
|
Equity Investments (B) |
|
0 |
|
0 |
|
10,268,000 |
|
10,268,000 |
| ||||
|
Assets held in trust for deferred compensation plan (C) |
|
503,000 |
|
0 |
|
0 |
|
503,000 |
| ||||
|
Total |
|
$ |
32,888,000 |
|
$ |
0 |
|
$ |
10,268,000 |
|
$ |
43,156,000 |
|
|
|
|
September 30, 2013 |
| ||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
| ||||
|
Money market accounts |
|
$ |
26,845,000 |
|
$ |
0 |
|
$ |
0 |
|
$ |
26,845,000 |
|
|
Certificates of deposit (A) |
|
0 |
|
4,340,000 |
|
0 |
|
4,340,000 |
| ||||
|
Equity Investments (B) |
|
0 |
|
0 |
|
8,875,000 |
|
8,875,000 |
| ||||
|
Assets held in trust for deferred compensation plan (C) |
|
490,000 |
|
0 |
|
0 |
|
490,000 |
| ||||
|
Total |
|
$ |
27,335,000 |
|
$ |
4,340,000 |
|
$ |
8,875,000 |
|
$ |
40,550,000 |
|
(A) Certificates of deposit were held in Canada and were redeemed during February 2014.
(B) Equity Investments in Level 3 include stock in three privately held companies.
(C) Assets held in trust for deferred compensation plan are made up of bonds, equity and money market funds that are actively traded.
These assets are held in a Rabbi Trust for the benefit of deferred employee compensation and are not available for distribution under the Plan.
Reconciliation of financial assets measured at fair value on a recurring basis using Level 3 inputs for the period ended June 30, 2014 and the year ended September 30, 2013 is as follows:
|
|
|
Fair Value |
|
Realized |
|
Change in |
|
Decrease due to |
|
Increase due to |
|
Decrease in cost |
|
Decrease due to |
|
Fair Value |
|
|
Level 3 only Equity Investments |
|
$8,875,000 |
|
$ 0 |
|
$1,393,000 |
|
$ 0 |
|
$ 0 |
|
$ 0 |
|
$ 0 |
|
$10,268,000 |
|
|
|
|
Fair Value |
|
Realized |
|
Change in |
|
Decrease due to |
|
Increase due to |
|
Decrease in cost |
|
Decrease due to |
|
Fair Value |
|
|
Level 3 only Equity Investments |
|
$5,166,000 |
|
$ (112,000 |
) |
$3,821,000 |
|
$ 0 |
|
$ 0 |
|
$ 0 |
|
$ 0 |
|
$8,875,000 |
|
In accordance with the provisions of ASC Topic 320, “Accounting for Certain Investments in Debt and Equity Securities,” marketable equity investments (equity investments having a readily determinable fair value) would have a carrying value and a fair value based on quoted market prices. The Company’s practice is to sell its marketable equity investments upon the expiration of the lock-up period.
Equity Investments consist primarily of preferred stock holdings in three private companies which are carried at the lower of cost or fair market value in the Company’s financial statements. The carrying value of Equity Investments is $697,000 and the fair market value measured using Level 3 inputs is $10,268,000, net of sharing. These Equity Investments are subject to significant volatility and are difficult to value. The fair value of the Company’s Equity Investments was determined in consultation with Windspeed based on the market approach, including, but not limited to, quoted trading levels for publicly-traded securities in similar industries and/or markets, 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, as of June 30, 2014, the total portfolio of three companies which has an estimated fair market value of $10,268,000 is subject to significant concentration risk, as follows: 99% of such value is in two individual companies, and approximately 94% of such value is in one individual company.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013. This discussion contains forward-looking information. Please see “Forward-Looking Statements” and Part II, Item 1A, “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements.
THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE COMPANY’S FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE “PLAN”) AND RESTRICTIONS CONTAINED IN THE COMPANY’S CERTIFICATE OF INCORPORATION (THE “CERTIFICATE”), THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS (“CDRs”) IN THE MANNER AND PRIORITIES SET FORTH IN THE PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS AND NO FURTHER DISTRIBUTIONS WILL BE MADE. THE COMPANY FILED, ON AUGUST 12, 2004, A CERTIFICATE OF DISSOLUTION WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE TO FORMALLY EXTINGUISH COMDISCO HOLDING COMPANY, INC.’S CORPORATE EXISTENCE WITH THE STATE OF DELAWARE EXCEPT FOR THE PURPOSE OF COMPLETING THE WIND-DOWN CONTEMPLATED BY THE PLAN.
General
Wind-Down of Operations
Since emerging from bankruptcy proceedings on August 12, 2002, the Company has, pursuant to the Plan, focused on the monetization of its remaining assets. Therefore, comparisons of quarter-to-quarter or year-to-year results of operations should not be relied upon as an indication of the Company’s future performance. Capitalized terms used but not defined in this section shall have the meanings as defined in the Plan.
The Company has reduced, and expects to continue to reduce, the size and complexity of its organizational and systems infrastructure concurrently with the monetization of its assets. As of the date of this filing, the Company had a total of five employees (one full-time and four part-time), a decrease of approximately 99 percent from approximately 600 employees upon emergence on August 12, 2002. Several consultants periodically assist the Company on a consulting basis.
On August 12, 2004, Randolph I. Thornton’s appointment as Initial Disbursing Agent became effective. As Initial Disbursing Agent, Mr. Thornton performs the roles and responsibilities of the Board of Directors and officers of the Company, including all measures that are necessary to complete the administration of the reorganized debtors’ Plan and Chapter 11 cases. Mr. Thornton serves as Chief Executive Officer, President and Secretary and is the sole director and executive officer of the Company.
Overview
On July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries voluntarily filed for bankruptcy.
Comdisco Holding Company, Inc., as the successor company to Comdisco, Inc., emerged from bankruptcy under a confirmed plan of reorganization that was effective on August 12, 2002. In accordance with the Plan, Comdisco Holding Company, Inc. became the successor to Comdisco, Inc.
Since the Company emerged from Chapter 11 bankruptcy proceedings on August 12, 2002, the Company’s business activities have been limited to the orderly sale or run-off of all of its existing asset portfolios. Pursuant to the
Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose. Since emerging from bankruptcy, the Company has not engaged in any new leasing or financing activities, except for previously existing customer commitments and to restructure existing equipment leases and loans to maximize the value of the Company’s assets.
The Company maintains sufficient cash reserves for the potential CDR liability, including any potential liability arising from any net distributions by the Litigation Trust to C-4 creditors. The outcome and timing of any actual net distributions by the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments. See below for “Critical Accounting Policies”.
The Company has material restrictions on its ability, and does not expect, to make significant investments in new or additional assets. The Company continually evaluates opportunities for the orderly sale and collection of its remaining assets. Accordingly, within the next few years, it is anticipated that the Company will have reduced all of its assets to cash, determined its final CDR liability after the resolution of the pending SIP litigation, resolved its final federal and state tax obligations, and made distributions of all available cash to holders of its common stock and CDRs in the manner and priorities set forth in the Plan and completed all regulatory filings. At that point, the Company will cease operations.
The Company’s revenues are generated primarily by sales of equity securities, miscellaneous income and interest income on cash balances. Because of the Company’s declining assets, revenue will continue to decline and, because of the Company’s limited business purpose, this trend is expected to continue. The Company’s expenses are primarily selling, general and administrative expenses and CDRs. As a result of the wind-down of operations, the Company expects total costs and expenses to remain at, or slightly less than current levels, subject to volatility in the amount of expense associated with the liability for CDRs and the timing of payments related to selling, general and administrative expenses.
The Company’s operations continued to wind-down during the nine months ended June 30, 2014. The Company’s assets at June 30, 2014 consisted primarily of cash and cash-equivalents and equity securities. The timing of the sale of equity securities is uncertain. The equity securities portfolio requires liquidity events before certain of these assets can be converted to cash. In addition, the Company, as a former lessor, has a few remaining leases in default whereby collection efforts are underway to support a recovery on those limited number of accounts. Receipts, if any, will be in excess of the respective carrying value of these assets because the related lease receivables were previously written-off.
Equity Investments: The Company holds preferred stock in other private companies (the “Equity Investments”). The Company carries such Equity Investments at the lower of cost or estimated fair market value in its financial statements. Any write-downs in the carrying value of such Equity Investments are considered permanent for financial reporting purposes. See Note 3 of Notes to Consolidated Financial Statements and “Critical Accounting Policies.” It is management’s expectation that the amount ultimately realized on such Equity Investments will, in the aggregate, exceed the $697,000 carrying amount reflected in the financial statements as of June 30, 2014.
The Company’s estimate of the fair value of its Equity Investments was made in consultation with Windspeed Acquisition Fund GP, LLC (“Windspeed”), a professional management group, which the Company engaged in February 2004, who manages the Company’s Equity Investments on an ongoing basis. Windspeed shares in the net receipts from the sale of the Company’s Equity Investments at a set percentage in certain designated portions of the portfolio of companies.
The Windspeed management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011) until February 20, 2013 (the “Initial Extension”). The Windspeed management agreement was again extended effective February 21, 2013 through February 20, 2015 (the “Second Extension”). Prior to the Initial Extension, Windspeed received fixed and declining management fees. Under the terms of the Initial and Second Extensions, Windspeed is not, and will not, be paid any ongoing management fees. In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio will go to Windspeed. Realized gains on the sale of Equity Investments continue to be reduced by sharing amounts under the management agreement. Additionally, Windspeed shares in the net receipts from the sale of certain of the Company’s Equity Investments at a set percentage.
The Company estimates that the realizable value for its Equity Investments, net of sharing with Windspeed (see table below), at June 30, 2014 is approximately $10,268,000. However, there is no assurance as to the timing or the
amount the Company will ultimately realize on such Equity Investments. Furthermore, as of June 30, 2014, the total portfolio of three companies, which has an estimated fair market value of approximately $10,268,000, is subject to significant concentration risk, as follows: 99% of such value is in two individual companies, and approximately 94% of such value is in one individual company.
The following table summarizes the changes in the estimated value of the Company’s Equity Investments since September 30, 2013 (in thousands):
|
|
|
Public |
|
Private |
|
|
September 30, 2013 estimated realizable value |
$ |
0 |
$ |
8,875 |
|
|
Increase in net unrealized estimated value |
|
1,588 |
|
1,393 |
|
|
Realized, net of fees |
|
(1,588) |
|
0 |
|
|
|
|
|
|
|
|
|
June 30, 2014 estimated realizable value |
$ |
0 |
$ |
10,268 |
|
(1) Carrying value of public companies for financial statements is market value. See Note 3 of Notes to Consolidated Financial Statements.
(2) Net of sharing with asset recovery firm.
(3) Carrying value of private companies for financial statements is the lower of cost or fair value, or approximately $697,000.
(4) Net of sharing with Windspeed under the extended management agreement.
Collections and recoveries: The Company has potential collections and recoveries on a limited number of remaining accounts previously written off. Recoveries involve prior lessees or debtors now in bankruptcy and against whom the Company has filed and is pursuing claims to maximize its recoveries. The Company’s cost basis in these accounts is nominal. Additionally, the Company, periodically, recovers unclaimed property from various states.
Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to use estimates and assumptions that affect reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. These estimates are subject to known and unknown risks, uncertainties and other factors that could materially impact the amounts reported and disclosed in the consolidated financial statements.
The SEC issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” which recommends that companies provide additional disclosure and analysis of those accounting policies considered most critical.
The Company believes the following to be among the most critical judgment areas in the application of its accounting policies:
· CDRs and CDR Liability: The Plan entitles holders of Comdisco Holding’s CDRs to share at increasing percentages in the proceeds realized from the monetization of the Company’s assets based upon the present value of distributions made to the general unsecured creditors in the bankruptcy estate of Comdisco, Inc.
The Company estimates the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, and other expected cash inflows in excess of book value, including estimated future interest income, estimated recoveries and any potential net distributions from the Litigation Trust for which estimates are currently not determinable.
· Equity Investments In Private Companies: Equity Investments consist primarily of preferred stock holdings in three private companies which are carried at the lower of cost or estimated fair market value in
the financial statements. The Company, in consultation with Windspeed, regularly estimates the value of Equity Investments and adjusts carrying values when market and customer specific events and circumstances indicate that such assets might be impaired. All write-downs are considered permanent impairments for financial reporting purposes. At June 30, 2014, the carrying value of the Company’s Equity Investments was approximately $697,000 and the estimated fair market value was approximately $10,268,000.
· Income Taxes: The Company establishes liabilities or reduces assets for uncertain tax positions when the Company believes certain tax positions are not more likely than not to be sustained if challenged. Each fiscal quarter, the Company evaluates these uncertain tax positions and adjusts the related tax assets and liabilities in light of changing facts and circumstances.
The above listing is not intended to be a comprehensive list of all the Company’s accounting policies. Please refer to the Company’s annual Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, which contain the Company’s significant accounting policies and other disclosures required by accounting principles generally accepted in the United States of America.
Recent Developments
Outstanding Escrow
During the quarter ended December 31, 2013, the Company resolved the final outstanding item in order to seek a release of the remaining funds held in an indemnity escrow related to a 2002 sale of its business in France and requested the release of the funds by the purchaser. The Company made requests of the purchaser to release the funds, but no response was received during the quarter ended March 31, 2014. On April 11, 2014, the Company received notification that the purchaser would satisfy the obligation. On April 22, 2014, the Company received $411,000 in full satisfaction of the escrow.
Proceeds from Sale of Investment
The Company entered into an agreement to sells its debt and equity positions on March 31, 2014 and April 1, 2014, respectively, in an investment in India that was previously written off. The Company received approximately $100,000 during the quarter ended June 30, 2014.
Bankruptcy Proceeding
The Company continues to appear before the Bankruptcy court from time to time to clarify and administer matters related to the Plan and the wind down of the operations of the Company. On June 28, 2011, the bankruptcy case of Comdisco, Inc., case no. 01-24795, was reassigned from Judge Bruce Black to Judge Jack Schmetterer. The judge held a status hearing on November 5, 2012. As of the filing of this report, the judge has not set another status hearing.
The litigation trustee has engaged in settlement discussions with certain defendants in the note enforcement cases and attended a series of meetings on November 13 and 27, 2012, December 6, 2012, January 4 and 25, 2013, February 15, 2013, and March 8, 2013 in the bankruptcy proceedings with Judge Schmetterer intended to facilitate such discussions. As of the filing of this report, the Company has not been notified whether another mediation meeting has been scheduled by the judge.
Litigation Trust Ongoing Litigation
See Note 1 of Notes to Consolidated Financial Statements for further details regarding the Litigation Trust ongoing litigation.
Litigation Trust Termination Motion
On March 16, 2006, a motion was filed in the Bankruptcy court for the Northern District of Illinois on behalf of certain SIP Participants who had filed proofs of claim in the Comdisco, Inc. bankruptcy (“SIP Claimants”). The motion sought an order from the Bankruptcy court terminating the Litigation Trust. On July 20, 2006, the Bankruptcy court
judge denied the motion of the SIP Claimants. On August 18, 2006, the SIP Claimants appealed the Bankruptcy court judge’s denial of their motion. On January 30, 2007, the federal district court judge affirmed the denial of the motion. The SIP Claimants appealed the denial to the US Circuit Court of Appeals for the 7th Circuit. A mandatory mediation was held on April 20, 2007. The mediation was adjourned and no settlement was achieved by the parties. The parties briefed the appeal, and oral arguments were held before the Appellate Court on November 26, 2007. On August 13, 2008, the Appellate Court ruled and dismissed the appeal for lack of jurisdiction. As of the date of this filing, there have been no further proceedings on this matter.
Results of Operations
Three Months Ended June 30, 2014 compared to the Three Months Ended June 30, 2013
Revenue
Changes in total revenue for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 were as follows (in thousands):
|
|
|
Three months ended June 30, |
|
|
|
|
| |||||
|
|
|
2014
|
|
2013
|
|
Increase |
|
Explanation of Change |
| |||
|
Interest income |
|
$ |
11 |
|
$ |
7 |
|
$ |
4 |
|
Interest earned on cash balances. |
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Total revenue |
|
$ |
11 |
|
$ |
7 |
|
$ |
4 |
|
|
|
Costs and Expenses
Changes in total costs and expenses for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 were as follows (in thousands):
|
|
|
Three months ended |
|
Increase |
|
|
| |||||
|
|
|
2014 |
|
2013 |
|
(Decrease) |
|
Explanation of Change |
| |||
|
Selling, general and administrative |
|
$ |
575 |
|
$ |
206 |
|
$ |
369 |
|
(A) |
|
|
Contingent Distribution Rights |
|
(827) |
|
87 |
|
(914) |
|
(B) |
| |||
|
Foreign exchange loss |
|
0 |
|
112 |
|
(112) |
|
(C) |
| |||
|
Bad debt recoveries |
|
(421) |
|
(59) |
|
(362) |
|
(D) |
| |||
|
Total costs and expenses |
|
$ |
(673) |
|
$ |
346 |
|
$ |
(1,019) |
|
|
|
(A) SG&A expense in the quarter ended June 30, 2013 included the reversal of $340,000 for an accrued liability for a bank guaranty in The Netherlands.
(B) The reduction in CDR expense in the quarter ended June 30, 2014 is primarily the result of higher estimated future SG&A expenses due to: the delay in realizing on certain Equity Investments; the need to reach closure on outstanding and anticipated state and federal taxes; and, the lack of final resolution of the SIP Litigation, all of which are needed to determine the ultimate CDR liability. The increase in CDR expense in the quarter ended June 30, 2013 was primarily the result of the reduction in the bank guaranty accrued liability in that quarter that increased the CDR liability. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” for more information.
(C) Foreign exchange loss in the quarter ended June 30, 2013 related to the strengthening of the U.S. dollar in that quarter against the Canadian Dollar as the Company’s foreign subsidiaries held monetary assets denominated in Canadian dollars in that quarter. As of June 30, 2014, the Company no longer has assets denominated in Canadian dollars.
(D) The recoveries received during the quarter ended June 30, 2014 were primarily the result of the receipt of a final outstanding indemnity escrow related to a 2002 sale of its business in France.
Income Taxes
The Company recorded approximately $51,000 in U.S. federal income and Illinois state tax expense for the three months ended June 30, 2014, driven by the Federal Alternative Minimum Tax and state tax impact on the bad debt recoveries. The Company recorded no U.S. federal income tax expense for the three months ended June 30, 2013.
The Company recorded no income tax expense for the Company’s Canadian subsidiary, Comdisco Canada Limited (“CCL”) for the three months ended June 30, 2014. The Company recorded approximately $10,000 of income tax expense for CCL for the three months ended June 30, 2013.
Net earnings (loss)
Net earnings were approximately $633,000, or $0.16 per share-basic and diluted, for the three months ended June 30, 2014, compared to a net loss of approximately $349,000, or ($0.08) per share-basic and diluted, for the three months ended June 30, 2013.
Nine Months Ended June 30, 2014 Compared to the Nine Months Ended June 30, 2013
Revenue
Changes in total revenue for the nine months ended June 30, 2014 compared to the nine months ended June 30, 2013 were as follows (in thousands):
|
|
|
Nine months ended |
|
Increase |
|
|
| |||||
|
|
|
2014 |
|
2013 |
|
(Decrease) |
|
Explanation of Change |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
|
Gain on sale of equity and warrant securities |
|
$ |
1,590 |
|
$ |
112 |
|
$ |
1,478 |
|
Equity securities, which are primarily managed by Windspeed, represent the principal remaining revenue generating asset. See “Overview” for additional information. (A) |
|
|
Miscellaneous income |
|
100 |
|
0 |
|
100 |
|
(B) |
| |||
|
Interest income |
|
54 |
|
63 |
|
(9) |
|
Interest earned on cash balances. |
| |||
|
Total revenue |
|
$ |
1,744 |
|
$ |
175 |
|
$ |
1,569 |
|
|
|
(A) The gain on sale of equity holdings for the nine months ended June 30, 2014 was the result of the Company’s sale of its shares of Concur Technologies, Inc. compared to fewer liquidations of equity holdings in the nine months ended June 30, 2013.
(B) Miscellaneous income recorded in the nine months ended June 30, 2014 was from the sale of an investment in India that was previously written off.
Costs and Expenses
Changes in total costs and expenses for the nine months ended June 30, 2014 compared to the nine months ended June 30, 2013 were as follows (in thousands):
|
|
|
Nine months ended |
|
Increase |
|
|
| |||||
|
|
|
2014 |
|
2013 |
|
(Decrease) |
|
Explanation of Change |
| |||
|
Selling, general and administrative |
|
$ |
1,925 |
|
$ |
1,528 |
|
$ |
397 |
|
(A) |
|
|
Contingent Distribution Rights |
|
(141) |
|
27 |
|
(168) |
|
(B) |
| |||
|
Foreign exchange loss |
|
312 |
|
248 |
|
64 |
|
(C) |
| |||
|
Bad debt recoveries |
|
(463) |
|
(163) |
|
(300) |
|
Collections and recoveries. (D) |
| |||
|
Total costs and expenses |
|
$ |
1,633 |
|
$ |
1,640 |
|
$ |
(7) |
|
|
|
(A) SG&A expense in the nine months ended June 30, 2013 included the reversal of $340,000 for an accrued liability for a bank guaranty in The Netherlands.
(B) The reduction in CDR expense in the nine months ended June 30, 2014 is primarily the result of higher estimated future SG&A expenses due to: the delay in realizing on certain Equity Investments; the need to reach closure on outstanding and anticipated state and federal taxes; and, the lack of final resolution of the SIP Litigation, all of which are needed to determine the ultimate CDR liability and the impact of foreign exchange loss and U.S. tax expense in the nine months offset partially by: the gain on sale of equity investments, the reversal of income tax liabilities related to CCL and the receipt of the escrow funds. The increase in CDR expense in the nine months ended June 30, 2013 was primarily the result of the reduction in the bank guaranty accrued liability that increased the CDR liability. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” for a discussion of the potential liability from any future recoveries and distributions by the litigation trustee.
(C) Foreign exchange loss primarily related to the strengthening of the U.S. dollar against the Canadian Dollar in the nine months ended June 30, 2014 as the Company’s foreign subsidiaries held monetary assets denominated in Canadian dollars. As of June 30, 2014, the Company no longer has assets denominated in Canadian dollars.
(D) The recoveries received during the nine months ended June 30, 2014 included the receipt of a final outstanding indemnity escrow related to a 2002 sale of its business in France.
Income taxes
The Company recorded approximately $184,000 in U.S. federal income and Illinois state tax expense for the nine months ended June 30, 2014, driven by the Federal Alternative Minimum Tax and state tax impact on the sale of the investment in India, gain on sale of investments and bad debt recoveries. The Company recorded no U.S. federal income tax expense for the nine months ended June 30, 2013.
The Company recorded approximately $736,000 of net income tax benefit for CCL for the nine months ended June 30, 2014 due to the reversal of income tax liabilities as a result of the liquidation of CCL during the quarter ended March 31, 2014. The Company recorded approximately $32,000 of income tax expense for CCL for the nine months ended June 30, 2013. See Note 4 of Notes to Consolidated Financial Statements for information on the wind-down transactions in Canada.
Net Earnings (Loss)
Net earnings were approximately $663,000, or $0.16 per share-basic and diluted, for the nine months ended June 30, 2014 compared to a net loss of approximately $1,497,000, or ($0.37) per share-basic and diluted, for the nine months ended June 30, 2013.
Off-Balance Sheet Arrangements
The Company does not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that could be expected to have a material current or future effect upon the Company’s financial condition or results of operations.
Liquidity and Capital Resources
The Company’s liquidity generally depends on cash on hand. The Company’s cash flow from operating activities is dependent on a number of variables, including, but not limited to, operating costs and expenses to affect the wind down, income tax obligations, market conditions for the sale of Equity Investments and the ability of the Company to dispose or otherwise convert to cash 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 June 30, 2014, the Company had unrestricted cash and cash equivalents of approximately $32,526,000, which represents an increase of approximately $4,855,000 compared to September 30, 2013. Net cash provided by operating activities for the nine months ended June 30, 2014 was approximately $887,000. Net cash provided by investing activities for the nine months ended June 30, 2014 was approximately $4,003,000 from the redemption of a short-term investment in Canada. The effect of exchange rate changes on cash balances held in foreign currencies was a decrease in cash and cash equivalents of approximately $35,000 for the nine months ended June 30, 2014.
During the nine months ended June 30, 2014, approximately $1,590,000 in proceeds were generated from the Equity Investments and approximately $613,000 was received from bad debt recoveries, interest income and other revenue. The Company’s cash expenditures were primarily operating expenses of approximately $1,695,000 (principally professional services and employee compensation). The Company received tax refunds of approximately $733,000 from its Canadian subsidiary. The Company paid $259,000 in Canadian income and withholding tax payments, paid $18,000 to the Internal Revenue Service and paid $77,000 to the Illinois Department of Revenue.
The Company’s current and future liquidity depends on cash on hand and may be augmented by proceeds from the sale of Equity Investments, recoveries, if any, and interest income. The Company expects its cash on hand to be sufficient to fund operations and to meet its obligations (including its obligation to make distributions to its common stockholders and make payments to CDR holders) under the Plan for the foreseeable future.
Dividends
There were no dividends paid during the quarter ended June 30, 2014. The Company intends to treat any future dividend distributions for federal income tax purposes as part of a series of liquidating distributions in complete liquidation of the Company.
Contingent Distribution Rights
For financial reporting purposes, the Company records CDRs as a liability and as an operating expense although the CDRs trade over-the-counter.
The Plan entitles holders of CDRs to share at increasing percentages in the proceeds realized from the Company’s assets based upon the present value of distributions to certain C-4 creditors in the bankruptcy estate of Comdisco, Inc. As of June 30, 2014, the sharing percentage was 37%, which is the maximum sharing percent. As of the date of this filing, there were 1,852 holders of record of the Company’s CDRs and there were 148,448,188 outstanding CDRs.
The Company maintains sufficient cash reserves for operations and the potential CDR liability arising from the Company’s equity and any potential net distributions from the Litigation Trust to the C-4 creditors. The outcome and the timing of the actual net distributions from the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments.
Since September 30, 2008, the Company has estimated, and will continue to estimate, the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, and other expected cash inflows in excess of book value, including estimated future interest income, estimated recoveries and any potential net distributions from the Litigation Trust for which estimates are currently not determinable.
CDR Payment
There were no CDR payments during the quarter ended June 30, 2014.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Randolph I. Thornton, the principal executive officer and principal financial officer of the Company, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, Mr. Thornton concluded that the Company’s disclosure controls and procedures are effective as of June 30, 2014 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its president and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
There has not been any change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Section 13(a)-15 or 15(d)-15 under the Exchange Act that occurred during the Company’s third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Recent Developments” and see Note 1 of Notes to Consolidated Financial Statements for an update on the Litigation Trust ongoing litigation.
ITEM 1A. RISK FACTORS RELATING TO THE COMPANY
There have been no material updates to the Risk Factors as set forth in Item 1A. of our Annual Report on Form 10-K, filed with the SEC on December 11, 2013.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
None.
Repurchases of Common Stock
The Company does not regularly repurchase shares nor does the Company have a share repurchase plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None
|
Exhibit No. |
|
Description of Exhibit |
|
3.1 |
|
Certificate of Incorporation of Registrant dated August 8, 2002 and as Amended August 12, 2004 (Incorporated by reference to Exhibit 3.1 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004, as filed with the SEC 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 for the fiscal year ended September 30, 2002, as filed with the SEC on January 14, 2003, File No. 0-49968). |
|
11.1 |
|
Statement re computation of per share earnings (Filed herewith). |
|
31.1 |
|
Certification of Principal Executive Officer and Principal Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith). |
|
32.1 |
|
Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith). |
|
101.INS* |
|
Instance document (Filed herewith). |
|
101.SCH* |
|
Schema document (Filed herewith). |
|
101.CAL* |
|
Calculation linkbase document (Filed herewith). |
|
101.LAB* |
|
Labels linkbase document (Filed herewith). |
|
101.PRE* |
|
Presentation linkbase document (Filed herewith). |
|
101.DEF* |
|
Definition linkbase document (Filed herewith). |
* Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
Pursuant to the requirements of 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: August 12, 2014 |
By: |
/s/ Randolph I. Thornton |
|
|
Name: |
Randolph I. Thornton |
|
|
Title: |
Chief Executive Officer and President |
|
|
|
(Principal Financial and Accounting Officer) |
Exhibit 11.1
COMDISCO HOLDING COMPANY, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(in thousands, except per share data)
Average common shares used in computing earnings (loss) per common and common equivalent share were as follows:
|
|
|
Three months ended |
|
Nine months ended |
| ||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares issued |
|
4,029 |
|
4,029 |
|
4,029 |
|
4,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) to common stockholders |
$ |
633 |
$ |
(349) |
$ |
663 |
$ |
(1,497) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per common share |
$ |
0.16 |
$ |
(0.08) |
$ |
0.16 |
$ |
(0.37) |
|
Exhibit 31.1
CERTIFICATION
I, Randolph I. Thornton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Comdisco Holding Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. As the sole officer of the registrant, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. As the sole officer of the registrant, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: August 12, 2014
|
|
By: |
/s/ Randolph I. Thornton |
|
|
Name: |
Randolph I. Thornton |
|
|
Title: |
Chief Executive Officer and President |
|
|
|
(Principal Executive Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Form 10-Q of Comdisco Holding Company, Inc. (the “Company”) for the period ending June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
|
Dated: August 12, 2014 |
By: |
/s/ Randolph I. Thornton |
|
|
Name: |
Randolph I. Thornton |
|
|
Title: |
Chief Executive Officer and President |
|
|
|
|
|
|
|
|
|
Dated: August 12, 2014 |
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.