PINX:CDCO Comdisco Holding Co Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

PINX:CDCO Fair Value Estimate
Premium
PINX:CDCO Consider Buying
Premium
PINX:CDCO Consider Selling
Premium
PINX:CDCO Fair Value Uncertainty
Premium
PINX:CDCO Economic Moat
Premium
PINX:CDCO Stewardship
Premium
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012

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
incorporation or organization)
 
(I.R.S. Employer Identification No.)

5600 North River Road
Suite 800
Rosemont, Illinois 60018
(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: (847) 698-3000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                                                                                                         Yes [  ] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer   [  ]
 
Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)
 
Smaller reporting company   [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ] No[X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  4,028,951 shares of the registrant’s common stock, $0.01 par value per share, were outstanding on April 30, 2012.
 
 
 

 

COMDISCO HOLDING COMPANY, INC.
INDEX
Page
PART I.
 
FINANCIAL INFORMATION
1
   
ITEM 1.
 
FINANCIAL STATEMENTS
1
       
Consolidated Statements of Operations – Three and six months ended March 31, 2012 and 2011 (Unaudited)
2
       
Consolidated Balance Sheets – March 31, 2012 (Unaudited) and September 30, 2011
3
       
Consolidated Statements of Cash Flows – Six months ended March 31, 2012 and 2011 (Unaudited)
4
       
Consolidated Statements of Cash Flows (Unaudited) - Continued
5
       
Notes to Consolidated Financial Statements (Unaudited)
6
   
ITEM  2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
13
   
ITEM 3.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
22
   
ITEM 4.
 
CONTROLS AND PROCEDURES
22
PART II.
 
OTHER INFORMATION
22
   
ITEM 1.
 
LEGAL PROCEEDINGS
22
   
ITEM 1A.
 
RISK FACTORS RELATING TO THE COMPANY
22
   
ITEM 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
22
   
ITEM 3.
 
DEFAULTS UPON SENIOR SECURITIES
23
   
ITEM 4.
 
MINE SAFETY DISCLOSURES
23
   
ITEM 5.
 
OTHER INFORMATION
23
   
ITEM 6.
 
EXHIBITS
23
SIGNATURES
   
24

 
 
 

 

PART I.          FINANCIAL INFORMATION
 
Forward-Looking Statements

This quarterly report on Form 10-Q contains, and our periodic filings with the Securities and Exchange Commission (the “SEC”) and written and oral statements made by the Company’s sole officer and director or any authorized representative, to press, potential investors, securities analysts and others, will contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are not historical facts, but rather are predictions and generally can be identified by use of statements that include phrases such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “foresee,” “looking ahead,” “is confident,” “should be,” “will,” “predicted,” “likely” or other words or phrases of similar import. Similarly, statements that describe or contain information related to matters such as our intent, belief, or expectation with respect to financial performance, claims resolution under the Plan (as defined below), cash availability and cost-cutting measures are forward-looking statements. These forward-looking statements often reflect a number of assumptions and involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those currently anticipated in these forward-looking statements. In light of these risks and uncertainties, the forward-looking events might or might not occur, which may affect the accuracy of forward-looking statements and cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements.

In this quarterly report on Form 10-Q, references to “the Company,” “Comdisco Holding,” “we,” “us” and “our” mean Comdisco Holding Company, Inc., its consolidated subsidiaries, including Comdisco, Inc., Comdisco Ventures Fund A, LLC (formerly Comdisco Ventures, Inc.), and its predecessors, except in each case where the context indicates otherwise. References to “Comdisco, Inc.” mean Comdisco, Inc. and its subsidiaries 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.
 
ITEM 1.    FINANCIAL STATEMENTS

THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE COMPANY’S FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE “PLAN”) AND RESTRICTIONS CONTAINED IN THE COMPANY’S CERTIFICATE OF INCORPORATION (THE “CERTIFICATE”), THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS (“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.
 

 
1

 

Comdisco Holding Company, Inc.
Consolidated Statements of Operations – Three and six months ended March 31, 2012 and 2011 (Unaudited)
(in thousands except per share data)
 
   
Three months ended
March 31,
   
Six months ended
 March 31,
 
   
2012
   
2011
   
2012
   
2011
 
Revenue
                       
Gain on sale of equity and warrant securities
  $ 122     $ 128     $ 203     $ 236  
Interest income
    34       30       66       63  
Foreign exchange gain, net
    55       185       76       351  
Miscellaneous income
    --       10       --       16  
 
Total revenue
    211       353       345       666  
 
Costs and expenses
                               
Selling, general and administrative
    784       774       1,706       1,835  
Write-down of equity securities
    --       90       --       90  
Contingent distribution rights
    547       (64 )     673       138  
Bad debt recoveries
    (24 )     (38 )     (373 )     (245 )
 
Total costs and expenses
    1,307       762       2,006       1,818  
 
(Loss) before income taxes
    (1,096 )     (409 )     (1,661 )     (1,152 )
Income tax expense (benefit)
    (1,447 )     111       (1,437 )     (1,043 )
 
Net earnings (loss)
  $ 351     $ (520 )   $ (224 )   $ (109 )
 
Basic and diluted earnings (loss) per common share
  $ 0.09     $ (0.13 )   $ (0.05 )   $ (0.03 )
 
See accompanying notes to consolidated financial statements.
 

 
2

 

Comdisco Holding Company, Inc.
Consolidated Balance Sheets – March 31, 2012 (Unaudited) and September 30, 2011
(in thousands except share data)

   
March 31,
2012
   
September 30,
2011
 
ASSETS
           
Cash and cash equivalents
  $ 30,303     $ 30,950  
Cash – legally restricted
    4,861       4,856  
Short-term investments
    3,027       2,928  
Equity investments
    534       743  
Income tax receivables
    1,516       --  
Receivable from bad debt recovery
    33       251  
Other assets
    379       245  
        Total assets
  $ 40,653     $ 39,973  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Accounts payable
  $ 308     $ 127  
Income tax payables
    1,020       904  
Other liabilities:
               
   Accrued compensation
    1,183       1,170  
   Contingent distribution rights
    12,046       11,373  
   Other
    337       333  
         Total other liabilities
    13,566       12,876  
         Total liabilities
    14,894       13,907  
 
Stockholders’ equity
               
   Common stock $.01 par value. Authorized
     10,000,000 shares; issued 4,200,000 shares;
     4,028,951 shares outstanding at both March 31, 2012 and  September 30, 2011
        70           70  
   Additional paid-in capital
    28,414       28,414  
   Accumulated other comprehensive income
    --       83  
   Accumulated deficit
    (2,725 )     (2,501 )
 
      Total stockholders’ equity
    25,759       26,066  
        Total liabilities and stockholders’ equity
  $ 40,653     $ 39,973  
 
See accompanying notes to consolidated financial statements.
 
 
3

 

Comdisco Holding Company, Inc.
Consolidated Statements of Cash Flows – Six months ended March 31, 2012 and 2011 (Unaudited)
(in thousands)
 
   
Six Months Ended
March 31,
 
   
2012
   
2011
 
             
Cash flows from operating activities:
           
Equity and warrant proceeds net of sharing
  $ 300     $ 165  
Bad debt recoveries, interest and other revenue
    651       295  
Selling, general and administrative expenses
    (1,636 )     (1,930 )
Income tax receipts (payments)
    --       (286 )
                 
Net cash (used in) operating activities
    (685 )     (1,756 )
                 
      Effect of exchange rates on cash and cash equivalents
    38       59  
                 
Net (decrease) in cash and cash equivalents
    (647 )     (1,697 )
Cash and cash equivalents at beginning of period
    30,950       52,826  
                 
Cash and cash equivalents at end of period
  $ 30,303     $ 51,129  
 
See accompanying notes to consolidated financial statements.
 
 
4

 

Comdisco Holding Company, Inc.
Consolidated Statements of Cash Flows (Unaudited) - Continued
 (in thousands)
   
Six Months Ended
 March 31,
 
   
2012
   
2011
 
Reconciliation of net (loss) to net cash (used in) operating activities:
           
 
Net (loss)                                                             
  $ (224 )   $ (109 )
 
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
               
     Change in Canadian income tax receivables
    (1,516 )     --  
     Reversal of Mexican income tax liability
    --       (1,165 )
     Change in income tax liability
    79       (278 )
     Contingent distribution rights
    673       138  
     Receivables
    196       (63 )
     Selling, general and administrative
    39       (27 )
     Cost basis related to equity securities sold
    126       --  
     Amortization of prepaid management fee expense
    32       7  
     Write-down of privately held securities
    --       90  
     Non-cash gain from extended management agreement
    --       (93 )
     Other, including foreign exchange
    (90 )     (256 )
 
      Net cash (used in) operating activities
  $ (685 )   $ (1,756 )
 
See accompanying notes to consolidated financial statements.
 
 
5

 

COMDISCO HOLDING COMPANY, INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2012

The following discussion and analysis should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 2 in Part I and in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011, 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, 2011.  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 the Shared Investment Plan (“SIP”), the participants in the SIP (the “SIP Participants”) took out full recourse, personal loans to purchase approximately six million shares of Comdisco, Inc.’s common stock. In connection therewith, Comdisco, Inc. executed a guaranty dated February 2, 1998 (the “Guaranty”) providing a guaranty of the loans in the event of default by the SIP Participants to the lenders under the SIP (the “SIP Lenders”).  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 who participated in the SIP and their respective promissory notes be placed in a trust for the benefit of the C-4 creditors (the “Trust Assets”).  Under the Plan, the Litigation Trust is solely responsible for collection of amounts due on the promissory notes of the SIP Participants who did not take advantage of the SIP Relief (as defined in the Plan).  The Company has a limited indemnification obligation to the litigation trustee under the litigation trust agreement.  Nine of the SIP Participants filed personal bankruptcy.  On February 4, 2005, the Litigation Trust commenced both state and federal lawsuits to collect on the remaining SIP Participants’ promissory notes.  

The Litigation Trust filed and a federal district court judge has entered summary judgments (and amended judgments) against all but one of the SIP Participants who are defendants in the federal cases on their respective SIP promissory notes and the Litigation Trust has commenced collection actions against them.  Additionally, the federal district court judge has entered orders ordering that certain contingent distribution rights (“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 SIP Participants, be turned over to the Litigation Trust.  Pursuant to these orders, the Company has turned over CDRs and related proceeds and will continue to do so if additional orders are entered.  The SIP Participants filed appeals on those judgments.  A hearing before the Seventh Circuit on the summary judgments in the federal case was held on April 6, 2010.  The Seventh Circuit ruled on October 18, 2010 affirming rulings in favor of the Litigation Trust, but remanding certain fraud issues to the trial court.  On November 1, 2010, the SIP defendants filed a petition for a hearing before the full appellate panel.  The Litigation Trust filed a response to the petition on November 18, 2010.  On June 28, 2011, the Seventh Circuit ruled vacating the summary judgments and remanding the cases back to Judge Gettleman for further proceedings.  On January 13, 2012, the judge set February 24, 2012 for both parties to tender responses to interrogatories and for both parties to exchange and provide to the court, lists
 
 
6

 

of proposed depositions and subjects to be addressed.  On March 2, 2012, Judge Gettleman entered an order setting discovery cutoff for November 29, 2012.  The next status hearing is set for November 29, 2012.

The Litigation Trust filed summary judgments against all of the SIP Participants who are defendants in the state cases. On December 18, 2009, the SIP Participants filed their response, and the Litigation Trust filed its reply on February 11, 2010.  Three of the SIP Participants filed Cross Motions for Summary Judgment.  A hearing in the Circuit Court of Cook County on all of the summary judgment motions in the state cases was held on May 12, 2010 and the judge granted the summary judgments in favor of the Litigation Trust and denied the various motions for summary judgments filed by the SIP Participants.  On July 12, 2010, the SIP Participants filed a Motion for a Temporary Stay of Proceedings until the Seventh Circuit rules on the appeal of the federal judgments.  The Litigation Trust filed its response to the Motion on July 28, 2010.  On August 10, 2010, the judge granted a temporary stay of the proceedings until November 29, 2010.  On November 29, 2010, the judge continued the proceedings until January 27, 2011.  On January 27, 2011, Judge Sanjay Tailor was assigned to the matter.  On September 14, 2011, the defendants filed a Motion to Vacate Summary Judgments and Motion for Reconsideration.  At a hearing on September 21, 2011, the judge entered a Briefing Schedule Order for these motions and documents to be tendered at a status hearing on January 24, 2012.  At a hearing on March 9, 2012, the judge denied in part and affirmed in part the Motion to Vacate Summary Judgments.  The next status hearing is set for June 14, 2012. 

As reported in the Thirtieth Status Report of Comdisco Litigation Trustee, filed on May 4, 2012, the Litigation Trustee did not reach any settlements in the quarter ended March 31, 2012

Please refer to the quarterly reports filed by the Litigation Trustee in the Bankruptcy court for more details. Any proceeds collected by the Litigation Trust, net of expenses, will be considered Trust Assets and distributed in accordance with the Plan and litigation trust agreement.
 
2.   Basis of Presentation 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 six months ended March 31, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year ending September 30, 2012.

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, 2011 included in the Annual Report on Form 10-K, as filed with the SEC on December 9, 2011.

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, except as otherwise presented in these footnotes.

In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amended guidance eliminates one of the presentation options provided by current U.S. GAAP, that is, to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, it gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance will be effective for reporting periods beginning after December 15, 2011 (which is effective for the Company’s fiscal year ended September 30, 2013) and will be applied retrospectively. The adoption of this guidance will not have a material impact on our consolidated financial statements.
 
 
7

 
 
On September 29, 2010, the Company was granted a two-year continuing hardship exemption from the SEC from the requirement to provide its financial information to the SEC in an interactive data format using eXtensible Business Reporting Language (“XBRL”).  The Company would have otherwise had to comply with the XBRL requirement beginning in the quarter ending June 30, 2011.

3.   Equity Investments

Windspeed Acquisition Fund GP, LLC (“Windspeed”), a professional management group which the Company engaged in February 2004, manages the Company’s investments in equity securities on an ongoing basis.  Windspeed shares in the net receipts from the sale of the Company’s investments in equity securities at a set percentage in certain designated portions of the portfolio of companies.  Prior to February 21, 2011, Windspeed received fixed and declining management fees.  The Windspeed management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011) until February 20, 2013. Under the terms of the extended management agreement, Windspeed will not be paid any management fees.  In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio will go to Windspeed.  As a result of such arrangement, and as of February 21, 2011, the Company established a prepaid expense in the amount of $131,000, representing the estimated fair market value of the companies for which Windspeed will be entitled to 100% of the proceeds and recognized a non-cash gain of $93,000 in fiscal year ending September 30, 2011, representing the excess of the fair value of the companies over their respective cost basis.  The Company has amortized $72,000 of the prepaid expense since the beginning of this agreement, which includes $32,000 amortized during the six months ended March 31, 2012.  Since February 21, 2011, prepaid management fee expense is being amortized over the two year agreement, and realized gains on the sale of equity securities continue to be reduced by sharing amounts under the management agreement. Through March 31, 2012, the Company had received approximately $70,076,000 in proceeds (prior to Windspeed’s management fees and sharing) since the inception of the management agreement with Windspeed. Windspeed has received approximately $11,968,000 in combined management fees and sharing through March 31, 2012.

Realized gains or losses are recorded on the trade date based upon the difference between the proceeds and the cost basis determined using the specific identification method. Net realized gains are included in revenue in the consolidated statements of operations.

Marketable equity securities:

The Company’s available-for-sale security holdings were as follows (in thousands):

   
 
Cost
   
Gross
unrealized
gains
   
Market
value
 
September 30, 2011
  $ 125     $ 83     $ 208  
December 31, 2011
  $ 125     $ 68     $ 193  
March 31, 2012
  $ --     $ --     $ --  

Changes in the valuation of available-for-sale securities are included as changes in the unrealized holding gains (losses) in accumulated other comprehensive income (loss) (see Note 5 of Notes to Consolidated Financial Statements). At March 31, 2012, the Company did not own any shares in publicly-traded companies.  The Company sold The Active Network, Inc. shares during the quarter ended March 31, 2012 for approximately $219,000.   The Company’s practice is to sell its marketable equity securities within a reasonable period of time after the lockup period ends.

The Company’s practice is to work in conjunction with Windspeed to sell its marketable equity securities upon the expiration of the lockup period utilizing various timing strategies which seek to maximize the return to the Company. However, in the future, there is no assurance as to whether or not the Company either will be able to liquidate such positions held for any lockup period or realize any amount on such positions.
 
 
8

 
 
Equity investments in private companies:

The Company’s policy for assessing the carrying value of equity investments in privately held companies is, in consultation with Windspeed, to regularly review and estimate the fair value of these securities.  The Company identifies and records impairment losses on equity securities when market and customer specific events and circumstances indicate the carrying value might be impaired.  All write-downs are considered permanent impairments for financial reporting purposes.

4.   Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, the State of Illinois and foreign jurisdictions.

As of the date of this filing, the federal tax years open to examination are fiscal years ended September 30, 2007 through September 30, 2010.

The Company's Canadian subsidiary, Comdisco Canada Limited, currently is in the process of resolving several tax matters with federal and provincial tax authorities in Canada.  The most significant tax matter is the "Notices of Objection" to reassessments which were filed for the tax years ended September 30, 2000 and 2001. The Company continues to advance matters with the Canada Revenue Agency (“CRA”) and the province of Ontario in respect of the Notices of Objection. During the quarter ended September 30, 2011, as a result of an adverse position taken by the CRA in response to the Notices of Objection, the Company wrote off an income tax receivable in the amount of approximately $3,264,000 representing anticipated refunds from both the CRA and the province of Ontario.  However, the Company made progress in the negotiations related to its Notices of Objection with the CRA during the quarter ended March 31, 2012 and recorded an income tax benefit in the amount of approximately $1,500,000 which represents the expected amount to be received upon settlement of the federal portion of the 2000 and 2001 tax years.  The open federal tax years for the Canadian subsidiary are tax years ended September 30, 1998, 1999, 2002, and 2007 through 2009, as well as March 31, 2010 and 2011.  The Company will continue to pursue refund efforts with the province of Ontario; however, as of the date of this filing, the Company cannot reasonably predict the outcome of such efforts.  The open tax years for the province of Ontario are tax years ended September 30, 1998 and 2006 through 2009, as well as March 31, 2010 and 2011. The open tax year for the province of Quebec and Alberta is the tax year ended September 30, 1999.

The Company’s United Kingdom (“UK”) subsidiary, Equiplease Limited (In Members Voluntary Liquidation), was liquidated during the quarter ended June 30, 2011 and received a certificate of dissolution on January 11, 2012.  Therefore, there are no open tax years.

Comdisco, Inc., as a result of its former business operations in Puerto Rico, has open tax years in Puerto Rico for the tax years ended September 30, 2001 through September 30, 2010.

During the year ended September 30, 2009, the Company was contacted by the Mexican Ministry of Finance to perform an audit of the 2003 tax year.  The field work for the tax audit was completed during the quarter ended June 30, 2010, and the Company recorded an estimated income tax liability in the amount of $1,418,000 which was recorded in income tax expense.  During the quarter ended December 31, 2010, the tax audit for 2003 was closed and the Company made a payment for income taxes in the amount of $268,000 and recorded a tax benefit of $1,160,000.  The final assessment was received by the Company and paid in the quarter ended December 31, 2010.  The open tax years for the Mexican subsidiary are the tax years ended December 31, 2005 through December 31, 2010.

As of March 31, 2012, the Company has recorded liabilities for uncertain tax positions in the amount of approximately $454,000. The entire balance, if realized, would impact the effective tax rate.

In the next twelve months, the Company’s effective tax rate and the amount of unrecognized tax benefits could be affected positively or negatively by the resolution of any possible tax audits and the expiration of certain
 
 
9

 

statutes of limitations. Based on current information, the Company believes that the range of the reasonably possible change of the unrecognized tax benefits in the next twelve months is zero to $454,000.

The Company recognizes accrued interest and penalties related to uncertain tax positions in the income tax provision.  As of March 31, 2012, accrued interest and penalties amounted to approximately $139,000.

5.   Stockholders’ Equity

When the Company emerged from bankruptcy, 4,200,000 shares of new common stock were issued.  171,049 shares of common stock held in treasury were retired during the quarter ended March 31, 2011.  As of March 31, 2012, the Company had 4,028,951 shares of common stock issued and outstanding.

Stockholders’ equity consists of the following (in thousands):

   
Common stock
   
Additional paid-in capital
   
Accumulated other comprehensive income
   
Accumulated (deficit)
   
Total
 
Balance at September 30, 2011
  $ 70     $ 28,414     $ 83     $ (2,501 )   $ 26,066  
Net (loss)
                            (224 )     (224 )
Change in net unrealized gains
                    (83 )             (83 )
Balance at March 31, 2012
  $ 70     $ 28,414     $ --     $ (2,725 )   $ 25,759  


Total comprehensive income (loss) consists of the following (in thousands):

   
Three months ended
March 31,
   
Six months ended
March 31,
 
   
2012
   
2011
   
2012
   
2011
 
Unrealized gains (losses) on securities:
                       
Unrealized holding gains  arising during the period
  $ 26     $ --     $ 11     $ --  
Reclassification adjustment for gains included in earnings before income taxes
    (219 )     --       (219 )     (4 )
                                 
Change in net unrealized gains (losses) (A)
    (193 )     --       (208 )     (4 )
                                 
Other comprehensive (loss)
    (193 )     --       (208 )     (4 )
Net earnings (loss)
    351       (520 )     (224 )     (109 )
                                 
Total comprehensive income (loss)
  $ 158     $ (520 )   $ (432 )   $ (113 )
                                 
(A) – No income tax effect on these gains (losses)
 
 
6.  Other Financial Information

Legally restricted cash is comprised of the following at March 31, 2012 and September 30, 2011 (in thousands):

   
March 31,
2012
   
September 30,
2011
 
Incentive compensation escrow
  $ 480     $ 464  
Indemnification reserve
    4,000       4,000  
Other escrows
    381       392  
    $ 4,861     $ 4,856  

 
10

 

The incentive compensation escrow is deferred compensation as defined by the Plan and is held until an employee terminates with the Company.  The indemnification reserve is a specific reserve set aside by the Company for any potential indemnified losses in lieu of the litigation trustee purchasing insurance coverage.  Other escrows include management fee escrows and a bank guaranty held in the Netherlands.
 
Other liabilities consist of the following (in thousands):

   
March 31,
2012
   
September 30,
2011
 
Accrued compensation
  $ 1,183     $ 1,170  
CDRs
    12,046       11,373  
Other liabilities
    337       333  
    $ 13,566     $ 12,876  
 
The liability for accrued compensation includes payroll and estimated amounts payable under the Plan.  Other liabilities include an accrued liability of approximately $174,000 for a bank guaranty held in the Netherlands.

The amounts due to CDR holders follow the formula described in “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies”.

7.   Financial Information by Geographic Area

The following table presents total revenue by geographic location based on the location of the Company’s offices (in thousands):

   
Three months ended
March 31,
   
Six months ended
March 31,
 
   
2012
   
2011
   
2012
   
2011
 
North America
  $ 227     $ 405     $ 333     $ 691  
Europe
    (16 )     (52 )     12       (25 )
                                 
Total
  $ 211     $ 353     $ 345     $ 666  

 
The revenue in Europe during the quarter ended March 31, 2012 is the result of foreign exchange loss of a net asset denominated in Euros.

The following table presents total assets and cash and cash-equivalents, restricted cash and short-term investments by geographic location based on the location of the Company’s offices (in thousands):

   
March 31, 2012
   
September 30, 2011
 
   
Total
Assets
   
Cash and Cash Equivalents and Short-term Investments
   
Total
Assets
   
Cash and Cash Equivalents and Short-term Investments
 
North America
  $ 40,303     $ 37,841     $ 39,612     $ 38,373  
Europe
    350       350       361       361  
                                 
Total
  $ 40,653     $ 38,191     $ 39,973     $ 38,734  


 
11

 

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’s financial assets, which are measured at fair value based upon Level 1 inputs in the consolidated balance sheet as of March 31, 2012, are cash and cash equivalents in money market funds comprising approximately $29,388,000 and there were no available-for-sale securities as of March 31, 2012.  Fair values were determined by the carrying amounts of cash and cash equivalents as such amounts approximate fair value because of the short-term maturity of these instruments.  In addition, the Company has approximately $3,027,000 invested in a certificate of deposit in Canada with a maturity date which is within 360 days of March 31, 2012.  This investment is measured for disclosure purposes at fair value based upon Level 2 inputs.  Based upon Level 3 inputs, the Company estimates that the fair value of its private equity investments at March 31, 2012, net of sharing with Windspeed, is approximately $2,151,000.  These valuations within Level 3 are based on models that include investment cost and last round of financing.  The models are updated for current multiples of latest revenue reported and comparable company analysis.  Additional adjustments to valuations include discounts based on position status, review of any change in company performance, any new round of financing or a liquidity event such as an Initial Public Offering or an acquisition.  Due to the uncertainty of these valuations, the estimated fair value may differ from the value that would have been used had ready markets existed and this difference could be material.  There is no assurance as to the timing or the amount the Company will ultimately realize on these investments.  The Company holds no financial liabilities that are measured at fair value on a recurring basis.

In accordance with the provisions of ASC Topic 320, “Accounting for Certain Investments in Debt and Equity Securities,” marketable equity investments (equity investments having a readily determinable fair value) have a carrying value and a fair value based on quoted market prices. The Company’s investment in warrants of public companies were valued at the bid quotation. The Company’s practice is to sell its marketable equity investments within a reasonable period of time upon the expiration of the lockup period.

9. Subsequent Events

On April 30, 2012, the Company received notification that one of the four remaining private companies in its equity investment portfolio would be raising an additional round of financing.  This new round is expected to positively impact the Company’s estimate of the fair value of its private equity investments.  However, as of the date of this filing, the Company does not have sufficient information to estimate such impact.
 
 
12

 

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, 2011, 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, 2011. 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.  Approximately six former employees continue to periodically assist the Company on a consulting basis.

On August 12, 2004, Randolph I. Thornton’s appointment as Initial Disbursing Agent became effective. As Initial Disbursing Agent, he assumed the roles and responsibilities performed by the former Board of Directors and officers of the Company, including all measures which are necessary to complete the administration of the Plan and Chapter 11 cases.

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.
 
 
13

 
 
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, resolved all litigation and made distributions of all available cash to holders of its common stock and CDRs in the manner and priorities set forth in the Plan and completed all regulatory filings. At that point, the Company will cease operations.

The Company’s revenues are generated primarily by sales of equity securities and interest income on cash balances. Because of the Company’s declining assets, revenue will continue to decline and, because of the Company’s limited business purpose, this trend is expected to continue. The Company’s expenses are primarily 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 six months ended March 31, 2012. The Company’s assets at March 31, 2012 consisted primarily of cash and cash-equivalents, short-term investments, income tax receivables 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. The Company expects that proceeds from the disposition of equity securities will provide future but diminishing cash flows in excess of the current carrying value of these assets. 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 common stock, preferred stock and warrants in other companies (collectively “Equity Investments”). The Company carries its common stock and preferred stock investments in public companies at fair market value and in private companies at the lower of cost or estimated fair market value in its financial statements. Any warrants held by the Company in private companies are carried at zero value. Any write-downs in the carrying value of such Equity Investments in private companies are considered permanent for financial reporting purposes. See Note 3 of Notes to Consolidated Financial Statements and “Critical Accounting Policies.” It is management’s expectation that the amount in private company investments ultimately realized on Equity Investments will, in the aggregate, exceed the $534,000 carrying amount reflected in the financial statements as of March 31, 2012.  The Company’s estimate of the fair value of its private company investments was made in consultation with Windspeed Acquisition Fund GP, LLC (“Windspeed”), a professional management group which the Company engaged to manage the Company’s Equity Investments on an ongoing basis in February 2004.  The Windspeed management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011) until February 20, 2013. Under the terms of the extended management agreement, Windspeed will not be paid any management fees.  In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio will go to Windspeed.  As a result of such arrangement, and as of February 21, 2011, the Company established a prepaid expense in the amount of $131,000, representing the estimated fair market value of the companies for which Windspeed will be entitled to 100% of the proceeds and recognized a non-cash gain of $93,000 during the fiscal year ending September 30, 2011, representing the excess of the fair market value of the companies over their respective cost basis.  The Company has amortized $72,000 of the prepaid expense since the beginning of the amended agreement, including $32,000 amortized during the six months ended March 31, 2012.
 
 
14

 
 
The Company estimates that the realizable value for its Equity Investments in private companies, net of sharing with Windspeed (see table below), at March 31, 2012 is approximately $2,151,000 (See Note 9 of Notes to Consolidated Financial Statements). However, there is no assurance as to the timing or the amount the Company will ultimately realize on the Equity Investments.  Furthermore, as of March 31, 2012, the total portfolio of four companies which has an estimated fair market value of approximately $2,151,000 is subject to significant concentration risk, as follows: 97% of such value is in three individual companies, and approximately 92% of such value is in two individual companies.

The following table summarizes the changes in the value of the Company’s Equity Investments since September 30, 2011 (in thousands):

   
Public
Companies
(1) (3)
   
Private
Companies
(2) (3)
 
September 30, 2011 estimated realizable value
  $ 208     $ 2,145  
Increase (decrease) in unrealized estimated value
    (15 )     21  
                 
December 31, 2011 estimated realizable value
    193       2,166  
                 
Realized – net of fees
    (219 )     (28 )
                 
Increase in unrealized estimated value
    26       13  
                 
March 31, 2012 estimated realizable value
  $ --     $ 2,151  
 
(1)
Carrying value of public companies for financial statements is market value. See Note 3 of Notes to Consolidated Financial Statements.
(2)
Carrying value of private companies for financial statements is the lower of cost or fair value, or approximately $534,000.  The increase in unrealized estimated value is a result of changes in marketability.
(3)
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
 
 
15

 
 
   
value, including estimated future interest income, estimated recoveries and any potential net distributions from the Litigation Trust which, as of the date of this filing, a reasonable estimate of future net distributions is not determinable.
     
 
·
Equity Investments In Private Companies:  Equity investments in private companies consist primarily of small investments in approximately four private companies. The Company carries its common stock and preferred stock investments in private companies at the lower of cost or estimated fair market value in the financial statements. Warrants in non-public companies are carried at zero value. The Company, in consultation with Windspeed, regularly estimates the value of investments in private companies and adjusts carrying values when market and customer specific events and circumstances indicate that such assets might be impaired.  All write-downs are considered permanent impairments for financial reporting purposes.  At March 31, 2012, the carrying value of the Company’s equity investments in private companies was approximately $534,000, and the estimated fair market value was approximately $2,151,000.
     
 
·
Income Taxes:  The Company establishes liabilities or reduces assets for uncertain tax positions when the Company believes certain tax positions are not more likely than not of being sustained if challenged.  Each fiscal quarter, the Company evaluates these uncertain tax positions and adjusts the related tax assets and liabilities in light of changing facts and circumstances.

The above listing is not intended to be a comprehensive list of all the Company’s accounting policies. Please refer to the Company’s annual consolidated financial statements and notes thereto, which contain the Company’s significant accounting policies and other disclosures required by accounting principles generally accepted in the United States of America.
 
Recent Developments

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.  On February 6, 2012, a status hearing was set for May 10, 2012.  On May 10, 2012, a status hearing was set for November 5, 2012.

Litigation Trust Summary Judgments

The Plan and the litigation trust agreement provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants who participated in the SIP and their respective promissory notes be placed in a trust for the benefit of the C-4 creditors (the “Trust Assets”).  Under the Plan, the Litigation Trust is solely responsible for collection of amounts due on the promissory notes of the SIP Participants who did not take advantage of the SIP Relief (as defined in the Plan).  The Company has a limited indemnification obligation to the litigation trustee under the litigation trust agreement.  Nine of the SIP Participants filed personal bankruptcy.  On February 4, 2005, the Litigation Trust commenced both state and federal lawsuits to collect on the remaining SIP Participants’ promissory notes.  

The Litigation Trust filed and a federal district court judge has entered summary judgments (and amended judgments) against all but one of the SIP Participants who are defendants in the federal cases on their respective SIP promissory notes and the Litigation Trust has commenced collection actions against them.  Additionally, the federal district court judge has entered orders ordering that certain CDRs and related proceeds held by the estate of Comdisco, Inc. and Computershare (f/k/a BNY Mellon) (holder of CDRs) on behalf of those SIP Participants be turned over to the Litigation Trust.  Pursuant to these orders, the Company has turned over CDRs and related proceeds and will continue to do so if additional orders are entered.  The SIP Participants filed appeals on those judgments.  A hearing before the Seventh Circuit on the summary judgments in the federal case was held on April 6, 2010.  The Seventh Circuit ruled on October 18, 2010 affirming rulings in favor of the Litigation Trust, but remanding certain fraud issues to the trial court.  On November 1, 2010, the SIP defendants filed a petition for a hearing before the full appellate panel.  The Litigation Trust filed a response to the petition on November 18, 2010.  On June 28, 2011, the Seventh Circuit ruled vacating the summary judgments and remanding the cases back to
 
 
16

 

Judge Gettleman for further proceedings.  On January 13, 2012, the judge set February 24, 2012 for both parties to tender responses to interrogatories and for both parties to exchange and provide to the court, lists of proposed depositions and subjects to be addressed.  On March 2, 2012, Judge Gettleman entered an order setting discovery cutoff for November 29, 2012.  The next status hearing is set for November 29, 2012.

The Litigation Trust filed summary judgments against all of the SIP Participants who are defendants in the state cases. On December 18, 2009, the SIP Participants filed their response, and the Litigation Trust filed its reply on February 11, 2010.  Three of the SIP Participants filed Cross Motions for Summary Judgment.  A hearing in the Circuit Court of Cook County on all of the summary judgment motions in the state cases was held on May 12, 2010 and the judge granted the summary judgments in favor of the Litigation Trust and denied the various motions for summary judgments filed by the SIP Participants.  On July 12, 2010, the SIP Participants filed a Motion for a Temporary Stay of Proceedings until the Seventh Circuit rules on the appeal of the federal judgments.  The Litigation Trust filed its response to the Motion on July 28, 2010.  On August 10, 2010, the judge granted a temporary stay of the proceedings until November 29, 2010.  On November 29, 2010, the judge continued the proceedings until January 27, 2011.  On January 27, 2011, Judge Sanjay Tailor was assigned to the matter.  On September 14, 2011, the defendants filed a Motion to Vacate Summary Judgments and Motion for Reconsideration.  At a hearing on September 21, 2011, the judge entered a Briefing Schedule Order for these motions and documents to be tendered at a status hearing on January 24, 2012.  At a hearing on March 9, 2012, the judge denied in part and affirmed in part the Motion to Vacate Summary Judgments.  The next status hearing is set for June 14, 2012. 

As reported in the Thirtieth Status Report of Comdisco Litigation Trustee, filed on May 4, 2012, the Litigation Trustee did not reach any settlements in the quarter ended March 31, 2012.

Please refer to the quarterly reports filed by the Litigation Trustee in the Bankruptcy court for more details. Any proceeds collected by the Litigation Trust, net of expenses, will be considered Trust Assets and distributed in accordance with the Plan and litigation trust agreement.

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.

XBRL Exemption

On September 29, 2010, the Company was granted a two-year continuing hardship exemption from the SEC from the requirement to provide its financial information to the SEC in an interactive data format using eXtensible Business Reporting Language (“XBRL”).  The Company would have otherwise had to comply with the XBRL requirement beginning in the quarter ending June 30, 2011.
 
 
17

 

Results of Operations

Three Months Ended March 31, 2012 compared to the Three Months Ended March 31, 2011

Revenue

Changes in total revenue for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 were as follows (in thousands):

     Three months ended      Percent      
    March 31,     Increase      
   
2012
   
2011
   
(Decrease)
   
Explanation of Change
Gain on sale of equity and warrant securities
  $ 122     $ 128       (5 )%  
Equity securities, which are managed by Windspeed, represent the primary remaining revenue generating asset.    See “Overview” for additional information. (A)
Interest income
    34       30       13 %  
Interest earned on cash balances.
Foreign exchange gain
    55       185       (70 )%  
Translation gains for foreign entities that have been substantially liquidated. (B)
Miscellaneous income
    --       10       (100 )%  
Miscellaneous receipts.
                             
Total revenue
  $ 211     $ 353       (40 )%    
 
(A)
The decrease in gains on sale of equity holdings for the quarter ended March 31, 2012 is a result of slightly lower liquidations of positions held compared to the quarter ended March 31, 2011.
   
(B)
Foreign exchange gain primarily relates to the weakening of the U.S. dollar against the Canadian Dollar as the Company’s foreign subsidiaries held monetary assets denominated in that currency.

Costs and Expenses
 
Changes in total costs and expenses for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 were as follows (in thousands):

    Three months ended     Percent      
     March 31,     Increase      
   
2012
   
2011
   
(Decrease)
   
Explanation of Change
Selling, general and administrative
  $ 784     $ 774       1 %  
Higher legal and accounting fees incurred during the quarter ended March 2012 compared to the quarter ended March 2011.
Contingent distribution rights
    547       (64 )     +(100 )%  
(A)
Write down of privately held securities
    --       90       (100 )%    
Bad debt recoveries
    (24 )     (38 )     (37 )%  
Collections and recoveries.
Total costs and expenses
  $ 1,307     $ 762       72 %    
 
(A)
The CDR expense in the quarter ended March 31, 2012 is primarily the result of an income tax benefit of approximately $1.5 million from the Canadian subsidiary recorded in the current quarter which increased the CDR liability.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” for more information.


 
18

 
 
Income Taxes

The Company recorded no U.S. federal income tax expense for the three months ended March 31, 2012 and 2011.

The Company recorded approximately $1,447,000 of income tax benefit (net of increases to income tax liabilities) for its Canadian subsidiary for the three months ended March 31, 2012 primarily as a result of progress in negotiations made during the quarter ended March 31, 2012 with the Canada Revenue Agency (“CRA”) on Federal Notices of Objection for the tax years ended 2000 and 2001.  The Company recorded $112,000 of income tax expense for its Canadian subsidiary for the three months ended March 31, 2011.  See Note 4 of Notes to Consolidated Financial Statements for information on the wind-down transactions in Canada.

The Company recorded no income tax expense for its Mexican subsidiary for the three months ended March 31, 2012 and 2011.

The Company recorded no income tax expense for its UK subsidiary, Equiplease Limited (In Members Voluntary Liquidation), for the three months ended March 31, 2012 and $1,000 income tax benefit for its UK subsidiary, Equiplease Limited, for the three months ended March 31, 2011.

Net earnings (loss)

Net earnings was approximately $351,000, or $0.09 per share-basic and diluted, for the three months ended March 31, 2012, compared to a net loss of approximately ($520,000), or ($0.13) per share-basic and diluted, for the three months ended March 31, 2011.

Six Months Ended March 31, 2012 Compared to the Six Months Ended March 31, 2011

Revenue

Changes in total revenue for the six months ended March 31, 2012 compared to the six months ended March 31, 2011 were as follows (in thousands):

   
Six months ended
    Percent      
   
March 31,
    Increase      
   
2012
   
2011
   
(Decrease)
   
Explanation of Change
                       
Gain on sale of equity and warrant securities
  $ 203     $ 236       (14 )%  
Equity securities, which are managed by Windspeed, represent the primary remaining revenue generating asset.    See “Overview” for additional information. (A)
Interest income
    66       63       5 %  
Interest earned on cash balances. (B)
Foreign exchange gain
    76       351       (78 )%  
(C)
Miscellaneous income
    --       16       (100 )%  
Miscellaneous receipts.
                             
Total revenue
  $ 345     $ 666       (48 )%    
 
(A)
The decrease in gains on sale of equity holdings for the six months ended March 31, 2012 is a result of the slightly lower liquidations of positions held compared to the six months ended March 31, 2011.
   
(B)
Interest income earned in the six months ended March 31, 2012 is slightly higher compared to the prior year due to short-term investments.
   
(C)
Foreign exchange gain primarily relates to the weakening of the U.S. dollar against the Canadian Dollar as the Company’s Canadian subsidiary held monetary assets denominated in that currency
 
 
19

 
 
Costs and Expenses

Changes in total costs and expenses for the six months ended March 31, 2012 compared to the six months ended March 31, 2011 were as follows (in thousands):

    Six months ended     Percent      
   
March 31,
    Increase    
 
   
2012
   
2011
   
(Decrease)
   
Explanation of Change
                       
Selling, general and administrative
  $ 1,706     $ 1,835       (7 %)  
Decrease in professional fees and overhead incurred during the six months primarily related to the continued wind-down of operations.
Write-down of equity securities
    --       90       (100 )%  
Impairment of asset.
Contingent distribution rights
    673       138       +100 %  
(A)
Bad debt recoveries
    (373 )     (245 )     52 %  
Collections and recoveries.(B)
Total costs and expenses
  $ 2,006     $ 1,818       10 %    
 
(A)
The increase in CDR expense is primarily the result of an income tax benefit of approximately $1.5 million from the Canadian subsidiary recorded in the quarter ended March 31, 2012 which 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.
   
(B)
The increase in proceeds during the six months ending March 31, 2012 was the result of bad debt recoveries from a previously written off claim in a foreign bankruptcy estate and a settlement on a disputed obligation owed to the Company.

Income taxes

The Company recorded no U.S. federal income tax expense for the six months ended March 31, 2012 and 2011.

The Company recorded approximately $1,437,000 of income tax benefit (net of increases to income tax liabilities) for its Canadian subsidiary for the six months ended March 31, 2012 primarily as a result of progress in negotiations made during the quarter ended March 31, 2012 with the CRA on Federal Notices of Objection for the tax years ended 2000 and 2001.  The Company recorded approximately $118,000 of income tax expense for its Canadian subsidiary for the six months ended March 31, 2011.  See Note 4 of Notes to Consolidated Financial Statements for information on the wind-down transactions in Canada.

The Company recorded no income tax expense for the six months ended March 31, 2012 and approximately $1,160,000 of income tax benefit for its Mexican subsidiary for the reversal of a tax liability for the six months ended March 31, 2011.

The Company recorded no income tax expense for its UK subsidiary, Equiplease Limited (In Members Voluntary Liquidation), for the six months ended March 31, 2012 and recorded $1,000 of income tax benefit for its UK subsidiary, Equiplease Limited, for the six months ended March 31, 2011.

Net Loss

Net loss was approximately ($224,000), or ($0.05) per share-basic and diluted, for the six months ended March 31, 2012 compared to a net loss of approximately ($109,000), or ($0.03) per share-basic and diluted, for the six months ended March 31, 2011.
 
 
20

 

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 March 31, 2012, the Company had unrestricted cash and cash equivalents of approximately $30,303,000 a decrease of approximately $647,000 compared to September 30, 2011.  Net cash used in operating activities for the six months ended March 31, 2012 was approximately $685,000.  The effect of exchange rate changes on cash balances held in foreign currencies was an increase in cash and cash equivalents of approximately $38,000 for the six months ended March 31, 2012.

During the six months ended March 31, 2012, $300,000 in proceeds were generated from the equity portfolios and approximately $651,000 was received from bad debt recoveries, interest income and other revenue.  The Company’s cash expenditures were primarily operating expenses of approximately $1,636,000 (principally professional services and employees’ compensation).

The Company’s current and future liquidity depends on cash on hand and may be augmented by proceeds from the sale of Equity Investments, income tax receivables, 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 March 31, 2012. 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 March 31, 2012, the sharing percentage was 37%, which is the maximum sharing percent.  As of the date of this filing, there were 1,765 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
 
 
21

 

recoveries and any potential net distributions from the Litigation Trust for which, as of the date of this filing, a reasonable estimate of future net distributions is not determinable.

CDR Payment

There were no CDR payments during the quarter ended March 31, 2012.
 
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 March 31, 2012 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 second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.    OTHER INFORMATION
 
ITEM 1.    LEGAL PROCEEDINGS

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Recent Developments” for a discussion of the motion of certain SIP claimants to terminate the Litigation Trust and the motion by the Litigation Trust to obtain summary judgments against certain SIP Participants who are defendants in the lawsuits.
 
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 9, 2011.
 
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.
 
 
22

 

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.
 
ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.
 
ITEM 5.    OTHER INFORMATION

None.
 
ITEM 6.    EXHIBITS

 
Exhibit No.
 
Description of Exhibit
 
 
3.1
 
Certificate of Incorporation of Registrant dated August 8, 2002 and as Amended August 12, 2004 (Incorporated by reference to Exhibit 3.1 filed with the Company’s Annual Report on Form 10-K 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).

 
23

 

SIGNATURES
 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

   
COMDISCO HOLDING COMPANY, INC.
 
           
 
Dated: May 14, 2012
By:   
 
/s/ Randolph I. Thornton
 
   
Name: 
 
Randolph I. Thornton
 
   
Title:
 
Chief Executive Officer and President
(Principal Financial and Accounting Officer)
 
 
 
 
 
24
 

PINX:CDCO Comdisco Holding Co Inc Quarterly Report 10-Q Filling

Comdisco Holding Co Inc PINX:CDCO Stock - Get Quarterly Report SEC Filing of Comdisco Holding Co Inc PINX:CDCO stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

Content Partners
PINX:CDCO Comdisco Holding Co Inc Quarterly Report 10-Q Filing - 3/31/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Popularity |  Our Choices |  Most Recent Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: PINX:CDBK Cardinal Bankshares Corp Quarterly Report 10-Q Filing - 6/30/2012  |  Next: PINX:CDCO Comdisco Holding Co Inc Quarterly Report 10-Q Filing - 6/30/2012