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EX-31.1 - EXHIBIT 31.1 - CERTIFICATION - COMDISCO HOLDING CO INCex31-1.htm
EX-22.1 - EXHIBIT 22.1 - LIST OF SUBSIDIARIES - COMDISCO HOLDING CO INCex22-1.htm
EX-32.1 - EXHIBIT 32.1 - SECTION 1350 CERTIFICATION - COMDISCO HOLDING CO INCex32-1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
[X] 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended September 30, 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
(I.R.S. employer
incorporation or organization)
identification no.)
5600 North River Road
 
Rosemont, Illinois
60018
(Address of principal executive offices)
(Zip code)
   
Registrant’s telephone number, including area code:  (847) 698-3000
   
Securities registered pursuant to Section 12(b) of the Act:
 
 
        Title of Each Class       
        Name of Each Exchange on Which Registered       
N/A
N/A
   
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
 
Common Stock, par value $0.01 per share
Contingent Distribution Rights

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.           Yes [X] No [ ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T

 
 

 

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes [  ] No [ ]
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

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 Act).                 Yes [  ] No [X]
 
The aggregate market value of common stock held by non-affiliates of the registrant was approximately $5,445,000 based on its closing price per share of $5.30 on March 30, 2012. On March 31, 2012, there were 4,028,951 shares of common stock outstanding. No officer or director beneficially held shares of the Company’s Common Stock as of December 3, 2012. Shareholders who owned 5 percent or more of the outstanding common stock at that time have been excluded in that such persons may be deemed affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes.
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
 
Title of Each Class
 
Number of Shares Outstanding at December 3, 2012
Common Stock, par value $0.01 per share
 
4,028,951
     
DOCUMENTS INCORPORATED BY REFERENCE: NONE
 
 
 

 

COMDISCO HOLDING COMPANY, INC.
2012 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
PAGE
 
PART I
 
 
ITEM 1.
 
BUSINESS
1
 
ITEM 1A.
 
RISK FACTORS
6
 
ITEM 1B.
 
UNRESOLVED STAFF COMMENTS
9
 
ITEM 2.
 
 PROPERTIES
9
 
ITEM 3.
 
LEGAL PROCEEDINGS
9
 
ITEM 4.
 
MINE SAFETY DISCLOSURES
11
PART II
 
 
ITEM 5.
 
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
12
 
ITEM 6.
 
SELECTED FINANCIAL DATA
13
 
ITEM 7.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
14
 
ITEM 7A.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
24
 
ITEM 8.
 
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
25
 
ITEM 9.
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
43
 
ITEM 9A.
 
CONTROLS AND PROCEDURES
43
 
ITEM 9B.
 
OTHER INFORMATION
44
PART III
 
 
ITEM 10.
 
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
44
 
ITEM 11.
 
EXECUTIVE COMPENSATION
45
 
ITEM 12.
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
46
 
ITEM 13.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
47
 
ITEM 14.
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES
47
PART IV
 
 
ITEM 15.
 
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
48

 
 

 

2012 ANNUAL REPORT ON FORM 10-K
 
PART I
 
Disclosure Regarding Forward-Looking Statements
 
This Annual Report on Form 10-K contains, and our periodic filings with the Securities and Exchange Commission (the “SEC”) and written and oral statements made by the Company’s sole officer and director to press, potential investors, securities analysts and others, will contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are not historical facts, but rather are predictions and generally can be identified by use of statements that include phrases such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “foresee,” “looking ahead,” “is confident,” “should be,” “will,” “predicted,” “likely” or other words or phrases of similar import. Similarly, statements that describe or contain information related to matters such as our intent, belief, or expectation with respect to financial performance, claims resolution under the Plan (as defined below), cash availability and cost-cutting measures are forward-looking statements. These forward-looking statements often reflect a number of assumptions and involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those currently anticipated in these forward-looking statements. In light of these risks and uncertainties, the forward-looking events might or might not occur, which may affect the accuracy of forward-looking statements and cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements.
 
In this report on Form 10-K, references to “the Company,” “Comdisco Holding,” “we,” “us” and “our” mean Comdisco Holding Company, Inc., its consolidated subsidiaries, including Comdisco, Inc., Comdisco Ventures Fund A, LLC (formerly Comdisco Ventures, Inc.) and its predecessors, except in each case where the context indicates otherwise. References to “Comdisco, Inc.” mean Comdisco, Inc. and its subsidiaries, prior to the Company’s emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise.
 
Important factors that could cause actual results to differ materially from those suggested by these written or oral forward-looking statements, and that could adversely affect our future financial performance, include the risk factors discussed in Item 1A, “Risk Factors”. Many of the risk factors that could affect the results of the Company’s operations are beyond our ability to control or predict.
 
Available Information
 
The Company’s website address is www.comdisco.com. The Company makes available through its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the SEC. The Company also makes available through the website its press releases, the Code of Conduct Applicable to its Chief Executive Officer and Authorized Representatives, the Employee Code of Conduct, the Audit Committee Charter, the Disclosure Controls Committee Charter and the Compensation Committee Charter, as well as contact information for the Audit Committee. Information contained on the Company’s website is not intended to be part of this Annual Report on Form 10-K.
 
ITEM 1. BUSINESS
 
THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE COMPANY’S FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE “PLAN”) AND RESTRICTIONS CONTAINED IN THE COMPANY’S CERTIFICATE OF INCORPORATION (THE “CERTIFICATE”), THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS IN THE MANNER AND
 
 
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PRIORITIES SET FORTH IN THE PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS. THE COMPANY FILED ON AUGUST 12, 2004 A CERTIFICATE OF DISSOLUTION WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE TO FORMALLY EXTINGUISH COMDISCO HOLDING COMPANY, INC.’S CORPORATE EXISTENCE WITH THE STATE OF DELAWARE EXCEPT FOR THE PURPOSE OF COMPLETING THE WIND DOWN CONTEMPLATED BY THE PLAN.  CAPITALIZED TERMS USED BUT NOT DEFINED IN THE ANNUAL REPORT ON FORM 10-K HAVE THE MEANINGS AS DEFINED IN THE PLAN.
 
General Development of Business
 
Comdisco Holding Company, Inc. was formed on August 8, 2002 for the purpose of selling, collecting or otherwise reducing to money in an orderly manner the remaining assets of the Company and all of its direct and indirect subsidiaries, including Comdisco, Inc. The Company’s business purpose is limited to the orderly sale or run-off of all its remaining assets. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose.
 
Since emerging from bankruptcy proceedings on August 12, 2002 (See Reorganized Corporate History), the Company has, pursuant to the Plan, focused on the monetization of its remaining assets and the wind down of operations, including, reducing organizational size, distributions to creditors, resolution of outstanding litigation and claims, the settlement of any tax obligations to various taxing authorities and jurisdictions, and the liquidation of legal entities of the Company.
 
The Company expects total revenue and net cash provided by operating activities to continue to decrease until the completion of the wind down of its operations.  The Company cannot accurately predict the actual net amount to be realized, or the timing of such realization, from the continued monetization of its remaining assets.  The Company also expects operating expenses to continue as it pursues its business purpose under the Plan.  Therefore, comparisons of quarter-to-quarter or year-to-year results of operations should not be relied upon as an indication of the Company’s future performance.
 
The Company has reduced, and expects to continue to reduce, the size and complexity of its organizational and systems infrastructure concurrently with the monetization of its assets. During 2008, the Company received permission to begin the process of abandoning and destroying certain of its stored paper and electronic records for periods prior to January 1, 1997.  As of the date of this filing, the Company destroyed substantially all of those records.  As of December 3, 2012, the Company had a total of five employees (one full-time and four part-time), a decrease of approximately 99 percent from approximately 600 employees upon emergence from bankruptcy proceedings on August 12, 2002. Approximately five consultants continue to periodically assist the Company on a consulting basis.
 
On August 12, 2004, Randolph I. Thornton’s appointment as Initial Disbursing Agent became effective. As Initial Disbursing Agent, Mr. Thornton performs the roles and responsibilities of the Board of Directors and officers of the Company, including all measures that are necessary to complete the administration of the reorganized debtors’ Plan and Chapter 11 cases. Mr. Thornton serves as Chief Executive Officer, President and Secretary and is the sole director and executive officer of the Company.
 
Reorganized Corporate History
 
On July 16, 2001, Comdisco, Inc. and fifty of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy court for the Northern District of Illinois Eastern Division (the “Bankruptcy court”) (consolidated case number 01-24795). Comdisco Holding Company, Inc., as the successor company to Comdisco, Inc., emerged from bankruptcy under the Plan that became effective on August 12, 2002. Prior to the effective date of the Plan, Comdisco, Inc. formed Comdisco Holding Company, Inc., a Delaware corporation (the “Company” or “Comdisco Holding”). Comdisco, Inc. emerged as a wholly-owned subsidiary of Comdisco Holding. As a result, Comdisco Holding became the successor to Comdisco, Inc. A copy of the Plan for Comdisco, Inc., as well as other information related to distributions of cash
 
 
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and securities pursuant to the Plan can be found in a Current Report on Form 8-K filed on August 9, 2002 with the SEC by Comdisco, Inc. A copy of the Plan was filed as an exhibit thereto.
 
General Terms of the Plan of Reorganization
 
As more fully described in the Plan, the Company’s business purpose is limited to the orderly sale or run-off of all of its remaining assets. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose.  Capitalized terms used but not defined in this section shall have the meanings as defined in the Plan.
 
In very general terms, the Plan contemplated six different classes of claims against the Comdisco, Inc. bankruptcy estate with the only remaining relevant classes of claims being described below:
 
 
·
“Class C-4” Claims. The largest class of claims against the Comdisco, Inc. bankruptcy estate, this class was comprised of general unsecured claims other than Class C-3 Claims and includes holders of Comdisco, Inc. notes, bonds, credit lines and other trade debt (the “C-4 creditors”).
 
 
·
“Class C-5A” Claims. This class was comprised of equity claims, consisting of holders of shares of Comdisco, Inc. common stock and other “Interests” as defined in the Plan. All shares of common stock of Comdisco, Inc. were cancelled on August 12, 2002 in accordance with the Plan.
 
 
·
“Class C-5B” Claims. This class was comprised of subordinated claims against Comdisco, Inc.
 
Allowed Claims for Class C-5A received contingent distribution rights (“CDRs”) that entitle holders to share at increasing percentages in the proceeds realized from the monetization of the Company’s assets based upon the present value of distributions made to the C-4 creditors in the bankruptcy estate of Comdisco, Inc. Information on the CDRs can be found in a Registration Statement on Form 8-A filed by the Company on August 12, 2002 with the SEC and in the section entitled “Contingent Distribution Rights” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
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 which are currently estimated to be nominal. See the risk factors discussed in Item 1A, “Risk Factors”, particularly the risks entitled “Uncertainties Inherent in the CDR Liability Calculation” and “Uncertainties Inherent in the Determination of Fair Market Value of the Remaining Portfolio.”
 
Pursuant to a Bankruptcy court order dated March 27, 2003, approximately 4,388,000 CDRs were held by the Company’s transfer agent and any distributions relating to these rights are held by the estate of Comdisco, pending resolution of the Class C-5A Claims related to the shares purchased pursuant to Comdisco, Inc.’s Shared Investment Plan (“SIP”). Approximately 2,532,000 of the aforementioned CDRs related to Class C-5A have been assigned to the Litigation Trust (as defined in the Plan) in conjunction with settlements reached between the litigation trustee and some of the senior managers who participated in the SIP (the “SIP Participants”) or turned over to the litigation trustee according to an order entered by a Federal Court authorizing turnover of CDR assets.  Approximately 612,000 CDRs were assigned to individuals or other trustees.  Additionally, 92,000 CDRs related to Class C-5A Claims have been cancelled during the bankruptcy by the Company.  The balance of approximately 1,152,000 CDRs are currently being held by the Company’s transfer agent and any distributions relating to these rights are being held by the estate of Comdisco.
 
Litigation Trust: The Plan provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants who participated in the SIP be placed in a trust for the benefit of 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.
 
 
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The Litigation Trust has commenced both state and federal lawsuits to collect on such SIP Participants’ promissory notes. Nine of the sixty-seven SIP Participants filed personal bankruptcy.  A brief description of the federal and state cases follows below.
 
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 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 U.S. Court of Appeals, Seventh Circuit (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 for further proceedings.  On October 18, 2011, a hearing was held before Judge Gettleman.  A hearing was set for December 22, 2011 and the parties were also required to submit a joint status report on December 9, 2011.  On December 22, 2011, a Rule 16 scheduling conference was set for January 13, 2012.  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 the discovery cut-off date as November 29, 2012.  On October 29, 2012, the SIP defendants filed a Motion for Extension of Discovery Cut-Off Date.  This motion was heard on November 1, 2012 at which time Judge Gettleman granted the extension through January 30, 2013.  On November 20, 2012, the Litigation Trust filed a motion to strike a jury demand, which had been filed by the SIP Participants.  At a hearing on December 6, 2012, the judge continued this motion to be heard at a status hearing on February 1, 2013.
 
Magistrate Judge Nolan was presiding over the discovery proceedings in the federal court and has held various status hearings during the year ended September 30, 2012.  On October 1, 2012, Magistrate Mary Rowland was assigned to these cases replacing Magistrate Nolan.  On October 23, 2012, the Litigation Trust filed a Motion to Compel Defendants to Cooperate in Scheduling Depositions.  On October 25, 2012, the Motion to Compel was granted and defendants were ordered to meet with plaintiffs by October 31, 2012 to set a deposition schedule.  The next status hearing is set for February 1, 2013.
 
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 were tendered at a status hearing on January 24, 2012.  On March 16, 2012, the judge denied in part and affirmed in part the Motion to Vacate Summary Judgments.  A status hearing was held on June 14, 2012 and the judge gave the Litigation Trust permission to file an Amended Complaint.  The judge set a discovery cut-off date of November 30, 2012.  On July 27, 2012, the defendants filed their Motion to Dismiss.  The Motion to Dismiss is fully briefed.  On December 7, 2012, Judge Tailer held the hearing on the Motion to Dismiss.  He granted the Motion to Dismiss and plaintiffs have until January 4, 2013 to file and serve an amended pleading.  The matter is continued to January 11, 2013.  At a status hearing on October 30, 2012, Judge Tailor set a further status hearing on November 7, 2012 at which he extended the discovery cut-off date until January 31, 2013.
 
 
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In 2004 and 2005, sixty-nine SIP notes were transferred to the Litigation Trust.  Of the sixty-nine SIP notes, nine SIP participants have filed personal bankruptcy, thirty-five of them have settled or otherwise resolved their obligation, and twenty-five cases remain active (six in the federal court and nineteen in the state court).  As reported in the Thirty-Second Status Report of Comdisco Litigation Trustee, filed on October 31, 2012, the Litigation Trust did not reach any settlements in the quarter ended September 30, 2012.
 
For more details regarding the Litigation Trust and related proceedings, please refer to the quarterly reports filed by the Litigation Trust in the Bankruptcy court. Any proceeds collected by the Litigation Trust, net of expenses, will be considered Trust Assets and distributed in accordance with the Plan and the litigation trust agreement.
 
Changes in Governance
 
On April 15, 2004, the Bankruptcy court entered an order (the “Order”) granting the motion (the “Motion”) that was filed on February 17, 2004 by the Company in furtherance of the Plan. A copy of the Motion was furnished to the SEC on a Form 8-K pursuant to Item 9 on February 18, 2004. The Company also included a copy of the Motion in its Report to Stakeholders, dated March 2, 2004, that was distributed to holders of the Company’s common stock, CDRs, and Disputed Claims remaining in the bankruptcy and also certain other interested parties.
 
Pursuant to and in furtherance of the Order, on August 12, 2004, the following occurred: The officers of the Company resigned their respective officer positions; the Board of Directors appointed Randolph I. Thornton, as Chief Executive Officer, President and Secretary of Comdisco Holding Company, Inc.; the Company filed a Certificate of Amendment to its Certificate  with the State of Delaware amending the Certificate to provide for a Board of Directors consisting of one member; four of the five individuals serving on the Board of Directors resigned their position as Directors (Randolph I. Thornton did not resign and continues as the sole director); and Randolph I. Thornton’s appointment as Initial Disbursing Agent became effective. As Initial Disbursing Agent, Mr. Thornton assumed the roles and responsibilities performed by the former Board of Directors and officers of the Company, including all measures which are necessary to complete the administration of the reorganized debtors’ Plan and Chapter 11 cases.
 
On June 1, 2012, Randolph I. Thornton renewed the appointment of the following employees, Robert E. T. Lackey, Deborah L. Dompke, Susan Long, Mary Ann Bolster and Michael J. Salerno, as Authorized Representatives of the Company. These individuals derive their authority from Mr. Thornton as sole director and officer of the Company, and report directly to him. Approximately five consultants continue to periodically assist the Company on a consulting basis.
 
Filing of Certificate of Dissolution
 
Pursuant to and in furtherance of the Order, the Company filed on August 12, 2004 a Certificate of Dissolution with the Secretary of State of the State of Delaware to formally extinguish Comdisco Holding Company, Inc.’s corporate existence with the State of Delaware except for the purpose of completing the wind down contemplated by the Plan.
 
Narrative Description of Business
 
General
 
Since the Company emerged from Chapter 11 bankruptcy proceedings on August 12, 2002, the Company’s business activities have been limited to the orderly sale or run-off of all its existing asset portfolios. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose. Since emerging from bankruptcy, the Company has not engaged in any new leasing or financing activities, except for previously existing customer commitments and to restructure existing equipment leases and loans to maximize the value of the Company’s assets.
 
 
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Principal Business Location
 
The Company’s operations are primarily conducted through its principal office in Rosemont, Illinois which occupies leased short-term furnished executive office space.
 
Customers and Competition
 
Due to the Company’s limited business purpose, the Company is not dependent upon a single customer or group of customers to generate future investment or revenue opportunities. In addition, the Company’s reorganization plan specifically prohibits the Company from engaging in any business activities inconsistent with its limited business purpose.
 
Employees
 
On September 30, 2012, the Company had five U.S. employees (one full-time and four part-time). No employees are represented by a labor union. The Company anticipates further reductions in its workforce as the wind down continues. Approximately five consultants continue to periodically assist the Company on a consulting basis.
 
Other
 
The Company does not own any patents, trademarks, licenses, franchises or concessions that it considers to be material to the Company’s business.
 
The Company’s business is not seasonal; however, quarter-to-quarter results from operations can vary significantly.
 
Financial Information about Geographic Areas
 
See Note 10 of Notes to Consolidated Financial Statements, which is incorporated in this section by reference, for information about foreign and domestic operations.
 
ITEM 1A. RISK FACTORS
 
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones the Company confronts. Additional risks and uncertainties not presently known to it or that it currently deems immaterial also may impair the Company’s business operations and the implementation of the Plan. If any of the following risks actually occurs, the Company’s business, financial condition, operating results and the implementation of the Plan could be materially adversely affected.
 
Uncertainties Inherent in the CDR Liability Calculation
 
The CDR liability is management’s estimate of the amount of the net equity of the Company to be shared by holders of CDRs at the sharing percentage of 37%. The formula used to calculate the net equity of the Company includes variables (e.g., future operating costs and expenses, estimated future interest income, estimated recoveries, actual asset values realized, currency fluctuations, etc.) which are not under the control of the Company. Such variables are inherently uncertain due to the impact of influences such as time, inflation or deflation, interest rate changes, foreign currency exchange rate changes, third party credit risks, international and domestic events, court or tax rulings contrary to the Company’s expectations, timing and amounts of distributions to C-4 creditors by the Litigation Trust, and matters that could impact the timing on the wind down of the Company.
 
 
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Impact of Recoveries by Litigation Trust on the Company’s Obligation to Make Payments in Respect of Contingent Distribution Rights
 
As the present value of distributions to certain C-4 creditors has reached the 100% threshold level of percentage recovery established pursuant to the Plan, holders of CDRs are entitled to receive payments from the Company equal to 37% of each dollar available to be distributed to Comdisco C-4 creditors in accordance with the Plan. All payments by the Company in respect of CDRs are made from the Company’s available cash-on-hand and not from funds distributed by the Litigation Trust. The Company expects to maintain cash reserves sufficient to make any required payments pursuant to its CDR liability arising from either the Company’s equity or net distributions from the Litigation Trust.  Any actual net distributions by the Litigation Trust to the C-4 creditors will increase the Company’s liability to CDR holders.  As of the date of this filing, a reasonable estimate of future net distributions is not determinable.
 
The Company Faces a Number of Uncertainties Around the Settlement of Domestic and International Tax Positions
 
The Company continues to wind down its domestic and international operations. Prior to a subsidiary being dissolved, the Company may have to obtain tax clearances at the state level domestically and on an international level in the country in which the subsidiary was incorporated. The Company, in consultation with its third party tax service providers, has estimated the amounts for such tax settlements; however, actual settlements could differ from such estimates and will be reflected as adjustments in future financial statements when probable and estimable.
 
Uncertainties Inherent in the Determination of Fair Market Value of the Remaining Portfolio
 
The determination of the fair value of the remaining portfolio of the Company is management’s estimate of such fair value at a moment in time based on information available to management at that time. The estimate of fair value is inherently uncertain due to external factors that could impact the value of assets remaining in the portfolio. Some of the external factors include time, inflation and deflation, changes in interest and foreign currency exchange rates, third party credit risks, domestic and international events, court or tax rulings contrary to the Company’s expectations and liquidation events in the equity portfolio.
 
Market Conditions Have Made It Difficult and May Continue to Make it Difficult for the Company To Timely Realize the Value of its Warrant and Equity Securities (collectively, “Equity Investments”)
 
Market conditions have adversely affected, and could adversely affect in the future, the opportunities for the acquisition/merger of the Internet-related, communications and other high technology and emerging growth companies that make up the substantial majority of the Company’s Equity Investments. Additionally, the public market for high technology and other emerging growth companies is extremely volatile. Such volatility has adversely affected, and could continue to adversely affect, the ability of the Company to realize value from its Equity Investments. Exacerbating these conditions is the fact that some of the Equity Investments held by the Company may be subject to lockup agreements restricting its ability to sell until several months after an initial public offering. Without an available liquidity event, the Company may be unable to sell its Equity Investments. As a result, the Company, or Windspeed Acquisition Fund GP, LLC ("Windspeed"), a professional investment management group which the Company engaged to manage the Company's Equity Investments on an ongoing basis in February 2004, on behalf of the Company, may not be able to generate gains or receive proceeds from the sale of Equity Investments and the Company’s business and financial results may suffer. Additionally, liquidation preferences may continue to be offered by companies in the Company’s portfolio to parties willing to lend to such companies. The liquidation preferences have had, and could continue to have, an adverse impact on the value of the Company’s Equity Investments. For those Equity Investments without a public trading market, the realizable value of the Company’s Equity Investments could prove to be lower than the carrying value currently reflected in the financial statements.  The estimated fair market value of the Company’s Equity Investments was determined in consultation with Windspeed based on a variety of factors, including, but not limited to, quoted trading levels for publicly-traded securities, last round valuation for privately held securities, industry and company multiples, industry acceptance in the market place, liquidity discounts due to lock ups, estimated revenue, and customer, product and market share growth by the respective companies in the portfolio. Substantially all of these factors are outside the control of the Company and are subject to significant volatility. There can be no assurance that the
 
 
7

 
 
Company will be able to realize the estimated fair market value.  Furthermore, as of September 30, 2012, the total portfolio of four companies, which has an estimated fair market value of approximately $5,166,000, is subject to significant concentration risk, as follows: 99% of such value is in three individual companies, and approximately 97% of such value is in two individual companies.
 
The Payment of Dividends and Distributions
 
All funds generated from the Company’s remaining asset portfolios are required by the Plan to be used to satisfy liabilities of the Company and, to the extent funds are available, to pay dividends on the Company’s Common Stock and to make distributions with respect to the CDRs in the manner and priorities set forth in the Plan. Because of the composition and nature of its asset portfolios, the Company expects to generate funds from the sale or run-off of its asset portfolios at a decreasing rate over time. The Company has material restrictions on its ability, and does not expect or intend, to make any significant investments in new or additional assets. Accordingly, the amount of funds potentially available to pay dividends on the Company’s Common Stock and to make distributions with respect to the CDRs is limited to the funds in excess of the Company’s liabilities that may be generated from the remaining asset portfolios.
 
Uncertainties in Collections and Recoveries
 
The Company believes that its collections and recoveries on accounts previously written off could provide future but diminishing cash flows.  The amount and timing of such collections and recoveries are dependent upon many factors including any offsets or counterclaims that may be asserted against the Company and the ability of a former lessee or debtor or its respective estate to pay the claim or any portion thereof.  Some of these factors are beyond the control of the Company.
 
Uncertainties Relating to the Bankruptcy Plan and the Limited Business Plan
 
The Company has incurred, and will continue to incur, significant costs associated with the administration of the estate of Comdisco, Inc. and in completing the wind down of operations. The amount of these costs, which are being expensed as incurred, are expected to have a significant adverse affect on the results of operations and on the Company’s cash position.
 
The Company’s post-bankruptcy operations are limited to an orderly run-off or sale of its remaining assets. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business plan. This business plan is based on numerous assumptions including the anticipated future performance of the Company in running off its operations, the time frame for the run-off, general business and economic conditions, and other matters, many of which are beyond the control of the Company and some of which may not materialize. As a result, the Company’s ability to effectively complete this business plan is inherently uncertain. In addition, unanticipated events and circumstances occurring subsequent to the date of this Annual Report may affect the actual financial results of the Company’s operations.
 
The Company’s Liquidity is Dependent on a Number of Factors
 
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, market conditions for the sale of equity securities, global economic and political conditions, control of operating costs and expenses and the ability of the Company to dispose or otherwise convert to cash its remaining assets.
 
Limited Public Market for Common Stock
 
There is currently a limited public market for the Company’s Common Stock. Holders of the Company’s Common Stock may, therefore, have difficulty selling their Common Stock, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any shares of Common Stock which may be purchased could be sold without incurring a loss. Any such market price of the Common Stock may not necessarily bear any relationship to the Company’s book value, assets, past operating results, financial condition or any other
 
 
8

 
 
established criteria of value, and may not be indicative of the market price for the Common Stock in the future. Further, the market price of the Common Stock may be volatile depending on a number of factors, including the status of the Company’s business performance, its limited business purpose, industry dynamics, news announcements or changes in general economic conditions.
 
Limited Public Market for Contingent Distribution Rights
 
There is currently a limited public market for the Company’s CDRs. Holders of the Company’s CDRs may, therefore, have difficulty selling their CDRs, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any CDRs which may be purchased could be sold without incurring a loss. Any such market price of the CDRs may not necessarily bear any relationship to the Company’s book value, assets, past operating results, financial condition or any other established criteria of value, and may not be indicative of the market price for the CDRs in the future. Further, the market price of the CDRs may be volatile depending on a number of factors, including the status of the Company’s business performance, industry dynamics, news announcements or changes in general economic conditions.
 
Uncertainties Relating to the Wind Down of Operations
 
The Company has reduced the size and complexity of its organizational and systems infrastructure concurrently with the monetization of its assets. The success of the Company’s continuing wind down of operations and implementation of the Order entered by the Bankruptcy court authorizing the organizational systems infrastructure wind down is dependent on numerous factors, including the timing and amount of cash received from the monetization of its assets, the ability of the Disbursing Agent to fulfill the positions of the previous Board of Directors and executive officers and the ability of the Company to effectively consolidate its management structure and maintain its operations with limited personnel.
 
Impact of Interest Rates and Foreign Exchanges Rates
 
Changes in interest rates could impact the value of certain of the Company’s assets and fluctuations in the foreign currency exchange rates could impact the value of the Company’s remaining net foreign assets, denominated in other than U.S. dollars, consisting primarily of tax receivables and tax liabilities in Canada and Mexico and a bank guarantee in the Netherlands.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
Not applicable.
 
ITEM 2. PROPERTIES
 
Since October 31, 2004, the Company has leased short-term furnished executive office space for all of its operations at 5600 N. River Road in Rosemont, Illinois. The terms of its rental agreement provide the Company with the ability to match its actual leased space with its declining space requirements.  The Company does not own any property.
 
ITEM 3. LEGAL PROCEEDINGS
 
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 November 5, 2012, during a scheduled status hearing before Bankruptcy Judge Schmetterer, legal counsels for the SIP defendants requested that the Judge participate in settlement discussions of the SIP litigation matters pending before the Federal and State courts. The counsels for the SIP defendants advised the Judge that a global settlement offer had been made to the Litigation Trust based upon the ability to pay and a litigation risk discount. Counsel for the Litigation Trust advised the Judge that some of the SIP defendants have not delivered their financial disclosures.
 
 
9

 
 
Therefore, the Litigation Trustee could not properly evaluate the global settlement offer. The Judge concurred with the Litigation Trust counsel and strongly suggested to the SIP defendants’ counsels that their clients make the requested financial disclosures. The Judge then set a further hearing for November 13, 2012.
 
At the hearing on November 13, 2012, Judge Schmetterer further instructed the SIP defendants’ counsels to have their clients comply with the requests for financial disclosures by November 27, 2012 and set a hearing for that date.  The Judge also advised them that, if the SIP defendants would not cooperate with meaningful financial disclosure, then he would not involve himself in attempting to mediate a settlement.
 
At the hearing on November 27, 2012, the counsels for the SIP defendants advised Judge Schmetterer that they had just turned over additional financial information to the Litigation Trust and that five of the SIP defendants, while wanting to participate in the global settlement, had refused to provide any additional financial disclosures. The counsel for the Litigation Trust informed the Judge that the additional information had been received that morning and the Litigation Trustee had not had sufficient time to evaluate it. The Judge set a hearing for December 6, 2012 and instructed the parties to discuss settlement in the interim.  At the hearing on December 6, 2012, the judge closed the mediation proceedings to solely the parties and their attorneys and the mediation was conducted behind closed doors.  The next mediation meeting is scheduled for January 4, 2013.
 
Litigation Trust Ongoing Litigation
 
The Plan and the litigation trust agreement provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants 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 accept the SIP Relief (as defined in the Plan).  The Company has a limited indemnification obligation to the litigation trustee under the litigation trust agreement.  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 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 for further proceedings.  On October 18, 2011, a hearing was held before Judge Gettleman.  A hearing was set for December 22, 2011 and the parties were also required to submit a joint status report on December 9, 2011.  On December 22, 2011, a Rule 16 scheduling conference was set for January 13, 2012.  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 the discovery cut-off date as November 29, 2012.  On October 29, 2012, the SIP defendants filed a Motion for Extension of Discovery Cut-Off Date.  This motion was heard on November 1, 2012 at which time Judge Gettleman granted the extension through January 30, 2013.  On November 20, 2012, the Litigation Trust filed a motion to strike a jury demand, which had been filed by the SIP Participants.  At a hearing on December 6, 2012, the judge continued this motion to be heard at a status hearing on February 1, 2013.
 
Magistrate Judge Nolan was presiding over the discovery proceedings in the federal court and has held various status hearings during the year ended September 30, 2012.  On October 1, 2012, Magistrate Mary Rowland was assigned to these cases replacing Magistrate Nolan.  On October 23, 2012, the Litigation Trust filed a Motion to Compel Defendants to Cooperate in Scheduling Depositions.  On October 25, 2012, the Motion to Compel was granted and defendants were ordered to meet with plaintiffs by October 31, 2012 to set a deposition schedule.  The next status hearing is set for February 1, 2013.
 
 
10

 
 
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 were tendered at a status hearing on January 24, 2012.  On March 16, 2012, the judge denied in part and affirmed in part the Motion to Vacate Summary Judgments.  A status hearing was held on June 14, 2012 and the judge gave the Litigation Trust permission to file an Amended Complaint.  The judge set a discovery cut-off date of November 30, 2012.  On July 27, 2012, the defendants filed their Motion to Dismiss.  The Motion to Dismiss is fully briefed.  On December 7, 2012, Judge Tailer held the hearing on the Motion to Dismiss.  He granted the Motion to Dismiss and plaintiffs have until January 4, 2013 to file and serve an amended pleading.  The matter is continued to January 11, 2013.  At a status hearing on October 30, 2012, Judge Tailor set a further status hearing on November 7, 2012 at which he extended the discovery cut-off date until January 31, 2013.
 
In 2004 and 2005, sixty-nine SIP notes were transferred to the Litigation Trust.  Of the sixty-nine SIP notes, nine SIP participants have filed personal bankruptcy, thirty-five of them have settled or otherwise resolved their obligation, and twenty-five cases remain active (six in the federal court and nineteen in the state court).  As reported in the Thirty-Second Status Report of Comdisco Litigation Trustee, filed on October 31, 2012, the Litigation Trust did not reach any settlements in the quarter ended September 30, 2012. 
 
For more details regarding the Litigation Trust and related proceedings, please refer to the quarterly reports filed by the Litigation Trust 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 the litigation trust agreement.
 
Litigation Trust Termination Motion
 
On March 16, 2006, a motion was filed in the Bankruptcy court for the Northern District of Illinois on behalf of certain SIP Participants who had filed proofs of claim in the Comdisco, Inc. bankruptcy ("SIP Claimants"). The motion sought an order from the Bankruptcy court terminating the Litigation Trust. On July 20, 2006, the Bankruptcy court judge denied the motion of the SIP Claimants. On August 18, 2006, the SIP Claimants appealed the Bankruptcy court judge's denial of their motion. On January 30, 2007, the federal district court judge affirmed the denial of the motion. The SIP Claimants appealed the denial to the US Circuit Court of Appeals for the 7th Circuit. A mandatory mediation was held on April 20, 2007. The mediation was adjourned and no settlement was achieved by the parties. The parties briefed the appeal and oral arguments were held before the Appellate Court on November 26, 2007.  On August 13, 2008, the Appellate Court ruled and dismissed the appeal for want of jurisdiction. As of the date of this filing, there have been no further proceedings on this matter.
 
ITEM 4.  MINE SAFETY DISCLOSURES
 
Not applicable.
 
 
11

 

PART II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
In connection with the September 30, 2002 initial distribution under the Plan, the Company issued approximately 3.74 million shares of Common Stock to holders of Allowed Claims in Class C-4. Also, approximately 460,000 additional shares of Common Stock were deposited in the Disputed Claims Reserve for future distribution pending the outcome of Disputed Claims.  The Company’s Common Stock currently trades on the Over-the-Counter Bulletin Board system under the symbol “CDCO.OB”. In addition, the Contingent Distribution Rights currently trade on the Over-the-Counter Bulletin Board system under the symbol “CDCOR.OB”. Over-the-Counter Bulletin Board quotations reflect inter-dealer prices, without retail mark-up, mark­down or commission and may not necessarily represent actual transactions.
 
The Plan authorizes, but does not require, the issuance of additional shares of the Company’s Common Stock to make distributions to holders of CDRs. The Company has historically chosen to distribute cash to holders of CDRs in lieu of shares of Common Stock (see discussion following for distributions made to holders of CDRs). More information on distributions to holders of CDRs can be found in a Registration Statement on Form 8-A filed by the Company on August 12, 2002 with the SEC and in the section Contingent Distribution Rights in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Common Stock
 
As of December 3, 2012, there were 261 shareholders of record of the Company’s Common Stock. The following table sets forth the adjusted high and low sales prices for the Common Stock of Comdisco Holding Company, Inc. and cash dividends paid during fiscal 2012 and 2011.
 
2012
 
2011
Quarter
 
High
 
Low
 
Dividends
 
High
 
Low
 
Dividends
First
  $ 5.95     $ 5.21     $ 0     $ 9.25     $ 8.50     $ 0  
Second
    5.90       5.00       0       9.43       8.55       0  
Third
    5.30       5.00       0       9.50       5.36       3.13  
Fourth
    5.25       4.05       0       7.00       5.20       0  
 
The Company’s transfer agent and registrar is Computershare (f/k/a BNY Mellon), 480 Washington Boulevard, Jersey City, New Jersey, 07310. The shareholder relations telephone number is (800) 851-9677 and the internet address is http://www.computershare.com.
 
The Company intends to treat the dividend distributions for federal income tax purposes as part of a series of liquidating distributions in complete liquidation of the Company. Aggregate total dividend distributions on the Company’s Common Stock to the date of this report were as follows (in thousands):
 
   
Aggregate Payment
May 2003
  $ 307,773  
June 2003
    60,019  
September 2003
    199,782  
December 2003
    50,365  
May 2004                                                     
    48,267  
March 2005
    52,447  
January 2006
    20,172  
December 2006
    25,748  
April 2011
    12,600  
    $ 777,173  
 
 
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Contingent Distribution Rights
 
For financial reporting purposes, the Company records CDRs as a liability and as an operating expense although the CDRs trade over-the-counter.
 
The Plan entitles holders of CDRs to share at increasing percentages in the proceeds realized from the Company’s assets based upon the present value of distributions to certain C-4 creditors in the bankruptcy estate of Comdisco, Inc.  As of September 30, 2012, the sharing percentage was 37%, which is the maximum sharing percent.  As of December 3, 2012, there were 1,857 holders of record of the Company’s CDRs and 148,448,188 outstanding CDRs.
 
The Company continues to maintain sufficient cash reserves for operations and any potential additional CDR liability arising from any potential net distributions from the Litigation Trust to C-4 creditors.  The outcome and timing of the actual net distributions from the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments.
 
Aggregate total distributions to the date of this report with respect to the CDRs were as follows (in thousands):
 
   
Aggregate Payment
 
Per CDR
May 2003
  $ 2,730     $ .01793  
June 2003
    2,468       .01621  
September 2003
    13,370       .08780  
December 2003
    7,827       .05140  
March 2004
    2,848       .01870  
May 2004
    11,892       .07810  
December 2004
    14,953       .09820  
March 2005
    22,171       .14560  
January 2006
    5,558       .03650  
March 2006
    3,761       .02470  
December 2006
    6,852       .04500  
September 2007
    22,841       .15000  
September 2008
    893       .00602  
September 2008 reallocation
    0       .01984  
April 2011
    7,400       .04985  
Total CDR payments
  $ 125,564     $ .84585  
 
See “Critical Accounting Policies” and “Contingent Distribution Rights” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information on the CDR liability.
 
Recent Sales of Unregistered Securities
 
None.
 
Repurchases of Common Stock
 
There were no repurchases of Common Stock in the fourth quarter of fiscal 2012 or during the fiscal year 2012. The Company does not regularly repurchase shares nor does the Company have a share repurchase plan.
 
ITEM 6. SELECTED FINANCIAL DATA
 
Not applicable.
 
 
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K for the fiscal year ended September 30, 2012. This discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in the sections of this Annual Report on Form 10-K entitled “Disclosure Regarding Forward-Looking Statements” and “Risk Factors Relating to the Company.”
 
THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE COMPANY’S FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE “PLAN”) AND RESTRICTIONS CONTAINED IN THE COMPANY’S CERTIFICATE OF INCORPORATION (THE “CERTIFICATE”), THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS IN THE MANNER AND PRIORITIES SET FORTH IN THE PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS. THE COMPANY FILED ON AUGUST 12, 2004 A CERTIFICATE OF DISSOLUTION WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE TO FORMALLY EXTINGUISH COMDISCO HOLDING COMPANY, INC.’S CORPORATE EXISTENCE WITH THE STATE OF DELAWARE EXCEPT FOR THE PURPOSE OF COMPLETING THE WIND DOWN CONTEMPLATED BY THE PLAN.  CAPITALIZED TERMS USED BUT NOT DEFINED IN THE ANNUAL REPORT ON FORM 10-K HAVE THE MEANINGS AS DEFINED IN THE PLAN.
 
AS A RESULT OF THE REORGANIZATION AND THE IMPLEMENTATION OF FRESH-START REPORTING, AS FURTHER DESCRIBED HEREIN, THE COMPANY’S RESULTS OF OPERATIONS AFTER JULY 31, 2002 ARE NOT COMPARABLE TO RESULTS REPORTED IN PRIOR PERIODS FOR COMDISCO, INC.
 
General
 
The Company’s operations continued to wind down during the fiscal year 2012. The Company’s assets at September 30, 2012 consist primarily of cash and cash-equivalents, short-term investments and equity securities. The timing of collections on 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 may provide future 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 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 5 of Notes to Consolidated Financial Statements and "Critical Accounting Policies". It is management's expectation that the amount in private company investments ultimately realized on Equity Investments will, in the aggregate, exceed the amount reflected in the financial statements as of September 30, 2012, which is approximately $697,000 and includes an additional purchase of shares in the amount of $162,000, made during the quarter ended June 30, 2012, for Performance Marketing Brands, Inc. (f/k/a Ebates Shopping.com, Inc.) (“Ebates”).
 
The Company estimates that the realizable value for its Equity Investments in private companies, net of transferred assets and sharing with Windspeed, at September 30, 2012 is approximately $5,166,000.  The Company
 
 
14

 
 
does not hold shares in any public company.  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  
Realized – net of fees
    (219 )     (28 )
Increase due to purchase of additional shares
    0       162  
Increase in unrealized estimated value
    11       2,887  
                 
September 30, 2012 estimated realizable value
  $ 0     $ 5,166  

(1)
Carrying value of public companies for financial statements is market value. See Note 5 of Notes to Consolidated Financial Statements.
(2)
Carrying value of private companies for financial statements is the lower of cost or fair value, or approximately $697,000.  The increase in unrealized estimated value is a result of changes in marketability.
(3)
Net of sharing with Windspeed and transferred assets pursuant to the new extended management agreement terms.
 
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.  As reported on a Current Report on Form 8-K filed by the Company on April 7, 2011, the Windspeed management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011) until February 20, 2013. The Company currently anticipates that it will further extend the agreement.  Under the terms of the current management agreement and any anticipated extension, Windspeed is not, and will not, be paid any management fees.  In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio 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 the fiscal year ended September 30, 2011, representing the excess of the fair value of the companies over their respective cost basis.  The Company has amortized $105,000 of the prepaid expense since the beginning of this agreement, which includes $65,000 amortized during the twelve months ended September 30, 2012.
 
There is no assurance as to the timing or the amount the Company will ultimately realize on the Equity Investments. Management's expectations are subject to the risk factors discussed in Item 1A, “Risk Factors”, entitled "Market Conditions Have Made It Difficult and May Continue to Make It Difficult for the Company to Timely Realize on the Value of Its Warrant and Equity Securities."
 
Collections and recoveries: The Company has potential collections and recoveries on a limited number of 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.  The amount and timing of such collections and recoveries, if any, are subject to the risk factors discussed in Item 1A, “Risk Factors”, particularly the risk entitled “Uncertainties in Collections and Recoveries.”  Additionally, the Company, periodically, recovers unclaimed property from various states.
 
Subsidiaries:  The Company has significantly reduced the number of its domestic and international subsidiaries from ninety-four to four subsidiaries as of December 3, 2012.  To the extent that such subsidiaries were Reorganized Debtors, the Company has closed the related estates.
 
Trust Assets and Litigation Trust
 
Pursuant to the Plan, the Litigation Trust is solely responsible for collecting from, and has filed lawsuits against, all SIP Participants who had not accepted relief. Any judgments against the SIP Participants, net of fees and expenses, are considered Trust Assets as defined in the Plan, and will be distributed by the Litigation Trust in
 
 
15

 
 
accordance with the Plan. The Litigation Trust files periodic reports with the Bankruptcy court.  These reports provide more information on the litigation being conducted by the Litigation Trust.
 
Holders of CDRs will earn an amount resulting from any distributions from the net proceeds of Trust Assets to C-4 creditors in accordance with the Plan. The Litigation Trust is solely responsible for distributing the net proceeds from Trust Assets to C-4 creditors, while the Company is solely responsible for making CDR payments.  The Company continues to maintain sufficient cash reserves for any potential CDR liability arising from any potential net distributions by the Litigation Trust. The outcome and the timing of the actual net distributions by the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments. See this Item 7 below for “Critical Accounting Policies” and Item 1A. “Risk Factors” for a discussion of the “Impact of Recoveries by Litigation Trust on the Company’s Obligation To Make Payments in Respect of Contingent Distribution Rights”, “Uncertainties Inherent in the CDR Liability Calculation”.
 
Emergence from Bankruptcy
 
Since the Company emerged from Chapter 11 bankruptcy proceedings on August 12, 2002, the Company’s business activities have been limited to the orderly sale or run-off of all of its existing asset portfolios. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose. Since emerging from bankruptcy, the Company has not engaged in any new leasing or financing activities, except for previously existing customer commitments and to restructure existing equipment leases and loans to maximize the value of the Company’s assets.
 
All funds generated from the Company’s remaining asset portfolios are required by the Plan to be used to satisfy liabilities of the Company and, to the extent funds are available, to pay dividends on the Company’s Common Stock and to make distributions with respect to the CDRs in the manner and priorities set forth in the Plan. The Company paid no dividends during the fiscal year ended September 30, 2012 and paid a cash dividend of $3.1273 per share on the outstanding shares of its Common Stock (an aggregate distribution of approximately $12.6 million) in the fiscal year ended September 30, 2011.  The Company made no payment to CDR holders in the fiscal year ended September 30, 2012 and made a cash payment of $0.04985 per CDR (an aggregate payment of approximately $7.4 million) to CDR holders in the fiscal year ended September 30, 2011.  See Item 1, “General Terms of the Plan of Reorganization” and Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”.  Because of the composition and nature of its remaining assets, the Company expects to generate funds from the sale or collection of its remaining assets at a decreasing rate over time.
 
The Company continues to maintain sufficient cash reserves for any potential additional CDR liability arising from any potential net distributions from the Litigation Trust to the C-4 creditors.  The outcome and timing of the actual net distributions from the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments.  See Item 7 below for “Critical Accounting Policies” and Item 1A, “Risk Factors” for a discussion of the “Impact of Recoveries by Litigation Trust on the Company’s Obligation To Make Payments in Respect of Contingent Distribution Rights”, “Uncertainties Inherent in the CDR Liability Calculation”.
 
The Company has material restrictions on its ability, and does not expect, to make significant investments in new or additional assets. The Company continually evaluates opportunities for the orderly sale and collection of its remaining assets. Accordingly, within the next few years, it is anticipated that the Company will have reduced all of its assets to cash, 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.
 
Critical Accounting Policies
 
The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company’s management to use estimates and assumptions that affect reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities. These estimates are subject to known and unknown risks, uncertainties and other factors that could materially impact the amounts reported and disclosed in the consolidated financial statements.
 
 
16

 
 
The SEC issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” which recommends that companies provide additional disclosure and analysis of those accounting policies considered most critical.
 
The Company believes the following to be among the most critical judgment areas in the application of its accounting policies:
 
 
·
CDRs and CDR Liability: The Plan entitled holders of Comdisco Holding’s CDRs to share at increasing percentages in the proceeds realized from the monetization of the Company’s assets based upon the present value of distributions to certain C-4 creditors pursuant to the bankruptcy estate of Comdisco, Inc.
 
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 which, as of the date of this filing, a reasonable estimate of future net distributions is not determinable.  See the risk factors discussed in Item 1A, “Risk Factors”, particularly the risks entitled “Uncertainties Inherent in the CDR Liability Calculation”.
 
 
·
Equity Investments In Private Companies: Equity investments in private companies consist primarily of small investments in approximately four private companies (the future proceeds of approximately fifteen of the portfolio companies were transferred to Windspeed under the new extended agreement). The Company carries its common stock and preferred stock investments in private companies at the lower of cost or estimated fair market value in the financial statements. Warrants in non-public companies are carried at zero value. The Company, in consultation with Windspeed, which provides ongoing management of the Company’s portfolio in equity investments, 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 September 30, 2012, the carrying value of the Company’s equity investments in private companies was approximately $697,000 and the estimated fair market value was approximately $5,166,000, net of sharing.
 
 
·
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 consolidated financial statements and notes thereto which contain the Company’s significant accounting policies and other disclosures required by accounting principles generally accepted in the United States of America.
 
Basis of Presentation
 
In this annual report on Form 10-K, references to “the Company,” “Comdisco Holding,” “we,” “us” and “our” mean Comdisco Holding Company, Inc., its consolidated subsidiaries and Comdisco Ventures, Inc. (renamed to Comdisco Ventures Fund A LLC), and its predecessors, except in each case where the context indicates otherwise. References to “Comdisco, Inc.” mean Comdisco, Inc. and its subsidiaries, prior to the Company’s emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise.
 
 
17

 

Recent Developments
 
Equity Investments
 
During the quarter ended June 30, 2012, Performance Marketing Brands, Inc. (f/k/a Ebates Shopping.com, Inc.) (“Ebates”) announced that it would raise an additional round of financing and the Company made an additional purchase of shares in the amount of $162,000.  Ebates is held in the Company’s equity investments in its private companies portfolio as of September 30, 2012 at a fair value estimate of $4,428,000, an increase of $3,094,000 from the September 30, 2011 year end fair value estimate.  See the risk factors discussed in Item 1A, “Risk Factors” entitled “Uncertainties Inherent in the Determination of Fair Market Value of the Remaining Portfolio”.
 
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 November 5, 2012, during a scheduled status hearing before Bankruptcy Judge Schmetterer, legal counsels for the SIP defendants requested that the Judge participate in settlement discussions of the SIP litigation matters pending before the Federal and State courts. The counsels for the SIP defendants advised the Judge that a global settlement offer had been made to the Litigation Trust based upon the ability to pay and a litigation risk discount. Counsel for the Litigation Trust advised the Judge that some of the SIP defendants have not delivered their financial disclosures. Therefore, the Litigation Trustee could not properly evaluate the global settlement offer. The Judge concurred with the Litigation Trust counsel and strongly suggested to the SIP defendants’ counsels that their clients make the requested financial disclosures. The Judge then set a further hearing for November 13, 2012.
 
At the hearing on November 13, 2012, Judge Schmetterer further instructed the SIP defendants’ counsels to have their clients comply with the requests for financial disclosures by November 27, 2012 and set a hearing for that date.  The Judge also advised them that, if the SIP defendants would not cooperate with meaningful financial disclosure, then he would not involve himself in attempting to mediate a settlement.
 
At the hearing on November 27, 2012, the counsels for the SIP defendants advised Judge Schmetterer that they had just turned over additional financial information to the Litigation Trust and that five of the SIP defendants, while wanting to participate in the global settlement, had refused to provide any additional financial disclosures. The counsel for the Litigation Trust informed the Judge that the additional information had been received that morning and the Litigation Trustee had not had sufficient time to evaluate it. The Judge set a hearing for December 6, 2012 and instructed the parties to discuss settlement in the interim.  At the hearing on December 6, 2012, the judge closed the mediation proceedings to solely the parties and their attorneys and the mediation was conducted behind closed doors.  The next mediation meeting is scheduled for January 4, 2013.
 
Litigation Trust Ongoing Litigation
 
The Plan and the litigation trust agreement provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants 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 accept the SIP Relief (as defined in the Plan).  The Company has a limited indemnification obligation to the litigation trustee under the litigation trust agreement.  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 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 U.S. Court of Appeals, Seventh Circuit (the “Seventh Circuit”) on the summary
 
 
18

 
 
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 for further proceedings.  On October 18, 2011, a hearing was held before Judge Gettleman.  A hearing was set for December 22, 2011 and the parties were also required to submit a joint status report on December 9, 2011.  On December 22, 2011, a Rule 16 scheduling conference was set for January 13, 2012.  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 the discovery cut-off date as November 29, 2012.  On October 29, 2012, the SIP defendants filed a Motion for Extension of Discovery CutOff Date.  This motion was heard on November 1, 2012 at which time Judge Gettleman granted the extension through January 30, 2013. On November 20, 2012, the Litigation Trust filed a motion to strike a jury demand, which had been filed by the SIP Participants.  At a hearing on December 6, 2012, the judge continued this motion to be heard at a status hearing on February 1, 2013.
 
Magistrate Judge Nolan was presiding over the discovery proceedings in the federal court and has held various status hearings during the year ended September 30, 2012.  On October 1, 2012, Magistrate Mary Rowland was assigned to these cases replacing Magistrate Nolan.  On October 23, 2012, the Litigation Trust filed a Motion to Compel Defendants to Cooperate in Scheduling Depositions.  On October 25, 2012, the Motion to Compel was granted and defendants were ordered to meet with plaintiffs by October 31, 2012 to set a deposition schedule.  The next status hearing is set for February 1, 2013.
 
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 were tendered at a status hearing on January 24, 2012.  On March 16, 2012, the judge denied in part and affirmed in part the Motion to Vacate Summary Judgments.  A status hearing was held on June 14, 2012 and the judge gave the Litigation Trust permission to file an Amended Complaint.  The judge set a discovery cut-off date of November 30, 2012.  On July 27, 2012, the defendants filed their Motion to Dismiss.  The Motion to Dismiss is fully briefed.  On December 7, 2012, Judge Tailer held the hearing on the Motion to Dismiss.  He granted the Motion to Dismiss and plaintiffs have until January 4, 2013 to file and serve an amended pleading.  The matter is continued to January 11, 2013.  At a status hearing on October 30, 2012, Judge Tailor set a further status hearing on November 7, 2012 at which he extended the discovery cut-off date until January 31, 2013.
 
In 2004 and 2005, sixty-nine SIP notes were transferred to the Litigation Trust.  Of the sixty-nine SIP notes, nine SIP participants have filed personal bankruptcy, thirty-five of them have settled or otherwise resolved their obligation, and twenty-five cases remain active (six in the federal court and nineteen in the state court).  As reported in the Thirty-Second Status Report of Comdisco Litigation Trustee, filed on October 31, 2012, the Litigation Trust did not reach any settlements in the quarter ended September 30, 2012.
 
For more details regarding the Litigation Trust and related proceedings, please refer to the quarterly reports filed by the Litigation Trust 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 the litigation trust agreement.
 
 
19

 

Litigation Trust Termination Motion
 
On March 16, 2006, a motion was filed in the Bankruptcy court for the Northern District of Illinois on behalf of certain SIP Participants who had filed proofs of claim in the Comdisco, Inc. bankruptcy ("SIP Claimants"). The motion sought an order from the Bankruptcy court terminating the Litigation Trust. On July 20, 2006, the Bankruptcy court judge denied the motion of the SIP Claimants. On August 18, 2006, the SIP Claimants appealed the Bankruptcy court judge's denial of their motion. On January 30, 2007, the federal district court judge affirmed the denial of the motion. The SIP Claimants appealed the denial to the US Circuit Court of Appeals for the 7th Circuit. A mandatory mediation was held on April 20, 2007. The mediation was adjourned and no settlement was achieved by the parties. The parties briefed the appeal and oral arguments were held before the Appellate Court on November 26, 2007.  On August 13, 2008, the Appellate Court ruled and dismissed the appeal for want of jurisdiction. As of the date of this filing, there have been no further proceedings on this matter.
 
Records Destruction
 
On June 26, 2008, the Company obtained an order from the Bankruptcy court authorizing it to destroy or transfer certain of its stored paper and electronic records attributed to periods prior to January 1, 1997.  As of the date of this filing, the Company destroyed substantially all of those records.
 
Subsidiary Changes
 
There were no changes in the Company’s subsidiaries during the fiscal year ended September 30, 2012.
 
XBRL
 
On September 11, 2012, the Company was denied an extension to its 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 will be required to provide the interactive data file beginning with the fiscal quarter ending December 31, 2012.
 
Results of Operations
 
Fiscal Year Ended September 30, 2012 Compared to the Fiscal Year Ended September 30, 2011
 
Revenue (in thousands)
 
Year ended
September 30,
   Percent    
   
2012
 
2011
 
Increase (Decrease)
 
Explanation of Change
Gain on sale of equity and warrant securities
  $ 203     $ 1,079       (81 )%  
Equity securities, which are managed by Windspeed, represent the primary remaining revenue generating asset.    See “Overview” for additional information. (A)
Interest income
    136       114       19 %  
Interest earned on cash balances. (B)
Foreign exchange gain
    123       93       32 %  
(C)
Miscellaneous income
    0       16       (100 %)    
Total Revenue
  $ 462     $ 1,302       (65 )%    
 
 
(A)
The decrease in gains on sale of equity holdings for the year ended September 30, 2012 relates to a decrease in the liquidations of positions in public and private companies from October 1, 2011 through September 30, 2012 as compared to the period from October 1, 2010 through September 30, 2011.
 
 
(B)
Interest income earned in the fiscal year ended September 30, 2012 is slightly higher compared to the prior fiscal year due to higher rates earned on short-term investments.
 
 
20

 

 
(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.
 
Costs and Expenses
(in thousands)
 
Year ended
September 30,
  Percent    
   
2012
 
2011
 
Increase (Decrease)
 
Explanation of Change
Selling, general and administrative
  $ 3,028     $ 3,131       (3 %)  
(A)
Write-down of privately held securities
    0       199       (100 )%  
Impairment of asset.
Contingent distribution rights
    (34 )     (2,128 )     (98 )%  
(B)
Bad debt recoveries
    (801 )     (551 )     45 %  
Collections and recoveries. (C)
    $ 2,193     $ 651       +100 %    
 
 
(A)
Decrease in professional fees, employee and consulting compensation and other operating expenses incurred during the twelve months ended September 30, 2012 primarily related to the continued wind-down of operations offset slightly by an increase of $166,000 to the liability for a bank guaranty.
 
 
(B)
The reduction in CDR expense during 2012 is primarily the result of an increase in estimated future selling, general and administrative costs offset by a Canadian net tax benefit received during 2012 and the impact of gains on sale of equity investments on the CDR liability and higher bad debt recoveries.  The reduction in CDR expense during 2011 was primarily the result of income tax expense from the write off of a Canadian tax receivable during the year ended September 30, 2011, together with higher estimated future selling, general and administrative costs.  This reduction was offset in part by higher gain on sale of equity investments and bad debt recoveries.  See Item 7 "Critical Accounting Policies" for a discussion of the potential liability from any future recoveries and distributions by the Litigation Trust.  See the risk factors discussed in Item 1A, “Risk Factors”, particularly the risks entitled “Uncertainties Inherent in the CDR Liability Calculation”.
 
 
(C)
The increase in proceeds during the twelve months ending September 30, 2012 was the result of bad debt recoveries from a previously written off claim in a foreign bankruptcy estate, a settlement on a disputed obligation owed to the Company, proceeds from the sale of equities pledged under a former Comdisco Ventures, Inc. loan transaction and proceeds from a final settlement of an ongoing litigation with a foreign lessee.

Selling, General and Administrative Expenses
 
The following table summarizes selling, general and administrative expenses (in thousands):
 
   
Year ended September 30,
 
   
2012
   
2011
 
Compensation and benefits
  $ 1,249     $ 1,266  
Outside professional services
    999       1,205  
Other expenses
    780       660  
    $ 3,028     $ 3,131  
 
Income Taxes
 
See Note 4 – Income Taxes of Notes to Consolidated Financial Statements for details about the Company’s income tax provision. Income taxes are subject to the risk factor “The Company Faces a Number of Uncertainties Around the Settlement of Domestic and International Tax Positions” discussed in Item 1A, “Risk Factors”.
 
 
21

 
 
The Company’s U.S. federal taxes are impacted from its wind down activities, including the liquidation and repatriation of foreign assets.  During the fiscal year ended September 30, 2012, the Company recorded a U.S. tax benefit in the amount of approximately $6,000 and received a refund from the Internal Revenue Service (“IRS”) in the amount of approximately $7,000.  During the fiscal year ended September 30, 2011, the Company recorded no US tax expense.  During the fiscal year ended September 30, 2011, the Company made estimated payments to the IRS in the amount of approximately $10,000.
 
During the fiscal year ended September 30, 2012, the Company recorded a tax expense of approximately $3,000 and the Company paid approximately $16,000 in final settlement with the San Juan Municipality and has completed withdrawal from Puerto Rico.
 
During the fiscal year ended September 30, 2012, the Company recorded a net income tax benefit of approximately $1,279,000 for Comdisco Canada Limited (“CCL”) as a result of successful negotiations with the Canada Revenue Agency (“CRA”) of a refund of arrears federal interest.  During the fiscal year ended September 30, 2011, the Company recorded tax expense of approximately $3,393,000 for its Canadian operations as a result of the following: (a) the write off of a tax receivable for arrears federal interest based on an adverse position taken by the CRA in response to the Notices of Objection to reassessments which were filed for the tax years ended September 30, 2000 and 2001 by the Company during the quarter ended September 30, 2011, (b) increased interest accruals, and (c) settlements with tax authorities.
 
  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.  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.  As a result of the tax audit, during the year ended September 30, 2010, the Company also recorded an estimated liability for value added tax (“VAT”) in the amount of $120,000 which was recorded in selling, general and administrative expense.  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, 2011.
 
Net (Loss)
 
Net loss was approximately $(449,000), or $(0.11) per share-basic and diluted, for the fiscal year ended September 30, 2012 compared to a net loss of approximately $(1,581,000), or $(0.39) per share-basic and diluted, for the fiscal year ended September 30, 2011.
 
Off-Balance Sheet Arrangements
 
The Company does not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon the Company’s financial condition or results of operations.
 
Liquidity and Capital Resources
 
The Company’s liquidity generally depends on cash on hand and cash provided by operating activities. The Company’s cash flow from operating activities is dependent on a number of variables, including, but not limited to, operating costs and expenses to affect the wind down, income tax obligations, market conditions for the sale of Equity Investments and the ability of the Company to dispose or otherwise convert to cash any other remaining assets. All funds generated from the collection of remaining assets are required by the Plan to be used to satisfy liabilities of the Company and, to the extent funds are available, to pay dividends on the Company’s Common Stock and to make distributions with respect to the CDRs in the manner and priorities set forth in the Plan.  Because of the composition and nature of its remaining assets, the Company expects to generate funds from the sale or collection of its remaining assets at a decreasing rate over time.
 
At September 30, 2012, the Company had unrestricted cash and cash equivalents of approximately $29,349,000, a decrease of approximately $1,601,000 compared to September 30, 2011.  These funds are primarily held in the United States.  Net cash used in operating activities for the fiscal year ended September 30, 2012 was
 
 
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$121,000.  Net cash used in investing/financing activities for the fiscal year ended September 30, 2012 was $1,523,000.  The effect of exchange rate changes on cash balances held in foreign currencies was an increase in cash and cash equivalents of approximately $43,000 for the fiscal year ended September 30, 2012.
 
Cash used in operating activities primarily consisted of cash expenditures, which were primarily operating expenses of $2,948,000 (principally professional services and compensation).  These expenditures were offset partially by; approximately $1,348,000 of net tax receipts from the CRA and the IRS and a payment to Puerto Rico, approximately $328,000 of proceeds net of fees generated from the Windspeed managed warrant and equity portfolio, and approximately $1,151,000 of proceeds received from interest income, bad debt recoveries and other revenue.
 
Net cash used in investing/financing activities of $1,523,000 included a short-term investment in Canada for $1,391,000, an investment of $162,000 in private equity shares and a decrease of $30,000 in legally restricted cash.
 
The Company’s current and future liquidity depends on cash on hand and may be augmented by proceeds from the sale of Equity Investments, recoveries, if any, and interest income. The Company expects its cash on hand to be sufficient to fund operations and to meet its obligations (including its obligation to make distributions to its Common Stockholders and make payments to CDR holders) under the Plan for the foreseeable future.
 
Dividends
 
The Company intends to treat the dividend distributions for federal income tax purposes as part of a series of liquidating distributions in complete liquidation of the Company. Aggregate total dividend distributions on the Company’s Common Stock to the date of this report were as follows (in thousands):
 
   
Aggregate Payment
May 2003
  $ 307,773  
June 2003
    60,019  
September 2003
    199,782  
December 2003
    50,365  
May 2004
    48,267  
March 2005
    52,447  
January 2006
    20,172  
December 2006
    25,748  
April 2011
    12,600  
    $ 777,173  

Contingent Distribution Rights
 
For financial reporting purposes, the Company records CDRs as a liability and as an operating expense although the CDRs trade over-the-counter.
 
The Plan entitles holders of CDRs to share at increasing percentages in the proceeds realized from the Company’s assets based upon the present value of distributions to certain C-4 creditors in the bankruptcy estate of Comdisco, Inc. As of December 3, 2012, the sharing percentage was 37%, which is the maximum sharing percent and there were 1,857 holders of record of the Company’s CDRs and there were 148,448,188 outstanding CDRs.
 
The Company maintains sufficient cash reserves for operations and the potential CDR liability arising from either the Company’s equity and any potential net distributions from the Litigation Trust to the C-4 creditors.  The outcome and the timing of the actual net distributions from the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments.
 
 
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Aggregate total distributions to the date of this report with respect to the CDRs were as follows (in thousands):
 
   
Aggregate Payment
 
Per CDR
May 2003
  $ 2,730     $ .01793  
June 2003
    2,468       .01621  
September 2003
    13,370       .08780  
December 2003
    7,827       .05140  
March 2004
    2,848       .01870  
May 2004
    11,892       .07810  
December 2004
    14,953       .09820  
March 2005
    22,171       .14560  
January 2006
    5,558       .03650  
March 2006
    3,761       .02470  
December 2006
    6,852       .04500  
September 2007
    22,841       .15000  
September 2008
    893       .00602  
September 2008 reallocation
    0       .01984  
April 2011
    7,400       .04985  
Total CDR payments
  $ 125,564     $ .84585  

Since September 30, 2008, the Company has estimated, and will continue to estimate, the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, 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 which are currently estimated to be nominal.    See the risk factors discussed in Item 1A, “Risk Factors”, particularly the risks entitled “Uncertainties Inherent in the CDR Liability Calculation” and “Uncertainties Inherent in the Determination of Fair Market Value of the Remaining Portfolio.”
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.
 
 
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
INDEX TO FINANCIAL STATEMENTS
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
26
   
CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands except per share data)
27
   
CONSOLIDATED BALANCE SHEETS  (in thousands except number of shares and per share data)
28
   
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY  (in thousands)
29
   
CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)
30
   
CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)
31
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2012, and 2011
32

 
 
 
25

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of Comdisco Holding Company, Inc.:
 
We have audited the accompanying consolidated balance sheets of Comdisco Holding Company, Inc. and subsidiaries (the “Company”) as of September 30, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Comdisco Holding Company, Inc. and subsidiaries as of September 30, 2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
 

 
 /s/ KPMG LLP
 
Chicago, Illinois
December 12, 2012
 
 

 
26

 

COMDISCO HOLDING COMPANY, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands except per share data)
 
   
Year ended
September 30,
 
Year ended
September 30,
   
2012
 
2011
Revenue
           
Gain on sale of equity and warrant securities, net of fees
  $ 203     $ 1,079  
Interest income
    136       114  
Foreign exchange gain
    123       93  
Miscellaneous income 
    0       16  
Total revenue
    462       1,302  
Costs and expenses
               
Selling, general and administrative
    3,028       3,131  
Write-down of privately held securities
    0       199  
Contingent Distribution Rights
    (34 )     (2,128 )
Bad debt recoveries
    (801 )     (551 )
Total costs and expenses
    2,193       651  
Earnings (loss) before income taxes
    (1,731 )     651  
Income tax expense (benefit)
    (1,282 )     2,232  
Net (loss)
  $ (449 )     (1,581 )
Basic and diluted (loss) per common share
  $ (0.11 )   $ (0.39 )
 
See accompanying notes to consolidated financial statements.
 


 
27

 

COMDISCO HOLDING COMPANY, INC.
 
CONSOLIDATED BALANCE SHEETS
(in thousands except number of shares and per share data)
 
   
September 30,
2012
 
September 30,
2011
ASSETS
           
Cash and cash equivalents
  $ 29,349     $ 30,950  
Cash – legally restricted
    4,837       4,856  
Short-term investment
    4,496       2,928  
Equity investments
    697       743  
Receivable from bad debt recovery
    0       251  
Other assets
    390       245  
Total assets
  $ 39,769     $ 39,973  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Accounts payable
  $ 137     $ 127  
Income taxes payable
    1,037       904  
Other liabilities:
               
Accrued compensation
    1,221       1,170  
Contingent Distribution Rights
    11,339       11,373  
Other liabilities
    501       333  
Total other liabilities
    13,061       12,876  
Total liabilities
    14,235       13,907  
Stockholders’ equity
               
Common Stock $.01 par value. Authorized 10,000,000 shares; originally issued 4,200,000 shares; 4,028,951 shares issued and outstanding at September 30, 2012 and 2011
    70       70  
Additional paid-in capital
    28,414       28,414  
Accumulated other comprehensive income
    0       83  
Accumulated deficit
    (2,950 )     (2,501 )
                 
Total stockholders’ equity
    25,534       26,066  
    $ 39,769     $ 39,973  

See accompanying notes to consolidated financial statements.
 
 
28

 

COMDISCO HOLDING COMPANY, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
(in thousands)
 

   
Common Stock
 
Additional Paid-in capital
 
Accumulated other comprehensive income
 
Retained earnings (accumulated deficit)
 
Common stock placed in treasury
 
Total
Balance at September 30, 2010
  $ 72     $ 44,136     $ 4     $ 277     $ (4,321 )   $ 40,168  
Net loss
                            (1,581 )             (1,581 )
Change in unrealized gain
                    79                       79  
Total comprehensive loss
                                            (1,502 )
Liquidating dividend payment, April 21, 2011
            (11,403 )             (1,197 )             (12,600 )
Treasury stock retired
    (2 )     (4,319 )                     4,321       0  
Balance at September 30, 2011
    70       28,414       83       (2,501 )     0       26,066  
Net loss
                            (449 )             (449 )
Change in net unrealized gains
                    (83 )                     (83 )
Total comprehensive loss
                                            (532 )
Balance at September 30, 2012
  $ 70     $ 28,414     $ 0     $ (2,950 )   $ 0     $ 25,534  


 
See accompanying notes to consolidated financial statements.
 
 

 
29

 

COMDISCO HOLDING COMPANY, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
   
Year Ended
September 30,
2012
 
Year Ended
September 30,
2011
             
Cash flows from operating activities:
           
Equity and warrant proceeds net of fees
  $ 328     $ 1,421  
Interest, bad debt recoveries and other revenue
    1,151       385  
Selling, general and administrative expenses
    (2,948 )     (3,309 )
Income tax receipts (payments)
    1,348       (379 )
Contingent Distribution Rights payments
    0       (7,400 )
                 
Net cash used by operating activities
    (121 )     (9,282 )
                 
Cash flows from investing/financing  activities:
               
Dividends paid on Common Stock
    0       (12,600 )
Investment in shares of private equity company
    (162 )     0  
Short-term investment
    (1,391 )     0  
Decrease in legally restricted cash
    30       0  
Net cash used in investing/ financing activities
    (1,523 )     (12,600 )
                 
Effect of exchange rates on cash and cash equivalents
    43       6  
                 
Net decrease in cash and cash equivalents
    (1,601 )     (21,876 )
Cash and cash equivalents at beginning of period
    30,950       52,826  
                 
Cash and cash equivalents at end of period
  $ 29,349     $ 30,950  
 
 
See accompanying notes to consolidated financial statements.
 
 
30

 

COMDISCO HOLDING COMPANY, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
   
Year Ended
September 30,
2012
 
Year Ended
September 30,
2011
Reconciliation of net loss to net cash used by operating activities:
           
Net loss
  $ (449 )   $ (1,581 )
Adjustments to reconcile net loss to net cash used by operating activities:
               
Taxes payable and other tax balances
    68       (247 )
Reversal of a Canadian income tax receivable
    0       3,264  
Reversal of a Mexican income tax liability
    0       (1,165 )
Contingent Distribution Rights
    (34 )     (9,528 )
Selling, general, and administrative expenses
    14       (218 )
Write-down of privately held securities
    0       199  
Receivables
    248       (263 )
Cost basis related to equity securities sold
    126       435  
Non-cash gain from the new extended management agreement
    0       (93 )
Amortization of prepaid management fee expense
    65       40  
Other, including foreign exchange
    (159 )     (125 )
Net cash used by provided by operating activities
  $ (121 )   $ (9,282 )

 
See accompanying notes to consolidated financial statements.
 
 
31

 
 
COMDISCO HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
September 30, 2012, and 2011
 
Note 1 - Reorganization
 
On July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court (consolidated case number 01-24795) (the “Filing”). Comdisco Holding Company, Inc., as the successor company to Comdisco, Inc., for SEC filing purposes, emerged from bankruptcy under a confirmed plan of reorganization (the First Amended Joint Plan of Reorganization (the “Plan”)) that became effective on August 12, 2002 (the “Effective Date”). For financial reporting purposes only, however, the effective date for implementation of fresh-start reporting was July 31, 2002.
 
Comdisco Holding Company, Inc. was formed on August 8, 2002 for the purpose of selling, collecting or otherwise reducing to money in an orderly manner the remaining assets of the Company and all of its direct and indirect subsidiaries, including Comdisco, Inc. As more fully described in the Plan, the Company’s business purpose is limited to the orderly sale or run-off of all its remaining assets. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose.
 
Note 2 - Summary of Significant Accounting Policies
 
Basis of Presentation
 
In this annual report on Form 10-K, references to “the Company,” “Comdisco Holding,” “we,” “us” and “our” mean Comdisco Holding Company, Inc., its consolidated subsidiaries and Comdisco Ventures, Inc., and its predecessors, except in each case where the context indicates otherwise. References to “Comdisco, Inc.” mean Comdisco, Inc. and its subsidiaries, prior to the Company’s emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise.
 
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.
 
On September 11, 2012, the Company was denied an extension to its 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 will be required to provide the interactive data file beginning with the fiscal quarter ending December 31, 2012.
 
The Company’s policy is to expense legal costs as they are incurred.
 
Nature of Operations
 
Comdisco Holding Company, Inc. was formed on August 8, 2002 for the purpose of selling, collecting or otherwise reducing to money in an orderly manner the remaining assets of the Company and all of its direct and indirect subsidiaries, including Comdisco, Inc.  The Company reports its results of operations in one reporting segment.
 
Use of Estimates
 
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
 
 
32

 
 
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  Intercompany accounts and transactions have been eliminated.
 
Translation Adjustments
 
All assets and liabilities denominated in foreign currencies are translated at the exchange rate on the balance sheet date. Revenues, costs and expenses are translated at average rates of exchange prevailing during the period.   Due to the substantially complete liquidation of its foreign subsidiaries, translation adjustments are included in revenue if the adjustments are a gain and in cost and expenses if the adjustments are a loss in the consolidated statements of operations.
 
Income Taxes
 
The Company uses the asset and liability method to account for income taxes.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial settlement carrying amount of existing assets and liabilities and their respective tax basis.  The Company continues to provide a valuation allowance for the remaining value of the deferred tax assets due to uncertainties regarding future earnings.  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.

Cash and Cash Equivalents
 
Cash and cash equivalents are comprised of highly liquid debt instruments with original maturities of 90 days or less.
 
Short-term Investments
 
Short-term investments are comprised of investments which are highly liquid fixed-income investments with an original maturity greater than three months but less than one year.
 
Equity Investments
 
Marketable equity securities: The Company classifies all marketable equity securities as available-for-sale. These marketable equity securities are carried at fair value, based on quoted market prices, with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income (loss).
 
Equity investments in private companies: Equity investments in private companies for which there is no readily determinable fair value are carried at the lower of cost or estimated fair market value as determined by the Company in consultation with Windspeed Acquisition Fund GP, LLC (“Windspeed”). The Company, in consultation with Windspeed, identifies and records losses on equity investments in private companies when market and company specific events and circumstances indicate that such assets might be impaired.  The Company did not record any write-downs of equity securities for the year ended September 30, 2012.  The Company recorded a write-down of equity securities for the year ended September 30, 2011 for approximately $199,000.  All write-downs are considered permanent impairments for financial reporting purposes.  During the quarter ended June 30, 2012, the Company made an additional investment in the amount of $162,000 related to Performance Marketing Brands, Inc. (f/k/a Ebates Shopping.com, Inc.) (“Ebates”).
 
 
33

 
 
Warrants: The Company’s investments in warrants (received in connection with its lease or other financings) were initially recorded at zero cost and carried in the consolidated financial statements as follows:
 
 
·
Warrants that meet the criteria for classification as available-for-sale are carried at fair value based on quoted market prices with unrealized gains excluded from earnings and reported in accumulated other comprehensive income.
 
 
·
Warrants that do not meet the criteria for classification as available-for-sale continue to be carried at zero value.
 
Contingent Distribution Rights
 
The Company estimates the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, income taxes 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, as of the date of this filing, a reasonable estimate of future net distributions is not determinable.    See the risk factors discussed in Item 1A, “Risk Factors”, particularly the risk entitled “Uncertainties Inherent in the CDR Liability Calculation”.
 
Basic and Diluted Earnings Per Common Share
 
Earnings per common share basic and diluted are computed by dividing the net earnings (loss) to common stockholders by the weighted average number of common shares outstanding for the period.
 
Note 3 - Changes in Accounting
 
 
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.
 
Note 4 - Income Taxes
 
The geographical sources of earnings (loss) before income taxes were as follows (in thousands):
 
   
Year ended September 30,
   
2012
 
2011
United States
  $ (1,396 )   $ 981  
Outside United States
    (335 )     (330 )
    $ (1,731 )   $ 651  
 
During the year ended September 30, 2012, the loss before income taxes was primarily a result of selling, general and administrative costs of the estate, which were higher than revenues.  During the year ended September 30, 2011, the earnings before income taxes in the United States and the loss before income taxes outside the United States were a result of the transactions implemented to effect the wind down of Comdisco de Mexico, S.A. de C.V (“Mexico”) and Comdisco Canada Limited (“CCL”) in which an intercompany debt owed by the Company’s U.S. entity was forgiven with Mexico and an intercompany receivable was forgiven with CCL.
 
 
34

 
 
The components of the income tax (benefit) expense were as follows (in thousands):
 
   
Year ended September 30,
   
2012
 
2011
Current:
           
United States
  $ (6 )   $ (1 )
Outside United States
    (1,276 )     2,233  
Deferred:
               
United States
    0       0  
Outside United States
    0       0  
    $ (1,282 )   $ 2,232  
 
The Company received approximately $7,000 from the Internal Revenue Service (“IRS”) in the fiscal year ended September 30, 2012 and paid approximately $10,000 to the IRS in the fiscal year ended September 30, 2011.  The Company received approximately $1,357,000 from the Canada Revenue Agency (“CRA”) during the fiscal year ended September 30, 2012.  The Company paid approximately $16,000 in a final settlement with the San Juan Municipality.
 
The reasons for the difference between the U.S. federal income tax rate and the effective income tax rate for earnings were as follows:
 
   
Year ended September 30,
   
2012
   
2011
U.S. federal income tax rate
    34.00 %     34.00 %
Increase (reduction) resulting from:
               
Final determinations (1)
    67.16       (178.28 )
Foreign income tax rate differential
    0.00       538.87  
Non-deductible CDR expenses
    0.67       (111.23 )
Unrealized gain (loss) on foreign exchange
    2.42       (4.86 )
Intercompany debt forgiveness
    0.00       24.58  
Change in valuation allowance
    (28.30 )     41.15  
Income (loss) from pass through entities
    (2.22 )     (0.92 )
      Other, net
    0.31       (0.45 )
Effective income tax rate
    74.04 %     342.86 %
 
 
(1)
Final determinations include final agreements with tax authorities.
 
Deferred tax assets at September 30, 2012 and 2011 were as follows (in thousands):
 
    2012   2011
Deferred tax assets:            
Foreign loss carryforwards
  $ 269     $ 186  
U.S. and state NOL carryforward
    111,283       110,724  
AMT credit carryforwards
    75,588       75,588  
                 
Gross deferred tax assets
    187,140       186,498  
Less: valuation allowance
    (187,140 )     (186,498 )
                 
Net deferred tax assets
  $ 0     $ 0  
 
The Company provides a valuation allowance for the remaining value of the deferred tax assets due to it being more likely than not that they will not be utilized in the future.
 
 
35

 
 
For financial reporting purposes, as of September 30, 2012, the Company has approximately $996,000 of foreign net operating loss carryforwards, most of which have no expiration date. The Company has recognized a valuation allowance of $269,000 to offset this deferred tax asset.
 
At September 30, 2012, the Company has available for U.S. federal income tax purposes the following carryforwards (in thousands):
 
Year scheduled to expire
 
Net operating loss
 
       
2023
  $ 239,595  
2024
    37,101  
2025
    34,055  
2031
    657  
2032
    1,553  
    $ 312,961  
 
For U.S. federal income tax purposes, the Company has $75,588,000 of alternative minimum tax (“AMT”) credit carryforwards available to reduce regular taxes in future years. AMT credit carryforwards do not have an expiration date. The Company does not believe that it is more likely than not that the Company will generate sufficient future taxable income to realize the benefit of the AMT credit carryforwards.  As such, the Company has recognized a valuation allowance of $75,588,000 to offset this deferred tax asset.
 
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 only federal tax years open to exam are fiscal years ended September 30, 2009 through September 30, 2011.
 
During the year ended September 30, 2012, the Company paid approximately $16,000 in final settlement with the San Juan Municipality and has completed withdrawal from Puerto Rico.
 
The Company's Canadian subsidiary, CCL, currently is in the process of resolving several tax matters with federal and provincial tax authorities in Canada.  The more significant tax matter is the "Notices of Objection" to reassessments which were filed for the tax years ended September 30, 2000 and 2001. 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.  During the year ended September 30, 2012, the Company completed final negotiations with the CRA related to its federal Notices of Objection and recorded a net income tax benefit of approximately $1,279,000.
 
The open federal tax years for the Canadian subsidiary are tax years ended September 30, 1998, 1999, 2002, 2008 and 2009, as well as March 31, 2010, 2011 and 2012. The Company will continue to pursue refund efforts with the province of Ontario; however, as of the date of this filing, the Company believes a tax refund is not more likely than not to be received, therefore, no income tax receivable has been recorded.  The open tax years for the province of Ontario are tax years ended September 30, 1998 and 2007 through 2009, as well as March 31, 2010, 2011 and 2012. The open tax year for the provinces of Quebec and Alberta is the tax year ended September 30, 1999.
 
During the fiscal year ended September 30, 2012, the Company’s Canadian subsidiary received tax refunds totaling approximately USD $1,357,000 from the CRA.  During the fiscal year ended September 30, 2011, the Company’s Canadian subsidiary made tax payments totaling approximately USD $101,000 to the CRA.
 
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
 
 
36

 
 
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.  As a result of the tax audit, during the year ended September 30, 2010, the Company also recorded an estimated liability for value added tax (“VAT”) in the amount of $120,000 which was recorded in selling, general and administrative expense.  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, 2011.  The Company is currently working with local advisors to liquidate the Mexican subsidiary.
 
The Company’s United Kingdom (“UK”) subsidiary, Equiplease Limited, was dissolved during the fiscal year ended September 30, 2011 and received approximately $1,000 for its UK subsidiary.
 
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
 
   
September 30,
 
September 30,
   
2012
 
2011
Beginning balance
  $ 430     $ 1,434  
Decreases related to settlements of certain tax audits
    (16 )     (268 )
Increases related to settlements of certain tax audits
    0       0  
Decreases related to prior year tax positions
    0       (1,160 )
Increases related to prior year tax positions
    46       0  
Other
    0       424  
Ending balance
  $ 460     $ 430  
 
The entire balance of $460,000, if not realized, would impact the effective tax rate in future periods.
 
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 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 $460,000.
 
The Company recognizes accrued interest and penalties related to income tax reserves in respect of uncertain tax positions in the income tax provision. As of September 30, 2012, accrued interest and penalties amounted to approximately $144,000.  For the year ended September 30, 2012, the net tax benefit of approximately $1,279,000 related to the Canadian entity, including interest expense and penalties in the statement of operations, was a result of the negotiation with the CRA on a tax refund sought by the Company in connection with Notices of Objection filed for the tax years ended September 30, 2000 and 2001.  The Company received the federal assessment and federal refund check for approximately $1,357,000 during the quarter ended September 30, 2012.  For the year ended September 30, 2011, the net tax expense of approximately $3,393,000 related to the Canadian entity, including interest expense and penalties in the statement of operations, was a result of the write off of an income tax receivable due to an adverse CRA position on a tax refund sought by the Company in connection with Notices of Objection filed for the tax years ended September 30, 2000 and 2001 and the Canadian wind down transaction.
 
Note 5 – Equity Investments
 
On February 23, 2004, the Company announced that its subsidiary, Comdisco, Inc., entered into agreements (collectively, the “Agreements”) with Windspeed for the ongoing management and liquidation of Comdisco Ventures, Inc.’s warrant and equity investment portfolio.  As reported on a Current Report on Form 8-K filed by the Company on April 7, 2011, the Windspeed management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011) until February 20, 2013. The Company currently anticipates it will further extend the contract.  Under the terms of the current management agreement and any anticipated extension, Windspeed is not, and will not, be paid any management fees.  In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio go to Windspeed.  The Agreements include substantially all of the Company’s warrant and equity investment portfolio.  Additionally, Windspeed shares in the net receipts from the
 
 
37

 
 
sale of the Company’s investments in certain of the Company’s equity securities at a set percentage. The Company has received approximately $70,741,000 in proceeds (prior to management fees and sharing) since the inception of the management agreement with Windspeed.  Windspeed has received a combined $12,575,000 in management fees and sharing through September 30, 2012. Management fees are expensed when incurred and realized gains on the sale of Equity Investments are reduced by sharing amounts under the management agreement.
 
Marketable equity investments:
 
The Company’s available-for-sale security holdings were as follows (in thousands):
 
   
Cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Market value
September 30, 2012
  $ 0     $ 0     $ 0     $ 0  
September 30, 2011
  $ 125     $ 83     $ 0     $ 208  
 
Changes in the valuation of available-for-sale securities are included as changes in the unrealized holding gains (losses) in accumulated other comprehensive income. At September 30, 2012, the Company does not own any shares in publicly-traded companies.  The Company’s practice is to sell its marketable equity securities within a reasonable period of time after the lock-up period ends.
 
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. Realized gains, net of sharing and fees, are included in revenue in the consolidated statements of operations. During the fiscal year ended September 30, 2012, the Company received $328,000 in proceeds (after sharing and management fees) and realized a gain of $203,000 on the sale of marketable equity securities.
 
Equity investments in private companies:
 
The Company’s policy for assessing the carrying value of equity investments in privately held companies is, in consultation with Windspeed, to regularly review the assumptions underlying the operating performance and cash flow forecasts. The Company identifies and records impairment losses on Equity Investments when market and customer specific events and circumstances indicate the carrying value might be impaired. All write-downs are considered permanent impairments for financial reporting purposes. The carrying value of the Company’s equity investments in private companies was $697,000 at September 30, 2012 and $535,000 at September 30, 2011.  During the quarter ended June 30, 2012, the Company made an additional investment in the amount of $162,000 related to Performance Marketing Brands, Inc. (f/k/a Ebates Shopping.com, Inc.) (“Ebates”).
 
There were no write-downs of equity securities in the fiscal year ended September 30, 2012 and $199,000 during the fiscal year ended September 30, 2011.
 
Note 6 - Common Stock and Other Comprehensive Income
 
The Company has 4,200,000 shares of Common Stock issued.  171,049 shares of Common Stock held in treasury were retired during the quarter ended March 31, 2011.  As of September 30, 2012, the Company had 4,028,951 shares of Common Stock issued and outstanding.
 
Consistent with past practices, the Company intends to treat any future dividend distribution for federal income tax purposes as part of a series of liquidating distributions in complete liquidation of the Company.
 
 
38

 
 
The Company’s Common Stock share amounts for basic and diluted earnings per share calculations were as follows (in thousands):
 
   
Year ended September 30,
   
2012
 
2011
Average common shares issued
    4,200       4,200  
Average common shares retired
    (171 )     (171 )
      4,029       4,029  
Net (loss) to common stockholders
  $ (449 )   $ (1,581 )
Basic and diluted (loss) per common share
  $ ( 0.11 )   $ (0.39 )
 
Accumulated other comprehensive (loss) consists of changes in the unrealized gains related to the Company’s holdings in available-for-sale investments.   Total comprehensive (loss) is as follows (in thousands):
 
   
Year ended September 30,
   
2012
 
2011
Unrealized gains (losses) on investments:
           
Unrealized holding gains (losses) arising during the period
  $ 120     $ 83  
Reclassification adjustment for gains included in earnings before income taxes
    (203 )     (4 )
                 
Change in net unrealized gains (losses) (A)
    (83 )     79  
                 
Net (loss)
    (449 )     (1,581 )
                 
Total comprehensive (loss)
  $ (532 )   $ (1,502 )
 
Note (A):  No income tax effect on these gains (losses)
 
Note 7 - Fair Value Measurements
 
The three levels of inputs used to measure fair value are as follows:
 
Level 1 – Quoted prices in active markets for identical assets and liabilities.
   
Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
   
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes 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.
 
 
39

 
 
The Company has included a tabular disclosure for financial assets that are measured at fair value on a recurring basis in the consolidated balance sheet as of September 30, 2012 and 2011.  The Company holds no financial liabilities that are measured at fair value on a recurring basis.
 
     
September 30, 2012
     
Level 1
 
Level 2
 
Level 3
 
Total
Fair Value
Assets
                         
 
Money market accounts
  $ 28,591,000     $ 0     $ 0     $ 28,591,000  
 
Certificates of deposit
    0       4,496,000       0       4,496,000  
 
Equity investments (A)
          0       5,166,000       5,166,000  
 
Total
  $ 28,591,000     $ 4,496,000     $ 5,166,000     $ 38,253,000  
   
     
September 30, 2011
     
Level 1
 
Level 2
 
Level 3
 
Total
Fair Value
Assets
                                 
 
Money market accounts
  $ 29,802,000     $ 0     $ 0     $ 29,802,000  
 
Certificates of deposit
    0       2,928,000       0       2,928,000  
 
Equity investments (A)
    208,000       0       2,145,000       2,353,000  
 
Total
  $ 30,010,000     $ 2,928,000     $ 2,145,000     $ 35,083,000  
(a)  Equity investments are made up of stock in four privately held companies.

Reconciliation of financial assets measured at fair value on a recurring basis using Level 3 inputs for the years ended September 30, 2012 and 2011 is as follows:

   
Fair Value
September 30, 2011
 
Realized
(net of fees)
 
Change in
Unrealized
Estimated Value
 
Decrease due to
impairment
of assets
 
Increase due to
purchase
of shares
 
Decrease in cost basis
due to sale
 
Decrease due to
transfer from
Level 3 to Level 1
 
Fair Value
September 30, 2012
Level 3 only
Equity investments
  $ 2,145,000     $ (28,000 )   $ 2,887,000     $ 0     $ 162,000     $ 0     $ 0     $ 5,166,000  
                                                                 
   
Fair Value
September 30, 2010
 
Realized
(net of fees)
 
Change in
Unrealized
Estimated Value
 
Decrease due to
impairment
of assets
 
Decrease due to transfer
of assets
 
Decrease in cost basis
due to sale
 
Decrease due to
transfer from
Level 3 to Level 1
 
Fair Value
September 30, 2011
Level 3 only
Equity investments
  $ 3,539,000     $ (982,000 )   $ 478,000     $ (199,000 )   $ (131,000 )   $ (435,000 )   $ (125,000 )   $ 2,145,000  

 
40

 
 
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 upon the expiration of the lock-up period.
 
Equity investments in private companies consist primarily of small investments in approximately four private companies.  Common stock and preferred stock investments are carried at the lower of cost or fair market value in the Company’s financial statements. Warrants in non-public companies are carried at zero value.   The carrying value of equity investments in private companies is $697,000 and the fair market value measured using Level 3 inputs is $5,166,000, net of sharing.  These investments are subject to significant volatility and are difficult to value. The fair value of the Company’s equity investments in private companies, including warrants, was determined in consultation with Windspeed based on 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 September 30, 2012, the total portfolio of four companies which has an estimated fair market value of $5,166,000 is subject to significant concentration risk, as follows: 99% of such value is in three individual companies, and approximately 97% of such value is in two individual companies.  However, 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.
 
Note 8 – Quarterly Financial Data (Unaudited)
 
Summarized quarterly financial data for the fiscal years ended September 30, 2012 and 2011, are as follows (in thousands except per share data):
 
   
Quarter ended
   
December 31,
 
March 31,
 
June 30,
 
September 30,
   
2011
 
2010
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
Total revenue
  $ 133     $ 312     $ 211     $ 353     $ (90 )(A)   $ 867     $ 208     $ (230 )(A)
 
Net earnings (loss)
  $ (575 )   $ 411     $ 351     $ (520 )   $ (629 )   $ 1,029     $ 404     $ (2,501 )(B)
Basic and diluted earnings (loss) per common share
  $ (0.14 )   $ 0.10     $ 0.09     $ (0.13 )   $ (0.16 )   $ 0.26     $ 0.10     $ (0.62 )
 
(A)
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 Canada offset partially by lower contingent distribution rights expense.
 
(B)
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 Canada offset partially by lower contingent distribution rights expense.
 
Note 9 - Other Financial Information
 
Legally restricted cash represents cash and cash equivalents that are related to the Company’s employee incentive compensation plans, and cash and cash equivalents held in escrow or in similar accounts to ensure indemnification obligations of the Company.
 
 
41

 

Legally restricted cash is comprised of the following (in thousands):

   
September 30, 2012
 
September 30, 2011
Incentive compensation escrows
  $ 496     $ 464  
Indemnification reserve
    4,000       4,000  
Other escrows
    341       392  
    $ 4,837     $ 4,856  

The incentive compensation escrow is deferred compensation defined by the Plan and held until an employee terminates employment 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 a bank guaranty held in the Netherlands.

Other liabilities consist of the following (in thousands):
   
September 30, 2012
 
September 30, 2011
Accrued compensation
  $ 1,221     $ 1,170  
CDRs
    11,339       11,373  
Other liabilities
    501       333  
    $ 13,061     $ 12,876  

The liability for accrued compensation includes payroll and estimated amounts payable under the Company’s Bankruptcy court approved compensation plans. The CDR liability reduction is primarily due to the impact of higher estimated future selling, general and administrative costs.  The increase in other liabilities as compared to the year ended September 30, 2011 is a result of an increase to the reserve for the bank guaranty to be fully reserved in the amount of $339,000.
 
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 the potential net distributions from the Litigation Trust which are currently estimated to be nominal.    See the risk factors discussed in Item 1A, “Risk Factors”, particularly the risk entitled “Uncertainties Inherent in the CDR Liability Calculation”.
 
Note 10 - Operations by Geographic Areas
 
The following table presents total revenue by geographic location based on the location of the Company’s offices (in thousands):

   
Year ended September 30,
   
2012
 
2011
North America
  $ 436     $ 1,306  
Europe
    26       (4 )
    $ 462     $ 1,302  
 
The gain in Europe during the year ended September 30, 2012 is the result of foreign exchange gain of a net asset denominated in Euros.  The loss in Europe during the year ended September 30, 2011 is the result of a loss on an investment in the Company’s UK subsidiary that was liquidated during the year ended September 30, 2011, offset in part by foreign exchange gain of a net asset denominated in Euros.
 
The following table presents total assets and cash by geographic location based on the location of the Company’s offices as of September 30 (in thousands):
 
 
42

 
 
   
2012
 
2011
   
Total Assets
 
Cash and Cash Equivalents and Short-term Investments
 
Total Assets
 
Cash and Cash Equivalents and Short-term Investments
                         
North America
  $ 39,430     $ 38,343     $ 39,612     $ 38,373  
Europe
    339       339       361       361  
Total
  $ 39,769     $ 38,682     $ 39,973     $ 38,734  
 
Note 11 - Subsequent Events
 
The Company has evaluated events and transactions subsequent to the balance sheet date through the filing date of these Consolidated Financial Statements on Form 10-K with the SEC.  The Company is not aware of any material subsequent events which would be required to be disclosed by it.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A.  CONTROLS AND PROCEDURES
 
(1)           Evaluation of Disclosure Controls and Procedures
 
Randolph I. Thornton, the principal executive officer and principal financial officer of the Company, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, Mr. Thornton has concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its president and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
(2)           Management Report on Internal Control Over Financial Reporting
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Company’s sole officer and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 
·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the sole director of the Company; and

 
43

 

 
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2012.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
 
Based on management’s assessment, management believes that, as of September 30, 2012, the Company’s internal control over financial reporting is effective.
 
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Securities and Exchange Commission exemption of smaller reporting companies, that permits the Company to provide only management’s report in the annual report.
 
(3)           Change in Internal Controls
 
There has not been any change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
ITEM 9B.  OTHER INFORMATION
 
Not applicable.
 
PART III
 
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Directors and Executive Officers
 
As discussed in Part I above, all the individuals serving on the Board of Directors resigned their position as directors on August 12, 2004 except for Randolph I. Thornton who has continued on as sole director. Also, on the same date, all the officers of the Company resigned their respective officer positions. Before resigning their positions as directors, the Board of Directors appointed Randolph I. Thornton as Chief Executive Officer, President and Secretary of the Company. Mr. Thornton’s appointment as the Company’s Initial Disbursing Agent also became effective at this time. As Initial Disbursing Agent, Mr. Thornton has assumed the roles and responsibilities performed by the former Board of Directors and officers of the Company, including all measures which are necessary to complete the administration of the reorganized Debtors’ Plan and Chapter 11 cases. The Company’s Board of Directors took this action as the next step in the wind down of operations pursuant to the Plan. Because the Company’s equity securities are not listed on any stock exchange or traded on Nasdaq, the Company is not required to comply with the corporate governance requirements mandated by stock exchanges and Nasdaq.
 
Sole Officer and Director
 
Randolph I. Thornton (Age 67 - Director since August 2002)
 
Effective August 12, 2004, Mr. Thornton was appointed Chief Executive Officer, President and Secretary of the Company as well as Initial Disbursing Agent and sole director. Prior to his retirement in January 2004, he was a Managing Director and Senior Credit Officer of Citigroup, Inc. where he managed hundreds of corporate
 
 
44

 
 
reorganization matters in a thirty-three year career. He currently serves as non-executive Chairman of the Board for National Energy & Gas Transmission, Inc. and Core-Mark International, Inc.
 
Audit Committee Financial Expert
 
Since August 12, 2004, Mr. Thornton has been performing the functions of the Audit Committee. Mr. Thornton qualifies as an “audit committee financial expert,” as defined in Item 407(d)(5)(ii) of Regulation S-K, but is not considered independent as that term is defined in Item 407 of Regulation S-K. The Company is not required to have a three-person audit committee consisting of independent directors because its equity securities are not listed on a stock exchange or traded on Nasdaq.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Exchange Act requires our director and executive officer, and persons who beneficially own more than 10 percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our Common Stock and any changes in that ownership with the SEC. Based solely on our review of copies of the reports filed with the SEC and written representations of our director and officer, we believe all persons subject to Section 16(a) reporting filed the required reports on time in fiscal year 2012.
 
Code of Ethics
 
On June 30, 2012, the Company updated and made effective its revised Code of Conduct Applicable to the Chief Executive Officer and Authorized Representatives. The Company updated and made effective its revised Code of Conduct for its employees in June 2012. Copies are available on the Company’s website at www.comdisco.com. Any waivers from the Codes of Conduct, or amendments thereto, by the Company will be disclosed through its website and in future filings.  To date, the Company has granted no such waivers.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
Effective August 12, 2004, Randolph I. Thornton was appointed Chief Executive Officer, President and Secretary of the Company as well as Initial Disbursing Agent and sole director. Mr. Thornton is the sole executive officer and is referred to in this section as the “named executive officer.”
 
Compensation Discussion and Analysis
 
All payments to Mr. Thornton are made pursuant to the Disbursing Agent Agreement which specifies an hourly rate for the services provided by the Disbursing Agent and is set at $400 per hour.  This approach is consistent with the Company’s overall objective of efficiently selling, collecting and otherwise reducing to money the remaining assets of the Company and its subsidiaries.  The rate does not vary and does not depend on corporate performance.
 
Summary Compensation Table
 
Name and Principal Position
 
Fiscal Year
 
Salary($)
 
All Other Compensation($)
Note (1)
 
Total ($)
Randolph I. Thornton
 
2012
    --       87,700       87,700  
Chief Executive Officer,
 
2011
    --       125,500       125,500  
President and Secretary
 
2010
    --       119,300       119,300  

(1)
Amount reflects total payments earned by Mr. Thornton pursuant to the Disbursing Agent Agreement at the rate of $400 per hour.
 
 
45

 

Plan-Based Awards, Equity Awards and Options
 
The Company does not have any plan-based awards, equity awards or stock options available to the named executive officer. Accordingly, no plan-based awards, equity awards or stock options were outstanding or aggregated by the named executive officer during fiscal year 2012. The Company does not plan to issue any plan-based awards, equity awards or stock options to the named executive officer in the future.
 
Pension Benefits, Deferred Compensation and Potential Payments
 
The Company did not provide any pension benefits or deferred compensation to the named executive officer during fiscal year 2012. The Company does not plan to provide any pension benefits or deferred compensation to the named executive officer in the future. The Disbursing Agent Agreement does not provide for any potential payments other than the hourly rate described above.
 
Compensation of Directors
 
The Disbursing Agent’s compensation for the fiscal year ended September 30, 2012 is set forth in the compensation table above. Mr. Thornton did not receive additional compensation for serving as a director in fiscal year 2012.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
 
Common Stock Owned by Certain Beneficial Owners
 
The following table reflects the number of shares of Common Stock beneficially owned on December 3, 2012 by all persons whom we know to be beneficial owners of 5 percent or more of our Common Stock, based on a review of public filings.
 
Stockholders Owning at least 5 percent of the Company’s Common Stock
 
Name and Address
     
Shares Beneficially Owned
 
Percent of
Class
Berkshire Hathaway, Inc.
1440 Kiewit Plaza
Omaha, Nebraska 68131
 
(1)
 
1,538,377
 
38.18%
Davidson Kempner Partners
885 Third Avenue
New York, New York 10022
 
(2)
 
946,785
 
23.50%
Horizon Kinetics LLC
470 Park Avenue South
4th Floor South, New York, NY, 10016
 
(3)
 
281,225
 
6.98%
Haphazard Investors LLC
141 Heather Lane
Mill Neck, NY 11765
 
(4)
 
341,228
 
8.47%

(1)
The information with respect to 1,538,377 shares of Common Stock beneficially owned by Berkshire Hathaway, Inc. is based on its amended Report on Schedule 13F for the period ended December 31, 2011, filed with the SEC on February 14, 2012.
 
(2)
The information with respect to 946,785 shares of Common Stock beneficially owned by Davidson Kempner Partners is based on a Report on its amended Schedule 13G, dated and filed with the SEC on February 14, 2006.
 
 
46

 

(3)
The information with respect to 281,225 shares of Common Stock beneficially owned by Horizon Kinetics LLC is based on its Report on Schedule 13G  dated and filed with the SEC on January 23, 2012.
 
(4)
The information with respect to 341,228 shares of Common Stock beneficially owned by Haphazard Investors LLC is based on a Report on its Schedule 13G, dated and filed with the SEC on February 10, 2012.
 
Common Stock Owned by Directors and Executive Officers
 
Mr. Thornton (who is the Company’s sole officer and director) does not beneficially own any shares of the Company’s common stock in the Company as of December 3, 2012. The address of the sole director and named executive officers is c/o Comdisco Holding Company, Inc., 5600 North River Road, Rosemont, Illinois 60018.
 
Equity Compensation Plan Information
 
The Company has not reserved any equity securities for compensation to its employees or its sole officer.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
During the Company’s prior fiscal year, the Company did not participate in any transaction in which any related person had or would have a direct or indirect material interest. No such transaction is currently proposed. Section 3.4 of the Disbursing Agent Agreement prohibits the Disbursing Agent from directly or indirectly selling or otherwise transferring any of the assets of the Company to a related person.
 
Randolph I. Thornton, sole director of the Company, is not considered independent as that term is defined in Item 407 of Regulation S-K.
 
ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Audit Committee of the Board of Directors
 
The Audit Committee and the Board of Directors adopted a charter, setting forth the structure, powers and responsibilities of the Audit Committee. The Audit Committee met four times in fiscal year 2012. Mr. Thornton, as sole director and Initial Disbursing Agent, performed the functions of the Audit Committee for the fiscal year 2012. The Company is not required to have a three-person committee consisting of independent directors because its equity securities are not listed on a stock exchange or traded on Nasdaq.
 
One of Mr. Thornton’s primary responsibilities is to provide oversight of the integrity of the Company’s financial statements and financial reporting process. To fulfill these oversight responsibilities, Mr. Thornton has reviewed and discussed with management and the independent auditors the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012, and has reviewed and discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 114, The Auditor’s Communication With Those Charged With Governance, as amended. In addition, Mr. Thornton received from the independent auditors written reports disclosing that they are not aware of any relationships between the auditors and the Company that, in their professional judgment, may reasonably be thought to bear on their independence, consistent with Independence Standards Board Standard Number 1, Independence Discussions with Audit Committees. Mr. Thornton also reviewed and discussed with the independent auditors all relationships the auditors have with the Company to determine and satisfy itself regarding the auditors’ objectivity and independence. Mr. Thornton has also considered whether the provision of non-audit services by the independent auditors to the Company for the most recent fiscal year and the fees and costs billed and expected to be billed by the independent auditors for those services are compatible with maintaining their independence.
 
Based on the review and discussions described in this report, Mr. Thornton determined that the Company’s audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012, for filing with the SEC.
 
This report is submitted on behalf of the Audit Committee:
 
Randolph I. Thornton
 
 
47

 
 
Principal Accountant Audit Fees and Services Fees
 
The following table describes fees for professional audit services rendered by KPMG LLP (“KPMG”), the Company’s principal accountant, for the audit of our annual financial statements for the fiscal years ended September 30, 2012 and September 30, 2011 and fees billed for other services rendered by KPMG during those periods.
 
Type of Fee
 
2012
 
2011
Audit Fees (1)
  $ 193,000     $ 200,000  
Audit Related Fees
    0       10,000  
Tax Fees (2)
    0       9,100  
All Other Fees
    0       3,220  
Total
  $ 193,000     $ 222,320  
 
(1)
Audit Fees, including those for statutory audits, include the aggregate fees paid by the Company during the fiscal year indicated for professional services rendered by KPMG for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Forms 10-Q.
 
(2)
Tax Fees include the aggregate fees paid by the Company during the fiscal year indicated for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning.
 
Procedures For Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
 
Pursuant to its charter, the Audit Committee of Comdisco Holding Company’s Board of Directors is responsible for reviewing and approving, in advance, any audit and any permissible non-audit engagement or relationship between Comdisco and its independent auditors. Mr. Thornton, as sole director and Initial Disbursing Agent, has assumed that responsibility. KPMG’s engagement to conduct the audit of Comdisco Holding Company, Inc. was approved by the Audit Committee. Additionally, each permissible non-audit engagement or relationship between Comdisco and KPMG has been reviewed and approved by the Audit Committee, as provided in its charter.
 
PART IV
 
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a) List of documents filed as part of this report:
 
Financial Statements
 
See Index to Financial Statements contained in Item 8, Financial Statements and Supplementary Data, above.
 
Financial Statement Schedules
 
All Financial Statement Schedules have been omitted because (i) the required information is not present in amounts sufficient to require submission of the schedule, (ii) the information required is included in the Financial Statements or the Notes thereto or (iii) the information required in the schedules is not applicable to the Company.
 
3. Exhibits
 
 
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The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Commission:
 
Exhibit
No.
 
Description of Exhibit
     
2.1
 
Joint Plan of Reorganization of Comdisco, Inc. and its Affiliated Debtors and Debtors in Possession (Incorporated by reference to Exhibit 99.3 filed with Comdisco, Inc.’s Current Report on Form 8-K dated April 26, 2002, as filed with the Commission on May 10, 2002, File No. 1-7725).
2.2
 
First Amended Joint Plan of Reorganization of Comdisco, Inc. and its Affiliated Debtors and Debtors in Possession (Incorporated by reference to Exhibit 2.2 filed wit