UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended December 31, 1993
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 1-7725
I.R.S. Employer Identification Number 36-2687938
COMDISCO, INC.
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone: (708) 698-3000
Name of each Number of shares
Title of exchange on outstanding as of
each class which registered December 31, 1993
Common stock, New York Stock Exchange 38,306,493
$.10 par value Chicago Stock Exchange
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. YesXX No .
<PAGE> 1
Comdisco, Inc. and Subsidiaries
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Earnings and Retained Earnings --
Three Months Ended December 31, 1993 and 1992 . . . . . . . . . . 3
Consolidated Balance Sheets --
December 31, 1993 and September 30, 1993. . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows --
Three Months Ended December 31, 1993 and 1992 . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . .10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
<PAGE> 2
PART I. FINANCIAL INFORMATION
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
(in millions except per share data)
For the Three Months Ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
Three Months Ended
December 31
1993 1992
---- ----
<S> <C> <C>
Revenue
Leasing
Operating $ 265 $ 288
Direct financing 46 49
Sales-type 81 82
---- ----
Total leasing 392 419
---- ----
Sales 78 89
Disaster recovery 58 52
Other 8 11
---- ----
Total revenue 536 571
---- ----
Costs and expenses
Leasing
Operating 196 215
Sales-type 63 68
---- ----
Total leasing 259 283
---- ----
Sales 66 81
Disaster recovery 55 49
Selling, general and administrative 48 47
Interest 69 77
---- ----
Total costs and expenses 497 537
---- ----
Earnings before income taxes and cumulative
effect of change in accounting principle 39 34
Income taxes 16 14
---- ----
Earnings before cumulative effect of
change in accounting principle 23 20
Cumulative effect of change in
accounting principle - 20
---- ----
Net earnings before preferred dividends 23 40
Preferred dividends (2) (1)
---- ----
Net earnings available to common
stockholders $ 21 $ 39
===== =====
Retained earnings at beginning of period $ 650 $ 582
Net earnings available to common stockholders 21 39
Cash dividends paid on common stock (3) (3)
----- -----
Retained earnings at end of period $ 668 $ 618
===== =====
Net earnings per common and
common equivalent share:
Earnings from continuing operations $ .54 $ .46
Cumulative effect of change in
accounting principle - .49
----- -----
Net earnings available to common
stockholders $ .54 $ .95
===== =====
Cash dividends paid per common share $ .08 $ .07
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE 3>
Comdisco, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions except number of shares)
<TABLE>
<CAPTION>
December 31 September 30
1993 1993
----------- ------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 40 $ 70
Cash - legally restricted 53 48
Receivables, net 140 158
Inventory of equipment 172 164
Leased assets:
Direct financing and sales-type 2,105 2,073
Operating (net of accumulated depreciation) 1,813 1,834
------ ------
Net leased assets 3,918 3,907
------ ------
Buildings, furniture and other, net 175 175
Other assets 431 438
------ ------
$4,929 $4,960
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 488 $ 655
Term notes payable 285 206
Senior notes 1,153 1,119
Accounts payable 101 100
Income taxes 215 202
Other liabilities 237 269
Discounted lease rentals 1,703 1,670
------ ------
4,182 4,221
------ ------
Stockholders' equity:
Preferred stock $.10 par value.
Authorized 100,000,000 shares:
8.75% Cumulative Preferred Stock, Series A and
Series B. $25 stated value and liquidation
preference. 4,000,000 shares issued 100 100
Common stock $.10 par value.
Authorized 200,000,000 shares
issued 47,226,395 shares
(47,219,823 shares at September 30, 1993) 5 5
Additional paid-in capital 139 138
Deferred compensation (ESOP) (11) (12)
Deferred translation adjustment (13) (7)
Retained earnings 668 650
------ ------
888 874
Common stock held in treasury, at cost; 8,919,902
shares (8,608,502 shares at September 30, 1993) (141) (135)
------ ------
Total stockholders' equity 747 739
------ ------
$4,929 $4,960
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
Three Months Ended December 31, 1993 and 1992
Increase (decrease) in cash and cash equivalents:
<TABLE>
<CAPTION>
1993 1992
----- -----
<S> <C> <C>
Cash flows from operating activities:
Operating lease and other leasing receipts $ 300 $ 315
Direct financing and sales-type leasing receipts 211 234
Sale of direct financing and sales-type
lease receivables - 1
Leasing costs, primarily rentals paid (14) (22)
Sales 89 70
Sales costs (41) (34)
Disaster recovery receipts 58 45
Disaster recovery costs (52) (44)
Other revenue 8 11
Selling, general and administrative expenses (55) (64)
Interest (73) (77)
Income taxes (4) (3)
----- -----
Net cash provided by operating activities 427 432
----- -----
Cash flows from investing activities:
Equipment purchased for leasing (414) (406)
Investment in disaster recovery facilities (4) (3)
Other (2) (1)
----- -----
Net cash used in investing activities (420) (410)
----- -----
Cash flows from financing activities:
Discounted lease proceeds 258 215
Net decrease in notes and term notes payable (88) (8)
Net increase (decrease) in senior notes 34 (19)
Principal payments on secured debt (225) (261)
Decrease (increase) in legally restricted cash (5) 24
Common stock repurchased and placed in treasury (6) -
Dividends paid on common stock (3) (3)
Dividends paid on preferred stock (2) (1)
Other - -
----- -----
Net cash used by financing activities (37) (53)
----- -----
Net decrease in cash and cash equivalents (30) (31)
Cash and cash equivalents at beginning of period 70 74
----- -----
Cash and cash equivalents at end of period $ 40 $ 43
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED
(in millions)
Three Months Ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
----- -----
<S> <C> <C>
Reconciliation of net earnings available
to common stockholders to net cash
provided by operating activities:
Net earnings $ 23 $ 40
Adjustments to reconcile net earnings
available to common stockholders to
net cash provided by operating activities:
Leasing costs, primarily
depreciation and amortization 245 261
Leasing revenue, primarily principal portion of
direct financing and sales-type lease rentals 119 130
Sales of direct financing and sales-type
lease receivables - 1
Cost of sales 25 47
Interest (4) -
Income taxes 12 11
Cumulative effect of change in accounting
principle - (20)
Other - net 7 (38)
----- -----
Net cash provided by operating activities $ 427 $ 432
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
Comdisco, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1993 and 1992
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures required by generally accepted accounting
principles for annual financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further
information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1993.
The balance sheet at September 30, 1993 has been derived from the audited
financial statements included in the Company's Annual Report on Form 10-K
for the year ended September 30, 1993.
Legally restricted cash represents cash and cash equivalents that are
restricted solely for use as collateral in secured borrowings and are not
available to other creditors.
2. Change in Method of Accounting for Income Taxes
Effective October 1, 1992, the Company adopted FASB Statement No. 109 ("FAS
109"), "Accounting for Income Taxes." The adoption of FAS 109 changes the
Company's method of accounting for income taxes from the deferred method
(APB No. 11) to an asset and liability approach. Previously the Company
provided deferred income taxes for income and expenses that were
recognized in different periods for income tax purposes than for financial
reporting purposes, measured at the tax rate in effect in the year the
difference originated. Under the asset and liability method of FAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under FAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
As permitted by FAS 109, the Company has elected not to restate the
financial statements of any prior years. The effect of the change on
income tax expense for the three months ended December 31, 1992 was not
material; however, the cumulative effect of the change increased net
earnings available to common stockholders by $20 million, or $.49 per share.
The cumulative effect
<PAGE> 7
primarily represents the impact of adjusting deferred
taxes to reflect the then current Federal income tax rate of 34% as opposed
to the higher tax rates that were in effect when the deferred taxes
originated.
Income taxes are provided on earnings at the appropriate statutory rates
applicable to such earnings. The Company estimates that the annual
effective income tax rate will be approximately 40% for fiscal 1994, which
is the same as the estimated rate used in the three months ended
December 31, 1992.
3. Notes Payable
At December 31, 1993, the Company had $1.1 billion of available domestic
and international borrowing capacity under various lines of credit from
commercial banks and commercial paper facilities, of which approximately
$627 million was unused.
The average daily borrowings outstanding, including term notes, during the
three months ended December 31, 1993 were approximately $800 million, with
a related weighted average interest rate of 5.09%. This compares to average
daily borrowings during the first three months of fiscal 1993 of
approximately $1.0 billion, with a related weighted average interest rate
of 5.70%.
4. Senior Notes
In June, 1992, the Company filed a Registration Statement on Form S-3 with
the Securities and Exchange Commission for a shelf offering (the "Shelf
Offering") of up to $500 million of senior debt securities with terms to be
set at the time of the sale. At December 31, 1993, $232 million of debt
securities remain available for issuance under the Shelf Offering.
5. Common Stock
On January 19, 1994, the Board of Directors declared a quarterly cash
dividend of $.09 per share to be paid on March 14, 1994 to stockholders of
record as of February 14, 1994.
During the quarter ended December 31, 1993, the Company purchased 311,400
shares of its common stock at an aggregate cost of approximately $5.7
million. At December 31, 1993, the Company had a remaining authorization
of $19.3 million to purchase common stock. An additional 324,200 shares
were purchased between December 31, 1993 and February 10, 1994 at a cost
of $7.1 million.
<PAGE> 8
6. Earnings Per Share
Average common and common equivalent shares outstanding for the three months
ended December 31, 1993 and 1992 were 39,145,796 and 40,857,726,
respectively.
Earnings per common and common equivalent share reflects the assumed
exercise of stock options that would have a dilutive effect on earnings per
share if exercised.
7. Contingent Liabilities
Refer to Note 16 of Notes to Consolidated Financial Statements in the
Company's Annual Report to Stockholders for the year ended September 30,
1993, for information on the Company's contingent liabilities. Management
believes such information adequately reflects the current status of such
contingencies.
<PAGE> 9
Comdisco, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net Earnings
- ------------
Net earnings available to common stockholders (hereinafter referred to as "net
earnings") for the three months ended December 31, 1993 were $21 million, or
$.54 per share, as compared to $39 million, or $.95 per share, for the three
months ended December 31, 1992. The first quarter of fiscal 1993 includes the
cumulative effect of the adoption of FAS 109 (see Note 2 of Notes to
Consolidated Financial Statements) which increased net earnings by $20 million,
or $.49 per share (the "Cumulative Effect"). Excluding the Cumulative Effect,
the increase in net earnings in the current quarter compared to the year earlier
period is due to an increase in earnings contributions from remarketing coupled
with a decrease in interest expense, offset by a decrease in the earnings
contributions from operating leases. Direct financing revenue declined compared
to the prior year period, reflecting both a decline in interest rates and the
impact of a reduction in the net investment in direct financing leases resulting
from the Company's offering of lease-backed certificates.
The Company's operating results are subject to quarterly fluctuations resulting
from a variety of factors, including variations in the mix of leases written.
The mix of leases written in a quarter is also a result of a combination of
factors, including, but not limited to, changes in customer demands and/or
requirements, new product announcements, price changes, changes in delivery
dates, changes in maintenance policies and the pricing policies of equipment
manufacturers, and price competition from other lessors, such as IBM Credit
Corporation.
Three Months Ended December 31, 1993
- ------------------------------------
Leasing volume in the first quarter of fiscal 1994 increased as compared to the
year earlier quarter, but was less than the leasing volume attained in the
fourth quarter of fiscal 1993. However, remarketing activity remained strong,
and overall margins on remarketing activities increased.
Total revenue for the three months ended December 31, 1993 was $536 million
compared to $571 million in the prior year quarter. The decline in operating
lease revenue as compared to the year earlier period reflects reduced leasing
volume in fiscal 1993 as compared to the prior year, the aging IBM 3090 lease
portfolio and the lack of growth in the overall mainframe market during the last
eighteen months. Operating lease revenue minus operating lease cost (the "Lease
Margin") was $69 million, or 26.0% of operating lease revenue, and $73 million,
or 25.3% of operating lease revenue, in the three months ended December 31, 1993
and 1992, respectively. Total leasing revenue of $392 million for the quarter
ended December 31, 1993 represented a decrease of 6% compared to the year
earlier period. Total leasing revenue was $395 million in the fourth quarter of
fiscal 1993.
During the quarter ended December 31, 1993, equipment purchased for leasing
totaled $414 million compared to $406 million and $402 million of equipment
purchased for leasing during the quarters ended December 31, 1992 and September
30, 1993, respectively.
<PAGE> 10
Total costs and expenses of $497 million for the quarter ended December 31, 1993
represented a decrease of 7.4% compared to the prior year period. The decrease
was primarily due to reduced operating lease volume, reduced interest expense
and continued selling, general and administrative cost containment efforts.
Cost of sales for the three months ended December 31, 1993 and 1992 were $66
million and $81 million, respectively, an 18.5% decrease. Margins on sales were
15% and 9% in the quarters ended December 31, 1993 and 1992, respectively. The
increased margin in fiscal 1994 compared to the prior year was due to improved
margins on remarketing.
Interest expense for the three months ended December 31, 1993 totalled $69
million in comparison to $77 million in the quarter ended December 31, 1992 and
$70 million in the quarter ended September 30, 1993. The decrease in interest
expense reflects declining interest rates and reduced average daily borrowings
(see Note 3 of Notes to Consolidated Financial Statements).
Financial Condition
- -------------------
The Company's current financial resources and estimated cash flows from
operations are considered adequate to fund anticipated future growth and
operating requirements. The Company utilizes a variety of financial instruments
to fund its short and long-term needs.
Capital expenditures for equipment are financed by cash flows from operations,
recourse debt, or by assigning the noncancellable lease rentals to various
financial institutions at fixed interest rates on a nonrecourse basis. Cash
provided by operating activities for the three months ended December 31, 1993
was $427 million, compared to $432 million for the year earlier period. Cash
provided by operations has been used to finance equipment purchases and,
accordingly, had a positive impact on the level of borrowing required to support
the Company's investment in its lease portfolio. The Company expects this trend
to continue, with cash flow from leasing and remarketing reinvested in the
equipment portfolio.
<PAGE> 11
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.01 Indenture Agreement between Registrant and Citibank, N.A., as Trustee
dated as of June 15, 1992
Incorporated by reference to Exhibit 4.1 filed with the Company's
Current Report on Form 8-K dated September 1, 1992, as filed with the
Commission on September 2, 1992, File No. 1-7725, the copy of
Indenture, dated as of June 15, 1992 between Registrant and Citibank,
N.A., as Trustee, (said Indenture defines certain rights of security
holders).
4.02 Indenture between Registrant and Chemical Bank, N.A., as Trustee
dated as of April 1, 1988
Incorporated by reference to Exhibit 4.5 filed with the Form 8
Amendment to the Company's Annual Report on Form 10-K for the year
ended September 30, 1990, filed February 21, 1991, File No. 1-7725,
the copy of Indenture dated as of April 1, 1988, between Registrant
and Manufacturers Hanover Trust Company, as Trustee, (said Indenture
defines certain rights of security holders).
4.03 First Supplemental Indenture between Registrant and Chemical Bank,
N.A., as Trustee dated as of January 1, 1990
Incorporated by reference to Exhibit 4.8 filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1990, File No. 1-7725, the copy of the First
Supplemental Indenture dated as of January 1, 1990, between
Registrant and Manufacturers Hanover Trust Company, as Trustee
(said Indenture defines certain rights of security holders).
4.04 Shareholder Rights Agreement dated November 18, 1987
Incorporated by reference to Exhibit 4.4 filed with the Company's
Annual Report for the year ended September 30, 1987 on Form 10-K,
File No. 1-7725.
4.05 Shareholder Rights Agreement
Incorporated by reference to Pages 7 - 10 of the Company's Form 10-
K for the fiscal year ended September 30, 1987, File No. 1-7725.
4.06 Certificate of Designations with respect to the Company's 8 3/4%
Cumulative Preferred Stock, Series A, as filed with the Secretary of
State of Delaware on September 18, 1992
Incorporated by reference to Exhibit 4.1 filed with the Company's
Current Report on Form 8-K dated September 17, 1992, as filed with
the Commission October 9, 1992, File No. 1-7725.
<PAGE 12>
Item 6. Exhibits and Reports on Form 8-K (continued).
a) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.07 Certificate of Designations with respect to the Company's 8 3/4%
Cumulative Preferred Stock, Series B, as filed with the Secretary
of the State of Delaware on July 2, 1993.
Incorporated by reference to Exhibit 4.1 filed with the Company's
Current Report on Form 8-K dated June 30, 1993, as filed with the
Commission July 21, 1993, File No. 1-7725.
11 Computation of Earnings Per Common Share
12 Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
b) Reports on Form 8-K:
None.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMDISCO, INC.
Registrant
Date: February 14, 1994 /s/ David J. Keenan
David J. Keenan
Vice President and Controller and
Chief Accounting Officer
<PAGE> 14
Comdisco, Inc. and Subsidiaries Exhibit 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(in millions except per share data)
<TABLE>
<CAPTION>
Average shares used in computing net earnings per common and common equivalent
share were as follows:
Three Months
ended
December 31
---------------
1993 1992
---- ----
<S> <C> <C>
Average shares outstanding 39 41
Effect of dilutive options - -
---- ----
Total 39 41
==== ====
Net earnings available
to common stockholders $ 21 $ 39
==== ====
Net earnings per common and
common equivalent share $.54 $.95
==== ====
Comdisco, Inc. and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
</TABLE>
<TABLE>
<CAPTION>
(dollars in millions)
Three Months Ended
December 31 For the Years Ended September 30,
1993 1992 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges
Interest expense <F1> $ 69 $ 78 $295 $355 $371 $343 $290
Approximate portion of
rental expense representative
of an interest factor 4 6 22 29 37 39 35
---- ---- ---- ---- ---- ---- ----
Fixed charges 73 84 317 384 408 382 325
Preferred stock
dividends <F2> 4 2 11 - - - -
---- ---- ---- ---- ---- ---- ----
Combined fixed charges and
preferred stock dividends 77 86 328 384 408 382 325
Earnings from continuing operations
before income taxes, extraordinary
items and cumulative effect of
changein accounting principle,
net of preferred
stock dividends 37 33 137 34 136 134 167
---- ---- ---- ---- ---- ---- ----
Earnings from continuing
operations before income
taxes, extraordinary
items, cumulative effect of change
in accounting principle and
combined fixed charges and
preferred stock dividends $114 $119 $465 $418 $544 $516 $492
==== ==== ==== ==== ==== ==== ====
Ratio of earnings to combined
fixed charges and preferred
stock dividends 1.48 1.38 1.42 1.09 1.33 1.35 1.51
==== ==== ==== ==== ==== ==== ====
Rental expense:
Equipment subleases $ 10 $ 16 $ 57 $ 77 $103 $109 $ 99
Office space,
furniture, etc. 2 2 8 10 9 8 7
---- ---- ---- ---- ---- ---- ----
Total $ 12 $ 18 $ 65 $ 87 $112 $117 $106
==== ==== ==== ==== ==== ==== ====
1/3 of rental expense $ 4 $ 6 $ 22 $ 29 $ 37 $ 39 $ 35
==== ==== ==== ==== ==== ==== ====
<FN>
<F1>Includes interest expense incurred by disaster recovery services and
included in disaster recovery services expenses on the statements of
earnings.
<F2>There were no preferred stock dividend requirements for fiscal years 1989
through 1992.
</TABLE>
