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, 1996
or
[ ] Transition Report Pursuant to Section 13 of 15(d) of
the Securities Exchange Act of 1934 For the transition
period from ___________________ to ________________
Commission file number 1-7725
COMDISCO, INC.
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone (847) 698-3000
I.R.S. Employer Identification Number 36-2687938
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
---------------------
Titles of each class on which registered
-------------------- -------------------
Common Stock New York Stock Exchange
$.10 par value Chicago Stock Exchange, Inc.
Common Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange, Inc.
8.75% Cumulative Preferred Stock, Series A and B New York Stock Exchange
$25 stated value and liquidation preference
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 XX No. .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common stock held by nonaffiliates of the
Registrant as of December 4, 1996 was approximately $1,100,000,000. For purposes
of the foregoing calculation only, all directors and executive officers of the
registrant have been deemed affiliates. As of September 30, 1996, there were
49,632,758 shares of the Registrant's common stock, $.10 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Annual Report to Stockholders for the fiscal year
ended September 30, 1996 are incorporated by reference into Part I
and II.
2. Portions of Comdisco, Inc.'s definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on January 21, 1997 filed
within 120 days of fiscal year end are incorporated by reference
into Part III.
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Comdisco, Inc. and Subsidiaries
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TABLE OF CONTENTS
PAGE
PART I.
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Item 1. Business ............................................................................. 3
Item 2. Properties ............................................................................. 8
Item 3. Legal Proceedings ...................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders..................................... 8
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............... 9
Item 6. Selected Financial Data................................................................. 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 10
Item 8. Financial Statements and Supplementary Data............................................. 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 10
PART III.
Item 10. Directors and Executive Officers of Registrant.......................................... 11
Item 11. Executive Compensation ................................................................. 11
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 11
Item 13. Certain Relationships and Related Transactions.......................................... 11
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.......................... 12
SIGNATURES ........................................................................................ 13
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE........................................ 14
INDEX TO EXHIBITS ................................................................................... 17
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PART I.
Item 1. Business
GENERAL
Comdisco, Inc. (with its subsidiaries, the "Company" or "Comdisco") is a
technology services company, providing solutions that help organizations reduce
technology cost and risk. The Company operates in one industry segment, high
technology equipment, and provides information technology services, business
continuity services and diversified technology services to its customers. These
services are designed to provide integrated, long-term, cost effective asset and
technological planning as well as data recovery and voice availability/recovery
to users of high technology equipment.
As an independent organization, the Company provides customers with available
technical, financial and recovery alternatives, regardless of hardware platform
or manufacturer. In addition to working with its customers to develop strategies
governing when to acquire equipment and how to track it, when to upgrade
existing equipment and when to order new equipment to take advantage of current
technology, Comdisco also provides business continuity services for customers'
data, voice and network systems. The Company also has the ability to act as an
outlet for the equipment being displaced.
Comdisco's business is diversified by customer, customer type, equipment
segments, geographic location of its customers and maturity of its lease
receivables. The Company's customers include "Fortune 1000" corporations or
companies of a similar size as well as smaller corporations. A substantial
portion of the Company's transactions are with repeat customers. The Company's
businesses are not dependent on any single customer or on any single source for
the purchasing, selling or leasing of equipment.
The Company was founded in 1969 and incorporated in Delaware in 1971. The
executive offices of the Company are located in the Chicago area, at 6111 North
River Road, Rosemont, Illinois 60018, and its telephone number is (847)
698-3000. At September 30, 1996, the Company had approximately 2,100 full-time
employees.
The Company's services are organized into three groups of related businesses,
and are provided generally through separate business units, although there is a
significant amount of interrelated activities. The three groups are as follows:
Information Technology Services ("ITS"):
Distributed Systems: Leasing, remarketing, consulting and business
continuity services for distributed computing systems--servers,
workstations, PCs, local area networks and telecommunications
equipment.
Technology Integration: Asset management services for managing
information technology assets, including software tools and consulting.
Large Systems: Leasing, remarketing, consulting and business continuity
services for mainframe and midrange systems.
Business units comprising ITS are, in addition to, Comdisco Technology
Integration Services and Comdisco Network Services, the groups
responsible for the buying, selling, and leasing of distributed
computing systems and large systems equipment.
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Business Continuity and Network Services ("BCNS"):
Enterprisewide business continuity services that emphasize technology
and data and voice availability across data centers, networks,
distributed systems, and the desktop computing environment.
Business units in BCNS are Comdisco Disaster Recovery Services,
Comdisco Professional Services and Comdisco Network Services.
Diversified Technology Services ("DTS"):
Leasing, asset management and reconditioning services for semiconductor
manufacturers, hospitals and related healthcare providers, and
equipment leasing to early-stage high technology companies.
Business units in DTS are Comdisco Electronics Group, Comdisco
Healthcare and Scientific Group, Comdisco Scientific Exchange, Comdisco
Medical Exchange and Comdisco Ventures.
The Company's operations are conducted through its principal office in the
Chicago area and approximately fifty offices in the United States, Canada,
Europe and the Pacific Rim. The Company also operates in South America, however,
it does not maintain local offices in any South American country. Subsidiaries
in Europe and Canada offer services similar to those offered in the United
States.
Each business unit is directed by its own management team and has its own
marketing and operations support personnel. Each management team reports to the
Office of the President, which is responsible for overall corporate control and
coordination, as well as strategic planning. Coordination of the business units
is also accomplished through centralized budgeting, and shared services such as
human resources, legal, cash management and accounting.
The business units maintain their own direct marketing force to manage their
customer base and to market its own services as well other units' services. In
addition, the Company may, from time-to time, enter into marketing relationships
with major high technology equipment manufacturers and value-added resellers in
order to expand its customer base and name recognition. In its marketing
operations, the Company attempts to cross-sell services where and when
appropriate.
See "International Operations" on page 30 of the Annual Report to Stockholders
for the fiscal year ended September 30, 1996 (which is incorporated herein by
reference) for a discussion of the Company's geographic results of operations in
fiscal 1996, 1995 and 1994 and Note 14 of Notes to Consolidated Financial
Statements on pages 46 and 47 of the Annual Report to Stockholders for the year
ended September 30, 1996, which includes geographic segment and export sales
information and is incorporated herein by reference.
FORWARD-LOOKING STATEMENTS
Statements about the Company's expectations, including future revenues,
earnings, its ability to compete and to maintain market share, to adapt to and
to capitalize on emerging growth opportunities and anticipated benefits of its
business strategies, and all other statements in this Report on Form 10-K,
including Management's' Discussion and Analysis incorporated herein by
reference, and other Company communications other than historical facts, are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. Since these statements involve risks and uncertainties
and are subject to change at any time, the Company's actual results could differ
materially from expected results. The Company derives most of its
forward-looking statements from its operating budgets and forecasts, which are
based on many detailed assumptions. While the Company believes that its
assumptions are reasonable, it cautions that there are inherent difficulties in
predicting certain important factors, including, but not limited to, the timing
and scope of technological advances, the effect of
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business and economic conditions, the growth of the semiconductor industry,
trend of movement to client/server environment and the mix of leases written.
The mix of leases written are 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 pricing policies and the pricing policies of equipment
manufacturers, and price competition from other lessors. The Company undertakes
no obligation to publicly update or revise any forward-looking statements
whether as a result of new information, future events or otherwise. Reference is
made to "Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995" on page 30 of the Company's Annual Report to Stockholders which is
incorporated by reference herein.
INFORMATION TECHNOLOGY SERVICES
Distributed Systems Group: The Company buys, sells and leases PCs and
workstations made by most of the leading manufacturers. The Company's lease
transactions also include high-end servers, printers and other desktop related
equipment. The Company's strategy for the distributed systems market is to
provide financing, professional services and software tools (see "Technology
Integration") to its existing and prospective customers. The Company believes
that approximately 41% of its equipment placed on lease (including International
operations) in fiscal 1996 was distributed computing systems.
The Company's Distributed Systems Group also buys, sells, and leases new and
refurbished telecommunications equipment throughout North America. The Company
provides its customers with a market for, and a source of, used equipment. The
telecommunications portfolio includes PBX systems, VSATs, voice mail, modems and
bridges, hubs and routers and concentrators.
Additionally, the Company buys, sells and leases new and used point-of-sale
terminals and leases other office equipment such as fax machines and copiers.
Technology Integration: The Company's technology integration group provides
strategic solutions for asset management to its customers through the creation
of a systematic approach to managing information technology assets. This
approach includes the establishment of processes and the leveraging of systems,
software tools and, to a limited extent, business partners, to increase
productivity, enhance end-user satisfaction, and reduce technology cost and
risk. These technology service solutions are built around the collection,
integration, and management of information on enterprise assets through the
implementation of an integrated data base of asset information. These solutions
may also include improving, supporting, and managing distributed systems and
critical business processes through a single point of contact. The services,
which are designed to complement the Company's Distributed Systems Group
activities, include transitional strategies, integration planning and
implementation, financing (hardware and software), and business continuity
planning.
The Company's integrated asset management software tools let customers order,
track and manage their inventory of distributed systems equipment. In 1996,
Comdisco reached an agreement with Asset Software International ("ASI") to
distribute ASI's asset management product line as part of the Company's
technology integration solutions.
Large Systems: The Company buys or leases, and in turn sells, leases or
subleases IBM computer equipment as well as equipment manufactured by others.
The Company's sale and lease transactions include the "mainframe" central
processing units, midrange, and/or various peripherals, such as printers, tape
and disk drives and other equipment used with a mainframe.
The mainframe industry has been characterized by rapid and continuous
technological advances permitting broadened user applications. Users upgrade
equipment as their existing equipment becomes inappropriate for their needs or
as a result of changes in the required amount of data processing capacity.
Recent technological advances in mainframe technology by International Business
Machines ("IBM") have focused on "parallel
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processing" systems. These systems include transaction processing and database
server models, designed for both "legacy" and newer technologies in open
systems. In 1996, IBM introduced its next generation of mainframes, which rely
on cost-effective "complementary metal-oxide semiconductor (referred to as
"CMOS)" technology, and, with the recent entry of similar offerings from Amdahl
Corporation and Hitachi Data Systems, the Company expects the large systems
market to be very active in 1997.
The Company assists customers in: planning and implementing major data center
relocations and consolidations; evaluating information technology needs and
system assessments; equipment procurement strategies and timing.
In addition to mainframes, there are technological advances in both direct
access storage devices and tape drives. The Company remains an active
participant in the mainframe, client/server and related peripheral markets.
Advances in technology affect the market for computer products and may also have
an impact on the way the Company conducts its activities. The Large Systems
market, although an important one for the Company, remains very competitive,
with the largest market share held by the major manufacturers. Comdisco believes
it is one of the only major independent lessors competing in this market. The
Company believes that approximately 41% of the equipment placed on lease in
fiscal 1996 (including International operations) was large systems related. The
Company does not expect this percentage to increase in fiscal 1997.
BUSINESS CONTINUITY AND NETWORK SERVICES
These services entail complete enterprisewide recoverability, including large
central processing sites, client/server, workstation and PC environments; as
well as local and wide area networks and voice availability/recovery
capabilities, consulting services in business continuity planning, network
services and data protection, as well as other related data processing services,
throughout the United States, Canada and Europe. The Company provides backup
capabilities for, among others, Digital Equipment Corporation, IBM, Hewlett
Packard, Sequent, Stratus, Sun Micro Systems, Tandem and Unisys equipment users.
Comdisco's services are designed to help customers minimize the impact of a
significant interruption to critical business functions as a result of the
inaccessibility to the customer's data processing facility, communications
network(s) or workstations.
Through its network and facilities strategy entitled CDRS Net, the Company
offers customers access to its North American facilities, including a range of
data processing recovery services at hot sites, Customer Control Centers ("CCC")
and shell sites. Hot sites are equipped computer facilities that include central
processing units, peripherals and communications equipment. A CCC interfaces
customers to geographically separated hot sites by means of telecommunications
lines. Most facilities also include workstation and/or desktop recovery, voice,
and network capabilities. Capabilities also include client/server platforms and
midrange systems.
Comdisco operates one of the largest communications networks in North America.
In fiscal 1996, Comdisco formed Comdisco Network Services and acquired
NetforceMTI. The combined business unit provides network assessment,
implementation and management services designed to reduce the cost of network
ownership.
Of the Company's thirty-one locations, eight serve as data center recovery
environments providing hot site and/or shell site services. These nine regional
recovery centers serve major commercial centers, including New York, Chicago,
Northern and Southern California, Texas, Georgia, as well as a location in
Southern New Jersey that serves the Mid-Atlantic region and a center located in
Toronto, Canada. Each recovery center has at least one hot site or CCC and
includes telecommunications capabilities, conference rooms, office space,
support areas, and appropriate on-site technical personnel.
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DIVERSIFIED TECHNOLOGY SERVICES
Electronics Group: The Company leases new and used electronic manufacturing,
testing and monitoring equipment, including semiconductor production equipment,
automated test equipment and assembly equipment. Additionally, the Company
maintains a dedicated refurbishing and sales facility in the Silicon Valley
area. The semiconductor manufacturing industry is characterized by rapidly
advancing technology, high capital outlays, increased competition, and a growing
concern over the total cost of ownership in high technology equipment.
Healthcare Group: Through its subsidiaries, the Company leases medical and other
high technology equipment to healthcare providers, including used, reconditioned
medical equipment. The Company's portfolio includes angiography, MRI systems, CT
Scanners, nuclear imaging devices, test equipment such as oscillascopes,
analyzers and testers and laboratory equipment such as microscopes and
centrifuges. Additionally, the Company has a comprehensive medical equipment
refurbishing facility and has earned ISO certification for its facility.
Comdisco Ventures: The Company provides equipment financing to venture
capital-backed start-ups, with the right to acquire small ownership positions in
these companies. Comdisco Ventures' strategy is to invest in growth industries
and, in fiscal 1996, approximately 25% of its business was in Internet-related
software or services. Other primary markets include client/server, multimedia,
advanced telecommunications, and healthcare.
COMPETITION
The Company competes as a lessor and as a dealer of new and used computer and
selected other high technology equipment. The Company competes with different
firms in each of its activities. The Company's competition includes equipment
manufacturers such as IBM, Hewlett Packard ("HP"), Amdahl, Hitachi Data Systems,
AT&T, Rolm, Hitachi Medical Systems, Siemens Medical Systems and General
Electric, other equipment dealers, brokers and leasing companies (including
captive or related leasing companies of IBM, HP and General Electric and others)
as well as financial institutions, including commercial banks and investment
banking firms. While its competitive methodologies will differ, in general, the
Company competes mainly on the basis of its expertise in remarketing equipment,
terms offered in its transactions, its reliability in meeting its commitments,
its manufacturers' independence and its ability to develop and offer alternative
solutions and options to high technology equipment users. The Company is a full
service lessor. Primarily as a result of technological changes, competition has
increased in the leasing industry and the number of companies offering
competitive services, such as asset management and other high technology
equipment leasing, has increased. Competitive alliances have also impacted the
leasing industry.
In large systems the Company believes that it competes primarily with the
manufacturers and their captive or related leasing companies, if any, a few
other leasing companies and, to a certain extent, large system integrators as
well as outsourcers. The Company also believes that, aside from IBM and its
captive leasing company, IBM Credit Corp., it is one of the largest purchasers,
sellers and lessors of IBM equipment. The Company does not believe that a
significant amount of used IBM equipment is sold independently by owner-users of
the equipment to other owner-users. The Company's continued ability to compete
effectively may be affected by policies of IBM.
In PCs, workstations, electronics, healthcare and telecommunications, the
Company believes it competes with the manufacturers and their captive leasing
companies and approximately five significant leasing companies, as well as banks
and other lessors and financial and lending institutions throughout the United
States and Canada. In its other services, the Company competes with
manufacturers and other national and regional consulting and services
organizations.
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In business continuity, the Company believes that it competes with approximately
two significant domestic companies, IBM and SunGard Data Systems, Inc., as well
as other regional firms in the domestic, Canadian and European marketplace,
which provide contract business continuity services, and that it is the largest
international provider of such services. In network services, the Company
competes with telecommunication firms, consulting organizations and other local
and regional providers.
The Company's continued ability to compete is also affected by its ability to
attract and retain well qualified personnel and the availability of financing.
OTHER
The Company does not own any patents, trademarks, licenses, or franchises which
would be considered significant to the Company's businesses.
The Company's businesses are not seasonal, however, quarter-to-quarter results
from operations can vary significantly.
The amount of backlog orders is not material to understanding the Company's
business.
Because of the nature of the Company's business, the Company is not required to
carry significant amounts of inventory either for delivery requirements to
assure continuous availability of goods from suppliers.
Item 2. Properties
The Company owns its principal executive office building in Rosemont, Illinois
that has approximately 269,000 square feet, and has pledged the property as part
of a mortgage agreement. The Company leases office space for sales offices in
various domestic and international locations. The Company's technical services
division utilizes a 250,000 square foot building owned by the Company in
Schaumburg, Illinois. This space is used primarily for refurbishing, maintenance
and equipment storage. The Company's business continuity services group
presently occupies eight recovery centers owned by the Company, including
151,000 square feet in Illinois, 34,000 square feet in Texas, 42,000 square feet
in Georgia, 56,000 square feet in Toronto, Canada, two recovery centers each in
New Jersey of 81,000 and 72,000 square feet, and California of 52,000 and 38,000
square feet. The Company's business continuity services group also leases
255,000, 14,000 and 10,000 square feet in New Jersey, Missouri, and Canada,
respectively. Existing Company-owned facilities can be enlarged and expanded as
required to support additional growth. The Company's disaster recovery services
division also owns and leases facilities in several European countries. The
Company's medical refurbishment subsidiary leases approximately 100,000 square
feet in Wood Dale, Illinois. The Company's electronics group leases
approximately 35,000 square feet in San Jose, California, to be used primarily
for maintenance and equipment storage.
Item 3. Legal Proceedings
No material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the three
months ended September 30, 1996.
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PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
STOCK SPLIT
On November 7, 1995, the Board of Directors authorized a three-for-two split of
the Company's common stock to be distributed on December 8, 1995, to holders of
record on November 17, 1995. Accordingly, all references in the Company's Annual
Report to Stockholders' for the year ended September 30, 1996 and the Company's
Annual Report on Form 10-K for the year ended September 30, 1996 to common share
data have been adjusted to reflect the split.
PRICE RANGE OF COMMON STOCK
Price Range of Common Stock on page 30 of the Annual Report to Stockholders for
the year ended September 30, 1996 is incorporated herein by reference.
COMMON STOCK REPURCHASE PROGRAM
During fiscal 1996, the Company purchased 3.7 million shares of its outstanding
common stock at an aggregate cost of $80 million. These purchases, when added to
the shares purchased in prior years, bring the total number of common shares
purchased to 27.8 million (.5 million shares were issued in fiscal 1996 in
connection with the Company's acquisition of NetforceMTI, 1.5 million shares
were issued upon conversion of a 6% convertible subordinated promissory note in
fiscal 1995 and an additional 2.9 million shares were distributed as a common
stock dividend on March 30, 1992), at an aggregate cost of $363 million. An
additional 1.1 million shares of common stock were purchased between September
30, 1996 and November 5, 1996 at a cost of $25 million.
SHAREHOLDER RIGHTS PLAN
On November 18, 1987, the Board adopted a shareholders rights plan and pursuant
thereto declared a dividend distribution of one Right for each outstanding share
of common stock of the Company to stockholders of record at the close of
business on November 27, 1987 (the "Record Date"). The shareholder rights plan
was amended and restated as of November 7, 1994. Each Right entitles the
registered holder under certain circumstances to purchase from the Company one
share of common stock at a Purchase Price of $63.49, subject to adjustment in
certain circumstances. The Purchase Price is to be paid in cash. The Rights
become exercisable if (i) a person or group (other than any holder of 20% or
more of the common stock on the Record Date and its successors) (an "Acquiring
Person") becomes the beneficial owner of 15% or more of the outstanding common
stock (and the Company does not redeem the Rights within 15 days thereafter),
(ii) a person or group makes a tender or exchange offer which upon consummation
would result in such person or group beneficially owning 15% or more of the
common stock (and the Company does not redeem the Rights within 15 days
thereafter) or (iii) the Board of Directors determines that a beneficial owner
of 10% or more of the common stock is an Adverse Person (as defined in the
Rights Agreement). Upon the occurrence of any such event, each Right (other than
those held by an Acquiring Person or Adverse Person) will become exercisable for
one share of common stock at an adjusted Purchase Price equal to 20% of the then
market price of the common stock. The terms of the Rights are set forth in the
amended and restated Rights Agreement, dated as of November 7, 1994 (the "Rights
Agreement"), between the Company and Chemical Bank, N.A. (formerly Manufacturers
Hanover Trust Company), as Rights Agent. The Rights Agreement and a related form
of the rights certificate was filed as Exhibit 4.1 with the Company's Current
Report on Form 8-K, filed on December 6, 1994, File No. 1-7725. The foregoing
description of the shareholder rights plan does not purport to be complete and
is qualified in its entirety by reference to such exhibit.
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DIVIDENDS
The Company has paid cash dividends quarterly since February 1979. Cash
dividends paid on common stock were $14 million and $13 million in fiscal 1996
and 1995. The most recently declared quarterly common stock cash dividend, $.07
per share, was paid on December 9, 1996 to stockholders of record on November
15, 1996. Subject to the prior right of the holders of the Series A and Series B
Preferred Stock, there are no restrictions on the Company's present or future
ability to pay common dividends, except its agreement to maintain a debt to net
worth ratio pursuant to, and certain other limitations contained in, the
Company's multi-option and global revolving credit agreements, none of which
have any current application. The Company expects to continue its policy of
paying regular cash dividends, although there is no assurance as to future
dividends because they are dependent upon the Company's profit levels and
capital requirements as well as financial and other conditions existing at the
time. Common stock cash dividends paid were $.28 per share in fiscal 1996 and
$.24 per share in fiscal 1995.
Item 6. Selected Financial Data
Six Year Summary on pages 24 and 25 of the Annual Report to Stockholders for the
fiscal year ended September 30, 1996 is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 26 through 30 of the Annual Report to Stockholders for the
fiscal year ended September 30, 1996 is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements and the accompanying Notes to Consolidated
Financial Statements on pages 31 through 48 of the Annual Report to Stockholders
for the fiscal year ended September 30, 1996 is incorporated herein by
reference. Quarterly Financial Data on page 46 of the Annual Report to
Stockholders for the fiscal year ended September 30, 1996 is incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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PART III.
Item 10. Directors and Executive Officers of Registrant
A description of Directors and Executive Officers of Registrant contained in the
Company's definitive Proxy Statement filed within one hundred twenty days of the
last day of the year ended September 30, 1996 is incorporated herein by
reference.
Item 11. Executive Compensation
A description of Executive Compensation contained in the Company's definitive
Proxy Statement filed within one hundred twenty days of the last day of the year
ended September 30, 1996 is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
A description of Security Ownership of Certain Beneficial Owners and Management
contained in the Company's definitive Proxy Statement filed within one hundred
twenty days of the last day of the year ended September 30, 1996 is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
A description of Certain Relationships and Related Transactions contained in the
Company's definitive Proxy Statement filed within one hundred twenty days of the
last day of the year ended September 30, 1996 is incorporated herein by
reference.
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PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a)(1) and (a)(2) Certain Documents Filed as Part of the Form 10-K:
The financial statements, including the supporting
schedule, listed in the Index to Financial Statements
and Financial Statement Schedule are filed as part of
this Form 10-K on page 14.
(a)(3) Exhibits:
See Index to Exhibits filed as part of this Form 10-K
on pages 17 through 22.
(b) Reports on Form 8-K:
On November 15, 1996, the Company filed a current
report on Form 8-K, dated November 15, 1996,
reporting Item 5. Other Events and Item 7. Financial
Statements and Exhibits. The filing was for the
Company's announcement of fourth quarter and fiscal
1996 results of operations and included the Company's
press release dated November 5, 1996.
On November 21, 1996, the Company filed a Current
Report on Form 8-K, dated November 18, 1996,
reporting Item 7. Financial Statements and Exhibits.
The exhibits included in the report related to the
Company's $250 million 6.375% Notes Due November 30,
2001.
On December 9, 1996, the Company filed a Current
Report on Form 8-K, dated December 6, 1996, reporting
Item 7. Financial Statements and Exhibits. The
exhibits included in the report related to the
Company's $500 million medium term note program.
On December 16, 1996, the Company filed two (2)
Current Reports on Form 8-K each dated December 13,
1996, reporting Item 7. Financial Statements and
Exhibits. The exhibits in the reports included the
amended credit agreements between the Company and the
banks thereto.
(c) Exhibits:
Included in Item (a)(3) above.
(d) Financial Statement Schedules Required by Regulation S-X:
Included in Item (a)(1) and (a)(2) above.
The Registrant hereby undertakes to furnish to the Commission any instrument
with respect to long-term debt of the Registrant which does not exceed 10
percent of the total assets of the Registrant and its subsidiaries.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
COMDISCO, INC.
DATE: December 20, 1996 By: /s/ David J. Keenan
-------------------------
David J. Keenan
Vice President and
Corporate Controller
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ John F. Slevin
John F. Slevin
Chief Executive Officer /s/ Philip A. Hewes
(Principal Executive Officer), Philip A. Hewes
President and Director Director
/s/ John J. Vosicky /s/ Alan J. Andreini
John J. Vosicky Alan J. Andreini
Chief Financial Officer (Principal Director
Financial Officer), Treasurer
and Director
/s/ David J. Keenan /s/ William N. Pontikes
David J. Keenan William N. Pontikes
Vice President (Principal Accounting Officer) Director
and Corporate Controller
__________________________ /s/ Nicholas K. Pontikes
Robert A. Bardagy Nicholas K. Pontikes
Director Director
/s/ Edward H. Fiedler, Jr. /s/ Rick Kash
Edward H. Fiedler, Jr. Rick Kash
Director Director
/s/ C. Keith Hartley /s/Basil R. Twist, Jr.
C. Keith Hartley Basil R. Twist, Jr.
Director Director
- --------------------------
Thomas H. Patrick
Director Each of the above signatures is
affixed as of December 20, 1996
13
<PAGE>
Comdisco, Inc. and Subsidiaries
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements and notes to consolidated
financial statements of Comdisco, Inc. and Subsidiaries and related Independent
Auditors' Report, included in the Registrant's Annual Report to Stockholders for
the fiscal year ended September 30, 1996, are incorporated by reference in Item
8:
<TABLE>
<CAPTION>
Annual Report
Page Number
-----------
<S> <C>
Consolidated Statements of Earnings --
Years Ended September 30, 1996, 1995 and 1994 ...................... 31
Consolidated Balance Sheets -- September 30, 1996 and 1995 ........... 32
Consolidated Statements of Stockholders' Equity --
Years Ended September 30, 1996, 1995 and 1994 ...................... 33
Consolidated Statements of Cash Flows --
Years Ended September 30, 1996, 1995 and 1994 ..................... 34-35
Notes to Consolidated Financial Statements ........................... 36-47
Independent Auditors' Report ......................................... 48
The following consolidated financial statement schedule of Comdisco, Inc. and
Subsidiaries is included in Item 14(d):
Form 10-K
Page Number
-----------
Schedule II -- Valuation and Qualifying Accounts ............. 16
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
14
<PAGE>
[KPMG Peat Marwick LLP Letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Comdisco, Inc.:
Under date of November 5, 1996, we reported on the consolidated balance sheets
of Comdisco, Inc. and subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1996,
as contained in the 1996 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year ended September 30, 1996. In connection
with our audits of the aforementioned consolidated financial statements, we also
have audited the related consolidated financial statement schedule as listed in
the accompanying index. The financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
November 5, 1996
15
<PAGE>
Comdisco, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended September 30, 1996
(in millions)
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and end
Description of period expenses Other of period
- ----------------------------- ---------- ----------- ------- ---------
Year ended September 30, 1994:
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts ................................................ $13 $10 $(13)<F1> $10
=== === ==== ===
Litigation reserve ................................................. $ 6 $10 $(13) $ 3
=== === ==== ===
Year ended September 30, 1995:
Allowance for
doubtful accounts ................................................ $10 $12 $(5)<F1> $17
=== === ==== ===
Litigation reserve ................................................. $ 3 $ - $ - $ 3
=== === ==== ===
Year ended September 30, 1996:
Allowance for
doubtful accounts ................................................ $17 $11 $ (7)<F1> $21
=== === ==== ===
Litigation reserve ................................................. $ 3 $ - $(2) $ 1
=== === ==== ===
<FN>
<F1> Write off of receivables net of recoveries
</FN>
</TABLE>
16
<PAGE>
Comdisco, Inc. and Subsidiaries
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ---------------------------------------------------------
3.01 Restated Certificate of Incorporation of Registrant dated
February 12, 1988
Incorporated by reference to Exhibit 4.1 filed
with the Company's Registration Statement on
Forms S-8 and S-3, File No. 33-20715, filed March
8, 1988.
3.02 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.
3.03 Certificate of Designations with respect to the Company's
8 3/4% Cumulative Preferred Stock, Series B, as filed
with the Secretary of State 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.
3.04 By-Laws of Registrant dated July 23, 1996
Incorporated by reference to Exhibit 4(b) filed
with the Company's Registration Statement on Form
S-8 dated September 25, 1996, as filed with the
Commission September 26, 1996, File No. 1-7725.
4.01 Indenture Agreement between Registrant and Citibank, NA,
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 Agreement 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 Company's Form 8 dated February 21,
1991, File No. 1-7725, the copy of Indenture
dated as of April 1, 1988, between Registrant and
Manufacturers Hanover Trust Company (said
Indenture defines certain rights of security
holders).
17
<PAGE>
Exhibit No. Description of Exhibit
----------- ---------------------------------------------------------
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 as of November 18,
1987, as amended and restated as of November 7, 1994,
between Comdisco, Inc. and Chemical Bank, as Rights
Agent, which includes as Exhibit A thereto the Form of
Rights Certificate.
Incorporated by reference to Exhibit 4.1 filed
with the Company's Current Report on Form 8-K,
filed on December 6, 1994, File No. 1-7725.
4.05 Indenture Agreement between Registrant and The Fuji Bank
and Trust Company, as Trustee, dated as of February 1,
1995
Incorporated by reference to Exhibit 4.1 filed
with the Company's Current Report on Form 8-K
dated May 15, 1995, as filed with the Commission
on May 15, 1995, File No. 1-7725, the copy of the
Indenture dated as of February 1, 1995 between
the Registrant and The Fuji Bank and Trust
Company, as Trustee (said Indenture defines
certain rights of security holders).
10.01 Employment Agreement with John F. Slevin dated
October 20, 1994
Incorporated by reference to Exhibit 10.01 filed
with the Company's Annual Report for the year
ended September 30, 1994 on Form 10-K, File No.
1-7725.
10.02 Amendment to Employment Agreement with John F. Slevin
dated September 29, 1995
Incorporated by reference to Exhibit 10.02 filed
with the Company's Annual Report for the year
ended September 30, 1995 on Form 10-K, File No.
1-7725.
10.03 Amendment to Employment Agreement with John F. Slevin
dated September 29, 1996
10.04 1979 Stock Option Plan of the Registrant
Incorporated by reference to Exhibit 10.3 filed
with the Company's Annual Report for the year
ended September 30, 1982 on Form 10-K, File No.
1-7725.
10.05 1981 Stock Option Plan of the Registrant
Incorporated by reference to Exhibit 10.4 filed
with the Company's Annual Report for the year
ended September 30, 1982 on Form 10-K, File No.
1-7725.
10.06 Amendment to 1979 and 1981 Stock Option Plans of the
Registrant dated December 15, 1986
Incorporated by reference to Exhibit 10.6 filed
with the Company's Annual Report for the year
ended September 30, 1987 on Form 10-K, File No.
1-7725.
18
<PAGE>
Exhibit No. Description of Exhibit
----------- ---------------------------------------------------------
10.07 1987 Stock Option Plan of the Registrant
Incorporated by reference to Exhibit 10.7 filed
with the Company's Annual Report for the year
ended September 30, 1988 on Form 10-K, File No.
1-7725.
10.08 Amendment to 1979, 1981 and 1987 Stock Option Plans of
the Registrant dated November 4, 1987
Incorporated by reference to Exhibit 10.9 filed
with the Company's Annual Report for the year
ended September 30, 1987 on Form 10-K, File No.
1-7725.
10.09 1989 Non-Employee Director Stock Option Plan
Incorporated by reference to Exhibit 10.11 filed
with the Company's Annual Report for the year
ended September 30, 1990 on Form 10-K, File No.
1-7725.
10.10 1996 Non-Employee Director Stock Option Plan
10.11 1991 Stock Option Plan
Incorporated by reference to Exhibit 10.08 filed
with the Company's Annual Report for the year
ended September 30, 1992 on Form 10-K, File No.
1-7725.
10.12 1992 Long-Term Stock Ownership Incentive Plan
Incorporated by reference to Exhibit 10.09 filed
with the Company's Annual Report for the year
ended September 30, 1992 on Form 10-K, File No.
1-7725
10.13 1995 Long-Term Stock Ownership Incentive Plan
10.14 Comdisco, Inc. Employee Stock Purchase Plan
Incorporated by reference to Exhibit 15 to the
Company's Registration Statement on Form S-8
filed on March 19, 1982 and Post-Effective
Amendment filed December 21, 1982, File No.
2-76569.
10.15 Management Compensation Arrangements and Plans
10.16 Facility agreement dated December 30, 1994 and made
between Comdisco, Inc. National Westminster Bank PLC,
Barclays Bank PLC and the banks thereto
Incorporated by reference to Exhibit 10.01 filed
with the Company's Current Report on Form 8-K,
filed February 15, 1995, File No. 1-7725.
19
<PAGE>
Exhibit No. Description of Exhibit
----------- ---------------------------------------------------------
10.17 Supplemental Agreement dated December 29, 1995 to the
Facility agreement dated December 30, 1994
Incorporated by reference to Exhibit 10.03 filed
with the Company's Current Report on Form 8-K,
filed December 16, 1996, File No. 1-7725.
10.18 Revolving Credit Facility dated December 30, 1994 between
the Company and National Westminster Bank PLC as arranger
and administrative agent, the Co-Agents (as defined
therein) and the Banks (as defined therein)
Incorporated by reference to Exhibit 10.01 filed
with the Company's Current Report on Form 8-K,
filed February 15, 1995, File No. 1-7725.
10.19 First Supplemental Agreement to the Revolving Credit
Facility dated December 30, 1994
Incorporated by reference to Exhibit 10.01 filed
with the Company's Current Report on Form 8-K,
filed December 16, 1996, File No. 1-7725.
10.20 Second Supplemental Agreement to the Revolving Credit
Facility dated December 30, 1994
Incorporated by reference to Exhibit 10.01 filed
with the Company's Current Report on Form 8-K,
filed December 16, 1996, File No. 1-7725.
10.21 Fourth Amended and Restated Global Credit Agreement by
and among Comdisco, Inc., Citibank, N.A. and Nationsbank
of North Carolina, N.A. as Co-agents and Co-arrangers
and the Financial Institutions Party thereto dated as of
December 18, 1995
Incorporated by reference to Exhibit 10.02 filed
with the Company's Current Report on Form 8-K,
filed December 16, 1996, File No. 1-7725.
10.22 Credit Agreement by and among Comdisco, Inc., Citibank,
N.A.and Nationsbank of North Carolina, N.A. as Co-agents
and Co-arrangers and the Financial Institutions Party
thereto dated as of December 20, 1994
Incorporated by reference to Exhibit 10.01 filed
with the Company's Current Report on Form 8-K,
filed February 15, 1995, File No. 1-7725.
10.23 Amendment to Credit Agreement dated as of December 20,
1994
Incorporated by reference to Exhibit 10.02 filed
with the Company's Current Report on Form 8-K,
filed December 16, 1996, File No. 1-7725.
10.24 Purchase Agreement dated January 27, 1995 by and among
Computer Discount Corporation, Nicholas K. Pontikes, as
executor of the Estate of Kenneth N. Pontikes, and
Nicholas K. Pontikes as trustee of the Pontikes Trust
Incorporated by reference to Exhibit 2 to
Amendment No. 2 to Schedule 13-D filed by
Nicholas K. Pontikes, the Pontikes Trust and the
Ponchil Limited Partnership, dated as of January
27, 1995 and filed with the Commission on
February 2, 1995, File No.
1-7725.
20
<PAGE>
Exhibit No. Description of Exhibit
----------- ---------------------------------------------------------
11.00 Computation of Earnings Per Share
12.00 Ratio of Earnings to Fixed Charges
13.00 Annual Report to Security Holders
Six Year Summary, Management's Discussion and
Analysis of Financial Condition and Results of
Operations, and the Consolidated Financial
Statements on pages 24 through 47 and the
Quarterly Financial Data on page 46 and the
Independent Auditors' Report on page 48 of the
Annual Report to security holders for the fiscal
year ended September 30, 1996 have been
incorporated by reference as part of this Form
10-K.
21.00 Subsidiaries of Registrant
23.00 Consent of KPMG Peat Marwick LLP dated December 23, 1996
27.00 Financial Data Schedule
21
AMENDMENT TO EMPLOYEE AGREEMENT
The Compensation Committee of the Board of Directors has reviewed and
approved the following amendments to the Employment Agreement dated as of
October 20, 1994 between Comdisco, Inc. and John F. Slevin.
1. TERM
The term of this amended agreement shall commence October 1, 1996 and
shall continue for a period of three (3) years ending on September 30, 1999.
2. SALARY
The fixed salary as set forth in Section 3 of the Employment Agreement
shall be increased from $550,000 to $600,000 per year.
3. INCENTIVE COMPENSATION
The incentive compensation as set forth in Section 4 of the Employment
Agreement shall be revised as follows for the 1997 fiscal year:
(i) one percent (1%) of Comdisco's fiscal 1997 pre-tax earnings between
$150 million and $200 million, and (ii) two percent (2%) of pre-tax earnings in
excess of $200 million.
As an example, if Comdisco has pre-tax earnings of $205,000,000 in
fiscal 1997, the annual incentive compensation shall be $600,000.
4. ANNUAL STOCK OPTION INCENTIVE
If Comdisco achieves 1997 Pre-Tax Earnings of $205 million, you will
also be entitled to a stock option grant of 19,616 shares at the closing price
on September 30, 1997. These options would vest at the rate of 33.33% per year
over a three year term.
If the Pre-Tax Earnings achieved is less than $205 million, then the number
of shares granted will be based on the following:
Pre-Tax Earnings Percentage Adjusted Grant
- ---------------- ---------- --------------
$205M 100% 19,616
175M 80% 15,693
125M 60% 11,770
less than 125M 0% 0
5. LONG-TERM PERFORMANCE UNIT GRANT
The Committee of the 92 Plan hereby awards you with 366 Performance
Units.
a. Performance Objective and Performance Period
The Committee has set a target Performance Objective that Comdiscos
Total Shareholder Return (as defined below) be ranked at or above the 50th
percentile of the Total Shareholder Return of all companies contained in the S&P
500 for the period running from October 1, 1996 through September 30, 1999 (the
Performance Period).
"Total Shareholders Return" is defined as the sum of the stock price
appreciation plus dividends (reinvested) through the Performance Period.
b. Determination of Performance Unit Value
The actual Performance Unit Value will be determined based upon
Comdisco's Total Shareholder Return over the Performance Period. The target
Performance Unit Value has been set at $500. The actual Performance Unit Value
will be determined by multiplying the target Performance Unit Value times the
Performance Percentage specified in the following table:
TSR % Rank in S&P 500 Performance % Target Unit Value Actual Unit Value
- --------------------- ------------- ----------------- -----------------
below 50th 0% $500 $0
50th 100 500 500
55 150 500 750
60 200 500 1,000
65 260 500 1,300
70 320 500 1,600
75 390 500 1,950
80 460 500 2,300
85 530 500 2,650
90+ 600 500 3,000
<PAGE>
c. Method of Distribution
Within 15 days of the date of this Agreement, you must decide upon one
of the following distribution methods by signing the Election Statement attached
hereto:
i. Cash Distribution - You may elect to have 100% of the actual
Performance Unit Value paid in cash (less applicable taxes).
ii. Restricted Stock - You may elect to have 100% of the actual
Performance Unit Value paid in the form of Restricted Stock. In such event, the
actual Performance Unit Value will be multiplied by 120% and the product thereof
will be used to acquire Restricted Stock based on the closing price of
Comdisco's stock on September 30, 1999.
d. Restrictions
The Performance Unit Award is conditioned upon (i) your continuing as
an employee throughout the Performance Period and (ii) if you have elected to
receive Restricted Stock, your continuing as an employee for an additional one
year beyond the Performance Period. The effects of a termination of employment
within these periods are set forth in Section 14 of the 92 Plan.
e. Exercise of Performance Units
Performance Units may be exercised by delivery to the Secretary of
Comdisco of written notice of intent to exercise a specific number of
Performance Units.
f. Incorporation of 92 Plan Provisions
This award of Performance Units shall incorporate the terms and
conditions of the 92 Plan.
g. Acceptance
By execution of the attached Election Statement, you accept the terms
and conditions of this Performance Unit Grant.
6. CASH OPTION CONVERSION ALTERNATIVE.
Within 15 days of the date of this Agreement, you may elect to convert
cash compensation into stock options. You may elect to convert cash compensation
paid under Base Salary, Annual Cash Incentive and Long-Term Performance Units
into stock options on a one for two basis. You must elect to forego cash
compensation equally from the above three sources in $1,000 increments. For each
$1,000 foregone, you will receive stock options with an option value of $2,000.
If you make this election, you will receive a stock option grant at the
closing price of Comdisco stock on the date the election notice is received. The
following example will illustrate this alternative.
September 29, 1996
------------------
- Election to forego $10,000 each from Salary, Annual
Cash Incentive and Performance Units
- Comdisco stock closes at $30.00
- $30,000 foregone x 2 = $60,000
- Option Value = $30.00/3 = $10.00
- $60,000/$10.00 = 6,000 options granted at $30.00
- Vests at 20% per year commencing 9/30/97
7. STOCK OPTION GRANT
On July 23, 1996, the Option Committee decided to award stock options
of a then undetermined amount at the closing price of Comdisco's stock on that
date. The number of options would be subsequently determined based upon
recommendations of an independent third party compensation consultant. Based
upon the recommendation of the compensation expert, the Committee has granted
Slevin an option to acquire 275,000 shares at $24.00 (the closing price on July
23, 1996). The options will have a ten year term commencing on July 23, 1996 and
will vest at the rate of 33 1/3% per year over a three year period.
8. RESTRICTED STOCK GRANT
The Committee of the 1995 Long-Term Stock Ownership Plan has decided to
award Slevin with a Restricted Stock Award of 60,000 shares of Comdisco Common
Stock. The Restricted Stock will vest upon the earlier of 5 years or upon
Slevin's retirement from full-time employment with Comdisco.
This agreement shall not be construed to give you any employment rights.
Dated this _____ day of _______________, 1996.
- --------------------------- -------------------------------
On behalf of the Committee Jack Slevin
ELECTION STATEMENT
The undersigned hereby acknowledges receipt of the Amendment to
Employment Agreement, a copy of the 1992 Long-Term Stock Ownership Incentive
Plan, and copies of
Comdisco's latest financial statements.
Performance Unit Method of Distribution
Pursuant to Section 5, I elect the following method of distribution for
any Performance Units:
i) Cash Distribution __________
please initial
ii) Restricted Stock __________
please initial
Cash to Option Conversion Alternative
Pursuant to Section 6, I elect to convert the following cash
compensation components into stock options:
Base Salary __________
Annual Cash Incentive __________
Performance Units __________
By:____________________________
Jack Slevin
Date:___________________________
COMDISCO, INC.
OUTSIDE DIRECTOR DEFERRED FEE OPTION PLAN
Section 1. Name and Purpose. The Comdisco, Inc. Outside Director Deferred Fee
Option Plan (the "Plan") has been established by Comdisco, Inc. (the "Company")
to aid the Company in attracting, rewarding and retaining well-qualified members
of the Company's Board of Directors (the "Board"). It is further intended to
encourage and facilitate the acquisition of the Company's common shares by
certain of the directors of the Company upon whose judgment and ability the
Company depends for its long-term growth and development. Accordingly, the Plan
is intended to promote a close identity of interest between the Company and its
Shareholders as well as to provide a means to attract and retain outstanding
directors.
Section 2. Plan Administration.
2.1 The Plan shall generally be administered, managed and controlled by
a committee, consisting of not less than three directors, who shall be appointed
by, and may be removed by, the Board of Directors of the Company (the "Director
Option Committee"). Director Option Committee members may participate in the
Plan. Any interpretation of the Plan by the Director Option Committee and any
decision made by the Director Option Committee shall be final and binding upon
all persons.
2.2 Decisions and determinations of the Director Option Committee on
all matters relating to the Plan shall be in its sole discretion and shall be
conclusive. No member of the Director Option Committee shall be liable for any
action taken or decision made in good faith relating to this Plan or any award
hereunder.
Section 3. Participation.
3.1 Director Stock Options.
(a) The Company shall grant a Director Stock Option ("DSO") to
each director not employed by the Company ("Outside Director") on October 1st of
each year that the Outside Director is serving as a director, provided, that
prior to such date the director has irrevocably chosen to receive such a DSO in
lieu of all or part of all of his or her director's fees ("Director's Fees").
The number of shares covered by each DSO shall be equal to the nearest whole
number of shares determined in accordance with the following formula:
Annual Retainer and Board Meeting Fees x 1.5 Fair Market Value - $1 =
Number of Shares
(b) No DSO may be exercised before the six month anniversary
of the date upon which it was issued. No DSO issued under this Section 3.1 shall
be exercisable after the expiration of ten years from the date upon which such
DSO was issued. Each DSO shall be subject to termination before its date of
expiration as provided in this Section 3.1.
(c) Except as provided herein, the rights of a director in a
DSO issued under this Section 3.1 shall not terminate upon the director's
termination as a director for any reason (including death, retirement or
disability). The portion of a DSO granted under this Section 3.1 attributable to
a portion of the Director's Fees not earned due to termination as a director
(for any reason other than death or disability) shall abate and be canceled,
unless otherwise approved by the Director Option Committee.
(d) Until the specified expiration date, any DSO outstanding
on the date of a director's death may be exercised by the administrator of the
director's estate, the executor under his or her will, or the person or persons
to whom the director's stock option shall have been validly transferred by the
executor or administrator pursuant to the will or laws of intestate succession.
(e) Any DSO issued under this Section 3.1 shall be exercised
in the manner as specified in Section 8 of this Plan.
3.2 Participants. Directors receiving Director Stock Options under
this Plan are collectively hereinafter referred to as "Participants."
Section 4. Shares Subject to the Plan. The aggregate number of shares which may
be issued under the Plan is 100,000 Common Shares. If any option granted
pursuant to the Plan shall expire or terminate for any reason other than
surrender of the option pursuant to the exercise of the option, such number of
shares covered by that option shall again be available for grant under this
Plan.
Section 5. Effective Date and Term of Plan. This Plan shall be effective as of
October 1, 1996. This Plan shall remain in effect for a period of ten (10) years
from the effective date, or until terminated by the Board of Directors,
whichever occurs first.
Section 6. Option Exercise Price. The exercise price of the options issued
pursuant to this Plan ("Option Exercise Price") shall be at a fixed price of One
Dollar ($1.00) per share subject to the option.
Section 7. Option Expiration Date. The "Expiration Date" with respect to any
option or any portion thereof granted to a Participant under this Plan shall
mean the earliest of: (i) the date which is 10 years after the date on which the
option is granted; or (ii) the date which is 6 months after the date of the
Participant's death. All rights to purchase Common Shares pursuant to an option
and all rights to exercise the option shall cease on the option's Expiration
Date.
Section 8. Exercise of Options. No option may be exercised by a Participant
prior to the date on which he or she has completed 6 continuous months of
association as a director of Company. Subject to the preceding sentence, a
Participant may exercise an option by giving written notice of exercise prior to
the option's Expiration Date to the Secretary of the Company at the Company's
corporate headquarters. At the time of delivery of the notice, the full purchase
price of the shares purchased pursuant to the exercise of the option, together
with the amount required for state or federal withholding taxes, if any, arising
in connection with the purchase of such shares, shall be paid in cash.
Section 9. Compliance with Applicable Laws. Notwithstanding any other provision
of this Plan, the Company shall have no liability to issue any shares under the
Plan unless such issuance complies with all applicable laws and the applicable
requirements of any securities exchange or similar entity. Prior to the issuance
of any shares under this Plan, the Company may require a written statement that
the recipient is acquiring the shares for investment and not for the purpose or
intention of distributing the shares. In the case of a Participant who is
subject to Section 16(a) and Section 16(b) of the Exchange Act, the Director
Option Committee may, at any time, add such conditions and limitations to any
options granted to a Participant, as the Director Option Committee, in its
discretion, deems necessary or desirable to comply with the provisions of
Section 16(a) or Section 16(b) and the rules and regulations adopted thereunder
by the SEC or to obtain any exemption therefrom.
Section 10. Transferability. The options granted under this Plan are not
transferable except by will or by the laws of descent and distribution. Options
may be exercised during the lifetime of the Participant only by the Participant
and after the death of the Participant only as provided in Section 3.1(d) above.
Section 11. Changes in Capitalization. Subject to the provisions of this Section
11, in the event of any change in the outstanding number of common shares of the
Company by reason of any stock dividend, split, recapitalization, merger,
consolidation, combination, exchange of shares or other similar corporate
change, the aggregate number of shares which shall be subject to the options
issued under this Plan shall be adjusted appropriately. Notwithstanding the
preceding sentence, in no event shall the option price for a share of common
stock be adjusted below the par value of such shares, nor shall any fraction of
a share of stock be issued upon the exercise of any option granted pursuant to
this Plan.
Section 12. Withholding Taxes. Should current regulations be amended in such a
manner as to subject director fees to withholding requirements, the Director
Option Committee shall, at or prior to the delivery of any certificate or
certificates for Company Common Shares issued or delivered pursuant to the
exercise of an option issued under the Plan, require the Participant to remit to
the Company, in cash, an amount sufficient to satisfy withholding requirements
with respect to federal, state and local income and employment taxes.
Section 13. Amendment, Modification and Termination of Plan. The Board, at any
time terminate in any respect, amend or modify this Plan. No amendment,
modification or termination of the Plan shall in any manner adversely affect the
rights of any Participant under any option previously granted.
Comdisco, Inc.
1995 Long-Term Stock Ownership Incentive Plan
THE PLAN. Comdisco, Inc., a Delaware corporation (the
"Company"), hereby establishes the Comdisco, Inc. 1995 Long-Term Stock Ownership
Incentive Plan as set forth herein and as may from time to time be amended (the
"Plan"), effective September 27, 1995 subject to the approval by a majority of
the Stockholders at the first annual meeting of stockholders held after the
effective date.
1. PURPOSE. The purposes of the Plan are to encourage selected
employees, agents and Directors of the Company and its Subsidiaries who are
capable of having an impact on the performance of the Company (as defined below)
to acquire a long term proprietary interest in the growth and performance of the
Company, to generate an increased incentive to contribute to the Company's
future success and prosperity (thus enhancing the value of the Company for the
benefit of its stockholders), and to enhance the ability of the Company and its
Subsidiaries to attract and retain qualified individuals upon whom the sustained
progress, growth, and profitability of the Company depend.
2. DEFINITIONS. As used in the Plan, terms defined immediately
after their use shall have the respective meanings provided by such definitions
and the terms set forth below shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under the 1934 Act.
(b) "Award" means options, shares of Restricted Stock, Stock
Appreciation Rights, Performance Units, or Stock Bonuses granted
under the Plan.
(c) "Award Agreement" has the meaning specified in Section 4(c)
(v).
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" includes termination based on the commission of any
act or acts involving dishonesty, fraud, illegality or moral
turpitude.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
References to a particular section of the Code shall include
references to successor provisions.
(g) "Committee" means the committee of the Board appointed
pursuant to Section 4.
(h) "Company" has the meaning set forth in the introductory
paragraph.
(i) "Disability" means, as relates to the exercise of an
Incentive Stock Option after termination of employment, a
disability within the meaning of Section 22(e)(3) of the Code, and
for all other purposes, a mental or physical condition which, in
the opinion of the Committee, renders a Grantee unable or
incompetent to carry out the job responsibilities which such
Grantee held or the tasks to which such Grantee was assigned at
the time the disability was incurred, and which is expected to be
permanent or for an indefinite duration exceeding one year.
(j) "Dividend Equivalents" means cash amounts, with respect to
Performance Units held by a Grantee equal to and paid in the same
manner at the same time, and in the same amount paid as a dividend
and share of Stock to the extent the Committee so provides.
(k) "Effective Date" means September 27, 1995 provided that the
Plan and any Awards granted prior to the 1996 annual meeting of
the Company's stockholders are subject to approval of the Plan by
the stockholders at such annual meeting.
(l) "Fair Market Value" of any security of the Company means, as
of any applicable date, the closing price, regular way, of the
security as reported on the New York Stock Exchange Composite
Tape, or if no such reported sale of the security shall have
occurred on such date, on the next preceding date on which there
was such a reported sale.
(m) "Grant Date" means the date on which an Award shall be duly
granted, as determined in accordance with Section 6(a)(i).
(n) "Grantee" means an individual who has been granted an Award.
(o) "Including" or "includes" means "including, without
limitation," or "includes, without limitation."
(p) "Performance Period" has the meaning specified in Section
6(f)(i)(B).
(q) "1934 Act" means the Securities Exchange Act of 1934, as
amended. References to a particular section of, or rule under,
the 1934 Act shall include references to successor provisions.
(r) "Option Price" means the per share purchase price of Stock
subject to an option.
(s) "Performance Percentage" has the meaning specified in Section
6(f)(i)(c).
(t) "Plan" has the meaning set forth in the introductory
paragraph.
(u) "Restricted Period" shall mean (i) in relation to shares of
Stock receivable in payment for Performance Units, the period
beginning at the end of the applicable performance period during
which restrictions on the transferability of such shares of Stock
are in effect; and (ii) in relation to Restricted Stock, the
period, beginning with the first day of the month in which
Restricted Stock is granted, during which restrictions on the
transferability of the Restricted Stock are in effect.
(v) "Retirement" means a termination of employment with the
Company and its Subsidiaries any time after attaining age 60.
(w) "SEC" means the Securities and Exchange Commission.
(x) "Section 16 Grantee" means a person subject to potential
liability under Section 16(b) of the 1934 Act with respect to
transactions involving equity securities of the Company.
(y) "Stock" means the common stock of the Company, $0.10 par
value.
(z) "Subsidiary" means (i) with respect to Incentive Stock
Options, a corporation as defined in Section 424(f) of the Code
with the Company being treated as the employer corporation for
purposes of this definition, and (ii) for all other purposes any
entity in which the Company directly or through intervening
subsidiaries owns at least a majority interest of the total
combined voting power or value of all classes of stock or, in the
case of an unincorporated entity, at least a majority in the
capital and profits.
(aa) "10% Owner" means a person who owns stock (including stock
treated as owned under Section 424(d) of the Code) possessing
more than 10% of the total combined voting power of all classes
of stock of the Company.
3. SCOPE OF THE PLAN
(a) Two million five hundred thousand (2,500,000) shares of Stock
are hereby made available and reserved for delivery on account of
the exercise of Awards and payment of benefits in connection with
Awards.
Such shares may be treasury shares, newly issued shares, or
shares purchased on the open market (including private purchases)
in accordance with applicable securities laws, or any combination
of the foregoing, as may be determined from time to time by the
Board or the Committee.
(b) Subject to adjustment as provided in Section 24, the maximum
number of shares of Stock for which Awards may be granted to any
Grantee in any one-year period shall not exceed two hundred
thousand (200,000).
(c) To the extent an Award shall expire or terminate for any
reason without having been exercised in full (including a
cancellation and re-grant of an option pursuant to Section 17),
or shall be forfeited, without, in either case, the Grantee
having enjoyed any of the benefits of Stock ownership (other than
voting rights or dividends that are also forfeited), the shares
of Stock (including Restricted Stock) associated with such Award
shall become available for other Awards.
(d) For purposes of this Section 3,
(i) if an Award (other than a Dividend Equivalent) is
denominated in shares of Stock, the number of shares covered by
such Award, or to which such Award relates, shall be counted on
the date of grant of such Award against the aggregate number of
shares of Stock available for granting Awards under the Plan; and
(ii) all outstanding shares of Stock issued under the Plan,
even if the Stock is subject to restrictions, shall be counted on
the date of grant of any Award against the aggregate number of
shares of Stock available for granting Awards under the Plan; and
(iii) the shares of Stock underlying outstanding options,
Stock Appreciation Rights ("SARs"), and similar Awards shall be
counted while the award is outstanding against the aggregate
number of shares of Stock available for granting Awards under the
Plan;
(iv) where SARs are exercised for cash, the shares of Stock
subject to such SARs shall become available for other Awards;
(v) in the event of a stock-for-stock exercise of an option, the
gross number of shares of Stock subject to the option exercised,
not the net number of shares actually issued upon exercise shall
be counted against the aggregate number of shares of Stock
available for granting Awards under the Plan.
4. ADMINISTRATION.
(a) Subject to Section 4(b), the Plan shall be administered by a
committee ("Committee") which shall consist of not less than two
persons who are directors of the Company. Membership on the
Committee shall be subject to such limitations as the Board deems
appropriate to permit transactions in Stock pursuant to the Plan
to be exempt from liability under Section 16(b) of the 1934 Act
pursuant to Rule 16b-3 thereunder.
(b) The Board may, in its discretion, reserve to itself or
delegate to another committee of the Board, any or all of the
authority and responsibility of the Committee with respect to
Awards to Grantees who are not Section 16 Grantees at the time
any such delegated authority or responsibility is exercised. Such
other committee may consist of two or more directors who may, but
need not be, officers or employees of the Company or of any of
its Subsidiaries. To the extent that the Board has reserved to
itself or delegated to such other committee the authority and
responsibility of the Committee, all references to the Committee
in the Plan shall be to the Board or such other committee.
(c) The Committee shall have full and final authority, in its
discretion, but subject to the express provisions of the Plan, as
follows:
(i) to grant Awards;
(ii) to determine (A) when Awards may be granted,
and (B)whether or not specific Awards shall be identified with
other specific Awards, and if so, whether they shall be
exercisable cumulatively with or alternatively to such other
specific Awards;
(iii) to interpret the Plan and to make all
determinations necessary or advisable for the administration
of the Plan;
(iv) to prescribe, amend, and rescind rules and
regulations relating to the Plan, including rules with respect
to the exercisability and non-forfeitability of Awards upon
the termination of employment of a Grantee;
(v) to determine the terms and provisions and any
restrictions or conditions (including specifying such
performance criteria as the Committee deems appropriate, and
imposing restrictions with respect to Stock acquired upon
exercise of an option, which restrictions may continue beyond
the Grantee's termination of employment) of the written
agreements by which all Awards shall be evidenced ("Award
Agreements") which need not be identical and, with the consent
of the Grantee where required by contract law, to modify any
such Award Agreement at any time;
(vi) to impose, incidental to an Award, conditions
with respect to competitive employment or other activities, to
the extent such conditions do not conflict with the Plan;
(vii) to grant Awards under which the Grantee is
entitled to receive payments equivalent to dividends or
interest ("Dividend Equivalents") with respect to a number of
shares of Stock determined by the Committee, and the Committee
may provide that such amount (if any) shall be deemed to have
been reinvested in additional shares of Stock or otherwise
reinvested;
(viii) to cancel, with the consent of the Grantee,
outstanding Awards and to grant new Awards in substitution
therefor;
(ix) to authorize foreign Subsidiaries to adopt
plans as provided in Section 16;
(x) to delegate its duties and responsibilities
under the Plan and with respect to such foreign Subsidiary
plans, except its duties and responsibilities with respect to
Section 16 Grantees, and (A) the acts of such delegates shall
be treated hereunder as acts of the Committee, and (B) such
delegates shall report to the Committee regarding the
delegated duties and responsibilities;
(xi) to accelerate the exercisability of, and to
accelerate or waive any or all of the restrictions and
conditions applicable to, any Award, or any group of Awards
for any reason;
(xii) subject to Section 6(a)(ii), to extend the
time during which any Award or group of Awards may be
exercised;
(xiii) to make such adjustments or modifications to
awards to Grantees working outside the United States as are
necessary and advisable to fulfill the purposes of the Plan;
(xiv) to impose such additional conditions,
restrictions, and limitations upon the grant, exercise or
retention of Awards as the Committee may, before or
concurrently with the grant thereof, deem appropriate,
including requiring simultaneous exercise of related
identified Awards, and limiting the percentage of Awards which
may from time to time be exercised by a Grantee;
(xv) to certify attainment of any performance
criteria to which Awards are subject, if any.
The determination of the Committee on all matters
relating to the Plan or any Award Agreement shall be
conclusive and final. No member of the Committee shall be
liable for any action or determination made in good faith with
respect to the Plan or any Award.
5. ELIGIBILITY. Awards may be granted to any agent, director,
employee (including any officer) of the Company or any of its domestic
Subsidiaries, or any agent, employee, officer or director of any of the
Company's foreign Subsidiaries provided however that Incentive Stock Option
awards may not be granted to any person who is not an employee of the Company or
a domestic or foreign Subsidiary (as defined in Section 2(Z)(i) of the Plan) on
the date of the grant. In selecting the individuals to whom Awards may be
granted, as well as in determining the number of shares of Stock subject to, and
the other terms and conditions applicable to, each Award, the Committee shall
take into consideration such factors as it deems relevant in promoting the
purposes of the Plan.
6. CONDITIONS TO GRANTS.
(a) General Conditions:
(i) The Grant Date of an Award shall be the date on
which the Committee grants the Award or such later date as
specified in advance by the Committee;
(ii) The term of each Award (subject to Section 6(c)
with respect to Incentive Stock Options) shall be a period of
not more than 15 years from the Grant Date, and shall be
subject to earlier termination as herein provided;
(iii) A Grantee may, if otherwise eligible, be
granted additional Awards in any combination.
(b) Grant of Options and Option Price. No later than the Grant
Date of any option, the Committee shall determine the Option
Price of such option. Subject to Section 6(c) hereof, the Option
Price of an option shall not be less than 100% of the Fair Market
Value of the Stock on the Grant Date. Such price shall be subject
to adjustment as provided in Section 24. The Award Agreement may
provide that the option shall be exercisable for Restricted
Stock.
(c) Grant of Incentive Stock Options. At the time of the grant of
any option, the Committee may designate that such option shall be
made subject to additional restrictions to permit it to qualify
as an "Incentive Stock Option" under the requirements of Section
422 of the Code. The Option Price of any option designated as an
"Incentive Stock Option" shall not be less than 100% of the Fair
Market Value of the Stock on the Grant Date. Any option
designated as an Incentive Stock Option:
(i) shall only be granted to individuals who are
employed by the Company or any of its Subsidiaries on the
Grant Date;
(ii) shall not be granted to a 10% Owner unless the
Option Price is at least 110% of the Fair Market Value of the
Stock subject to such option on the Grant Date and shall be
exercisable for a period of not more than five (5) years from
the Grant Date;
(iii) except as provided in (ii) above, shall be
exercisable for a period of not more than 10 years from the
Grant Date, and shall be subject to earlier termination as
provided herein or in the applicable Award Agreement;
(iv) shall not have an aggregate Fair Market Value
(determined for each Incentive Stock Option at its Grant Date)
of Stock with respect to which Incentive Stock Options are
exercisable for the first time by such Grantee during any
calendar year (under the Plan and any other employee stock
option plan of the Grantee's employer or any parent or
Subsidiary thereof ("Other Plans")), determined in accordance
with the provisions of Section 422 of the Code, which exceeds
$100,000 (the "$100,000 Limit");
(v) shall, if the aggregate Fair Market Value of
Stock (determined on the Grant Date) with respect to all
Incentive Stock Options previously granted under the Plan and
any Other Plans ("Prior Grants") and any Incentive Stock
Options under such grant (the "Current Grant") which are
exercisable for the first time during any calendar year would
exceed the $100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant
exercisable for the first time by the Grantee during
any calendar year which would, when added to any
portions of any Prior Grants, be exercisable for the
first time by the Grantee during such calendar year
with respect to Stock which would have an aggregate
Fair Market Value (determined as of the respective
Grant Dates for such options) in excess of the
$100,000 Limit shall, notwithstanding the terms of
the Current Grant, be exercisable for the first time
by the Grantee in the first subsequent calendar year
or years in which it could be exercisable for the
first time by the Grantee when added to all Prior
Grants without exceeding the $100,000 Limit; and
(B) viewed as of the date of the Current
Grant, if any portion of a Current Grant could not be
exercised under the provisions of the immediately
preceding sentence during any calendar year
commencing with the calendar year in which it is
first exercisable through and including the last
calendar year in which it may by its terms be
exercised, such portion of the Current Grant shall
not be an Incentive Stock Option, but shall be
exercisable as a separate option at such date or
dates as are provided in the Current Grant;
(vi) shall be granted within 10 years from the
earlier of the date the Plan is adopted or the date the Plan
is approved by the stockholders of the Company;
(vii) shall require the Grantee to notify the
Committee of any disposition of any Stock issued pursuant to
the exercise of the Incentive Stock Option under the
circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10
days of such disposition; and
(viii) shall by its terms not be assignable or
transferable other than by will or the laws of descent and
distribution and may be exercised during the Grantee's
lifetime only by the Grantee; provided, however, that the
Grantee may, to the extent provided in the Plan in any manner
specified by the Committee, designate in writing a beneficiary
to exercise his/her Incentive Stock Option after the Grantee's
death.
Notwithstanding the foregoing and Section 4(c)(v), the
Committee may, without the consent of the Grantee, at any time
before the exercise of an option (whether or not an Incentive
Stock Option), take any action necessary to prevent such
option from being treated as an Incentive Stock Option.
Grant of Shares of Restricted Stock.
The Committee may, in its discretion, grant shares
of Restricted Stock to any individual eligible under Section 5
to receive Awards.
The Committee shall, in its discretion, determine
the amount, if any, that a Grantee shall pay for shares of
Restricted Stock. Awards shall be granted for no cash
consideration or for such minimal cash consideration as may be
required by applicable law. If any such cash consideration is
required, payment shall be made in full by the Grantee before
the delivery of the shares and in any event no later than 10
days after the Grant Date for such shares. In the discretion
of the Committee and to the extent permitted by law, payment
may also be made in accordance with Section 10.
The Committee may, but need not, provide that all
or any portion of a Grantee's Award of Restricted Stock, or
Restricted Stock acquired upon exercise of an option shall be
forfeited:
except as otherwise specified in the
Award Agreement, upon the Grantee's termination of
employment for any reason specified in the Award
Agreement within a specified time period after the
Grant Date, or
if the Company or the Grantee does not
achieve specified performance objectives (if any)
within a specified time period after the Grant Date
and before the Grantee's termination of employment,
or
upon failure to satisfy such other
restrictions as the Committee may specify in the
Award Agreement; provided that, subject to Sections
4(c)(xi) and 14, in no case shall such Award become
nonforfeitable before the first anniversary of the
Grant Date.
If a share of Restricted Stock is forfeited, then
(A) if the Grantee was required to pay for such share or
acquired such Restricted Stock upon the exercise of an option,
the Grantee shall be deemed to have resold such share of
Restricted Stock to the Company at the lesser of (1) the
amount paid or, if the Restricted Stock was acquired on
exercise of an option, the Option Price paid by the Grantee
for such share of Restricted Stock, or (2) the Fair Market
Value of a share of Stock on the date of such forfeiture; (B)
the Company shall pay to the Grantee the amount determined
under clause (A) of this sentence as soon as is
administratively practical; and (C) such share of Restricted
Stock shall cease to be outstanding, and shall no longer
confer on the Grantee thereof any rights as a stockholder of
the Company, from and after the later of the date the event
causing the forfeiture occurred or the date of the Company's
tender of the payment specified in clause (B) of this
sentence, whether or not such tender is accepted by the
Grantee.
The Committee may provide that any share of
Restricted Stock shall be held (together with a stock power
executed in blank by the Grantee) in escrow by the Secretary
of the Company until the expiration of the Restricted Period
and/or such shares become nonforfeitable or are forfeited. Any
share of Restricted Stock shall bear an appropriate legend
specifying that such share is non-transferable and subject to
the restrictions set forth in the Plan and the Award
Agreement. If any shares of Restricted Stock become
nonforfeitable, and any applicable Restricted Period has
ended, the Company shall cause certificates for such shares to
be issued or reissued without such legend.
The Committee may provide one or more Restricted
Periods applicable to Restricted Stock, at its discretion.
Such Restricted Period shall be measured from the first day of
the month in which Restricted Stock is granted with respect to
such Restricted Period.
Each grant of Restricted Stock shall be evidenced
by a written instrument stating the number of shares of
Restricted Stock granted, the Restriction Period, the
restrictions applicable to such Restricted Stock, the nature
and terms of payment of consideration, if any, the
consequences of forfeiture that will apply to such Restricted
Stock, and any other terms, conditions and rights with respect
to such grant.
Any other provision of the Plan to the contrary
notwithstanding, the Committee may at any time shorten any
Restricted Period, if it determines that conditions, including
but not limited to, changes in the economy, changes in
competitive conditions, changes in laws or government or
regulations, changes in generally accepted accounting
principles, changes in the Company's accounting policies,
acquisitions or dispositions, or the occurrence of other
unusual, unforeseen, or extraordinary events, so warrant.
The Company may, in its sole discretion, offer a
Grantee the right, by execution of a written agreement, to
defer receipt of all or a portion of the payment, if any, for
Restricted Stock. If such an election to defer is made, the
shares of Stock receivable in payment for Restricted Stock
shall be deferred as Performance Units equal in number to and
exchangeable, at the end of the deferral period, for the
number of shares of Stock that would have been paid to the
Grantee ("Stock Units"). Such Stock Units shall represent only
a contractual right and shall not give the Grantee any
interest, right, or title to any shares of Stock during the
deferral period or any rights as a Shareholder. Fractional
shares receivable for Restricted Stock shall be deferred as
Performance Units payable in cash. Deferred Stock Units may be
credited annually with the appreciation factor contained in
the deferred compensation agreement, which may include
Dividend Equivalents. All other terms and conditions of
deferred payments shall be as contained in the written
agreement.
Grant of Stock Appreciation Rights.
When granted, Stock Appreciation Rights may, but need not, be
identified with shares of Stock subject to a specific option, specific shares of
Restricted Stock, or specific Performance Units of the Grantee (including any
option, shares of Restricted Stock, or Performance Units granted on or before
the Grant Date of the Stock Appreciation Rights) in a number equal to or
different from the number of Stock Appreciation Rights so granted. If Stock
Appreciation Rights are identified with shares of Stock subject to an option,
with shares of Restricted Stock, or with Performance Units, then, unless
otherwise provided in the applicable Award Agreement, the Grantee's associated
Stock Appreciation Rights shall terminate upon (i) the expiration, termination,
forfeiture, or cancellation of such option, shares of Restricted Stock, or
Performance Units, (ii) the exercise of such option or Performance Units, or
(iii) the date such shares of Restricted Stock become nonforfeitable. Stock
Appreciation Rights granted in connection with Incentive Stock Options must
expire no later than the last date on which the underlying Incentive Stock
Option can be exercised; may be granted for no more than 100% of the difference
between the Option Price of the underlying Incentive Stock Option and the Fair
Market Value of the Stock subject to the underlying Incentive Stock Option at
the time the Stock Appreciation Right is exercised; are transferable only to the
extent and at the same time and on the same conditions as the underlying
Incentive Stock Options; may be exercised only when the underlying Incentive
Stock Options may be exercised; and may be exercised only when the Fair Market
Value of the shares of Stock subject to the Incentive Stock Options exceeds the
exercise price of the Incentive Stock Options.
Grant of Performance Units.
Before the grant of any Performance Unit, the Committee shall:
determine performance objectives applicable to such grant;
designate a period of not less than one year nor
more than ten years for the measurement of the extent to
which performance objectives are attained, which period
may begin prior to the Grant Date (the "Performance
Period");
assign a "Performance Percentage" to each level of
attainment of performance objectives goals during the
Performance Period, with the percentage applicable to
minimum attainment being zero percent (O%) and the
percentage applicable to maximum attainment to be
determined by the Committee from time to time;
determine the Restricted Period, if any; and
determine whether Dividend Equivalents shall,
during the Performance Period, be paid on the Performance
Units.
In establishing performance goals, the Committee may
consider any performance factor or factors it deems
appropriate, including net income, growth in net income,
earnings per share, growth of earnings per share, return
on equity or return on capital, employment for a specified
period, or any other factor measured internally or
relative to other organizations and before or after
extraordinary items. Any such factors, however, shall
include all accruals for grants made under the Plan and
for all other employee benefit plans of the Company. The
performance goals may be established for the Company as a
whole or for only that part of the Company in which a
given Grantee is involved, or a combination thereof. The
Committee may, in its discretion, establish intermediate
levels at which given proportions of the Performance Units
shall be payable. The Committee may, at any time, in its
discretion, modify performance goals in order to
facilitate their attainment for any reason, including
recognition of unusual or nonrecurring events affecting
the Company or a Subsidiary or changes in applicable laws,
regulations or accounting principles. If a Grantee is
promoted, demoted or transferred to a different business
unit of the Company during a Performance Period, then, to
the extent the Committee determines the performance goals
or Performance Period are no longer appropriate, (A) the
Committee may adjust, change or eliminate the performance
goals, the applicable Performance Period, or Restricted
Period, if any, as it deems appropriate in order to make
them appropriate and comparable to the initial performance
goals or Performance Period; or (B) make a cash payment to
the Grantee in an amount determined in accordance with the
method described in Section 14(b)(iii), substituting the
effective date of such promotion, demotion or transfer for
the termination of employment referred to in Section
14(b)(iii).
When granted, Performance Units may, but need not, be
identified with shares of Stock subject to a specific
option, specific shares of Restricted Stock or specific
Stock Appreciation Rights of the Grantee granted under the
Plan in a number equal to or different from the number of
the Performance Units so granted. If Performance Units are
identified with shares of Stock subject to an option,
shares of Restricted Stock or Stock Appreciation Rights,
then, unless otherwise provided in the applicable Award
Agreement, the Grantee's associated Performance Units
shall terminate upon (A) the expiration, termination,
forfeiture or cancellation of such option, shares of
Restricted Stock or Stock Appreciation Rights, (B) the
exercise of such option or Stock Appreciation Rights or
(C) the date such shares of Restricted Stock become
nonforfeitable.
There shall be no limitation on the number of Performance
Periods or Restriction Periods established by the
Committee, and more than one Performance Period may
encompass the same fiscal year.
Any provision of the Plan to the contrary notwithstanding,
the Committee may at any time adjust performance
objectives (up or down) and minimum or full performance
levels (and any intermediate levels and proportion of
payments related thereto), adjust the way performance
objectives are measured, or shorten any Performance Period
or Restricted Period, if it determines that conditions,
including but not limited to, changes in the economy,
changes in competitive conditions, changes in laws or
governmental regulations, changes in generally accepted
accounting principles, changes in the Company's accounting
policies, acquisition or dispositions, or the occurrence
of other unusual, unforeseen, or extraordinary events, so
warrant.
Grant of Stock Bonuses. The Committee may, in its discretion, grant
to any individual eligible under Section 5 to receive Awards, other than
executive officers of the Company, shares of Stock or such other Awards that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of Stock (including, without
limitation, securities convertible into shares), as are deemed by the Committee
to be consistent with the purposes of the Plan, provided, however, that such
grants must comply with applicable law. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the terms and
conditions of such Awards.
7. GRANTEE'S AGREEMENT TO SERVE. Each Grantee who is granted an
Award shall, by executing such Grantee's Award Agreement, agree that such
Grantee will remain in the employ of the Company or any of its Subsidiaries for
at least one year after the Grant Date. No obligation of the Company or any of
its Subsidiaries as to the length of any Grantee's employment shall be implied
by the terms of the Plan, any grant of an Award hereunder or any Award
Agreement. The Company and its Subsidiaries reserve the same rights to terminate
employment of any Grantee as existed before the Effective Date.
8. NON-TRANSFERABILITY. Each Award (other than Restricted Stock)
granted hereunder shall not be assignable or transferable other than by will or
the laws of descent and distribution; provided, however, that a Grantee may in a
manner specified by the Committee and to the extent provided in the Plan (a)
designate in writing a beneficiary to exercise his/her Award after the Grantee's
death and (b) transfer an option (other than an Incentive Stock Option), Stock
Appreciation Right or Performance Unit to a revocable, inter vivos trust as to
which the Grantee is both the settlor and trustee, but in no event shall any
transfer described in this clause (b) by a Section 16 Grantee be effective
unless the staff of the SEC shall have issued an interpretive or "no action"
letter to the effect that a provision to such effect is not inconsistent with
Rule 16b-3(a)(2) of the SEC under the 1934 Act; and (c) if the Award Agreement
expressly permits, transfer an award (other than Restricted Stock or an
Incentive Stock Option) for no consideration to any of the following permissible
transferees (each a "Permissible Transferee"): (x) any member of the Immediate
Family of the Grantee to whom such Award was granted, (y) any trust solely for
the benefit of members of the Grantee's Immediate Family, or (z) any partnership
whose only partners are members of the Grantee's Immediate Family; and further
provided that (I) the transferee shall remain subject to all of the terms and
conditions applicable to such Award prior to such transfer; and (ii) any such
transfer shall be subject to and in accordance with the rules and regulations
prescribed by the Committee in accordance with Section 4(c)(xiv). For purposes
of this Section 8, "Immediate Family" means, with respect to a particular
Grantee, such Grantee's spouse, children and grandchildren. Each share of
Restricted Stock shall be nontransferable until such share becomes
nonforfeitable and the Restricted Period, if any, lapses.
9. EXERCISE.
(a) Exercise of Options. Subject to Sections 4(c)(xi) and 14 and
such terms and conditions as the Committee may impose, each
option shall be exercisable in one or more installments.
Each option shall be exercised by delivery to the Company of
written notice of intent to purchase a specific number of shares
of Stock subject to the option. The Option Price of any shares of
Stock or shares of Restricted Stock as to which an option shall
be exercised shall be paid in full at the time of the exercise.
Payment may, at the election of the Grantee, be made in any one
or any combination of the following:
cash;
Stock held by the Grantee for at least 6 months prior to
exercise of the option, valued at its Fair Market Value on the
date of exercise;
with the approval of the Committee, shares of Restricted
Stock held by the Grantee for at least 6 months prior to
exercise of the option, each valued at the Fair Market Value of
a share of Stock on the date of exercise; or
through simultaneous sale through a broker of shares
acquired on exercise, as permitted under Regulation T of the
Federal Reserve Board.
In the discretion of the Committee and to the extent permitted by
law, payment may also be made in accordance with Section 10.
If Restricted Stock ("Tendered Restricted Stock") is used to pay
the Option Price for Stock subject to an option, then the
Committee may, but need not, specify that (i) all the shares of
Stock acquired on exercise of the option shall be subject to the
same restrictions as the Tendered Restricted Stock, determined as
of the date of exercise of the option, or (ii) a number of shares
of Stock acquired on exercise of the option equal to the number
of shares of Tendered Restricted Stock shall, unless the
Committee provides otherwise, be subject to the same restrictions
as the Tendered Restricted Stock, determined as of the date of
exercise of the option.
(b) Exercise of Stock Appreciation Rights. Subject to Sections
4(c)(xi) and 14 and such terms and conditions as the Committee
may impose, each Stock Appreciation Right shall be exercisable
not earlier than the first anniversary of the Grant Date of such
Stock Appreciation Right, to the extent the option with which it
is identified, if any, may be exercised, to the extent the
Restricted Stock with which it is identified, if any, is
nonforfeitable and the Restricted Period, if any, has lapsed, or
to the extent the Performance Unit with which it is identified,
if any, may be exercised unless otherwise provided by the
Committee. Stock Appreciation Rights shall be exercised by
delivery to the Company of written notice of intent to exercise a
specific number of Stock Appreciation Rights. Unless otherwise
provided in the applicable Award Agreement, the exercise of Stock
Appreciation Rights which are identified with shares of Stock
subject to an option, shares of Restricted Stock or Performance
Units shall result in the cancellation or forfeiture of such
option, shares of Restricted Stock or Performance Units, as the
case may be, to the extent of such exercise.
The benefit for each Stock Appreciation Right exercised shall be
equal to:
(i) the Fair Market Value of a share of Stock on the
date of such exercise or, if the Committee shall so determine
in the case of any such right other than one related to any
Incentive Stock Option, at any time during a specified period
before or after the date of exercise, reduced by
(ii) an amount equal to:
for any Stock Appreciation Right identified with
shares of Stock subject to an option, the Option Price of such
option, unless the Committee in the grant of the Stock
Appreciation Right specified a higher amount, or
for any other Stock Appreciation Right, the Fair
Market Value of a share of Stock on the Grant Date of such
Stock Appreciation Right, unless the Committee in the grant of
the Stock Appreciation Right specified a higher amount;
provided that the Committee, in its discretion, may provide
that the benefit for any Stock Appreciation Right shall not
exceed such percentage of the Fair Market Value of a share of
Stock on such Grant Date as the Committee shall specify.
The benefit upon the exercise of a Stock Appreciation Right shall be
payable in cash, except that the Committee, may, in its discretion, provide in
the Award Agreement that benefits, with respect to any particular exercise, may
be paid wholly or partly in Stock.
(c) Exercise of Performance Units.
(i) Subject to Section 14 and such terms and conditions as
the Committee may impose, if, with respect to any Performance Unit, the
minimum performance objectives have been achieved during the applicable
Performance Period, then such Performance Unit shall be exercisable
commencing on the later of (A) the first anniversary of the Grant Date
or (B) the first day after the end of the applicable Performance
Period.
Performance Units shall be exercised by delivery to the Company of
written notice of intent to exercise a specific number of Performance
Units; provided, however, that Performance Units not identified with
shares of Stock subject to an option, shares of Restricted Stock or
Stock Appreciation Rights shall be deemed exercised on the date on
which they first become exercisable. Unless otherwise provided in the
applicable Award Agreement, the exercise of Performance Units which are
identified with shares of Stock subject to an option, shares of
Restricted Stock or Stock Appreciation Rights shall result in the
cancellation or forfeiture of such shares of Stock subject to option,
shares of Restricted Stock or Stock Appreciation Rights, as the case
may be, to the extent of such exercise.
(ii) The benefit for each Performance Unit exercised shall
be an amount equal to the product of:
(A) the Unit Value (as defined below) multiplied by
(B) the Performance Percentage attained during the
Performance Period for such Performance Unit.
(iii) The Unit Value shall be, as specified by the
Committee,
a dollar amount, or
(B) an amount equal to the Fair Market Value of one
share of Stock on the exercise date of the Performance
Unit, including, if so provided in the Award Agreement,
an amount ("Dividend Equivalent Amount") equal to the
value that would result if dividends paid on a share of
Stock on or after the Grant Date and on or before the
exercise date were invested in shares of Stock as of
each respective dividend payment date, or
(C) an amount equal to the Fair Market Value of one
share of Stock on the Grant Date (plus, if so specified
in the Award Agreement, a Dividend Equivalent Amount),
or
(D) an amount equal to the Fair Market Value of one
share of Stock on the exercise date of the Performance
Unit (plus, if so specified in the Award Agreement, a
Dividend Equivalent Amount), reduced by the Fair Market
Value of a share of Stock on the Grant Date of the
Performance Unit, or
(E) a number of shares of Stock.
(iv) The benefit upon the exercise of a Performance
Unit shall be payable upon termination of the
applicable Restricted Period as soon as is
administratively practicable after the later of (A)
the date the Grantee exercises or is deemed to
exercise such Performance Unit, or (B) the date (or
dates in the event of installment payments) as
provided in the applicable Award Agreement.
Such benefit shall be payable in cash or
wholly or partly in shares of Stock. If a Restricted
Period has been established in relation to a
Performance Unit payable, in whole or in part, in
shares of Stock ("Stock Performance Unit"), one or
more certificates representing the number of shares
of Stock equal to the number of shares of Stock
payable under the Performance Units shall be
registered in the name of the Grantee but shall be
held by the Company for the account of the Grantee.
Such shares of Stock will be nonforfeitable but
restricted as to transferability during the
applicable Restricted Period. At the end of the
Restricted Period all restrictions applicable to the
shares of Stock, and other securities or property
received with respect to the shares held by the
Company for the account of each recipient of shares
of Stock under Performance Units granted in relation
to such Restricted Period shall lapse, and one or
more certificates for such shares of Stock, free of
the restrictions shall be delivered to the Grantee.
In event the Award Agreement provides that
the benefit may be paid wholly in Stock unless the
Committee, in its discretion, specifies at the time
of exercise that the benefit shall be paid partly or
wholly in cash, the number of shares of Stock payable
in lieu of cash shall be determined by valuing the
Stock at its Fair Market Value on the date such
benefit is to be paid.
(v) The Committee may, in its sole
discretion, offer a Grantee the right, by execution
of a written agreement, to defer the receipt of all
or any portion of the payment, if any, of shares of
Stock or cash due under a Performance Unit. If such
an election to defer is made, the Stock receivable in
payment for shares under a Performance Unit shall be
deferred as Stock Units equal in number to and
exchangeable, at the end of the deferral period, for
the number of shares of Stock that would have been
paid to the Grantee but for the deferral. Such Stock
Units shall represent only a contractual right and
shall not give the Grantee any interest, right or
title to any Stock during the deferral period. The
cash or fractional shares receivable in payment for
Performance Units shall be deferred as cash units.
Deferred Stock Units and cash units may be credited
annually with the appreciation factor contained in
the written agreement, which may include Dividend
Equivalents. All other terms and conditions of
deferred payments shall be as contained in the
written agreement.
(d) Special Rules for Section 16 Grantees. No Stock Appreciation
Right, option or Performance Unit (if the benefit payable with
respect to such Performance Unit is to be determined by reference
to the Fair Market Value of the Stock on the date the Performance
Unit is exercised) shall be exercisable by a Section 16 Grantee
during the first six months after its Grant Date, except as
exempted from Section 16 of the 1934 Act under Rule 16a-2(d)
under the 1934 Act. Any grant hereunder to a Section 16 Grantee
shall be subject to approval of the Plan by a majority of the
Stockholders of the Company.
10. LOANS AND GUARANTEES. The Committee may, in its discretion:
(a) allow a Grantee to defer payment to the Company of all or any
portion of (i) the Option Price of an option, (ii) the purchase
price of a share of Restricted Stock, or (iii) any taxes
associated with a benefit hereunder which is not a cash benefit
at the time such benefit is so taxable, or
(b) cause the Company to guarantee a loan from a third party to
the Grantee, in an amount equal to all or any portion of such
Option Price, purchase price, or any related taxes.
Any such payment, deferral or guarantee by the Company pursuant
to this Section 10 shall be on such terms and conditions as the
Committee may determine; provided that the interest rate
applicable to any such payment deferral shall not be more
favorable to the Grantee than the terms applicable to funds
borrowed by the Company and, in the case of any payment deferral
for the Option Price for an Incentive Stock Option, shall not be
less than the "applicable federal rate", as defined in Section
1274 of the Code, in effect at the time of such payment deferral,
or any other minimum interest rate established under Federal tax
laws to avoid the imputation of interest. Notwithstanding the
foregoing, a Grantee shall not be entitled to defer the payment
of such Option Price, purchase price or any related taxes unless
the Grantee enters into a binding obligation with the Company to
pay the deferred amount. If the Committee has permitted a payment
deferral or caused the Company to guarantee a loan pursuant to
this Section 10, then the Committee may, in its discretion,
require the immediate payment of such deferred amount or the
immediate release of such guarantee upon the Grantee's
termination of employment or if the Grantee sells or otherwise
transfers the Grantee's shares of Stock purchased pursuant to
such deferral or guarantee.
11. NOTIFICATION UNDER CODE SECTION 83(b). The Committee may,
on the Grant Date or any later date, prohibit a Grantee from making the election
described below. If the Committee has not prohibited such Grantee from making
such election, and the Grantee shall, in connection with the exercise of any
option, the grant of any share of Restricted Stock, or the grant of a
Performance Unit for Stock, make the election permitted under Section 83(b) of
the Code (i.e., an election to include in such Grantee's gross income in the
year of transfer the amounts specified in Section 83(b) of the Code), such
Grantee shall notify the Company of such election within 10 days of filing
notice of the election with the Internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued under the
authority of Section 83(b) of the Code.
12. MANDATORY WITHHOLDING OF TAXES.
(a) Whenever under the Plan, cash or shares of Stock are to be
delivered upon exercise or payment of an Award or upon a share of
Restricted Stock becoming nonforfeitable, or any other event
occurs which subjects the Grantee to income taxes with respect to
rights and benefits hereunder, the Company shall be entitled to
require as a condition of delivery (i) that the Grantee remit an
amount sufficient to satisfy all federal, state, and local
withholding tax requirements related thereto, (ii) the
withholding of such sums from compensation otherwise due to the
Grantee or from any shares of Stock due to the Grantee under the
Plan, or (iii) any combination of the foregoing.
(b) If any disqualifying disposition described in Section
6(c)(vii) is made with respect to shares of Stock acquired under
an Incentive Stock Option granted pursuant to the Plan or any
election described in Section 11 is made, then the person making
such disqualifying disposition or election shall remit to the
Company an amount sufficient to satisfy all federal, state, and
local withholding taxes thereby incurred; provided that, in lieu
of or in addition to the foregoing, the Company shall have the
right to withhold such sums from compensation otherwise due to
the Grantee or from any shares of Stock due to the Grantee under
the Plan.
13. ELECTIVE SHARE WITHHOLDING.
(a) Subject to Section 13(b), a Grantee may elect the withholding
("Share Withholding") by the Company of a portion of the shares of
Stock otherwise deliverable to such Grantee upon the exercise or
payment of an Award or upon a share of Restricted Stock becoming
nonforfeitable (each a "Taxable Event") having a Fair Market Value
equal to:
(i) the minimum amount necessary to satisfy required
federal, state, or local withholding tax liability attributable to
the Taxable Event (in 1995, the minimum amount required by federal
tax withholding rules is 20% of the Grantee's taxable income); or
(ii) with the Committee's prior approval, a greater amount,
not to exceed the estimated total amount of such Grantee's tax
liability with respect to the Taxable Event.
(b) Each Share Withholding election by a Grantee shall be subject
to the following restrictions:
(i) any Grantee's election shall be subject to the
Committee's right to revoke such election of Share Withholding by
such Grantee at any time before the Grantee's election if the
Committee has reserved the right to do so in the Award Agreement;
(ii) if the Grantee is a Section 16 Grantee, such Grantee's
election shall be subject to the approval of the Committee at any
time, whether or not the Committee has reserved the right to do
so;
(iii) the Grantee's election must be made before the date
(the "Tax Date") on which the amount of tax to be withheld is
determined;
(iv) the Grantee's election shall be irrevocable;
(v) a Section 16 Grantee may not elect Share Withholding
within six months after the grant of the related Option or Stock
Appreciation Rights (except if the Grantee dies or incurs a
Disability before the end of the six-month period);
(vi) except to the extent such condition may be waived by the
Senior Vice President/Legal of the Company, a Section 16 Grantee
must elect Share Withholding either six months before the Tax Date
or during the ten business day period beginning on the third
business day after the release of the Company's quarterly or
annual summary statement of sales and earnings; and
(vii) provided, however, that no share withholding shall be
effective with respect to an Award which was transferred by the
Grantee in accordance with this Plan.
14. TERMINATION OF EMPLOYMENT.
(a) For Cause. If a Grantee has a termination of employment for
Cause,
(i) the Grantee's shares of Restricted Stock that are forfeitable
shall thereupon be forfeited, subject to the provisions of Section
6(d)(iv) regarding repayment of certain amounts to the Grantee;
and
(ii) any unexercised option, Stock Appreciation Right, or
Performance Unit shall thereupon terminate.
(b) On Account of Death or Disability. Except as may otherwise be
provided in the Award Agreement if the Grantee has a termination
of employment:
(i) Restricted Stock.
(A) prior to the shares of Restricted Stock becoming
non-forfeitable by reason of:
(i) death, all Restricted Stock granted to such Grantee
shall become non-forfeitable.
(ii) the Disability of Grantee, such termination shall not
constitute a termination of employment for purposes of Restricted
Stock and such Grantee shall not forfeit any Restricted Stock held
by him\her, provided that during the balance of the period in
which the Restricted Stock would otherwise remain forfeitable such
Grantee does not engage in or assist any business that the
Company, in its sole discretion, determines to be in competition
with business engaged in by it. A Grantee who does engage in or
assist any business that the Company, in its sole discretion,
determines to be in competition with business engaged in by it,
shall be deemed to have terminated employment.
(B) after the Restricted Stock is nonforfeitable but prior to
the end of Restricted Period, by reason of death or Disability all
Restricted Stock granted to such Grantee shall be immediately
payable.
(ii) Options/SARs. By reason of death or Disability, any
unexercised option or Stock Appreciation Right, to the extent
exercisable on the date of termination of employment upon death or
Disability, may be exercised, in whole or in part, at any time
within five months after such termination of employment by the
Grantee, the Grantee's guardian, legal representative, or, after
the Grantee's death, by (A) his/her personal representative,
executor, administrator, or by the person to whom the option or
Stock Appreciation Right is transferred by will or the applicable
laws of descent and distribution, (B) the Grantee's beneficiary
designated in accordance with Sections 6(c)(viii) or 8, or (C) the
then-acting trustee of the trust described in clause (b) of the
first sentence of Section 8 (but only if the condition set forth
in such clause (b) has been satisfied); and
(iii) Performance Units.
(A) By reason of death or Disability, any unexercised
Performance Unit, to the extent exercisable on the date of
termination of employment on account of the Grantee's death or
Disability, may be exercised in whole or in part, at any time
within five months after termination of employment by the Grantee,
the Grantee's guardian, legal representative, or after the
Grantee's death, by (A) his/her personal representative, executor,
administrator, or by the person to whom the Performance Unit is
transferred by will or the applicable laws of descent and
distribution,
(B) the Grantee's beneficiary designated in accordance with
Section 8, or (C) the then-serving trustee of the trust described
in clause (b) of the first sentence of Section 8 (but only if the
condition set forth in such clause (b) has been satisfied);
provided that the benefit payable with respect to any Performance
Unit with respect to which the Performance Period has not ended as
of the date of such termination of employment shall be equal to the
product of the Unit Value multiplied successively by each of the
following:
(1) a fraction, the numerator of which is the number
of calendar months (including as a whole month any partial
month) that have elapsed since the beginning of such
Performance Period until the date of such termination of
employment and the denominator of which is the number of
months (including as a whole month any partial month) in
the Performance Period (the "Time Proration Factor"); and
(2) a percentage equal to the greater of the target
percentage, if any, specified in the applicable Award
Agreement or the maximum percentage, if any, that would be
earned under the terms of the applicable Award Agreement
assuming that the rate at which the performance goals have
been achieved as of the date of such termination of
employment would continue until the end of the Performance
Period (the "Performance Percentage Factor"); and
provided further, that in the case of Disability and
following Disability, such Grantee does not engage in or
assist in any business that the Company, in its sole
discretion, determines to be in competition with the
business engaged in by it during the remainder of the
applicable Performance Period. A Grantee who does engage in
or assist any business that the Company, in its sole
discretion, determines to be in competition with the
business engaged in by it shall be deemed to have
terminated employment.
(c) On Account of Retirement.
(i) If a Grantee has a termination of employment on account of
Retirement, any unexercised option or Stock Appreciation Right
(other than a Stock Appreciation Right identified with a share of
Restricted Stock or a Performance Unit) which is then exercisable,
may be exercised, in whole or in part, not later than the 30th day
following the Grantee's Retirement, provided that following
Retirement, such Grantee does not engage in or assist in any
business that the Company, in its sole discretion, determines to
be in competition with the business engaged in by it during such
period; provided, however, that if such 30th day is not a business
day, such option or Stock Appreciation Right may be exercised not
later than the first business day following such 30th day; and
provided further, that if the Grantee dies within such thirty-day
period, then the exercisability of the Grantee's options and Stock
Appreciation Rights shall be determined under Section 14(b).
(ii) The non-forfeitability and exercisability of the Grantee's
Restricted Stock and Performance Units (and any Stock Appreciation
Rights identified therewith) shall be determined under Section
14(d).
(d) Any Other Reason. If a Grantee has a termination of
employment for a reason other than for Cause, death of the
Grantee, the Grantee's Disability, and, with respect to options
and Stock Appreciation Rights (other than Stock Appreciation
Rights identified with a share of Restricted Stock or a
Performance Unit), the termination of employment is for reasons
other than the Grantee's Retirement,
(i) Restricted Stock. The Grantee's shares of Restricted
Stock (and any Stock Appreciation Rights identified therewith), to
the extent forfeitable on the date of the Grantee's termination of
employment, shall be forfeited on such date. If the termination of
employment occurs after the Restricted Stock becomes
nonforfeitable but prior to the end of a Restricted Period, such
termination shall not have any effect on any Restricted Period,
unless the Committee, in its sole discretion, finds that the
circumstances so warrant and determines that the Restricted Period
shall end on an earlier date as determined by the Committee, and
that shares held by the Company shall be paid as soon as
practicable following such earlier date;
(ii) Options. Any unexercised option or Stock Appreciation
Right (other than a Stock Appreciation Right identified with a
share of Restricted Stock or Performance Unit) to the extent
exercisable on the date of the Grantee's termination of
employment, may be exercised in whole or in part, not later than
the 30th day following the Grantee's termination of employment;
provided, however, that if such 30th day is not a business day,
such option or Stock Appreciation Right may be exercised not later
than the first business day following such 30th day; and provided
further, that if the Grantee dies within such thirty-day period,
then the exercisability of the Grantee's options and Stock
Appreciation Rights shall be determined under Section 14(b).
(iii) Performance Units. The Grantee's Performance Units (and
any Stock Appreciation Rights identified therewith) may become
non-forfeitable and may be exercised in whole or in part, but only
if and to the extent determined by the Committee in its sole
discretion.
(e) Extension of Term. In the event of termination of employment
other than for Cause, the term of any Award which by its terms
would otherwise expire after the Grantee's termination of
employment but prior to the end of the period following the
Grantee's termination of employment described in Sections (b),
(c), and (d) above for exercise of Awards shall be extended so as
to permit any unexercised portion thereof to be exercised at any
time within such period to the extent exercisable on the date of
the Grantee's termination of employment; provided, however, that
in no event may the term of any Award expire or be exercisable
more than 15 years (ten years for Incentive Stock Options) after
the Grant Date of such Award.
15. CHANGE IN CONTROL. Notwithstanding any other provision of
the Plan to the contrary, if, while any Awards remain outstanding under this
Plan, a "Change in Control" (as defined below) should occur, then (1) all
options and SARs that are outstanding at the time of such Change in Control
shall become immediately vested and exercisable in full; (2) all restrictions
with respect to shares of Restricted Stock shall lapse, and such shares shall be
fully vested and nonforfeitable; and (3) with respect to Awards of Performance
Units, all Performance Periods outstanding at the time of such Change in Control
shall be deemed to have been completed, the maximum level of performance
assigned to all Performance Percentages shall be deemed to have been attained,
all applicable Restricted Periods shall lapse and a pro rata portion (based on
the number of full and partial months which have elapsed with respect to each
Performance Period) of each such outstanding Award for all outstanding
Performance Periods shall become payable in cash to each Grantee, with the
remainder of each such outstanding Award being cancelled for no value. A Change
in Control shall be deemed to have occurred if the conditions set forth in any
one of the following paragraphs shall have been satisfied:
(i) any person (as defined in Section 3(a)(9) of the 1934 Act, as such
term is modified in Sections 13(d) and 14(d) of the 1934 Act), other
than (1) any employee plan established by the Company, any Affiliate,
or any Subsidiary (2) the Company, an Affiliate or Subsidiary, (3) an
underwriter temporarily holding securities pursuant to an offering of
such securities, or (4) a corporation owned, directly or indirectly, by
stockholders of the Company in substantially the same proportions as
their ownership of the Company, is or becomes the beneficial owner
(within the meaning of Rule 13d-3 promulgated under the 1934 Act),
directly or indirectly, of securities of the Company (not including in
the securities beneficially owned by such person any securities
acquired directly from the Company, its Subsidiaries or its Affiliates)
representing 50% or more of either the then outstanding shares of Stock
or the combined voting power of the Company's then outstanding voting
securities;
(ii) a change in the composition of the Board such that individuals
who, as of September 30, 1995, constitute the Board (including
individuals deemed to be members of the Board as of September 30, 1995
by virtue of the application of this paragraph, although actually
elected at a later time) cease for any reason to constitute at least a
majority thereof; for purposes of this paragraph, any person who
becomes a member of the Board subsequent to September 30, 1995 and
whose nomination for election is approved by at least a majority of the
members of the Board as of September 30, 1995 (other than a nomination
of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election
of the members of the Board, as such terms are used in Rule 14a-11 of
Regulation 14A under the 1934 Act) shall be deemed a member of the
Board as of September 30, 1995;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (1)
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
Affiliate or Subsidiary, at least 50% of the combined voting power of
the voting securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or
consolidation, or (2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
person (determined pursuant to clause (i) above) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such person any
securities acquired directly from the Company, its Subsidiaries or its
Affiliates) representing 50% or more of either the then outstanding
shares of Stock or the combined voting power of the Company's then
outstanding voting securities; or
(iv) the stockholders of the Company approve a plan of liquidation of
the Company or an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets, other than a sale
or disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 50% of the combined voting
power of the voting securities of which are owned by persons in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
Notwithstanding the foregoing, no Change in Control shall be deemed to
have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders
of Stock immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate
ownership in an entity which owns substantially all of the assets of
the Company immediately prior to such transaction or series of
transactions.
16. EQUITY INCENTIVE PLANS OF FOREIGN SUBSIDIARIES. The
Committee may authorize any foreign Subsidiary to adopt a plan for granting
Awards ("Foreign Equity Incentive Plan"). All awards granted under such Foreign
Equity Incentive Plans shall be treated as grants under the Plan. Such Foreign
Equity Incentive Plans shall have such terms and provisions as the Committee
permits not inconsistent with the provisions of the Plan and which may be more
restrictive than those contained in the Plan. Awards granted under such Foreign
Equity Incentive Plans shall be governed by the terms of the Plan except to the
extent that the provisions of the Foreign Equity Incentive Plans are more
restrictive than the terms of the Plan, in which case such terms of the Foreign
Equity Incentive Plans shall control.
17. SUBSTITUTED AWARDS. If the Committee cancels any Award
(granted under this Plan or any plan of any entity acquired by the Company or
any of its Subsidiaries), and a new Award is substituted therefor, then the
Committee may, in its discretion, determine the terms and conditions of such new
Award; provided that (a) the Option Price of any new option shall not be less
than l00% of the Fair Market Value of a share of Stock on the date of grant of
the new Award; (b) no Award shall be cancelled without the consent of Grantee if
the terms and conditions of the new Award to be substituted are not at least as
favorable as the terms and conditions of the Award to be cancelled (and the
Grant Date of the new Award shall be the date on which such new Award is
granted); and (c) no Section 16 Grantee may exercise a substituted Stock
Appreciation Right or a substituted option (or substituted Performance Unit)
identified with a Stock Appreciation Right within six months after the Grant
Date (calculated without reference to this Section 17) of such substituted
option, unless the Company shall have received an opinion of counsel for the
Company or "no action" or interpretive letter from the staff of the SEC to the
effect that such limitation is not necessary in order to avoid liability under
Section 16(b) of the 1934 Act.
18. SECURITIES LAW MATTERS.
(a) If the Committee deems necessary to comply with the
Securities Act of 1933, the Committee may require a written
investment intent representation by the Grantee and may require
that a restrictive legend be affixed to certificates for shares
of Stock.
(b) If, based upon the opinion of counsel for the Company, the
Committee determines that the exercise or non-forfeitability of,
or delivery of benefits pursuant to, any Award would violate any
applicable provision of (i) federal or state securities laws or
(ii) the listing requirements of any national securities exchange
on which are listed any of the Company's equity securities, then
the Committee may postpone any such exercise, non-forfeitability
or delivery, as the case may be, but the Company shall use its
best efforts to cause such exercise, non-forfeitability or
delivery to comply with all such provisions at the earliest
practicable date.
(c) With respect to Section 16 Grantees, transactions under this
Plan are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the 1934 Act. To the extent
that any provision of the Plan or action by the Committee fails
to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee.
19. FUNDING. Benefits payable under the Plan to any person
shall be paid directly by the Company. The Company shall not be required to
fund, or otherwise segregate assets to be used for payment of, benefits under
the Plan.
20. NO EMPLOYMENT RIGHTS. Neither the establishment of the
Plan, nor the granting of any Award shall be construed to (a) give any Grantee
the right to remain employed by the Company or any of its Subsidiaries or to any
benefits not specifically provided by the Plan or (b) in any manner modify the
right of the Company or any of its Subsidiaries to modify, amend, or terminate
any of its employee benefit plans. Further, the Company or Subsidiary may at any
time dismiss a Grantee from employment, free from any liability, or any claim
under the plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
21. RIGHTS AS A STOCKHOLDER. A Grantee shall not, by reason of
any Award (other than Bonus Stock or Restricted Stock) have any right as a
stockholder of the Company with respect to the shares of Stock which may be
deliverable upon exercise or payment of such Award until such shares have been
delivered to him. Shares of Restricted Stock held by a Grantee or held in escrow
by the Secretary of the Company shall confer on the Grantee all rights of a
stockholder of the Company, except as otherwise provided in the Plan. The
Committee, in its discretion, at the time of grant of Restricted Stock, may
permit or require the payment of cash dividends thereon to be deferred and, if
the Committee so determines, reinvested in additional Restricted Stock to the
extent shares are available under Section 3 or otherwise reinvested. Stock
dividends and deferred cash dividends issued with respect to Restricted Stock
shall be treated as additional shares of Restricted Stock that are subject to
the same restrictions and other terms as apply to the shares with respect to
which such dividends are issued. The Committee may, in its discretion, provide
for crediting to and payment of interest on deferred cash dividends.
22. NATURE OF PAYMENTS. Any and all grants, payments of cash,
or deliveries of shares of Stock hereunder shall constitute special incentive
payments to the Grantee and shall not be taken into account in computing the
amount of salary or compensation of the Grantee for the purposes of determining
any pension, retirement, death or other benefits under (a) any pension,
retirement, profit-sharing, bonus, life insurance or other employee benefit plan
of the company or any of its Subsidiaries or (b) any agreement between the
Company or any Subsidiary, on the one hand, and the Grantee, on the other hand,
except as such plan or agreement shall otherwise expressly provide.
23. NON-UNIFORM DETERMINATIONS. Neither the Committee's nor the
Board's determinations under the Plan need be uniform and may be made by the
Committee or the Board selectively among persons who receive, or are eligible to
receive, Awards (whether or not such persons are similarly situated). Without
limiting the generality of the foregoing, the Committee shall be entitled, among
other things, to make non-uniform and selective determinations and to enter into
non-uniform and selective Award Agreements, as to (a) the identity of the
Grantees, (b) the terms and provisions of Awards, and (c) the treatment, under
Section 14, of terminations of employment. Notwithstanding the foregoing, the
Committee's interpretation of Plan provisions shall be uniform as to similarly
situated Grantees.
24. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION.
The Committee shall make such adjustment, as it shall deem
equitable, to any or all of:
(a) the aggregate numbers of shares of Stock, shares of
Restricted Stock, and bonus stock available under Sections 3(a)
and 3(b);
(b) the number of shares of Stock, shares of Restricted Stock,
Stock Appreciation Rights or Performance Units covered by an
Award;
(c) the performance objectives for Performance Periods not yet
completed, including performance levels and the proportion of
payments related thereto;
(d) the Option Price;
(e) the Fair Market Value of Stock to be used to determine the
amount of the benefit payable under exercise of Stock
Appreciation Rights or Performance Units; and
(f) any other terms or provisions of any outstanding grants of
stock otions, Restricted Stock, Performance Units or Stock
Appreciation Rights:
to reflect a stock dividend, stock split, reverse stock
split, share combination, recapitalization, merger,
consolidation, acquisition of property or shares,
separation, spin-off, reorganization, stock rights
offering, liquidation or similar event, of or by the
Company, or, if deemed appropriate, the Committee may make
provisions for a cash payment to the holder of an
outstanding Award; provided, however, in each case, that
with respect to Awards of Incentive Stock Options no such
adjustment shall be authorized to the extent that the
authority to make such adjustments would cause the Plan to
violate Section 422(b)(1) of the Code; and provided
further, that the number of shares subject to any Award
denominated in shares of Stock shall always be a whole
number. Notwithstanding any part of the foregoing to the
contrary, upon the approval by the stockholders of the
Company of a plan of liquidation for the Company, any
unexercised options, Stock Appreciation Rights, and
Performance Units previously granted become exercisable,
and any shares of Restricted Stock that have not become
nonforfeitable shall become nonforfeitable.
25. AMENDMENT OF THE PLAN. The Board may from time to time in
its discretion amend or modify the Plan without the approval of the stockholders
of the Company, except as such stockholder approval may be required (a) to
permit the grant of Awards under, and transactions in Stock pursuant to, the
Plan to be exempt from liability under Section 16(b) of the 1934 Act, (b) under
the listing requirements of any national securities exchange on which are listed
any of the Company's equity securities, or (c) to permit the continued grant of
options which qualify as Incentive Stock Options under the Plan.
26. TERMINATION OF THE PLAN. The Plan shall terminate on the
tenth (10th) anniversary of the Effective Date or at such earlier time as the
Board may determine. Any termination, whether in whole or in part, shall not
affect any Award then outstanding under the Plan.
27. OTHER COMPENSATION PLANS. Nothing contained in the Plan
shall prevent the Company or any Affiliate from adopting or continuing in effect
other or additional compensation arrangements, and such arrangements may be
either generally applicable or applicable only in specific cases.
28. NO ILLEGAL TRANSACTIONS. The Plan and all Awards granted
pursuant to it are subject to all laws and regulations of any governmental
authority which may be applicable thereto; and notwithstanding any provision of
the Plan or any Award, Grantees shall not be entitled to exercise Awards or
receive the benefits thereof and the Company shall not be obligated to deliver
any Stock or pay any benefits to a Grantee if such exercise, delivery, receipt
or payment of benefits would constitute a violation by the Grantee or the
Company of any provision of any such law or regulation.
29. NO TRUST OR FUND CREATED. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or Subsidiary and a Grantee or any
other person. To the extent that any person acquires a right to receive payments
from the Company or Subsidiary pursuant to an Award, such right shall be no
greater than the right of an unsecured general creditor of the Company or
Subsidiary.
30. CONTROLLING LAW. The law of the State of Illinois, except
its law with respect to choice of law and except as to matters relating to
corporate law (in which case the corporate law of the State of Delaware shall
control), shall be controlling in all matters relating to the Plan.
31. TAX LITIGATION. The Company shall have the right to
contest, at its expense, any tax ruling or decision, administrative or judicial,
on any issue that is related to the Plan and that the Company believes to be
important to Grantees and to conduct any such contest or any litigation arising
therefrom to a final decision.
32. SEVERABILITY. If all or any part of the Plan is declared by
any court or governmental authority to be unlawful or invalid, such unlawfulness
or invalidity shall not serve to invalidate any portion of the Plan not declared
to be unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner in which will
give effect to the terms of such Section or part of a Section to the fullest
extent possible while remaining lawful and valid.
33. INDEMNIFICATION. Each person who is or at any time serves
as a member of the Board or the Committee shall be indemnified and held harmless
by the Company against and from: (i) any loss, cost, liability or expense that
may be imposed upon or reasonably incurred by such person in connection with or
resulting from any claim, action, suit, or proceeding to which such person may
be a party or in which such person may be involved by reason of any action or
failure to act under the Plan; and (ii) any and all amounts paid by such person
in satisfaction of judgment in any such action, suit or proceeding relating to
the Plan. Each person covered by this indemnification shall give the Company an
opportunity, at its own expense, to handle and defend the same before such
person undertakes to handle and defend it on such person's own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the By-Laws of the
Company, as a matter of law, or otherwise, or any power that the Company may
have to indemnify such person or hold such person harmless.
34. RELIANCE ON REPORTS. Each member of the Board and the
Committee shall be fully justified in relying or acting in good faith upon any
report made by the independent public accountants of, or counsel for, the
Company and upon any other information furnished in connection with the Plan. In
no event shall any person who is or shall have been a member of the Board or the
Committee be liable for any determination made or other action taken or any
omission to act in reliance upon any such report or information or for any
action taken, including the furnishing of information, or failure to act, if in
good faith.
35. EXPENSES. The Company shall bear all expenses of
administering the Plan.
36. TITLES AND HEADINGS. The titles and headings of the
sections in the Plan are for convenience of reference only, and in the event of
any conflict, the text of the Plan, rather than such titles or headings, shall
control.
<PAGE>
AMENDMENT NO. 1 DATED AS OF JANUARY 23, 1996
TO THE
COMDISCO, INC. 1995 LONG - TERM STOCK OWNERSHIP INCENTIVE PLAN
The Board of Directors of Comdisco, Inc. hereby amends and modifies the
Comdisco, Inc. 1995 Long - Term Stock Ownership Incentive Plan (hereinafter the
"Plan") in accordance with the authority granted under Section 25 of the Plan.
The Effective date of this Amendment shall be as of January 23, 1996.
1. Section 4(c)(iii) shall be revised as follows:
"to cancel, with the consent of Grantee, outstanding Awards and to
grant new Awards in substitution therefor, subject to certain aggregate
limitations set forth in Section 17;"
2. Section 6(d)(vi) shall be amended by inserting the following as the
second sentence:
"The Restricted Period will be at least three years, unless the Award
is subject to the achievement of specified performance objectives, in
which event the Restricted Period will be at least one year."
3. Section 6(g) shall be revised by modifying the last sentence to read as
follows:
"Subject to the terms of the Plan and any applicable Award Agreement,
the committee shall determine the terms and conditions of such Awards
and shall identify if the Award is being made in lieu of salary or cash
incentive payments for any Officer or Director of the Company."
4. Section 17 shall be amended by adding the following sentence:
"The Committee's authority under this Section shall be limited to
effect no more that 5% of the shares authorized under Section 3(a) (as
may be adjusted under Section 24)."
5. Section 25 shall be revised to read as follows:
"The Board may from time to time in its discretion amend or modify
non-material provisions of the Plan without the approval of the
stockholders of the Company. Stockholder approval may be required (a)
to permit the grant of Awards under Section 16(b) of the 1934 Act, (b)
under listing requirements of any national securities exchange on which
are listed any of the Company's equity securities, or (c) to permit the
continued grant of options which qualify as Incentive Stock Options
under the Plan."
COMPENSATION AND BENEFITS
Executive Officer Compensation
Summary Compensation Table
The following table sets forth certain information with respect to
compensation for services in all capacities paid by Comdisco and its
subsidiaries for the past three years, to or on behalf of (i) Jack Slevin,
President and Chief Executive Officer, (ii) each of the four other most highly
compensated Executive Officers of Comdisco serving on September 30, 1996, and
(iii) Robert Bardagy, who was not serving as an Executive Officer on the last
day of the fiscal year.
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------
Annual Compensation Awards Payouts
--------------------------------------- ------------------------ --------
Securities
Restricted Underlying Long-Term All Other
Name and Principal Other Annual Stock Options Incentive Compensation
Positions Year Salary Bonus Compensation<F1> Awards (Shares) Payouts <F1><F2>
- ------------------------------ ---- ------ ----- -------------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Slevin................... 1996 $500,000 $580,000 $-0- $-0- $327,169 $ 420,000 $9,425
Chairman, President........... 1995 400,000 401,000 -0- -0- 132,980 6,074
and CEO....................... 1994 350,000 450,000 -0- -0- 187,500 5,643
Alan J. Andreini ............. 1996 200,000 200,000 -0- -0- 43,245 225,000 9,425
Executive Vice President ..... 1995 200,000 200,000 -0- -0- 211,906 43,392<F2>
1994 225,000 275,800 -0- -0- -0- 5,643
Nicholas K. Pontikes ......... 1996 230,000 230,000 -0- -0- 24,534 201,000 9,425
Executive Vice President ..... 1995 230,000 230,000 -0- -0- 68,308 6,074
1994 200,000 385,000 -0- -0- 37,500 5,643
William N. Pontikes ......... 1996 220,000 220,000 -0- -0- 30,771 300,000 9,425
Executive Vice President ..... 1995 225,000 230,000 -0- -0- 87,864 6,074
1994 250,000 251,000 -0- -0- -0- 5,643
John J. Vosicky............... 1996 240,000 200,000 -0- -0- 18,297 225,000 9,425
Executive Vice President ..... 1995 235,000 235,000 -0- -0- 53,365 6,074
& Chief Financial Officer ... 1994 225,000 276,000 -0- -0- -0- 5,643
Robert A. Bardagy ............ 1996 533,128 218,750 -0- -0- 18,090 420,000 9,425
Executive Vice President ..... 1995 365,000 365,000 -0- -0- 52,747 6,074
through 4/30/96 .............. 1994 350,000 509,000 -0- -0- -0- 5,643
<FN>
<F1> Amounts of All Other Compensation are amounts contributed by Comdisco under
Comdisco's Profit Sharing and Employee Stock Ownership Plans for the
persons named above
<F2> Includes $6,074 in Comdisco contributions to retirement plans as outlined
in footnote (1) above and $37,318 paid pursuant to the terms of the
Comdisco Financial Services, Inc. Residual Incentive Compensation Plan
</FN>
</TABLE>
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to stock
option grants made to named executive officers during the fiscal year ended
September 30, 1996.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
--------------------------------------------------------------- ---------------------------------
Number of % of Total
Securities Options/SARs Exercise Grant
Underlying Granted to or Base Date
Options/SARs Employees in Price Market Expiration
Name Granted (#) Fiscal Year ($/Sh) Price Date 0% 5% 10%
- ---- ------------ ------------ -------- ------ ---------- --- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Slevin 275,000 9.7 $24.000 $24.000 07/22/06 $ 0 $4,149,268 $ 10,514,231
20,984 0.7 28.875 28.875 09/29/06 $ 0 380,924 965,259
31,185 1.0 28.875 28.875 09/29/06 $ 0 566,103 1,434,503
Alan J. Andreini 12,060 0.4 28.875 28.875 09/29/06 $ 0 218,926 554,757
31,185 1.0 28.875 28.875 09/29/06 $ 0 566,103 1,434,503
Nicholas K. Pontikes 12,060 0.4 28.875 28.875 09/29/06 $ 0 218,926 554,757
12,474 0.4 28.875 28.875 09/29/06 $ 0 226,441 573,801
William N. Pontikes 12,060 0.4 28.875 28.875 09/29/06 $ 0 218,926 554,757
18,711 0.7 28.875 28.875 09/29/06 $ 0 339,662 860,702
John J. Vosicky 12,060 0.4 28.875 28.875 09/29/06 $ 0 218,926 554,757
6,237 0.2 28.875 28.875 09/29/06 $ 0 113,221 286,901
Robert A. Bardagy 18,090 0.6 28.875 28.875 09/29/06 $ 0 328,389 832,136
</TABLE>
The amounts under the columns labeled "5%" and "10%" are included by the
Company pursuant to certain rules promulgated by the SEC and are not intended to
forecast future appreciation, if any, in the price of the Common Stock. Such
amounts are based on the assumption that the named persons hold the options
granted for their full term. The actual value of the options will vary in
accordance with the market price of the Common Stock. The column headed "0%" is
included to demonstrate that the options were granted at fair market value and
optionees will not recognize any gain without an increase in the stock price,
which increase benefits all stockholders commensurately.
Based upon the price of the Common Stock and the total shares outstanding
as of the date of grant, if the price of the Common Stock increased at the 5% or
10% rates shown in the table above, stockholders as a group would realize
aggregate gains (excluding dividends) in the amounts shown above during the
period from grant date to the option expiration date.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Value
The following table sets forth information with respect to the named
executive officers in the Summary Compensation Table concerning the exercise of
options during the last fiscal year and unexercised options held as of the end
of the last fiscal year.
<PAGE>
<TABLE>
<CAPTION>
Total Number of Total Value of
Shares Underlying Unexercised,
Unexercised Options in-the-Money Options
Held at September 30, 1996 Held at September 30, 1996 <F1>
-------------------------- -------------------------------
Number of
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack Slevin 0 $ 0 132,732 568,995 $2,005,689 $5,033,063
Alan J. Andreini 0 0 107,464 233,620 1,544,450 2,824,066
Nicholas K. Pontikes 0 0 22,095 108,247 284,920 1,273,237
William N. Pontikes 0 0 27,854 90,781 362,223 719,494
John J. Vosicky 59,063 555,488 65,126 91,288 940,479 1,188,052
Robert A. Bardagy 0 0 65,651 89,937 942,547 1,181,133
<FN>
<F1> Based on the closing price of the Common Stock, $28.875, on September 30,
1996
</FN>
</TABLE>
Long Term Incentive Plan ("LTIP") Awards
The following table sets forth information with respect to the grants of
Performance Unit Awards under the Comdisco, Inc. 1992 Long-Term Stock Ownership
Incentive Plan to the named executive officers during the fiscal year ended
September 30, 1996. The target performance objective is that Comdisco's Total
Shareholder Return, the sum of the stock price appreciation plus dividends
(reinvested), be ranked at or above the sixtieth percentile of the Total
Shareholder Return of all companies in the S&P 500 for the period running from
October 2, 1995, through September 30, 1998. The minimum performance objective
is a fiftieth percentile ranking. If the actual ranking is less than the
fiftieth percentile, no compensation will be paid under these awards.
<TABLE>
<CAPTION>
Estimated Future Payouts under
Non-Stock Price-Based Plans
----------------------------------
(a) (b) (c) (d) (e) (f)
- ------------------------ -------- ------------------------ ---------- --------- ----------
Performance or Other
Number Period Until Maturation
Name of Units or Payment Threshold Target Maximum
- ---- -------- ----------------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Jack Slevin 366 September 30, 1998 $ 183,000 $ 366,000 $1,098,000
Alan J. Andreini 166 September 30, 1998 83,000 166,000 498,000
Robert A. Bardagy 250 September 30, 1998 125,000 250,000 750,000
Nicholas K. Pontikes 166 September 30, 1998 83,000 166,000 498,000
William N. Pontikes 166 September 30, 1998 83,000 166,000 498,000
John J. Vosicky 166 September 30, 1998 83,000 166,000 498,000
</TABLE>
COMPENSATION COMMITTEE REPORT
Role of the Committee
In 1993, the Board of Directors defined the scope of authority that would
be delegated to the non-employee Directors who serve as members of the
Compensation Committee. Overall direction was given to this Committee to review
and approve the Company's compensation policies, to ensure that Executive
Officers are rewarded appropriately for their contributions to Comdisco's growth
and profitability and to ensure that compensation policies support Comdisco's
business objectives, organization structure, culture and stockholder interests.
Specific direction was given to determine the compensation of the Chief
Executive Officer and to review and approve the compensation of the Executive
Officers of the Company.
Continuing Compensation Strategy
During fiscal year 1996, the Compensation Committee has continued to
evaluate Comdisco's compensation plans in accordance with the Committee's
objectives of linking compensation to profit measures and increasing stockholder
value. The senior management team continues to be compensated in the following
manner, as originally suggested by outside compensation consultants in 1994. The
total compensation for the Chief Executive Officer and certain Executive
Officers is comprised of the following components: (i) base salary, (ii) annual
incentive (cash and stock options) based on Company pre-tax earnings objectives
and (iii) long term performance units based on Total Shareholder Return
objectives. Each of the foregoing components constituted approximately one-third
of the executive's total compensation. Thus, approximately two-thirds of the
executive's compensation is subject to both Company performance and stockholder
returns.
During 1996, the Compensation Committee hired an independent compensation
consulting firm to analyze and report to the Committee on possible strategies
for Chief Executive Officer compensation. This evaluation confirmed that the
existing strategy of placing a majority of the executive's compensation at risk
subject to the attainment of company and shareholder returns was a sound
practice.
Chief Executive Officer Compensation
1996 Fiscal Year. Jack Slevin's compensation package for fiscal 1996
reflects the Committee's strategy of placing a majority of the compensation at
risk subject to the attainment of pre-tax earnings goals and longer-term Total
Shareholder Return goals. The Company had an employment agreement with Mr.
Slevin which provided for a base salary of $550,000 for fiscal 1996. Annual cash
incentive compensation for Mr. Slevin was equal to 1% of Comdisco's 1996 fiscal
year pre-tax earnings between $130 million and $175 million and 2% of pre-tax
earnings in excess of $175 million. The amount of annual cash incentive payments
can be found in the Summary Compensation Table. Mr. Slevin also earned an annual
stock option award which was based upon the attainment of pre-tax earnings
objectives for fiscal 1996. Pursuant to this award, Mr. Slevin received 20,984
option shares at $28.875 (the closing price of Comdisco's Common Stock on
September 30, 1996). For the long term perspective, Mr. Slevin was granted 366
Performance Units under the Comdisco, Inc. 1992 Long-Term Stock Ownership
Incentive Plan. The performance period and performance objectives are set forth
in the Long-Term Incentive Plan ("LTIP") Awards section above. To further align
Mr. Slevin's interests with those of the Company's stockholders, the Committee
offered Mr. Slevin the right to forego cash compensation in exchange for stock
options. Under this "Cash-to-Option Alternative" Mr. Slevin elected to forego
$150,000 in cash compensation. In return, Mr. Slevin received a stock option to
acquire 45,363 shares at the closing price of Comdisco's Common Stock on the
date such election was made ($19.83).
1997 Fiscal Year. As noted above, the Compensation Committee hired a
compensation consulting firm to review the current compensation package of Mr.
Slevin and to recommend any possible new strategies. The consulting firm
utilized three sets of competitive data using 1995 proxy statements to determine
the compensation practices of selected companies based on their similarity to
Comdisco relative to revenues, net income and market capitalization. Based on
this engagement, the Compensation Committee approved an amendment to Mr.
Slevin's employment agreement that would bring him in line with the median of
these three comparison groups. Mr. Slevin's base salary was increased to
$600,000 for fiscal 1997. The Committee increased the pre-tax earnings targets
for 1997 such that Mr. Slevin's annual cash incentive compensation will be equal
to 1% of Comdisco's 1997 fiscal year pre-tax earnings between $150 million and
$200 million and 2% of pre-tax earnings in excess of $200 million. On July 23,
1996, the Stock Option Committee granted Mr. Slevin an option to acquire 275,000
shares of Comdisco Stock at $24.00, which was the closing price on that date.
Mr. Slevin also received a restricted stock award of 60,000 shares of Comdisco
stock which will vest upon the earlier of five years or Mr. Slevin's retirement
from full-time employment with Comdisco. Mr. Slevin will also earn an annual
stock option award of 19,616 options if the Company attains certain pre-tax
earnings objectives for fiscal 1997. The exercise price of these options, if
earned, will be at the closing price of Comdisco's stock on September 30, 1997.
For the long term perspective, Mr. Slevin was granted 366 Performance Units
under the Comdisco, Inc. 1992 Long-Term Stock Ownership Incentive Plan. The
performance period and performance objectives are set forth in the Long-Term
Incentive Plan ("LTIP") Awards section above. The Committee again offered Mr.
Slevin the right to forego cash compensation to be earned in 1997 in exchange
for stock options. Under this "Cash-to-Option Alternative", Mr. Slevin elected
to forego $150,000 in cash compensation. In return, Mr. Slevin received a stock
option to acquire 31,185 shares at the closing price of Comdisco's Common Stock
on the date such election was made ($28.875).
1996 Executive Officer Compensation
During fiscal year 1996, the Company entered into incentive compensation
agreements with certain of its Executive Officers. The agreements included the
following elements which are similar to the components discussed above for Mr.
Slevin: (i) base salary, (ii) annual incentive (cash and stock options) based on
Company pre-tax earnings objectives and (iii) long term performance units based
on Total Shareholder Return objectives. The Executive Officers also participated
in the "Cash-to-Option Alternative" under which they had the right to forego
cash compensation in exchange for stock options.
Tax Considerations
The Compensation Committee has continued to consider tax legislation that
precludes a publicly held corporation from taking a deduction for compensation
in excess of $1 million paid to its chief executive officer and its four other
highest paid executive officers. Certain qualified performance based
compensation is exempt from this deduction limit. In order to attempt to meet
the deductibility requirements, the Company received stockholder approval of the
1995 Long-Term Stock Ownership Incentive Plan and approval of certain
performance goals to be established for the award of Performance Units
thereunder. It is expected that most, if not all, compensation paid to the
Executive Officers will qualify as a tax deductible expense.
Notwithstanding the foregoing, the Compensation Committee believes that
these tax law requirements may not always be consistent with sound executive
compensation principles. To achieve full tax deductibility, the tax law
requirements do not allow the flexibility or discretion to respond to changing
market conditions, to utilize subjective performance factors or to reward
extraordinary performance of an unforseen type. Therefore, the Compensation
Committee reserves the right to approve nondeductible compensation based upon
the circumstances at the time.
This report has been provided by C. Keith Hartley and Rick Kash, the
members of the Compensation Committee.
Comdisco, Inc. and Subsidiaries Exhibit 11.00
COMPUTATION OF EARNINGS PER SHARE
(in millions except per share data)
<TABLE>
<CAPTION>
Average shares used in computing earnings per common and common equivalent share
were as follows:
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Average shares outstanding ..................................................... 72 71 71 71 71
Effect of dilutive options ..................................................... 3 2 1 - -
Treasury stock ................................................................. (22) (18) (14) (11) (9)
----- ----- ----- ----- -----
Total ........................................................................ 53 55 58 60 62
===== ===== ===== ===== =====
Earnings from continuing
operations before extraordinary items
and cumulative effect of change in
accounting principle, net of
preferred dividends ......................................................... $ 106 $ 96 $ 44 $ 80 $ 20
Loss from
discontinued operations
(net of income taxes) ........................................................ - - - (20) -
Extraordinary items
(net of income taxes) ........................................................ - - - - (29)
Cumulative effect of change in
accounting principle ........................................................ - - - 20 -
----- ----- ----- ----- -----
Net earnings (loss)
to common stockholders ....................................................... $ 106 $ 96 $ 44 $ 80 $ (9)
===== ===== ===== ===== =====
Net earnings (loss) per
common and common
equivalent share:
Earnings from continuing
operations ................................................................. $2.00 $1.73 $ .77 $1.31 $ .33
Loss from
discontinued operations .................................................... - - - (.33) -
Extraordinary items .......................................................... - - - - (.47)
Cumulative effect of change in
accounting principle ...................................................... - - - .33 -
----- ----- ----- ----- -----
Net earnings (loss) to common
stockholders ........................................................... $2.00 $1.73 $ .77 $1.31 $(.14)
===== ===== ===== ===== =====
</TABLE>
On November 7, 1995, the Board of Directors authorized a three-for-two split of
the Company's common stock to be distributed on December 8, 1995, to holders of
record on November 17, 1995. On March 30, 1992, a 5% common stock dividend was
distributed to common stockholders of record as of March 12, 1992. All data with
respect to earnings per common share, dividends per common share, and weighted
average number of common shares outstanding has been retroactively adjusted to
reflect the three-for-two split and the common stock dividend.
Comdisco, Inc. and Subsidiaries Exhibit 12.00
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
For the years ended September 30,
---------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed charges
Interest expense<F1> .............................................................. $267 $278 $266 $295 $355
Approximate portion of
rental expense representative
of an interest factor ........................................................... 7 11 13 22 29
---- ---- ---- ---- ----
Fixed charges ..................................................................... 274 289 279 317 384
Earnings from continuing operations before income taxes, extraordinary items and
cumulative effect of change in accounting principle, net of preferred
stock dividends ................................................................... 176 160 80 137 34
---- ---- ---- ---- ----
Earnings from continuing operations
before income taxes, extraordinary
items, cumulative effect of change in
accounting principle and fixed charges ............................................ $450 $449 $359 $454 $418
==== ==== ==== ==== ====
Ratio of earnings to fixed charges .................................................. 1.64 1.55 1.29 1.43 1.09
==== ==== ==== ==== ====
Rental expense:
Equipment subleases ................................................................ $ 14 $ 22 $ 30 $ 57 $ 77
Office space, furniture, etc ....................................................... 8 10 8 8 10
---- ---- ---- ---- ----
Total ............................................................................ $ 22 $ 32 $ 38 $ 65 $ 87
==== ==== ==== ==== ====
1/3 of rental expense ............................................................ $ 7 $ 11 $ 13 $ 22 $ 29
==== ==== ==== ==== ====
<FN>
<F1> Includes interest expense incurred by business continuity and network
services and included in business continuity and network services expense on the
consolidated statements of earnings
</FN>
</TABLE>
Six-Year Summary
Comdisco, Inc. and Subsidiaries
(in millions except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF EARNINGS
Revenue
Leasing $1,797 $1,573 $1,538 $1,583 $1,662 $1,633
Sales 262 358 271 313 311 360
Business continuity and network services 318 267 242 216 193 150
Other 54 42 47 41 39 31
------ ------ ------ ------ ----- ------
Total revenue 2,431 2,240 2,098 2,153 2,205 2,174
------ ------ ------ ------ ----- ------
Costs and expenses
Leasing 1,246 1,023 1,004 1,040 1,094 1,026
Sales 218 304 225 275 274 313
Business continuity and network services 277 238 224 206 175 132
Selling, general and administrative 244 233 213 197 198 201
IBM litigation settlement -- - 70 - - -
Litigation and receivables charge -- - 10 - 45 -
Restructuring charge -- - - - 35 -
Interest 262 274 263 291 350 366
------ ------ ------ ------ ----- ------
Total costs and expenses 2,247 2,072 2,009 2,009 2,171 2,038
------ ------ ------ ------ ----- ------
Earnings from continuing operations before income taxes, extraordinary loss
and cumulative effect of change in accounting principle 184 168 89 144 34 136
Income taxes 70 64 36 57 14 53
------ ------ ------ ------ ----- ------
Earnings from continuing operations before extraordinary loss and cumulative
effect of change in accounting principle 114 104 53 87 20 83
Loss from discontinued operations (net of income taxes) - - - (20) - (14)
------ ------ ------ ------ ----- ------
Earnings before extraordinary loss and cumulative effect of change in
accounting principle 114 104 53 67 20 69
Extraordinary loss (net of income taxes) - - - - (29) -
------ ------ ------ ------ ----- ------
Earnings (loss) before cumulative effect of change in accounting principle 114 104 53 67 (9) 69
Cumulative effect of change in accounting principle - - - 20 - -
------ ------ ------ ------ ----- ------
Net earnings (loss) before preferred dividends 114 104 53 87 (9) 69
Preferred dividends (8) (8) (9) (7) - -
------ ------ ------ ------ ----- ------
Net earnings (loss) to common stockholders $ 106 $ 96 $ 44 $ 80 $ (9) $ 69
====== ====== ====== ====== ===== ======
COMMON AND COMMON EQUIVALENT SHARE DATA
Earnings from continuing operations $ 2.00 $ 1.73 $ .77 $ 1.31 $ .33 $ 1.35
Loss from discontinued operations - - - (.33) - (.23)
Extraordinary loss - - - - (.47) -
Cumulative effect of change in accounting principle - - - .33 - -
------ ------ ------ ------ ----- ------
Net earnings (loss) to common stockholders $ 2.00 $ 1.73 $ .77 $ 1.31 $ (.14) $ 1.12
====== ====== ====== ====== ===== ======
Common stockholders' equity (per common share outstanding) $14.31 $13.10 $ 11.65 $ 11.03 $ 10.25 $10.42
Cash dividends paid on common stock .28 .24 .23 .19 .19 .18
Average common and common equivalent shares (in thousands) 53,228 55,167 57,758 60,312 61,286 61,373
FINANCIAL POSITION
Total assets $5,591 $5,039 $ 4,807 $ 4,960 $ 5,236 $5,006
Notes payable 1,127 661 593 655 766 353
Total long-term debt 2,145 1,796 1,364 1,325 1,314 1,502
Discounted lease rentals 781 1,124 1,548 1,670 1,823 1,900
Stockholders' equity 799 776 741 739 699 634
LEASING DATA
Total noncancelable rents of new leases $2,800 $2,300 $ 1,800 $ 1,900 $ 2,400 $2,400
Future noncancelable lease rentals and business continuity subscription fees 4,903 4,380 4,185 4,265 4,601 4,363
</TABLE>
24-25
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
SUMMARY
Net Earnings: Fiscal 1996 net earnings to common stockholders (hereinafter
referred to as "net earnings") were $106 million, or $2.00 per common share,
compared to $96 million, or $1.73 per common share, and $44 million, or $ .77
per common share, in fiscal 1995 and 1994, respectively. The increase in net
earnings in fiscal 1996 compared to the prior year is due to increased earnings
contributions from operating leases and business continuity activities, offset
by decreases in earnings contributions from direct financing leases and
remarketing activities. The increase in net earnings in fiscal 1995 compared to
the prior period is due to fiscal 1994 charges of $70 million ($42 million
after-tax, or $.73 per common share) for the settlement and resolution of the
IBM litigation, and charges of $10 million ($6 million after-tax, or $.11 per
common share) (collectively, the "Charges") for increases to the litigation
reserve to cover IBM litigation costs. The IBM litigation is discussed in Note 8
of Notes to Consolidated Financial Statements. In fiscal 1995, increases in
earnings contributions from operating leases were offset by reduced
contributions from sales-type and direct financing leases and higher selling,
general and administrative expenses. Earnings per common share in fiscal 1996
and 1995 benefited from the company's stock repurchase program, which has
reduced the average common equivalent shares outstanding. Fiscal year-to-year
net earnings comparisons are also affected by the following fiscal 1994 items:
receipt of key-man life insurance proceeds of $20 million, or $.35 per common
share (the "Insurance Proceeds"), as a result of the death of the company's
Founder, Chairman of the Board and President, Mr. Kenneth N. Pontikes, in June,
1994. During the quarter ended June 30, 1994, the company recorded a
contribution charge of $10 million ($6 million after-tax, or $.11 per common
share) to establish and fund the Comdisco Foundation (the "Contribution") (see
"Costs and Expenses" for a discussion of the Contribution). A decrease in the
effective tax rate from 40% in fiscal 1994 to 38% for fiscal 1995 and 1996.
Business: There have been a number of changes in the information technology
industry in the last five years, including the emergence of technological
alternatives to traditional mainframe processing and applications. While there
are few clear trends, it appears that traditional mainframes remain the primary
platform for enterprisewide computing and, for highly data-intensive
applications, mainframe applications are still the most cost effective. However,
the new reality of the information technology industry is that the power of
computing is moving from a centralized platform onto the desktop. The disaster
recovery business has expanded significantly since its infancy in the 1980s and
now encom- passes far more than the raised floor mainframe environment that gave
rise to the industry. The development of wide area networks, local area
networks, client/server technologies, workflow automation and other
technologies, coupled with the importance of workstations and
telecommunications, has changed the industry. Reflecting this change, the
company refers to this business segment as business continuity services.
The company believes that customers will choose business partners that know
the technology, understand the product trends and offer financial solutions
tailored to their business and technology plans. Accordingly, just as the
company's industry and customers have changed, so has the company, which has
restructured, refocused and realigned its businesses to meet the needs of its
customers and to compete in today's environment. Additionally, the company has
diversified into specific niche industries, such as the semiconductor
manufacturing industry, to expand its customer and earnings base. The company's
realigned businesses are designed to bring solutions to the customer, redefining
the company as a "technology services company." These businesses are 1)
information technology services, which includes distributed systems (PCs,
servers, networks and asset management services), large systems (mainframes and
related equipment) and technology integration services; 2) business continuity
services, which includes workarea recovery, large and distributed systems
recovery and network and data protection; and 3) diversified technology services
provided in such industries as healthcare, semiconductor manufacturing (referred
to as the company's "electronics group") and early-stage high technology
companies.
The company has always operated in a constantly changing and competitive
marketplace. The company believes that having interdisciplinary
skills--traditional legacy systems, business continuity, distributed processing,
asset management tools, network technology--is the key to successful technology
integration and that such skills are an important component of the company's
long-term growth strategy.
FINANCIAL CONDITION
The company's operating activities during the year ended September 30, 1996,
including capital expenditures for equipment, were funded primarily by cash flow
from operations (primarily lease receipts), including the realization of
residual values through remarketing activities, and external financing. See Note
6 of Notes to Consolidated Financial Statements for information on the company's
interest-bearing liabilities, including average daily borrowings, effective
interest rates and maturities.
During the last five years, equipment purchased for leasing totaled $9.2
billion. Expenditures for equipment in fiscal 1996 totaled approximately $2.5
billion, the highest annual total in the company's history, and an increase of
33% compared to the prior year. Expenditures
26
<PAGE>
for equipment are currently estimated at approximately $2.8 billion for fiscal
1997.
During fiscal 1996, the company purchased 3.7 million shares of its
outstanding common stock at an aggregate cost of $80 million. These purchases,
when added to the shares purchased in prior years, bring the total number of
common shares purchased to 27.8 million (.5 million shares were issued in fiscal
1996 in connection with the company's acquisition of NetforceMTI, 1.5 million
shares were issued upon conversion of a 6% convertible subordinated promissory
note in fiscal 1995 and an additional 2.9 million shares were distributed as a
common stock dividend on March 30, 1992), at an aggregate cost of $363 million.
An additional 1.1 million shares of common stock were purchased between
September 30, 1996 and November 5, 1996 at a cost of $25 million.
The company believes that its estimated cash flow from operations and current
financial resources will be sufficient to fund anticipated future growth and
operating requirements. In addition, the company expects to continue to utilize
a variety of financial instruments to fund its short- and long-term needs.
Cash Flows: Net cash provided by operating activities was $2.2 billion, $2.0
billion and $1.7 billion in fiscal 1996, 1995 and 1994, respectively. Net cash
provided by operating activities has been used to finance equipment purchases
and, accordingly, has had a positive impact on the level of borrowing required
to support the company's investment in its lease portfolio. The company
estimates that existing lease and business continuity contracts at September 30,
1996 may generate gross cash receipts of approximately $4.9 billion in the
future, including $2.3 billion in fiscal 1997. The company's liquidity is
augmented by the realization of cash from the future remarketing of leased
equipment. Utilizing independent forecasts of equipment values at lease
termination or management estimates, the estimated gross cash receipts to be
provided from remarketing in future years totals $1.4 billion.
Credit Lines: At September 30, 1996, the company had $1.3 billion of available
domestic and international borrowing capacity under various lines of credit from
commercial banks and commercial paper facilities, of which approximately $363
million was unused. The company had committed credit lines established with
thirty-two banks at September 30, 1996 of $1.0 billion.
Senior Notes: In October, 1995, the company filed a Registration Statement on
Form S-3 with the Securities and Exchange Commission for a shelf offering (the
"1995 Shelf") of up to $750 million of senior debt securities with terms to be
set at the time of each sale. Pursuant to the 1995 Shelf, the company, on
January 12, 1996, designated $400 million of medium-term notes. On February 15,
1996, the company, pursuant to the 1995 Shelf, issued $250 million of 5.75%
Notes due February 15, 2001 (the "5.75% Notes"). The net proceeds from the sale
of the 5.75% Notes were used for general corporate purposes.
Pursuant to the 1995 Shelf, the company sold $310 million of medium-term
notes between January 12, 1996 and September 30, 1996. At September 30, 1996, an
aggregate of $90 million of medium-term notes remained available for issuance
under the 1995 Shelf, all of which was subsequently issued between September 30,
1996 and November 5, 1996.
On November 1, 1996, the company filed a registration statement on Form S-3
with the Securities and Exchange Commission for a shelf offering of up to $950
million of senior debt securities (which amount includes $100 million of
undesignated securities from the 1995 Shelf) on terms to be set at the time of
each sale (the "1996 Shelf"). Pursuant to the 1996 Shelf, the company, on
November 21, 1996, issued $250 million of 6.375% Notes due November 30, 2001.
The company plans to continue to be active in issuing senior debt during fiscal
1997, primarily to support the anticipated growth of the leased assets and,
where appropriate, to refinance maturities of interest-bearing liabilities. In
addition, the company's 8.75% Cumulative Preferred Stock, Series A, is
redeemable in September, 1997, and the company will evaluate, based on existing
business and market conditions, the redemption of all or a portion of, the
outstanding Series A Preferred Stock.
Secured Debt: Proceeds from the discounting of lease rentals were $253 million,
$279 million and $725 million in fiscal 1996, 1995 and 1994, respectively.
Beginning in fiscal 1995, the company de-emphasized secured debt as a
significant source of liquidity. Secured debt is currently utilized as a tool to
manage credit risk and concentration risk. The company's credit committee
establishes concentration levels by credit rating and customer.
Asset/Liability and Risk Management: The company has an on-going program to
manage its assets and liabilities. This program includes establishing levels of
fixed and floating rate debt, liquidity and duration analysis, monitoring credit
quality of the lease portfolio and related account review procedures and
oversight of interest rate and foreign exchange hedging policies. This program
includes the use of derivatives in certain identifiable situations to manage
risk. The company does not speculate on interest rates, but rather manages its
portfolio of assets and liabilities to mitigate the impact of interest rate
fluctuations. At September 30, 1996, the company had debt of $2.2 billion
scheduled to mature in fiscal 1997, including $1.1 billion of commercial paper
and short-term bank borrowings. At September 30, 1996, the company had expected
future net cash to be provided by existing lease and business continuity
contracts of $2.3 billion in fiscal 1997. See Notes 5 and 6 of Notes to
Consolidated Financial Statements for information on the lease base and
interest-bearing liabilities, respectively.
27
<PAGE>
The ratio of debt to total stockholders' equity was 5.1:1, 4.6:1 and 4.7:1 at
September 30, 1996, 1995 and 1994, respectively. The increase at September 30,
1996 reflects the expenditure of $80 million to repurchase common stock in
fiscal 1996 coupled with the record levels of equipment purchased for lease.
REVENUE
Total revenue of approximately $2.4 billion and $2.2 billion in fiscal 1996 and
1995 represented increases of 9% and 7% respectively, over the prior year
periods. The increases in leasing revenue in fiscal 1996 and 1995 compared to
prior periods is due to increased operating lease revenue, offset by declines in
direct financing lease revenue and, for fiscal 1995, sales-type revenue. The
declines in direct financing revenue in both fiscal 1996 and 1995 as compared to
the prior year reflect a decline in interest rates and a change in the mix of
leases written, with a higher percentage of operating leases to total leases.
See "Business Continuity" for a discussion of business continuity and network
services revenue and margins and "Sales" for a discussion of sales revenue and
margins.
Leasing: Leasing volume increased in both fiscal 1996 and 1995 as compared to
the prior years. During the last three fiscal years, the company's large systems
portfolio decreased, while its portfolio of other high technology
assets--distributed systems and electronics equipment in particular--increased
as a percentage of the total portfolio, thereby reducing the company's
dependence on large systems activity.
In September, 1996, the company expanded its commitment to asset management
with the announcement of an alliance with Asset Software International ("ASI").
Under the agreement, the company will be a distributor of ASI software products.
Additionally, ASI and Comdisco will co-develop an interface between the
company's own asset management software, CLASS, and ASI's product and the
companies will coordinate future development strategies.
Cost of equipment placed on lease was $2.6 billion in fiscal 1996, compared
to cost of equipment placed on lease of $2.1 billion and $1.6 billion in fiscal
1995 and 1994, respectively. Among other factors, the continued growth of the
electronics group had a favorable impact on volume in the current year period
compared to the prior year periods. The company's distributed systems activities
also had year-to-year increases in equipment volume. In Europe, equipment volume
declined compared to the prior year period. Equipment volume in the company's
medical equipment group also declined, reflecting a continued soft market for
new equipment in the health-care industry. Remarketing activity, which is an
important contributor to earnings, was below prior year levels throughout the
first three quarters of fiscal 1996. The company believes the reduction in
remarketing activity reflects, in part, delays in hardware acquisition decisions
by customers pending release of additional information concerning capabilities
and delivery schedules of recent product announcements from major mainframe
manufacturers. Additionally, strong remarketing in prior years, coupled with
equipment volume declines in fiscal 1993 and 1994, resulted in less equipment
available for remarketing in the current year. Remarketing was at record levels
in the fourth quarter of fiscal 1996, however, there can be no assurance that
such levels can be sustained in fiscal 1997.
Operating lease revenue minus operating lease costs was $328 million, or
24.0% of operating lease revenue (the "Operating Lease Margin"), and $293
million, or 26.2% of operating lease revenue, in fiscal 1996 and 1995,
respectively. The lower margin in fiscal 1996 compared to the prior year
reflects the increase in lease volume and lower margins on large systems. The
company expects the Operating Lease Margin to decline from current levels in
fiscal 1997. The Sales-type Lease Margin decreased in fiscal 1996 compared to
the prior year primarily because of a change in the mix of equipment remarketed.
The following graph presents the Lease Margin for total leasing, operating, and
sales-type leases for the five years ended September 30, 1996.
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Total Leasing 34% 34% 35% 35% 31%
Sales-Type Lease ....... 26% 26% 26% 26% 26%
Operating Lease ........ 25% 23% 26% 26% 24%
Sales: Revenue from sales, which includes remarketing and buy/sell activities,
totaled $262 million in fiscal 1996, compared to $358 million and $271 million
in fiscal 1995 and 1994, respectively. The decrease in sales revenue in fiscal
1996 compared to the prior year is primarily due to reduced sales and sale
revenue per unit on large systems. The increase in fiscal 1995 was primarily due
to sales by the electronics and distributed systems groups. Margins on sales
were 17% in fiscal 1996 compared to 15% and 17% in fiscal 1995 and 1994,
respectively. The higher margins
28
<PAGE>
in fiscal 1996 reflect improved margins from remarketing by the distributed
systems group.
Business Continuity and Network Services: Revenue from business continuity and
network services (hereinafter referred to as "business continuity") of $318
million in fiscal 1996 and $267 million in fiscal 1995 represented increases of
19% and 10%, respectively, over each of the preceding years. The increases are
primarily the result of the growth in customer base, products and services. As
of September 30, 1996, the company had strategically located recovery facilities
throughout North America and Europe connected by advanced network capabilities.
Business continuity costs of $277 million for fiscal 1996 increased 16% over
business continuity costs of $238 million in fiscal 1995. Fiscal 1995 costs and
expenses were 6% higher than fiscal 1994. Cost containment efforts by the
company, primarily as a result of its capital investment strategy, called
"Project 2000," slowed the growth of business continuity costs in both fiscal
1996 and 1995, and improved margins significantly over the prior year.
The company's business continuity segment expanded during fiscal 1996 to
include the results of Netforce- MTI, a network services business, which was
acquired in December, 1995 for shares of the company's common stock valued at
approximately $9 million. Additionally, during the latter part of the second
quarter, the company acquired the assets and contracts of the disaster recovery
division of CSC Compusource ("CSC") for approximately $9 million in cash.
NetforceMTI's services include network assessment, design, planning,
implementation, configuration, installation, and management. These services
complement and expand the company's network experience in leasing, remarketing,
and business continuity, and play an important role in the company's technology
integration and desktop asset management services. The company's network
services group, including the NetforceMTI operations, incurred a pretax loss in
fiscal 1996. The impact of the CSC acquisition on business continuity earnings
was immaterial.
In October, 1995, the company announced the opening of its Chicago-based
client/server supersite. The addition expands the company's commitment to
workarea recovery and the evolving business continuity needs across all
platforms.
Other Revenue: Other revenue was $54 million, $42 million and $47 million in
fiscal 1996, 1995 and 1994, respectively. Revenue from the sale of ownership
positions generated in conjunction with the company's lease financing
transactions with early-stage high technology companies was $13 million in
fiscal 1996 compared to $11 million and $9 million in fiscal 1995 and 1994,
respectively. Fiscal 1996 and 1995 includes $6 million and $5 million,
respectively, of gains generated from the sale of stock, originally received by
the company in fiscal 1993 in connection with the sale of all of the assets of
its wholly-owned subsidiary, Comdisco Systems, Inc. Fiscal 1994 includes the
receipt of the Insurance Proceeds of $20 million. Excluding the Insurance
Proceeds, the increase in fiscal 1995 compared to the prior year period is
primarily due to revenue from managing the Promodata S.A. portfolio, which was
acquired in June, 1994.
COSTS AND EXPENSES
Total costs and expenses were $2.2 billion and $2.1 billion in fiscal 1996 and
1995, respectively. The increase in fiscal 1996 compared to fiscal 1995 is
primarily due to increased leasing and business continuity costs related to the
increasing operating lease revenue and business continuity revenue,
respectively. Excluding the IBM litigation settlement, total costs and expenses
increased 7% in fiscal 1995 compared to fiscal 1994, primarily due to increased
leasing costs and cost of sales related to increasing operating lease revenue
and sales revenue, respectively. Other factors contributing to the increase in
fiscal 1995 compared to fiscal 1994 include higher selling, general and
administrative costs (excluding the Contribution) and an increase in interest
expense.
Selling, General and Administrative: Selling, general and administrative
expenses totaled $244 million in fiscal 1996, $233 million in fiscal 1995, and
$213 million in fiscal 1994. Factors contributing to the increases in fiscal
1996 and 1995 compared to the prior years include the development of the
company's technology integration activities, and, in general, its technology
services, offset by reduced expenditures resulting from improved efficiencies in
the company's administrative operations. The Contribution was recorded in the
quarter ended June 30, 1994 to establish and fund the Comdisco Foundation.
Excluding the Contribution, selling, general and administrative expenses
increased 15% in fiscal 1995 compared to fiscal 1994. The increase is primarily
due to the acquisition of Promodata S.A. in June, 1994, which increased selling,
general and administrative expenses by approximately $15 million in fiscal 1995.
Interest: Interest expense for fiscal 1996 totaled $262 million in comparison to
$274 million in fiscal 1995 and $263 million in fiscal 1994, respectively. The
decrease in fiscal 1996 compared to fiscal 1995 is due to lower average interest
rates. The company expects average daily
29
<PAGE>
borrowings to increase in fiscal 1997 because of higher average daily borrowings
resulting from increased leased assets at September 30, 1996 and an increase in
equipment purchased for lease in fiscal 1997. The increase in fiscal 1995
compared to fiscal 1994 is due to higher average daily borrowings and higher
interest rates. Generally, a higher interest rate environment does not impact
the company's margins since the effects of higher borrowing costs would be
reflected in the rates on newly leased assets. In addition, the company attempts
to match the maturities of its borrowings with the cash flows from its leased
assets, thereby reducing the company's interest rate exposure. In fiscal 1994,
net cash from operations exceeded equipment purchases, and the excess was
utilized to reduce debt (see Note 6 of Notes to Consolidated Financial
Statements for information on the company's average daily borrowings and
effective interest rates).
INCOME TAXES
Note 9 of Notes to Consolidated Financial Statements on page 42 provides details
about the company's income tax provision.
INTERNATIONAL OPERATIONS
The company operates principally in four geographic areas: the United States,
Europe, Canada and the Pacific Rim. The company also operates in South America.
Revenue from international operations, including export sales and business
continuity operations, was $595 million in fiscal 1996 compared to $518 million
and $390 million in fiscal 1995 and 1994, respectively. International revenues
represented 24% of the company's total revenue in fiscal 1996, 23% in fiscal
1995 and 19% in fiscal 1994.
Canada: The company's Canadian operations, excluding business continuity
activities, had pretax earnings of $19 million and $13 million in fiscal 1996
and 1995, respectively. Total leasing and sales revenue for fiscal 1996 in
Canada was $75 million compared to $50 million and $62 million in fiscal 1995
and 1994, respectively. Cost of equipment placed on lease in fiscal 1996 and
1995 was $68 million and $57 million, respectively. Cost of equipment placed on
lease includes electronics group equipment. Net cash provided by operations is
the company's primary source of funds for its Canadian operations, although the
company has short-term lines of credit in Canada to support short-term liquidity
requirements.
Europe: The company's European operations, excluding business continuity
activities, had pretax earnings of $10 million and $8 million in fiscal 1996 and
1995, respectively, compared to $3 million in fiscal 1994. Total leasing and
sales revenue from European operations was $420 million in fiscal 1996 compared
to $369 million in fiscal 1995 and $231 million in fiscal 1994. Cost of
equipment placed on lease in fiscal 1996 and 1995 was $492 million and $511
million, respectively. Cost of equipment placed on lease in Europe includes
electronics group equipment. The European lease base has been financed primarily
by utilizing existing short-term lines of credit, parent company loans and where
required, additional capital investment from the parent, and discounted lease
rentals. Geographic area data is included in Note 14 of Notes to Consolidated
Financial Statements on page 46.
OTHER MATTERS
Inflation: The company does not consider the present rate of inflation to have a
significant impact on the businesses in which it operates.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: With the exception of historical information, the matters discussed in
this annual report to stockholders are forward-looking statements that involve
risks and uncertainties and actual results could differ materially from those
discussed. See "Note on Forward-Looking Information" on page 52 of this annual
report to stockholders for identification of important factors which may affect
the forward-looking statements contained herein.
PRICE RANGE OF COMMON STOCK
The company's common stock is listed on the New York Stock Exchange and the
Chicago Stock Exchange under the symbol CDO. At September 30, 1996, there were
approximately 1,900 holders of record of the company's common stock. The
following table shows the quarterly price range of the company's common stock,
as traded on the New York Stock Exchange, and cash dividends paid on common
stock for fiscal 1996 and 1995.
96 95
----------------------- -----------------------
Divi- Divi-
Quarter High Low dends High Low dends
------- --------- ------- ----- ------- ------- -----
First $ 23.75 $ 19.67 $.07 $ 15.59 $ 12.92 $ .06
Second 22.50 19.88 .07 18.25 14.67 .06
Third 28.63 21.25 .07 20.59 17.59 .06
Fourth 29.75 22.63 .07 21.67 18.83 .06
30
<PAGE>
Consolidated Statements of Earnings
Comdisco, Inc. and Subsidiaries
(in millions except per share data)
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenue
Leasing:
Operating ................................................. $ 1,365 $ 1,117 $ 1,002
Direct financing .......................................... 149 180 186
Sales-type ................................................ 283 276 350
------- ------- -------
Total leasing ........................................... 1,797 1,573 1,538
------- ------- -------
Sales ...................................................... 262 358 271
Business continuity and network services ................... 318 267 242
Other ...................................................... 54 42 47
------- ------- -------
Total revenue ............................................. 2,431 2,240 2,098
------- ------- -------
Costs and expenses
Leasing:
Operating ................................................. 1,037 824 746
Sales-type ................................................ 209 199 258
------- ------- -------
Total leasing ........................................... 1,246 1,023 1,004
------- ------- -------
Sales ...................................................... 218 304 225
Business continuity and network services ................... 277 238 224
Selling, general and administrative ........................ 244 233 213
IBM litigation settlement .................................. - - 70
Litigation charge .......................................... - - 10
Interest ................................................... 262 274 263
------- ------- -------
Total costs and expenses .................................. 2,247 2,072 2,009
------- ------- -------
Earnings before income taxes ............................... 184 168 89
Income taxes ............................................... 70 64 36
------- ------- -------
Net earnings before preferred dividends .................... 114 104 53
Preferred dividends ........................................ (8) (8) (9)
------- ------- -------
Net earnings available to common stockholders .............. $ 106 $ 96 $ 44
======= ======= =======
Net earnings per common and common equivalent share ........ $ 2.00 $ 1.73 $ .77
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
31
<PAGE>
Consolidated Balance Sheets
Comdisco, Inc. and Subsidiaries
(in millions except number of shares and per share data)
<TABLE>
<CAPTION>
September 30,
1996 1995
---------- ----------
<S> <C> <C>
Assets
Cash and cash equivalents ............................................................................ $ 29 $ 85
Cash - legally restricted ............................................................................ 27 30
Receivables, net ..................................................................................... 218 176
Inventory of equipment ............................................................................... 155 133
Leased assets:
Direct financing and sales-type ..................................................................... 1,768 1,968
---------- -----------
Operating (net of accumulated depreciation) ......................................................... 2,842 2,107
---------- -----------
Net leased assets ................................................................................. 4,610 4,075
Buildings, furniture and other, net .................................................................. 149 163
Other assets ......................................................................................... 403 377
---------- -----------
$ 5,591 $ 5,039
========== ===========
Liabilities and Stockholders' Equity
Notes payable ........................................................................................ $ 1,127 $ 661
Term notes payable ................................................................................... 374 507
Senior and subordinated debt ......................................................................... 1,771 1,289
Accounts payable ..................................................................................... 135 111
Income taxes:
Current ............................................................................................. 5 --
Deferred ............................................................................................ 274 244
Other liabilities .................................................................................... 325 327
Discounted lease rentals ............................................................................. 781 1,124
---------- -----------
4,792 4,263
---------- -----------
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, issued
3,562,600 shares (3,625,800 in 1995) ............................................................ 89 91
Common stock $.10 par value. Authorized 200,000,000 shares;
issued 72,519,209 shares (71,936,982 in 1995) .................................................... 7 5
Additional paid-in capital .......................................................................... 165 154
Deferred compensation (ESOP) ........................................................................ (5) (8)
Deferred translation adjustment ..................................................................... 5 13
Retained earnings ................................................................................... 856 764
---------- -----------
1,117 1,019
Common stock held in treasury, at cost; 22,886,451 shares (19,666,386 in 1995) ...................... (318) (243)
---------- -----------
Total stockholders' equity ........................................................................ 799 776
---------- -----------
$ 5,591 $ 5,039
========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
32
<PAGE>
Consolidated Statements of Stockholders' Equity
Comdisco, Inc. and Subsidiaries
Years ended September 30, 1996, 1995 and 1994
(in millions except per share data)
<TABLE>
<CAPTION>
Additional Deferred Deferred Common
Preferred Common paid-in compen- translation Retained stock in
stock stock capital sation adjustment earnings treasury
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 ............................... $ 100 $ 5 $ 138 $ (12) $ (7) $ 650 $(135)
Net earnings ................................................ 53
Cash dividends - preferred .................................. (9)
Cash dividends - common ($.23 per share) .................... (13)
Stock options exercised ..................................... 1
Translation adjustment ...................................... 7
Reduction of guaranteed ESOP debt ........................... 2
Purchase of common stock .................................... (39)
----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 ............................... 100 5 139 (10) -- 681 (174)
Net earnings ................................................ 104
Cash dividends - preferred .................................. (8)
Cash dividends - common ($.24 per share) .................... (13)
Stock options exercised ..................................... 12
Translation adjustment ...................................... 13
Issuance of common stock upon
conversion of subordinated debt ............................ 3 17
Reduction of guaranteed ESOP debt ........................... 2
Purchase of preferred stock ................................. (9)
Purchase of common stock .................................... (86)
----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 ............................... 91 5 154 (8) 13 764 (243)
Net earnings ................................................ 114
Cash dividends - preferred .................................. (8)
Cash dividends - common ($.28 per share) .................... (14)
Stock options exercised ..................................... 7
Translation adjustment ...................................... (8)
Reduction of guaranteed ESOP debt ........................... 3
Purchase of preferred stock ................................. (2)
Purchase of common stock .................................... (80)
Issuance of treasury stock .................................. 4 5
Stock split ................................................. 2 (2)
Income tax benefits resulting from the
exercise of non-qualified stock options .................... 2
----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 ............................... $ 89 $ 7 $ 165 $ (5) $ 5 $ 856 $(318)
===== ===== ===== ===== ===== ===== =====
See accompanying notes to consolidated financial statements.
</TABLE>
33
<PAGE>
Consolidated Statements of Cash Flows
Comdisco, Inc. and Subsidiaries
(in millions)
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
<S> <C> <C> <C>
Operating lease and other leasing receipts ..................................$ 1,465 $ 1,282 $ 1,122
Direct financing and sales-type leasing receipts ............................ 907 973 907
Leasing costs, primarily rentals paid ....................................... (34) (33) (49)
Sales ....................................................................... 246 352 283
Sales costs ................................................................. (117) (196) (147)
Business continuity and network services receipts ........................... 311 266 240
Business continuity and network services costs .............................. (174) (171) (169)
Other revenue ............................................................... 54 42 48
Selling, general and administrative expenses ................................ (222) (228) (193)
IBM litigation settlement ................................................... -- -- (70)
Interest .................................................................... (260) (272) (268)
Income taxes ................................................................ (23) (32) (34)
------- ------- -------
Net cash provided by operating activities ................................. 2,153 1,983 1,670
------- ------- -------
Cash flows from investing activities:
Equipment purchased for leasing ............................................. (2,486) (1,865) (1,433)
Investment in business continuity and network services facilities ........... (74) (78) (49)
Other ....................................................................... (17) (1) (12)
------- ------- -------
Net cash used in investing activities ..................................... (2,577) (1,944) (1,494)
------- ------- -------
Cash flows from financing activities:
Discounted lease proceeds ................................................... 253 279 725
Net increase (decrease) in notes payable .................................... 466 68 (62)
Issuance of term notes, senior notes, and subordinated debt ................. 834 1,268 300
Maturities and repurchases of term notes, senior notes and subordinated debt. (485) (816) (262)
Principal payments on secured debt .......................................... (596) (703) (849)
Decrease in legally restricted cash ......................................... 3 7 11
Preferred stock purchased ................................................... (2) (9) --
Common stock purchased and placed in treasury ............................... (80) (86) (39)
Dividends paid on common stock .............................................. (14) (13) (13)
Dividends paid on preferred stock ........................................... (8) (8) (9)
Other ....................................................................... (3) 8 3
------- ------- -------
Net cash provided by (used in) financing activities ....................... 368 (5) (195)
------- ------- -------
Net increase (decrease) in cash and cash equivalents ......................... (56) 34 (19)
Cash and cash equivalents at beginning of year ............................... 85 51 70
------- ------- -------
Cash and cash equivalents at end of year .....................................$ 29 $ 85 $ 51
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
34
<PAGE>
Consolidated Statements of Cash Flows
Comdisco, Inc. and Subsidiaries
Years ended September 30,
(in millions)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings ...................................................................... $ 114 $ 104 $ 53
Adjustments to reconcile net earnings to net cash provided by operating activities:
Leasing costs, primarily depreciation and amortization ........................... 1,212 990 955
Leasing revenue, primarily principal portion of direct
financing and sales-type lease rentals ......................................... 575 682 491
Cost of sales .................................................................... 101 108 78
Business continuity and network services costs,
primarily depreciation and amortization ........................................ 103 67 55
Income taxes ..................................................................... 47 32 2
Interest ......................................................................... 2 2 (5)
Other, net ....................................................................... (1) (2) 41
-------- ------- -------
Net cash provided by operating activities ........................................ $ 2,153 $ 1,983 $ 1,670
======== ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Issuance of treasury stock for acquisition of NetforceMTI ........................ $ 9 $ - $ -
======== ======= =======
Common stock issued upon conversion of
6% convertible subordinated promissory note .................................... $ - $ 20 $ -
======== ======= =======
Assumption of discounted lease rentals in lease portfolio acquisition ............ $ - $ - $ 2
======== ======= =======
See accompanying notes to consolidated financial statements
</TABLE>
35
<PAGE>
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
Nature of operations: Comdisco, Inc. is a technology services company, providing
solutions that help organizations reduce technology cost and risk. The company
provides technology planning and asset management services, integrating leasing
and business continuity services with customized asset acquisition, asset
management software tools and data center moves and/or consolidations,
disposition and migration strategies. Its principal markets are the United
States, Europe, Canada and the Pacific Rim.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of consolidation: The consolidated financial statements include the
accounts of the company and its wholly-owned subsidiaries. Intercompany accounts
and transactions have been eliminated.
Translation adjustments: All assets and liabilities denominated in foreign
currencies are translated at the exchange rate on the balance sheet date.
Revenues, costs and expenses are translated at average rates of exchange
prevailing during the period. Translation adjustments are accumulated as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statements of
earnings.
Income taxes: The company uses the asset and liability method to account for
income taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits of which future realization is
uncertain.
Lease accounting: See "Leasing" section on pages 36 through 38 for a description
of lease accounting policies, lease revenue recognition and related costs.
Business continuity: Revenue from business continuity contracts is recognized
monthly as subscription fees become due.
Cash and cash equivalents: Cash equivalents are comprised of highly liquid debt
instruments with original maturities of 90 days or less.
Cash - legally restricted: 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.
Inventory of equipment: Inventory of equipment is stated at the lower of cost or
market by categories of similar equipment.
Derivatives: Interest rate differentials on swaps are accrued as interest rates
change over the contract period. Premiums paid for purchased interest rate cap
agreements are amortized to interest expense over the terms of the caps. Amounts
receivable under cap agreements are accrued as a reduction of interest expense.
Earnings per common share: Earnings per common and common equivalent share are
computed based on the weighted average number of common and common equivalent
shares outstanding during each period.
Dilutive stock options included in the number of common and common equivalent
shares are based on the treasury stock method. The number of common and common
equivalent shares used in the computation of earnings per common share for the
years ended September 30, 1996, 1995 and 1994 were 53,228,341, 55,167,389, and
57,758,144, respectively.
Stock-based compensation: The company utilizes the intrinsic value based method
of accounting for its stock-based compensation arrangements.
Reclassifications: Certain reclassifications have been made in the 1995 and 1994
financial statements to conform to the 1996 presentation.
LEASING
Note 2 Lease Accounting Policies
FASB Statement of Financial Accounting Standards No. 13 requires that a lessor
account for each lease by either the direct financing, sales-type or operating
method.
Leased Assets:
Direct financing and sales-type leased assets consist of the present value
of the future minimum lease payments plus the present value of the residual
(col-
36
<PAGE>
lectively referred to as the net investment). Residual is the estimated
fair market value at lease termination. In estimating the equipment'sfair
value at lease termination, the company relies on historical experience by
equipment type and manufacturer and, where available, valuations by
independent appraisers, adjusted for known trends. The company's estimates
are reviewed continuously to ensure realization, however the amounts the
company will ultimately realize could differ from the estimated amounts.
Operating leased assets consist of the equipment cost, less the amount
depreciated to date. Revenue, Costs and Expenses:
Revenue, Costs and Expenses:
Direct financing leases - Revenue consists of interest earned on the
present value of the lease payments and residual. Revenue is recognized
periodically over the lease term as a constant percentage return on the net
investment. There are no costs and expenses related to direct financing
leases since leasing revenue is recorded on a net basis.
Sales-type leases - Revenue consists of the present value of the total
contractual lease payments which is recognized at lease inception. Costs
and expenses consist of the equipment's net book value at lease inception,
less the present value of the residual. Interest earned on the present
value of the lease payments and residual, which is recognized periodically
over the lease term as a constant percentage return on the net investment,
is included in direct financing lease revenue in the statement of earnings.
Operating leases - Revenue consists of the contractual lease payments and
is recognized on a straight-line basis over the lease term. Costs and
expenses are principally depreciation of the equipment. Depreciation is
recognized on a straight-line basis over the lease term to the company's
estimate of the equipment's fair market value at lease termination, also
commonly referred to as "residual" value. In estimating the equipment's
fair value at lease termination, the company relies on historical
experience by equipment type and manufacturer and, where available,
valuations by independent appraisers, adjusted for known trends. The
company's estimates are reviewed continuously to ensure realization, how
ever the amounts the company will ultimately realize could differ from the
amounts assumed in determining deprecia tion on the equipment in the
operating leased portfolio at September 30, 1996.
Equity transactions - The company enters into equity transactions with
third-party investors who obtain ownership rights, which include tax
depreciation deductions and residual interests. The company retains control
and the use of the equipment generally throughout its economic life by
leasing back the equipment from the third-party investor. Accordingly, the
leased asset cost related to the period of control remains on the balance
sheet. Revenue consists of the profit recognized on equity transactions and
is included in operating lease revenue. Profit is recognized on a
straight-line basis over the leaseback term (life of the transaction).
Initial direct costs related to operating and direct financing leases,
including salesperson's commissions, are capitalized and amortized over the
lease term.
Note 3 Leased Assets
The components of the net investment in direct financing and sales-type leases
as of September 30 are as follows:
(in millions)
1996 1995
------ ------
Minimum lease payments receivable $1,802 $2,014
Estimated residual values ........ 193 216
Less: unearned revenue ........... (227) (262)
------ ------
Net investment in direct financing
and sales-type leases ........... $1,768 $1,968
====== ======
Unearned revenue is recorded as leasing revenue over the lease terms.
Operating leased assets include the following as of September 30:
(in millions) 1996 1995
------------ ------ ------
Operating leased assets ...... $4,665 $3,685
Less: accumulated depreciation
and amortization ............ (1,823) (1,578)
------ ------
Net .......................... $2,842 $2,107
====== ======
Note 4 Lease Portfolio Information
The size of the company's lease portfolio can be measured by the cost of leased
assets at the date of lease inception. Cost at lease inception represents either
the equipment's original cost or its net book value at termination of a prior
lease. The following table summarizes, by year of
37
<PAGE>
lease commencement and by year projected lease termination, the cost at lease
inception for all leased assets recorded at September 30, 1996 (in millions):
Projected year of lease termination
-----------------------------------
Cost at 2001
Year lease lease and
commenced inception 97 98 99 00 after
- ----------- --------- ----- ----- ----- ---- -----
1992
and prior $ 1,149 $ 733 $ 229 $ 127 $ 30 $ 30
1993 755 378 286 46 35 10
1994 1,076 580 235 233 20 8
1995 1,746 385 792 297 258 14
1996 2,589 74 461 1,226 454 374
--------- ------ ------ ------ ---- -----
$ 7,315 $2,150 $2,003 $1,929 $797 $ 436
========= ====== ====== ====== ==== =====
The following table summarizes the estimated net book value at lease
termination for all leased assets recorded at September 30, 1996. The table is
presented by year of lease commencement and by year of projected lease
termination (in millions):
Projected year of lease termination
-----------------------------------
Net book
value at 2001
Year lease lease and
commenced termination 97 98 99 00 after
- ----------- ----------- --- --- ---- --- -----
1992
and prior $ 44 $33 $ 5 $ 2 $ - $ 4
1993 68 34 32 1 1 -
1994 131 71 26 33 1 -
1995 268 68 129 36 34 1
1996 491 40 95 227 62 67
----------- --- --- ---- --- -----
$1,002 $246 $287 $299 $98 $72
=========== ==== ==== ==== === =====
Note 5 Owned Equipment - Future Noncancelable Lease Rentals and Business
Continuity Subscription Fees Presented below is a summary of future
noncancelable lease rentals on owned equipment and future subscription fees on
noncancelable business continuity contracts (collectively, "cash in-flows").
The summary presents expected cash in-flows due in accordance with the
contractual terms in existence as of September 30, 1996. The table also presents
the amounts to be received by financial institutions for leases discounted on a
nonrecourse basis (see Note 6 of Notes to Consolidated Financial Statements).
<TABLE>
<CAPTION>
Years ending September 30,
---------------------------------------------------
2001
and
(in millions) 1997 1998 1999 2000 after Total
- ------------- ------ ------ ---- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Expected future cash in-flows:
Operating leases ............................ $1,217 $ 784 $354 $113 $ 53 $2,521
Direct financing and sales-type leases ...... 821 522 302 127 30 1,802
Business continuity contracts ............... 240 176 105 42 17 580
------ ------ ---- ---- ---- ------
Total .................................... 2,278 1,482 761 282 100 4,903
Less: To be received by financial institutions
Operating leases ............................ 237 140 70 29 5 481
Direct financing and sales-type leases ...... 204 119 61 18 -- 402
------ ------ ---- ---- ---- ------
Total .................................... 441 259 131 47 5 883
------ ------ ---- ---- ---- ------
To be received by the company ........... $1,837 $1,223 $630 $235 $ 95 $4,020
====== ====== ==== ==== ==== ======
</TABLE>
39
<PAGE>
FINANCING
Note 6 Interest-Bearing Liabilities
Interest-bearing liabilities include the following (dollars in millions):
<TABLE>
<CAPTION>
96 95
---------------------------------- ------------------------------------
At September 30 Average At September 30 Average
--------------- -------------- --------------- ---------------
Balance Rate Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ---- ------- ----
Notes payable:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Credit lines and loan participation
contracts ................................. $ 664 5.62% $ 390 5.79% $ 365 6.20% $ 321 6.10%
Commercial paper ........................... 463 5.62% 474 5.77% 296 5.94% 417 6.33%
Term notes .................................... 374 6.49% 322 6.67% 507 6.83% 385 7.01%
Senior notes .................................. 1,771 7.16% 1,460 7.64% 1,276 7.80% 1,140 8.26%
Subordinated debt ............................. - -% 9 9.05% 13 11.00% 21 8.85%
Discounted lease rentals ...................... 781 7.19% 938 7.24% 1,124 7.08% 1,340 7.25%
------ ---- ------ ---- ------ ---- ------ ----
$4,053 6.68% $3,593 7.00 $3,581 7.13% $3,624 7.34%
====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
The changes in financing activities for the years ended September 30 were as
follows (notes payable changes are shown net):
<TABLE>
<CAPTION>
96 95
-------------------------------------------------- -------------------------------------------
Out- Out- Out- Out-
standing Maturities standing standing Maturities standing
beginning Issu- and end Fair beginning Issu- and end Fair
(in millions) of year ances repurchases of year Value of year ances repurchase of year value
- ---------------- --------- ------ -------- ------- ----- --------- ----- -------- -------- -----
Notes payable:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Credit lines and loan
participation contracts ..... $365 $ 299 $ - $ 664 $ 664 $ 223 $ 142 $ -- $ 365 $ 365
Commercial paper ............... 296 167 - 463 463 370 -- (74) 296 296
Term notes ...................... 507 100 (233) 374 377 291 731 (515) 507 511
Senior notes .................... 1,276 734 (239) 1,771 1,623 1,040 537 (301) 1,276 1,323
Subordinated debt ............... 13 -- (13) -- -- 33 -- (20) 13 13
Discounted lease rentals ........ 1,124 253 (596) 781 778 1,548 279 (703) 1,124 1,121
------ ------ ------- ------ ------ ------- ------ ------- ------ ------
$3,581 $1,553 $(1,081) $4,053 $3,905 $ 3,505 $1,689 $(1,613) $3,581 $3,629
====== ====== ======= ====== ====== ======= ====== ======= ====== ======
</TABLE>
The fair value of the company's interest-bearing liabilities was estimated
based generally on quoted market prices for the same or similar instruments or
on current rates offered the company for similar debt of the same maturity.
The annual maturities of all interest-bearing liabilities at September 30,
1996 were as follows:
Years ending September 30,
--------------------------
2001
and
(in millions) 1997 1998 1999 2000 after Total
-------------- ----- ---- ---- ---- ----- ------
Notes payable:
Credit lines and loan participation
contracts ........................ $ 664 $ - $ - $ - $ - $ 664
Commercial paper ..................... 463 - - - - 463
Term notes ........................... 327 47 - - - 374
Senior notes ......................... 386 540 248 292 305 1,771
Discounted lease rentals ............. 385 230 116 45 5 781
------ ---- ---- ---- ------ ------
$2,225 $817 $364 $337 $ 310 $4,053
====== ==== ==== ==== ====== ======
Notes payable: The company had the following unsecured bank lines available in
the United States and foreign countries at September 30:
(in millions) 1996 1995
------------- ------- ------
Total credit lines:
Committed .................. $ 1,016 $ 950
Uncommitted .............. 319 265
------- ------
$ 1,335 $1,215
======= ======
Utilized at September 30:
Committed ................ $ 766 $ 595
Uncommitted .............. 206 66
------- ------
Total credit lines ....... 972 661
------- ------
Loan participation contracts 155 -
------- ------
Total notes payable ...... $ 1,127 $ 661
======= ======
Credit lines available at
September 30 ............... $ 363 $ 554
======= ======
Maximum amount outstanding
at any month end ......... $ 1,131 $ 922
======= ======
The company had outstanding interest rate caps totaling $47 million on
short-term borrowings to mitigate interest rate risks.
39
<PAGE>
Committed lines: The company's committed lines have been established with
thirty-two banks, eight of which are U.S. banks. A majority of the banks are
rated AA or better by rating agencies. At September 30, 1996, the company had
committed domestic and foreign unsecured lines of credit as follows:
Number
Facility of banks Expiration date
- ------------------------- --------- ---------------
Multi-Option Facilities 11
$300 million facility December, 1998
$150 million facility December, 1996
Global Facilities 18
$300 million facility December, 1998
$150 million facility December, 1996
Other credit agreements:
$ 50 million - domestic
and foreign 1 April, 1997
$66 million - foreign 6 Various
There are no compensating balance requirements on any of the committed lines.
At September 30, 1996, the company had $766 million outstanding under its
committed lines, including $463 million supporting the company's commercial
paper program.
The multi-option revolving credit agreements and the global revolving credit
agreements (collectively, the "Facilities") permit the company to borrow in U.S.
dollars or in other currencies, on a revolving credit basis. Interest rates on
debt outstanding under the Facilities are negotiated at the time of the
borrowings based either on "bid rates" from the participating banks, LIBOR plus
twenty-seven and one half basis points or, for the two $150 million facilities,
thirty basis points, or at the banks' then current base rates. The Facilities
call for the company to pay: 1) an annual fee of twelve and one half basis
points per annum on $600 million of the committed amount and ten basis points
per annum on $300 million of the committed amount, plus 2) letter of credit
usage or fronting fees. The two $150 million facilities are renewable annually
and should the banks decide not to renew, include provisions to convert any
amounts then outstanding to term loans with a final maturity of December, 1997.
Uncommitted lines and loan participation contracts: In addition to the committed
lines, the company maintains various domestic and international lines of credit
for short-term debt with banks, including approximately $319 million of
uncommitted lines of credit, under which the company can borrow on an unsecured
basis on such terms as the company and banks may mutually agree. The majority of
these arrangements do not have maturity dates, and can be withdrawn at the
banks' option. There are no fees or compensating balances associated with either
the uncommitted lines or the loan participation contracts.
Commercial paper: At September 30, 1996, the company had $500 million of
commercial paper facilities (of which $463 million was outstanding at September
30, 1996) all of which are supported by its committed lines of credit.
Domestically, the facilities were rated, D-2 by Duff & Phelps, P-2 by Moody's
and A-2 by Standard & Poor's.
Term notes payable: Term notes payable include the following at September 30:
(in millions) 1996 1995
-------------- ---- ----
Receivable backed commercial
paper (floating rate; due 1997) $325 $225
Floating rate; due 1996 - 230
Building mortgage (9.70%; due 1998) 44 44
Guaranteed senior ESOP
notes (8.19%; due 1998) 5 8
---- ----
$374 $507
==== ====
Subsequent to the issuance of the mortgage, the company entered into an
interest rate swap agreement that effectively converted this obligation to a
floating rate obligation through maturity. See Note 12 of Notes to Consolidated
Financial Statements regarding the senior ESOP notes.
40
<PAGE>
Senior notes and subordinated debt: Senior notes and subordinated debt include
the following at September 30:
<TABLE>
<CAPTION>
(in millions) 1996 1995
-------------- ------ ------
<S> <C> <C>
Senior notes:
Medium term notes (5.22% to 9.99%)<F1> $ 834 $ 569
9.38% Senior Notes, Series C, due 1996 - 19
9.75% Senior Notes due 1997<F2> 200 200
7.25% Senior Notes due 1998 . 200 200
7.75% Senior Notes due 1999 . 89 89
6.50% Senior Notes due 2000 . 199 199
5.75% Senior Notes due 2001 . 249 -
Total senior notes .... 1,771 1,276
Subordinated debt ............ - 13
------ ------
$1,771 $1,289
====== ======
<FN>
<F1>The company had outstanding interest rate swap agreements at September 30,
1996 and 1995 that effectively converted $25 million and $76 million,
respectively, of medium-term fixed rate borrowings to floating rate obligations
with an effective interest rate of 6.650% and 5.965%, respectively. The company
also had interest rate swap agreements at September 30, 1996 that effectively
converted $25 million of medium-term floating rate borrowings to fixed rate
obligations with an effective interest rate of 5.850%. The average remaining
terms of these swap agreements was more than one year at September 30, 1996.
<F2>Subsequent to the issuance of these notes, the company entered into an
interest rate swap agreement to effectively convert $50 million of these notes
to a floating rate obligation.
</FN>
</TABLE>
There are no sinking fund requirements associated with any of the company's
senior notes. At September 30, 1996, $190 million, including $100 million of
undesignated senior debt, remains available for the sale of debt securities
under the Form S-3 registration statement filed October, 1995.
Discounted lease rentals: The company utilizes its lease rentals receivable and
underlying equipment in leasing transactions as collateral to borrow from
financial institutions at fixed rates on a nonrecourse basis. In return for this
secured interest, the company receives a discounted cash payment. In the event
of a default by a lessee, the financial institution has a first lien on the
underlying leased equipment, with no further recourse against the company.
Proceeds from discounting are recorded on the balance sheet as discounted lease
rentals; as lessees make payments to financial institutions, lease revenue
(i.e., interest income on direct financing and sales-type leases and rental
revenue on operating leases) and interest expense are recorded. Discounted lease
rentals are reduced by the interest method.
Future minimum lease payments and interest expense on leases that have been
discounted as of September 30, 1996 are as follows (in millions):
Rentals to be
received by Discounted
Years ending financial lease Interest
September 30, institutions rentals expense
- -------------- ------------- ---------- --------
1997 $441 $385 $ 56
1998 259 230 29
1999 131 116 15
2000 47 45 2
2001 5 5 -
---- ---- ----
$883 $781 $102
==== ==== ====
Interest expense on discounted lease rentals was $68 million, $98 million,
and $118 million in fiscal 1996, 1995, and 1994, respectively.
Interest rate swap agreements and other derivative financial instruments: The
company is a party to a variety of interest rate and cross-currency interest
rate swap agreements and other financial instruments in order to limit its
exposure to a loss resulting from adverse fluctuations in foreign currency
exchange and interest rates. Interest rate swap contracts generally represent
the contractual exchange of fixed and floating rate payments of a single
currency. Cross-currency interest rate swap contracts generally involve the
exchange of payments which are based on the interest reference rates available
at the inception of the contract on two different currency principal balances
that are exchanged. The principal balances are re-exchanged at an agreed upon
rate at a specified future date. Credit and market risk exist with respect to
these instruments.
The following table presents the contract or notional (face) amounts
outstanding and the fair value of the contracts based generally on their
termination values at September 30:
1996 1995
---------------- -----------------
Notional Fair Notional Fair
(in millions) amount value amount value
----------------------- -------- ----- -------- -----
Interest rate swap
agreements $165 $(1) $230 $(3)
==== === ==== ===
Cross-currency interest
rate swap agreements 95 (1) 70 (5)
==== === ==== ===
Interest rate caps 47 - 23 -
==== === ==== ===
Forwards and futures 147 6 112 -
==== === ==== ===
41
<PAGE>
The impact of these contracts on interest expense for fiscal years 1996 and
1995 was immaterial. The average notional amount outstanding of the floating
rate to fixed rate contracts in fiscal 1996, including those noted in the
discussions above, was $114 million, with an average pay rate of 5.734% and an
average receive rate of 5.334%. The average notional amount outstanding of the
fixed rate to floating rate contracts in fiscal 1996, including those noted in
the discussions above, was $69 million, with an average pay rate of 7.850% and
an average receive rate of 6.250%. The company is exposed to credit loss in the
event of non-performance by the other parties to the interest rate swap
agreements. However, because of the credit quality of the counterparties, the
company does not anticipate non-performance by the counterparties.
OTHER FINANCIAL INFORMATION
Note 7 Receivables
Receivables (net of allowance for doubtful accounts of $21 million in 1996 and
$17 million in 1995) include the following as of September 30 (in millions):
1996 1995
---- ----
Accounts, net $128 $106
Income taxes . 5 15
Notes ........ 23 13
Other ........ 62 42
---- ----
$218 $176
==== ====
The allowance for doubtful accounts includes management's estimate of the
amounts expected to be lost on specific accounts and for losses on other as of
yet unidentified accounts included in receivables at September 30, 1996,
including estimated losses on future noncancelable lease rentals and
subscription fees, net of estimated recoveries from remarketing of related
leased equipment. In estimating the reserve component for unidentified losses
within the receivables and lease portfolio, management relies on historical
experience, adjusted for any known trends, including industry trends, in the
portfolio.
Note 8 IBM Litigation Settlement and Contingencies
Note 16 to the 1993 Consolidated Financial Statements discussed contingencies of
the company arising out of three legal actions filed against Comdisco by
International Business Machines Corporation ("IBM"), IBM Credit Corporation
("ICC") and certain IBM-related limited partnerships. On August 26, 1994, all of
the parties to the three lawsuits entered into a settlement agreement. Pursuant
to the settlement, Comdisco and all of the parties to the litigation exchanged
mutual general release; the company agreed not to engage in the future sale or
lease of altered IBM parts except pursuant to the requirements of the
Stipulation and Order for Permanent Injunction entered into between the parties
and ordered by the Court in IBM v. Comdisco, 91 C6777 (N.D. Ill.); the company
agreed not to lease, sublease, sell or relocate any ICC-owned equipment without
IBM's prior written consent; the company agreed not to copy any IBM copyrighted
microcode and software other than in accordance with license agreements
pertaining thereto; and the company paid IBM $70 million. During the quarters
ended March 31, 1992 and June 30, 1994, the company recorded charges of $20
million ($12 million after-tax) and $10 million ($6 million after-tax),
respectively, for the establishment of, and increases to, a litigation reserve
to cover estimated costs associated with the litigation.
The company has guaranteed approximately $60 million in lease payments, which
are secured by the underlying lease obligations, equipment and a like amount
held in trust; and the company entered into a co-obligation for approximately
$90 million, which is secured by a like amount held in trust.
The company is also party to various other legal actions and administrative
proceedings and subject to various claims arising in the ordinary course of
business. The company believes that the disposition of these matters will not
have a material adverse effect on the financial position of the company.
Note 9 Income Taxes
The geographical sources of earnings before income taxes were as follows (in
millions):
1996 1995 1994
---- ---- ----
United States $155 $154 $63
Outside United States 29 14 26
---- ---- ----
$184 $168 $89
==== ==== ====
Cumulative unremitted earnings of foreign operations amounting to $72 million
after foreign taxes at September 30, 1996, were expected by management to be
reinvested. Accordingly, no provision has been made for additional U.S. taxes
which would be payable if such earnings were to be remitted to the parent
company as
42
<PAGE>
dividends. The amount of U.S. taxes, if any, are impracticable to determine.
The components of the income tax provision (benefit) charged (credited) to
operations were as follows:
(in millions) 1996 1995 1994
---------------------- ---- ---- ----
Current:
U.S. Federal $20 $16 $(11)
U.S. state and local 6 10 8
Outside United States 14 9 7
---- ---- ----
40 35 4
==== ==== ====
Deferred:
U.S. Federal 32 30 32
U.S. state and local 3 (1) (4)
Outside United States (5) - 4
---- ---- ----
30 29 32
---- ---- ----
Total tax provision $70 $64 $ 36
==== ==== ====
The reasons for the difference between the U.S. Federal income tax rate and
the effective income tax rate for earnings were as follows:
Percentage of pretax earnings
-----------------------------
1996 1995 1994
---- ---- ----
U.S. Federal income tax rate ......... 35.0% 35.0% 35.0%
Increase (reduction)
resulting from:
State income taxes, net of
U.S. Federal tax benefit ......... 3.3 3.6 2.8
Foreign income tax rate differential 1.3 .1 6.4
Tax effect of foreign losses
(utilized)/deferred ............... (1.9) 2.2 (4.8)
Insurance proceeds ........ -- -- (8.7)
Changes in estimates of previously
provided taxes .................... -- (2.0) 12.1
Utilization of capital loss -- -- (2.7)
Other, net ................ .3 (.9) (.1)
---- ---- ----
38.0% 38.0% 40.0%
==== ==== ====
Deferred tax assets and liabilities at September 30, 1996 and 1995 were as
follows:
(in millions) 1996 1995
-------------------------------------- ----- -----
Deferred tax assets:
Equity transactions .......... $ 318 $ 431
Foreign loss carryforwards ... 32 34
U.S. net operating loss carryforwards .... 32 67
AMT credit carryforwards ..... 91 78
Deferred income .............. 22 30
Other, net ................... 24 --
----- -----
Gross deferred tax assets .... 519 640
Less: valuation allowance .... (32) (34)
----- -----
Total deferred tax assets .... 487 606
----- -----
Deferred tax liabilities:
Lease accounting ............. 719 803
Foreign ...................... 34 39
Deferred expenses ............ 8 8
----- -----
Total deferred tax liabilities 761 850
----- -----
Net deferred tax liabilities $ 274 $ 244
===== =====
For financial reporting purposes, the company has approximately $74 million
of foreign net operating loss carryforwards, most of which have no expiration
date. The company has recognized a valuation allowance of $32 million to offset
this deferred tax asset. During fiscal 1996, changes in the valuation allowance
included decreases of $1 million from utilizing foreign losses and $1 million
from foreign exchange rate and tax rate changes.
At September 30, 1996, the company has available for U.S. Federal income tax
purposes, the following carryforwards (in millions):
Net
operating
Year scheduled to expire loss
------------------------ ---------
2004 $ 2
2005 5
2006 5
2007 70
2008 3
---------
$85
=========
For U.S. Federal income tax purposes, the company has approximately $91
million of alternative minimum tax ("AMT") credit carryforwards available to
reduce regular taxes in future years. AMT credit carryforwards do not have an
expiration date.
43
<PAGE>
All years prior to fiscal 1989 are closed to further as-sessment by the
Internal Revenue Service (the "Service") due to the expiration of the Statute of
Limitations.
In February, 1992, the Service commenced an income tax audit for fiscal years
1989 and 1990. In May, 1994, a 30-Day Letter was received by the company
proposing income tax deficiencies of $9.8 million and $2.5 million for fiscal
years 1989 and 1990, respectively. In August, 1994, the company filed a Protest
with the Service and is currently discussing with the Appeals Division
("Appeals") the resolution of all unagreed issues. To facilitate this process,
the company and Appeals are currently developing a Technical Advice Request for
submission to the Service's National Office requesting guidance on the proper
treatment of assets for inventory and tax depreciation purposes while not under
a lease contract. The company believes that all issues will be resolved with no
material impact on the company's financial condition.
During March, 1994, the Service commenced an income tax audit for fiscal
years 1991, 1992, and 1993. In June, 1996, a 30-Day Letter was received by the
company proposing tax deficiencies of $14 million, $28 million and $30 million
for fiscal years 1991, 1992, and 1993, respectively. These assessments primarily
relate to the inventory/depreciation issue being addressed at Appeals and in the
Technical Advice Request for the 1989 and 1990 fiscal years. Due to the
complexity and costly calculations relating to the turn around adjustments for
the inventory/depreciation issue as proposed, the company and the Service once
again agreed to forego the turn around calculations as part of the above
assessments. If the inventory/depreciation turn around adjustments were
included, the company believes the tax assessments would be substantially less.
In August, 1996, the company filed a Protest with the Service requesting a
conference with Appeals to discuss the issues which are in disagreement. The
company believes that all issues raised will be resolved with no material impact
on the company's financial condition. Additionally, in August, 1996, the company
made tax payments of $1.7 million and $1.6 million and interest payments of $0.6
million and $0.4 million in anticipation of expected tax and interest
liabilities for fiscal years 1992 and 1993, respectively.
In July, 1996, the company and the Service held an Opening Conference for
fiscal years 1994 and 1995 income tax audit. Field work has commenced with a
routine income tax audit expected.
The company also undergoes audits by foreign, state and local tax
jurisdictions. As of September 30, 1996, no material assessments have been made
by these tax authorities.
Note 10 Preferred Stock
There are 100,000,000 authorized shares of preferred stock - $.10 par value. The
board of directors establishes and designates the series and fixes the number of
shares and the relative rights, preferences and limitations of the respective
series. Whenever dividends on preferred stock are in arrears six quarters or
more, holders of such stock (voting as a class) have the right to elect two
directors of the company until all cumulative dividends have been paid.
Dividends on outstanding preferred stock must be declared and paid before
dividends may be paid or set apart for payment on the common stock. Dividends
paid on preferred stock were $8 million, $8 million and $9 million in fiscal
1996, 1995 and 1994 respectively.
8.75% Cumulative Preferred Stock (at $25 stated value and liquidation
preference): The Series A and B Preferred Stock have no preemptive rights, are
not convertible into shares of common stock or any other class of stock of the
company, and are not subject to any sinking fund or other obligation of the
company to repurchase or retire the Series A and B Preferred Stock.
The Series A Preferred Stock and the Series B Preferred Stock are not
redeemable prior to September 24, 1997 and July 12, 1998, respectively. After
September 24, 1997 and July 12, 1998, respectively, the Series A Preferred Stock
and the Series B Preferred Stock are subject to redemption at the company's
option, at any time, at $25 per share (plus accrued dividends).
Note 11 Common Stock
All references in the financial statements and notes to common share data have
been adjusted to reflect the three-for-two stock split distributed in December,
1995.
Cash dividends paid were $.28 per share in fiscal 1996, $.24 per share in
fiscal 1995, and $.23 per share in fiscal 1994.
The company purchased 3.7 million and 5.3 million shares of common stock at
an aggregate cost of $80 million and $86 million in fiscal 1996 and 1995,
respectively. On March 1, 1995, the company issued
44
<PAGE>
1.5 million shares from treasury upon the conversion of a $20 million
convertible subordinated promissory note. These shares were repurchased on the
same day at a price of $16.67 per share.
In November, 1987, the company adopted a "Shareholder Rights Plan" (the
"Rights Plan") to deter coercive takeover tactics and to prevent an acquirer
from gaining control of the company without offering a fair price to all of the
company's stockholders. Under the Rights Plan, stockholders of record on
November 27, 1987 received a dividend distribution of one right for each share
of the company's common stock. The Rights Plan was amended and restated as of
November 7, 1994. The Rights Plan is incorporated by reference in the company's
Form 10-K for fiscal 1994 and the company's filing on Form 8-K in December,
1994.
Note 12 Employee Benefits Plans
In fiscal 1988, the company established the Comdisco, Inc. Employee Stock
Ownership Trust (the "Trust"). The Trust borrowed $20 million (the "ESOP Debt")
to purchase 1.5 million shares of common stock held in treasury by the company
at a market price at the date of purchase of $13.25 per share.
The ESOP Debt is guaranteed by the company. The outstanding balance of the
ESOP Debt has been recorded in term notes payable in the consolidated balance
sheet and a like amount of deferred compensation has been recorded as a
reduction of stockholders' equity. Commencing November 1, 1989 and continuing
over the period of the ESOP Debt, the shares purchased by the Trust with the
ESOP Debt proceeds will be allocated to plan participants and deferred
compensation will be reduced by the amount of the principal payment on the ESOP
Debt. The company's annual contribution to the Trust plus dividends accumulated
on the unallocated common stock held by the Trust are used to repay the ESOP
Debt. The amount of the company's annual contribution is discretionary except
that it must be sufficient to enable the Trust to meet its current obligations.
The company has a profit sharing plan which, together with the Employee Stock
Ownership Plan (the "Plans"), covers substantially all domestic employees.
Company contributions to the Plans are based on a percentage of employees'
compensation, as defined. Benefits are accumulated on an individual employee
basis. Total expense under the Plans for each of the years ended September 30,
1996, 1995 and 1994, including interest expense of $1 million on the ESOP Debt
in each fiscal year, amounted to $4 million. The company utilizes the shares
allocated method for recognizing compensation on the Employee Stock Ownership
Plan. The amount contributed in fiscal 1996, 1995, and 1994 was $3 million, net
of dividends, and was used for debt service in each fiscal year.
The company's stock option plans provide for the granting of incentive stock
options and/or nonqualified options to employees and agents to purchase shares
of common stock.
Additionally, under the 1989 Non-Employee Directors' Stock Option Plan,
each October 1, each individual who is a Non-Employee Director during the fiscal
year shall automatically be granted an option for 3,000 shares of the company's
common stock at the then fair market value.
The company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for the company's stock
option plans been determined consistent with FASB Statement of Financial
Accounting Standards No. 123 ("FAS 123"), the company's net earnings available
to common stockholders and earnings per common and common equivalent share would
have been reduced to the pro forma amounts indicated below:
(in millions except per share data) 1996 1995
--------------------------------------------- ----- -----
Net earnings available to common stockholders
As reported ....................... $ 106 $ 96
===== =====
Pro forma ......................... $ 105 $ 95
===== =====
Earnings per common and common equivalent share
As reported ....................... $2.00 $1.73
===== =====
Pro forma ......................... $1.97 $1.72
===== =====
Under the stock option plans, the exercise price of each option equals the
market price of the company's stock on the date of grant. For purposes of
calculating the compensation cost consistent with FAS 123, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in fiscal 1996 and 1995, respectively: dividend yield of 1.0% for all
years; expected volatility of 29 percent and 30 percent; risk free interest
rates of 5.94% and 7.47%; and expected lives of five years.
45
<PAGE>
Additional information on shares subject to options is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ------------------ -------------------
Weighted- Weighted- Weighted-
Number average Number average Number average
of exercise of exercise of exercise
(in thousands except weighted average exercise price) shares price shares price shares price
---------------------------------------------------- -------- --------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ................... 5,478 $ 12 6,162 $ 12 5,786 $ 12
Granted ............................................ 1,632 20 714 14 3,093 12
Exercised .......................................... (608) 12 (1,033) 11 (166) 7
Forfeited .......................................... (137) 14 (365) 11 (2,551) 14
------- -------- ------ ----- ------- ------
Outstanding at the end of year ..................... 6,365 $ 14 5,478 $ 12 6,162 $ 12
======= ======== ====== ===== ======= ======
Options exercisable at year-end .................... 3,703 3,126 3,392
======= ====== =======
Weighted-average fair value of options
granted during the year ......................... $ 6.73 $ 5.01
======= ======
</TABLE>
<PAGE>
The following table summarizes information about stock options outstanding at
September 30, 1996 (number of shares in thousands):
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------- ---------------------
Weighted- Weighted- Weighted-
average average Number average
Number emaining con- exercise of exercise
Range of exercise prices .................of shares tractual life price shares price
--------- ------------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$8 to 11 .................................. 1,585 5.5 years $ 9 1,306 $ 9
$11 to 14 ................................. 1,879 6.5 years 13 1,170 12
$14 to 17 ................................. 1,292 6.5 years 15 744 15
$17 to 20 ................................. 1,405 9.0 years 20 471 20
$20 to 23 ................................. 204 9.0 years 22 12 21
------ --------- ----- ----- -----
6,365 7.0 years $ 14 3,703 $ 13
====== ======== ===== ===== =====
</TABLE>
Note 13 Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the fiscal years ended September 30,
1996 and 1995, is as follows (in millions except for per share amounts):
<TABLE>
<CAPTION>
Quarter ended
-----------------------------------------------------------
December 31, March 31, June 30, September 30,
------------ ------------ -------------- --------------
1995 1994 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue $530 $524 $581 $593 $592 $ 539 $ 728 $ 584
Net earnings to common stockholders $ 25 $ 23 $ 26 $ 24 $ 27 $ 24 $ 28 $ 25
Net earnings per common and
common equivalent share $.47 $.41 $.49 $.43 $.51 $ .44 $ .53 $ .45
</TABLE>
Note 14 Segment Information
The company operates predominantly in the leasing industry. The company operated
in four principal geographic locations during fiscal 1996. The company also
operates in South America.
Transfers between geographic areas include a reasonable profit that is
eliminated in consolidation.
Presented on page 47 is financial information reflecting the company's
leasing and business continuity and network services operations by geographic
area for the years ended September 30, 1996, 1995 and 1994.
46
<PAGE>
<TABLE>
<CAPTION>
United Pacific Export Elimin- Consol-
(in millions) States Europe Canada Rim sales ations idated
------------------------------------------------- ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
Revenue from unaffiliated customers
Leasing ....................................... $1,573 $ 420 $ 75 $ 45 $ - $ - $ 2,113
Business continuity and network services ...... 263 41 14 - - - 318
------ ----- ---- ----- --- ----- -------
Total revenue from unaffiliated customers ....... 1,836 461 89 45 - - 2,431
------ ----- ---- ----- --- ----- -------
Transfers between geographic areas .............. 8 4 4 3 5 (24) -
------ ----- ---- ----- --- ----- -------
Total revenue ............................. $1,844 $ 465 $ 93 $ 48 $ 5 $ (24) $ 2,431
====== ===== ==== ===== === ===== =======
Earnings (loss) before income taxes
Leasing ....................................... $ 113 $ 10 $ 19 $ 1 $ 1 $ (1) $ 143
Business continuity and network services ...... 40 - 1 - - - 41
------ ----- ---- ----- --- ----- -------
Total earnings (loss) before income taxes ........ $ 153 $ 10 $ 20 $ 1 $ 1 $ (1) $ 184
====== ===== ==== ===== === ===== =======
Total assets (end of year)
Leasing ....................................... $4,397 $ 723 $151 $ 83 $23 $ (89) $ 5,288
Business continuity and network services ...... 264 60 19 - - (40) 303
------ ----- ---- ----- --- ----- -------
Total assets ................................ $4,661 $ 783 $170 $ 83 $23 $(129) $ 5,591
====== ===== ==== ===== === ===== =======
1995
Revenue from unaffiliated customers
Leasing ....................................... $1,503 $ 369 $ 50 $ 51 $ - $ - $ 1,973
Business continuity and network services......... 219 33 15 - - - 267
------ ----- ---- ----- --- ----- -------
Total revenue from unaffiliated customers ....... 1,722 402 65 51 - - 2,240
------ ----- ---- ----- --- ----- -------
Transfers between geographic areas .............. 13 24 12 3 8 (60) -
------ ----- ---- ----- --- ----- -------
Total revenue ............................. $1,735 $ 426 $ 77 $ 54 $ 8 $ (60) $ 2,240
====== ===== ==== ===== === ===== =======
Earnings (loss) before income taxes
Leasing ....................................... $ 124 $ 8 $ 13 $ (5) $ - $ (1) $ 139
Business continuity and network services ...... 30 (2) 1 - - - 29
------ ----- ---- ----- --- ----- -------
Total earnings (loss) before income taxes ....... $ 154 $ 6 $ 14 $ (5) $ - $ (1) $ 168
====== ===== ==== ===== === ===== =======
Total assets (end of year)
Leasing ....................................... $3,922 $ 680 $126 $ 100 $23 $(107) $ 4,744
Business continuity and network services ........ 239 61 19 - - (24) 295
------ ----- ---- ----- --- ----- -------
Total assets ................................ $4,161 $ 741 $145 $ 100 $23 $(131) $ 5,039
====== ===== ==== ===== === ===== =======
1994
Revenue from unaffiliated customers
Leasing ....................................... $1,507 $ 231 $ 62 $ 56 $ - $ - $ 1,856
Business continuity and network services ...... 201 25 16 - - - 242
------ ----- ---- ----- --- ----- -------
Total revenue from unaffiliated customers ....... 1,708 256 78 56 - - 2,098
------ ----- ---- ----- --- ----- -------
Transfers between geographic areas .............. 9 37 6 4 3 (59) -
------ ----- ---- ----- --- ----- -------
Total revenue ............................. $1,717 $ 293 $ 84 $ 60 $ 3 $ (59) $ 2,098
====== ===== ==== ===== === ===== =======
Earnings (loss) before income taxes
Leasing ....................................... $ 57 $ 3 $ 12 $ 1 $ - $ (2) $ 71
Business continuity and network services ........ 19 (2) 1 - - - 18
------ ----- ---- ----- --- ----- -------
Total earnings (loss) before income taxes ....... $ 76 $ 1 $ 13 $ 1 $ - $ (2) $ 89
====== ===== ==== ===== === ===== =======
Total assets (end of year)
Leasing ....................................... $3,814 $ 545 $143 $ 100 $22 $ (66) $ 4,558
Business continuity and network services ...... 211 42 16 - - (20) 249
------ ----- ---- ----- --- ----- -------
Total assets ................................ $4,025 $ 587 $159 $ 100 $22 $ (86) $ 4,807
====== ===== ==== ===== === ===== =======
</TABLE>
47
<PAGE>
THE STOCKHOLDERS AND BOARD OF DIRECTORS,
COMDISCO, INC.:
We have audited the accompanying consolidated balance sheets of Comdisco, Inc.
and subsidiaries as of September 30, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended September 30, 1996. 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 generally accepted auditing
standards. 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,
Inc. and subsidiaries at September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1996 in conformity with generally accepted accounting
principles.
/s/ KMPG PEAT MARWICK LLP
Chicago, Illinois
November 5, 1996
Exhibit 21.00
<TABLE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
--------------------- --------------------
<S> <C> <C>
Comdisco Australia PTY. Ltd. Australia 100%
Comdisco Aviation, Inc. Delaware 100%
Comdisco Belgium S.A. Belgium 100%
Comdisco Canada Ltd. Canada 100%
Comdisco Canada Exploration Ltd. Canada 100%
Comdisco Canada Resources Ltd. Canada 100%
Comdisco Danmark A/S Denmark 100%
Comdisco Deutschland GmbH Germany 100%
Comdisco Disaster Recovery Services
Canada Ltd. Canada 100%
Comdisco Disaster Recovery Services
Deutschland GmbH Germany 100%
Comdisco Disaster Recovery Services
Nederland B.V. Netherlands 100%
Comdisco Disaster Recovery Services
U.K. Limited United Kingdom 100%
Comdisco Exploration, Inc. Delaware 100%
Comdisco Factoring (Nederland) B.V. Netherlands 100%
<PAGE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
--------------------- --------------------
Comdisco Financial Services, Inc. Delaware 100%
Comdisco Finland OY Finland 100%
Comdisco Finance (Nederland) B.V. Netherlands 100%
Comdisco Financial Services VmbH Germany 100%
Comdisco France S.A. France 100%
Comdisco Funding Limited (U.K.) United Kingdom 100%
Comdisco Group, Inc. Delaware 100%
Comdisco Handelsgesellschaft M.B.H. Austria 100%
Comdisco Holdings U.K. Ltd. United Kingdom 100%
Comdisco Investment Group, Inc. Delaware 100%
Comdisco Italia SRL Italy 100%
Comdisco Leasing Ltd. U.K. United Kingdom 100%
Comdisco Leasing S.A./N.V. Belgium 100%
Comdisco Medical Equipment Group, Inc. Delaware 100%
Comdisco Medical Exchange, Inc. Delaware 100%
Comdisco Nederland B.V. Netherlands 100%
Comdisco Japan, Inc. Japan 100%
<PAGE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
--------------------- --------------------
Comdisco Norway A/S Norway 100%
Comdisco Portugal Computadores, LDA Portugal 100%
Comdisco Receivables, Inc. Delaware 100%
Comdisco Resources, Inc. Delaware 100%
Comdisco, S.A. Switzerland 100%
Comdisco Sweden, A.B. Sweden 100%
Comdisco Switzerland, S.A. Switzerland 100%
Comdisco Systems, Inc. Delaware 100%
Comdisco Trade, Inc. Delaware 100%
Comdisco United Kingdom Limited United Kingdom 100%
Comdisco International Trade
Corporation Virgin Islands 100%
Aegeris International France 100%
Failsafe/Roc Ltd. United Kingdom 100%
ROC Ltd. United Kingdom 100%
<PAGE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
--------------------- --------------------
Comdisco Computing Services
Corporation Delaware 100%
CDS Foreign Holdings, Inc. Delaware 100%
Comdisco Asia PTE. LTD. Singapore 100%
Computer Discount Corporation Illinois 100%
Computer Discount Corporation
S.A. - Madrid Spain 100%
Computer Recovery Centre
SDN BHD Malaysia 10%
Promodata S.A. France 100%
628761 Alberta Ltd. Canada 100%
</TABLE>
Subsidiaries of the Registrant are included in the consolidated financial
statements.
Exhibit 23.00
[KPMG Peat Marwick LLP Letterhead]
Consent of KPMG Peat Marwick LLP
The Board of Directors
Comdisco, Inc.:
We consent to incorporation by reference in Registration Statement No. 2-76569
on Form S-8, Registration Statement No. 33-20715 on Forms S-8 and S-3,
Registration Statement No. 333-15401 on Form S-3 and Registration Statement No.
33-50659 on Form S-8 of Comdisco, Inc. of our reports dated November 5, 1996,
relating to the consolidated balance sheets of Comdisco, Inc. and subsidiaries
as of September 30, 1996 and 1995 and the related consolidated statements of
earnings, stockholders' equity, and cash flows and related schedule for each of
the years in the three-year period ended September 30, 1996 which reports
appear, or are incorporated by reference, in the September 30, 1996 annual
report on Form 10-K of Comdisco, Inc.
Chicago, Illinois
December 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
consolidated balance sheet of Comdisco, Inc. as of September 30, 1996 and the
consolidated statement of earnings for the year ended September 30, 1996, both
incorporated by reference into the Annual Report on Form 10-K of Comdisco, Inc.
for the year ended September 30, 1996, and is qualified in its entirety by
reference to such financial statments.
</LEGEND>
<CIK> 0000722487
<NAME> Comdisco, Inc.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 29
<SECURITIES> 0
<RECEIVABLES> 239
<ALLOWANCES> 21
<INVENTORY> 155
<CURRENT-ASSETS> 402
<PP&E> 6,433
<DEPRECIATION> 1,823
<TOTAL-ASSETS> 5,591
<CURRENT-LIABILITIES> 1,501
<BONDS> 1,771
0
89
<COMMON> 7
<OTHER-SE> 703
<TOTAL-LIABILITY-AND-EQUITY> 5,591
<SALES> 1,797
<TOTAL-REVENUES> 2,431
<CGS> 1,246
<TOTAL-COSTS> 1,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262
<INCOME-PRETAX> 184
<INCOME-TAX> 70
<INCOME-CONTINUING> 114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 2.00
</TABLE>
