UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the transition
period from _______________ to _______________
Commission file number 1-7725
I.R.S. Employer Identification Number 36-2687938
COMDISCO, INC.
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone: (847) 698-3000
Name of each Number of shares
Title of exchange on outstanding as of
each class which registered June 30, 1997
------------- ----------------------- -----------------
Common stock, New York Stock Exchange 74,301,841
$.10 par value Chicago Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No .
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Comdisco, Inc. and Subsidiaries
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Earnings and Retained Earnings --
Three and Nine Months Ended June 30, 1997 and 1996.......................3
Consolidated Balance Sheets --
June 30, 1997 and September 30, 1996.....................................4
Consolidated Statements of Cash Flows --
Nine Months Ended June 30, 1997 and 1996.................................5
Notes to Consolidated Financial Statements.................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................12
SIGNATURES....................................................................13
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PART I. FINANCIAL INFORMATION
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
(in millions except per share data)
For the Three and Nine Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
--------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Leasing
Operating ......................... $ 415 $ 349 $ 1,207 $ 995
Direct financing .................. 36 37 108 116
Sales-type ........................ 89 54 221 143
------- ------- ------- -------
Total leasing .................. 540 440 1,536 1,254
Sales ............................... 68 54 173 179
Continuity and network services ..... 91 83 260 231
Other ............................... 13 15 66 39
------- ------- ------- -------
Total revenue ..................... 712 592 2,035 1,703
------- ------- ------- -------
Costs and expenses
Leasing
Operating ......................... 332 266 953 750
Sales-type ........................ 62 38 151 97
------- ------- ------- -------
Total leasing .................. 394 304 1,104 847
Sales ............................... 51 45 130 145
Continuity and network services ..... 76 72 218 201
Selling, general and administrative . 61 60 181 180
Interest ............................ 75 64 221 194
Other ............................... -- -- 25 --
------- ------- ------- -------
Total costs and expenses .......... 657 545 1,879 1,567
------- ------- ------- -------
Earnings before income taxes ........... 55 47 156 136
Income taxes ........................... 21 18 59 52
------- ------- ------- -------
Net earnings before preferred dividends 34 29 97 84
Preferred dividends .................... (2) (2) (6) (6)
------- ------- ------- -------
Net earnings to common stockholders ... $ 32 $ 27 $ 91 $ 78
======= ======= ======= =======
Retained earnings at beginning of period $ 908 $ 808 $ 856 $ 764
Net earnings to common stockholders ... 32 27 91 78
Cash dividends paid on common stock .... (4) (4) (11) (11)
------- ------- ------- -------
Retained earnings at end of period ..... $ 936 $ 831 $ 936 $ 831
======= ======= ======= =======
Net earnings per common and common equivalent share:
Net earnings to common stockholders $ .40 $ .34 $ 1.15 $ .98
======= ======= ======= =======
Cash dividends paid per common share $ .05 $ .05 $ .14 $ .14
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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Comdisco, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions except number of shares)
June 30 September 30
1997 1996
------- -------
(unaudited) (audited)
ASSETS
Cash and cash equivalents .............................. $ 55 $ 29
Cash - legally restricted .............................. 34 27
Receivables, net ....................................... 229 218
Inventory of equipment ................................. 159 155
Leased assets:
Direct financing and sales-type ...................... 1,657 1,768
Operating (net of accumulated depreciation) .......... 3,481 2,842
------- -------
Net leased assets .................................. 5,138 4,610
Buildings, furniture and other, net .................... 142 149
Other assets ........................................... 371 403
------- -------
$ 6,128 $ 5,591
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable .......................................... $ 1,011 $ 1,127
Term notes payable ..................................... 497 374
Senior and subordinated debt ........................... 2,311 1,771
Accounts payable ....................................... 120 135
Income taxes ........................................... 279 279
Other liabilities ...................................... 279 325
Discounted lease rentals ............................... 777 781
------- -------
5,274 4,792
------- -------
Stockholders' equity:
Preferred stock $.10 par value .......................
Authorized 100,000,000 shares:
8.75% Cumulative Preferred Stock, Series A and B
$25 stated value and liquidation preference .....
3,562,600 shares issued ........................ 89 89
Common stock $.10 par value ..........................
Authorized 200,000,000 shares
issued 109,825,531 shares
(108,778,814 at September 30, 1996) ................ 11 7
Additional paid-in capital ........................... 178 165
Deferred compensation (ESOP) ......................... (3) (5)
Deferred translation adjustment ...................... (16) 5
Retained earnings .................................... 936 856
------- -------
1,195 1,117
Common stock held in treasury, at cost ............... (341) (318)
------- -------
Total stockholders' equity ....................... 854 799
------- -------
$ 6,128 $ 5,591
======= =======
See accompanying notes to consolidated financial statements.
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Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
Nine Months Ended June 30, 1997 and 1996
Increase (decrease) in cash and cash equivalents:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Operating lease and other leasing receipts .............. $ 1,259 $ 1,123
Direct financing and sales-type leasing receipts ........ 627 700
Leasing costs, primarily rentals paid ................... (22) (27)
Sales ................................................... 176 186
Sales costs ............................................. (58) (90)
Continuity and network services receipts ................ 251 230
Continuity and network services costs ................... (146) (128)
Other revenue ........................................... 41 39
Litigation settlement ................................... 25 --
Selling, general and administrative expenses ............ (172) (168)
Interest ................................................ (218) (186)
Income taxes ............................................ (35) (11)
------- -------
Net cash provided by operating activities ............. 1,728 1,668
------- -------
Cash flows from investing activities:
Equipment purchased for leasing .......................... (2,175) (1,717)
Investment in continuity and network services facilities . (42) (51)
Other .................................................... (1) (35)
------- -------
Net cash used in investing activities ................. (2,218) (1,803)
------- -------
Cash flows from financing activities:
Discounted lease proceeds ............................... 360 193
Net increase (decrease) in notes payable . .............. (116) 416
Issuance of term notes and senior notes ................. 1,006 409
Maturities and repurchases of term notes and senior notes (343) (389)
Principal payments on secured debt ...................... (364) (467)
Increase (decrease) in legally restricted cash .......... (8) 10
Preferred stock repurchased ............................. -- (2)
Common stock repurchased and placed in treasury ......... (23) (60)
Dividends paid on common stock .......................... (11) (11)
Dividends paid on preferred stock ....................... (6) (6)
Other ................................................... 21 (19)
------- -------
Net cash provided by financing activities ............. 516 74
------- -------
Net increase (decrease) in cash and cash equivalents ....... 26 (61)
Cash and cash equivalents at beginning of period ........... 29 85
------- -------
Cash and cash equivalents at end of period ................. $ 55 $ 24
======= =======
</TABLE>
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Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED
(in millions)
Nine Months Ended June 30, 1997 and 1996
1997 1996
------ ------
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings .............................................. $ 97 $ 84
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Leasing costs, primarily
depreciation and amortization ....................... 1,082 820
Leasing revenue, primarily principal portion of
direct financing and sales-type lease rentals ....... 346 569
Cost of sales ......................................... 72 55
Continuity and network services costs, primarily
depreciation and amortization ....................... 75 73
Interest .............................................. 3 8
Income taxes .......................................... 23 41
Other - net ........................................... 30 18
------ ------
Net cash provided by operating activities $1,728 $1,668
====== ======
Supplemental schedule of noncash financing activities:
Common stock issued in acquisition of NetforceMTI $ - $ 9
======= ======
See accompanying notes to consolidated financial statements.
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Comdisco, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997 and 1996
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial statements and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and disclosures required by generally accepted
accounting principles for annual financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended September 30, 1996.
The balance sheet at September 30, 1996 has been derived from the
audited financial statements included in the Company's Annual Report on
Form 10-K for the year ended September 30, 1996.
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.
Certain reclassifications have been made in the 1996 financial
statements to conform to the 1997 presentation.
2. Interest-Bearing Liabilities
At June 30, 1997, the Company had $1.5 billion of available domestic
and international borrowing capacity under various lines of credit from
commercial banks and commercial paper facilities, of which
approximately $500 million was unused.
The average daily borrowings outstanding during the nine months ended
June 30, 1997 were approximately $4.4 billion, with a related weighted
average interest rate of 6.69%. This compares to average daily
borrowings during the first nine months of fiscal 1996 of approximately
$3.6 billion, with a related weighted average interest rate of 7.03%.
3. Senior Notes
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 a previous shelf
registration statement) 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, and, on December 6, 1996, filed a Prospectus Supplement
designating $500 million of the senior debt securities as "Medium-Term
Notes, Series F." The Company sold $190 million of medium-term notes
between December 6, 1996 and May 1, 1997. On May 1, 1997, the Company
redesignated $50 million of the then remaining $310 million of
medium-term notes, which together with the $200 million previously
unallocated under the 1996 Shelf, were issued by the Company on May 6,
1997 as $250 million of 6.50% Notes Due April 30, 1999. The Company
sold an additional $107 million of medium-term notes between May 1,
1997 and June 30, 1997. As a result of these sales and the
redesignation, an aggregate of $178 million of medium-term notes remain
available for issuance under the 1996 Shelf as of June 30, 1997. No
securities have been sold from the 1997 Shelf as of the date of this
filing.
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<PAGE>
On June 23, 1997, the Company filed a registration statement on Form
S-3 with the Securities and Exchange Commission for a shelf offering of
up to $1.2 billion of senior debt securities on terms to be set at the
time of each sale (the "1997 Shelf").
4. Common Stock
On July 22, 1997, the Board of Directors declared a quarterly cash
dividend of $.05 per common share to be paid on September 2, 1997 to
common stockholders of record as of August 1, 1997.
On May 6, 1997, the Board of Directors authorized a three-for-two split
of the Company's common stock which was distributed on June 16, 1997 to
holders of record on May 23, 1997. Accordingly, all references in the
financial statements and notes to common share data have been adjusted
to reflect the split.
During the quarter ended June 30, 1997, the Company purchased
approximately 209,000 shares of its common stock under its common stock
repurchase program at a cost of $4.6 million. Approximately 593,000
shares were purchased between June 30, 1997 and July 25, 1997 at a cost
of $14 million.
Earnings per common and common equivalent share reflects the assumed
exercise of stock options that would have a dilutive effect on earnings
per common share if exercised.
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<PAGE>
Comdisco, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net Earnings
------------
Net earnings to common stockholders (hereinafter referred to as "net
earnings") for the three months ended June 30, 1997 were $32 million,
or $.40 per common share, as compared to $27 million, or $.34 per
common share, for the three months ended June 30, 1996. Net earnings
for the nine months ended June 30, 1997, were $91 million, or $1.15 per
common share, as compared to $78 million, or $.98 per common share, for
the year earlier period. The increase in net earnings in the three and
nine months ended June 30, 1997 compared to the year earlier periods is
primarily due to increases in earnings contributions from remarketing
and continuity activities. Earnings per share in the current year
periods benefited from the Company's stock repurchase program, which
has reduced the average common equivalent shares outstanding.
The Company's operating results are subject to quarterly fluctuations
resulting from a variety of factors, including the volume of new leases
written, fair market value volatility in large systems, product
announcements by manufacturers, economic conditions, interest rate
fluctuations and variations in the mix of leases written. The mix of
leases written in a quarter is a result of a combination of factors,
including, but not limited to, changes in customer demands and/or
requirements, new product announcements, price changes, changes in
delivery dates, changes in maintenance policies and the pricing
policies of equipment manufacturers, and price competition from other
lessors and finance companies. Additionally, the growth in leasing
volume during the last four fiscal quarters has the effect of
increasing the proportion of leases for new equipment ("New Leases") to
total leases. New Leases traditionally have lower earnings
contributions than leases for remarketed equipment. As a result,
increasing lease volume initially has the impact of reducing leasing
margins.
Business Outlook
----------------
Leasing volume, as measured by the cost of equipment placed on lease,
increased in the three and nine months ended June 30, 1997 as compared
to both the year earlier periods and the prior quarter. Lease volume in
the current quarter was the highest quarterly volume level in the
Company's history. The growth in leasing volume is expected to have a
positive impact on leasing revenue in future periods and will provide
equipment for remarketing.
Cost of equipment placed on lease was $803 million during the quarter
ended June 30, 1997. This compares to cost of equipment placed on lease
of $701 million and $754 million during the quarters ended June 30,
1996 and March 31, 1997, respectively. During the nine months ended
June 30, 1997, cost of equipment placed on lease totaled $2.2 billion
compared to $1.8 billion during the nine months ended June 30, 1996. In
the current quarter, Information Technology Services (as defined in the
Company's Annual Report on Form 10-K for the year ended September 30,
1996) had cost of equipment placed on lease of $542 million, compared
to $442 million in the year earlier quarter. The increase was due to an
increase in leasing of distributed systems equipment, both domestically
and internationally. The growth in distributed systems reflects
industry trends in information technology. Large systems equipment
volume was $138 million in the current period compared to $209 million
in the prior year period. Diversified Technology Services (as defined
in the Company's Annual Report on Form 10-K for the year ended
September 30, 1996) had cost of equipment placed on lease of $122
million, compared to $150 million in the year earlier period.
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<PAGE>
Remarketing activity, an important contributor to quarterly earnings,
increased compared to the third quarter of fiscal 1996, and exceeded
the previous record earnings contribution level achieved in the fourth
quarter of fiscal 1996. To meet its quarterly earnings goals,
remarketing contributions have to be at approximately the level
achieved in the current fiscal quarter. While the Company is devoting
resources to its remarketing activities, there can be no assurance that
the Company will achieve the appropriate level of activity necessary to
meet the Company's desired operating results.
Continuity and Network Services had its seventh consecutive record
quarter with pretax earnings of $15 million. This compares to pretax
earnings of $14 million in the second quarter of the current fiscal
year and $11 million in the same quarter of the prior fiscal year.
Revenues increased 10% and 13% over the same three and nine month
periods of the prior year. Revenues from operations in Europe grew 15%
and 20% over the similar three and nine month periods of fiscal 1996,
while generating pretax earnings compared to pretax losses in the year
earlier periods. The Company continued to invest significant additional
capital to expand its service offerings and enhance future revenues. In
the nine months of the fiscal year, capital expenditures were $42
million, including $8 million in Europe. This includes additions in
Large Systems, Mid-Range Systems, Network Products and expansion of
Workarea to more than twenty-five locations. It also includes the
Company's initial entry into Trading Floor continuity operations with
the addition of facilities in Rutherford, New Jersey and Minneapolis,
Minnesota. Revenue backlog in the Network Services area grew by over
$19 million in the quarter to a total of $91 million. Additionally,
Continuity and Network Services continues to focus on cost containment
to maintain and improve margins. The Company believes that the earnings
contributions from services should be greater than the Company is
currently achieving, and accordingly, the Company is devoting
additional resources and efforts to increasing service revenues.
Three months ended June 30, 1997
--------------------------------
Total revenue for the three months ended June 30, 1997 was $712 million
compared to $592 million in the prior year quarter and $690 million,
including the $25 million litigation settlement (see following
discussion), in the quarter ended March 31, 1997. The increase in the
current quarter compared to the prior year quarter was primarily due to
higher total leasing revenue, principally from operating leases. Total
leasing revenue of $540 million for the quarter ended June 30, 1997
represented an increase of 23% compared to the year earlier period.
Total leasing revenue was $506 million in the second quarter of fiscal
1997.
The increase in New Leases, particularly during the last twelve months,
coupled with lower margins on large systems transactions, has resulted
in lower margins on leasing, particularly for operating leases.
Operating lease revenue minus operating lease cost was $83 million, or
20.0% of operating lease revenue (collectively, the "Operating Lease
Margin"), and $83 million, or 23.8% of operating lease revenue, in the
three months ended June 30, 1997 and 1996, respectively. The Operating
Lease Margin was $86 million, or 21.4% in the quarter ended March 31,
1997. Because of the expected high levels of leasing volume and the
expectation that large systems margins will continue at or below
current levels, the Company expects continued pressure on leasing
margins throughout fiscal 1997 and fiscal 1998.
Revenue from sales, which includes remarketing by selling and buy/sell
activities, totaled $68 million in the third quarter of fiscal 1997
compared to $54 million in the year earlier quarter. The increase in
sales revenue in the current quarter is primarily due to higher
distributed systems sales, offset by reduced sales and sales revenue
per unit on large systems. Sales from distributed systems equipment
which generally have higher margins as compared to large system sales,
increased in the current year period compared to the year earlier
period. Margins on sales were 25% and 17% in the quarters ended June
30, 1997 and 1996, respectively.
Other revenue for the three months ended June 30, 1997 and 1996 was $13
million and $15 million, respectively. Revenue from the sale of
ownership positions held as a result of the Company's lease financing
transactions with early-stage high technology companies (referred to as
Comdisco Ventures, part of the Company's Diversified Technologies
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<PAGE>
Group) was $7 million and $3 million in the three months ended June 30,
1997 and 1996, respectively. The prior year quarter includes $2 million
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.
Total costs and expenses of $657 million for the quarter ended June 30,
1997 represented a 21% increase compared to the prior year period. The
increase in total costs and expenses is primarily due to the growth in
leasing volume, including higher interest expense, increased leasing
costs related to increasing operating lease revenue, and the growth of
continuity and network services. Cost of continuity and network
services activities for the three months ended June 30, 1997 and 1996
was $76 million and $72 million, respectively, a 6% increase.
Interest expense for the three months ended June 30, 1997 totaled $75
million in comparison to $64 million in the quarter ended June 30, 1996
and $73 million in the quarter ended March 31, 1997. The increase in
the current quarter compared to the year earlier quarter is due to
higher average daily borrowings resulting from increased leased assets
at September 30, 1996 and an increase in equipment purchased for lease
during both the current quarter and the first half of fiscal 1997
compared to the year earlier periods.
Nine Months Ended June 30, 1997
-------------------------------
Total revenue was $2.0 billion and $1.7 billion for the nine months
ended June 30, 1997 and 1996, respectively. Total leasing revenue was
$1.5 billion and $1.3 billion for the nine months ended June 30, 1997
and 1996, respectively.
Other revenue for the nine months ended June 30, 1997 and 1996 was $66
million and $39 million, respectively. Other revenue for the nine
months ended June 30, 1997 includes a gain of $25 million ($16 million
after-tax, or $.20 per common share) resulting from the receipt of
amounts in settlement of litigation during the quarter ended March 31,
1997. Revenue from the sale of equity positions held as a result of the
Company's lease financing transactions with early-stage high technology
companies was $15 million and $9 million in the nine months ended June
30, 1997 and 1996, respectively. In addition, in the second quarter of
fiscal 1997, the Company recorded approximately $10 million of gains
from the sale of other investments owned by the Company. Other revenue
for the nine months ended June 30, 1996 includes $6 million, 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.
Total costs and expenses of $1.9 billion for the nine months ended June
30, 1997, represented an increase of 20% over the comparative period of
the prior year. The increase in total costs and expenses is primarily
due to the growth in leasing volume including higher interest expense,
increased leasing costs related to increasing operating and sales-type
lease revenue and a one-time charge of $25 million (see discussion
below).
In the second quarter of fiscal 1997, the Company recorded a noncash,
non-operating charge of $25 million ($16 million after-tax, or $.20 per
common share) as a one-time addition to the equipment valuation
allowance. The addition to the equipment valuation allowance reflects
the surge in distributed equipment volume during the last three fiscal
quarters (a trend that is expected to continue in the near-term), the
rapid level of technological change associated with such equipment and
continued declines in the fair market value of large systems.
The Operating Lease Margin was $254 million, or 21.0% of operating
lease revenue, and $245 million, or 24.6% of operating lease revenue,
in the nine months ended June 30, 1997 and 1996, respectively. The
increase in lease volume, particularly during the last twelve months,
coupled with lower margins on large systems transactions, has resulted
in lower margins on leasing, particularly for operating leases. The
Company continues to monitor volatility in large systems fair market
values, which, during the last six months in particular, have declined
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<PAGE>
faster and exhibited greater volatility than historical trends would
have otherwise indicated. As a result, there is no assurance that fair
market values on large systems will stabilize or that further rapid
declines in the value of such systems will not occur in the near term.
To the extent that declines in fair market values exceed the Company's
current estimates, there could be an adverse effect on the Company's
operating results.
Interest expense was $221 million for the nine months ended June 30,
1997 as compared to $194 million for the year earlier period. The
increase in interest expense is primarily due to higher average daily
borrowings offset by lower interest rates (see Note 2 of Notes to
Consolidated Financial Statements).
Financial Condition
-------------------
The Company's current financial resources and estimated cash flows from
operations are considered adequate to fund anticipated future growth
and operating requirements. The Company utilizes a variety of financial
instruments to fund its short and long-term needs.
Capital expenditures for equipment are generally financed by cash
provided by operating activities, recourse debt, or by assigning the
noncancelable lease rentals to various financial institutions at fixed
interest rates on a nonrecourse basis. Cash provided by operating
activities for the nine months ended June 30, 1997 and 1996 was $1.7
billion. Cash provided by operations has been used to finance equipment
purchases and, accordingly, had a positive impact on the level of
borrowing required to support the Company's investment in its lease
portfolio. The Company expects this trend to continue, with cash flow
from leasing and remarketing reinvested in the equipment portfolio.
Note on Forward-Looking Information
-----------------------------------
Certain statements in this Form 10-Q and in the future filings by the
Company with the Securities and Exchange Commission and in the
Company's written and oral statements made by or with the approval of
an authorized executive officer constitute "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. The words "believe", "expect" and "anticipate"
and similar expressions identify forward-looking statements. These
forward-looking statements reflect the Company's current views with
respect to future events and financial performance, but are subject to
many uncertainties and factors relating to the Company's operations and
business environment which may cause the actual results of the Company
to be materially different from any future results expressed or implied
by such forward-looking statements. Examples of such uncertainties
include, but are not limited to, the volume of New Leases, fair market
value volatility in large systems, changes in economic conditions
resulting in changes in the Company's historical lease default rate,
changes in customer demand and requirements, financial mix of leases
written, new product announcements, interest rate fluctuations, changes
in federal income tax laws and regulations, competition, unanticipated
expenses and delays in the integration of newly-acquired businesses,
industry specific factors and world wide economic and business
conditions. The growth in leasing volume during the last four fiscal
quarters has increased the proportion of leases for new equipment to
total leases. New Leases traditionally have lower earnings
contributions than leases for remarketed equipment. Accordingly, the
increase in lease volume has put pressure on leasing margins. The
financial mix of leases written in a quarter is a result of a
combination of factors, including, but not limited to, changes in
customer demands and/or requirements, new product announcements, price
changes, changes in delivery dates, changes in maintenance policies and
the pricing policies of equipment manufacturers, and price competition
from other lessors. 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.
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<PAGE>
Recently Issued Professional Accounting Standards
-------------------------------------------------
Statement of Financial Accounting Standards No. 128, Earnings Per
Share, was issued in February 1997. The Company will be required to
adopt the standard in fiscal 1998 (earlier adoption is prohibited). The
standard adopts a simpler calculation methodology for determining
number of shares outstanding. Had earnings per share been determined
consistent with Statement of Financial Accounting Standards No. 128,
the Company's earnings per common and common equivalent share ("EPS")
would have been increased to the pro forma amounts indicated below:
Three Months Nine Months
ended ended
June 30 June 30
--------------- ----------------
1997 1996 1997 1996
---- ---- ----- -----
As reported .............. $.40 $.34 $1.15 $ .98
Pro forma - basic EPS .... .43 .36 1.23 1.02
Pro forma - diluted EPS... .40 .34 1.15 .98
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Item 6. Exhibits and Reports on Form 8-K.
a) 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 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.
3.03 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.
3.04 Certificate of Designations with respect to the Company's 8
3/4% Cumulative Preferred Stock, Series B, as filed with the
Secretary of the State of Delaware on July 2, 1994.
Incorporated by reference to Exhibit 4.1 filed with the
Company's Current Report on Form 8-K dated June 30, 1994, as
filed with the Commission July 21, 1994, File No. 1-7725.
4.01 Shareholder Rights Agreement dated 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.
4.02 Indenture Agreement between Registrant and Yasuda Bank and
Trust Company (U.S.A.), as Trustee dated as of December 1, 1995
Incorporated by reference to Exhibit 4.1 filed with the
Company's Current Report on Form 8-K dated January 12, 1996, as
filed with the Commission on January 17, 1996, File No. 1-7725,
the copy of the Indenture dated as of December 1, 1995 between
the Registrant and Yasuda Bank and Trust Company (U.S.A.), as
Trustee
11 Computation of Earnings Per Common Share
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
b) Reports on Form 8-K:
None
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
COMDISCO, INC.
Registrant
Date: July 29, 1997 /s/ John J. Vosicky
-------------------
John J. Vosicky
Executive Vice President and
Chief Financial Officer
-15-
Comdisco, Inc. and Subsidiaries
Exhibit 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(in millions except per share data)
Average shares used in computing net earnings per common and common equivalent
share were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
ended ended
June 30 June 30
------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding ................. 74 76 74 76
Effect of dilutive options ................. 5 4 5 4
---- ---- ----- -----
Total ................................... 79 80 79 80
==== ==== ===== =====
Net earnings to
common stockholders $ 32 $ 27 $ 91 $ 78
===== ===== ===== =====
Net earnings per common and
common equivalent share $ .40 $ .34 $1.15 $ .98
===== ===== ===== =====
</TABLE>
On May 6, 1997, the Board of Directors authorized a three-for-two split of the
Company's common stock to be distributed on June 16, 1997 to stockholders of
record on May 23, 1997. 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.
-16-
Comdisco, Inc. and Subsidiaries
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Nine months ended
June 30 For the years ended September 30
------------ --------------------------------
1997 1996 1996 1995 1994 1993 1992
----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges
Interest expense <F1> ........................................................... $223 $197 $267 $278 $266 $295 $355
Approximate portion of
rental expense representative
of an interest factor ......................................................... 4 6 7 11 13 22 29
---- ---- ---- ---- ---- ---- ----
Fixed charges ................................................................... 227 203 274 289 279 317 384
Earnings from continuing operations
before income taxes,
extraordinary item, and cumulative
effect of change in accounting principle,
net of preferred stock dividends ............................................... 149 130 176 160 80 137 34
---- ---- ---- ---- ---- ---- ----
Earnings from continuing operations before income taxes, extraordinary item,
cumulative effect of change
in accounting principle and fixed charges, net of
preferred stock dividends ....................................................... $376 $333 $450 $449 $359 $454 $418
==== ==== ==== ==== ==== ==== ====
Ratio of earnings to fixed charges 1.66 1.64 1.64 1.55 1.29 1.43 1.09
==== ==== ==== ==== ==== ==== ====
Rental expense:
Equipment subleases ............................................................. $ 5 $ 12 $ 14 $ 22 $ 30 $ 57 $ 77
Office space, furniture, etc .................................................... 6 6 8 10 8 8 10
---- ---- ---- ---- ---- ---- ----
Total ........................................................................ $ 11 $ 18 $ 22 $ 32 $ 38 $ 65 $ 87
==== ==== ==== ==== ==== ==== ====
1/3 of rental expense......................................................... $ 4 $ 6 $ 7 $ 11 $ 13 $ 22 $ 29
==== ==== ==== ==== ==== ==== ====
<FN>
<F1> Includes interest expense incurred by continuity and network services and
included in continuity and network services expenses on the statements of
earnings.
</FN>
</TABLE>
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information
extracted from the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000722487
<NAME> Comdisco, Inc.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> Oct-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 89
<SECURITIES> 0
<RECEIVABLES> 248
<ALLOWANCES> 19
<INVENTORY> 159
<CURRENT-ASSETS> 477
<PP&E> 7,065
<DEPRECIATION> 1,927
<TOTAL-ASSETS> 6,128
<CURRENT-LIABILITIES> 1,131
<BONDS> 2,311
0
89
<COMMON> 11
<OTHER-SE> 754
<TOTAL-LIABILITY-AND-EQUITY> 6,128
<SALES> 1,536
<TOTAL-REVENUES> 2,035
<CGS> 1,104
<TOTAL-COSTS> 1,879
<OTHER-EXPENSES> 554
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> 156
<INCOME-TAX> 59
<INCOME-CONTINUING> 97
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
