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, 1997
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
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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 8, 1997 was approximately
$1,732,000,000. For purposes of the foregoing calculation only, all directors
and executive officers of the registrant have been deemed affiliates. As of
September 30, 1997, there were 74,040,661 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, 1997 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 20, 1998 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
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PART I.
Item 1. Business .............................................................................. 3
Item 2. Properties .............................................................................. 8
Item 3. Legal Proceedings ....................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders...................................... 9
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................ 10
Item 6. Selected Financial Data................................................................. 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 11
Item 8. Financial Statements and Supplementary Data............................................. 11
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 11
PART III.
Item 10. Directors and Executive Officers of Registrant............................................12
Item 11. Executive Compensation ................................................................. 12
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 12
Item 13. Certain Relationships and Related Transactions........................................... 12
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.......................... 13
SIGNATURES ........................................................................................... 14
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE......................................... 15
INDEX TO EXHIBITS ..................................................................................... 18
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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, business
services, providing technology services, continuity services and network design,
implementation and management to its customers. These services are designed to
provide integrated, long-term, cost effective asset and technological planning
as well as data and voice availability and recovery to users of high technology
equipment.
The Company provides customers with 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 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 organizations. The Company's
businesses are not dependent on any single customer or on any single source for
the purchasing, selling or leasing of equipment, or in connection with its
continuity services.
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, 1997, the Company had approximately 2,400 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:
Financial Management:
Distributed Equipment: Leasing and remarketing services, for
distributed computing systems--servers, workstations, PCs, local area
networks and telecommunications equipment. Enterprise Equipment:
Leasing and remarketing services for mainframe and midrange systems.
Business units comprising Financial Management are the groups
responsible for the buying, selling, and leasing of distributed
equipment and enterprise equipment, referred to internally as the
Financial Management Division ("FMD").
FMD works closely with Integrated Technology Services (see discussion
following) to provide continuity, network services and asset
management.
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Integrated Technology Services ("ITS"):
Continuity Services: Enterprisewide continuity services that emphasize
technology and data and voice availability across data centers,
networks, distributed systems, and the desktop computing environment.
ITS is also a provider of trading floor recovery services to brokerage
firms and financial institutions.
Network Services: Services for managing data and voice networks,
including planning, designing, implementing and operating capabilities
for wide area networks (WANS) and local area networks (LANS).
Asset Management: Services for managing information technology assets,
including software tools and consulting.
Millennium Testing Services:Services for testing program conversions
for the year 2000 problem.
Business units in ITS are Continuity Services, Network Services and a
consulting staff providing asset management and continuity planning
services (collectively, these business units are referred to
internally as "InTeServe").
Diversified Technology Services ("DTS"):
Diversified Equipment: Leasing, asset management and reconditioning
services for semiconductor manufacturers, hospitals and related
healthcare providers, and equipment leasing and remarketing services
to venture capital backed start-up companies.
Business units in DTS are Electronics Group, Healthcare Group,
Laboratory and Scientific Group, Medical Exchange and Ventures
Division.
The Company's operations are conducted through its principal office in the
Chicago area and approximately one hundred 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, and in Europe, each local subsidiary, is directed by its own
management team and has its own marketing and 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 regional reporting structures
that coordinate marketing and support efforts across business units and through
the home office with centralized budgeting and shared services such as human
resources, legal, cash management, operations and accounting. In Europe, the
local subsidiaries report directly to one European home office, which is
responsible for establishing goals and coordination of local activities, which
in turn reports to the Office of the President.
The business units maintain their own direct marketing force to manage their
customer base and to market their own services as well other units' services. In
addition, the Company may, from time-to time, enter into marketing relationships
with 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 21 of the Annual Report to Stockholders
for the fiscal year ended September 30, 1997 (which is incorporated herein by
reference) for a discussion of the Company's geographic results of operations in
fiscal 1997, 1996 and 1995 and Note 13 of Notes to Consolidated Financial
Statements on pages 38 and 39 of the Annual Report to Stockholders for the year
ended September 30, 1997, which includes geographic segment and export sales
information and is incorporated herein by reference.
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Forward-Looking Statements
Certain statements herein 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 and phrases "looking ahead," "we are
confident," "should be," "will be," "predicted," "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 customer demand and
requirements, attaining the expected level of remarketing (which will require
equipment for remarketing, appropriate salesforce education and incentive and a
knowledge of the customer and customer requirements), financial mix of leases
written, new product announcements, continued growth of the semiconductor
industry, trend of movement to client/server environment, interest rate
fluctuations, changes in federal income tax laws and regulations, competition,
including competition from other technology service providers, reductions in
technology budgets and related spending plans and price competition from other
technology service providers. The growth in leasing volume during the last five
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. With respect to economic conditions, a
recession can cause customers to put off new investments and increase the
company's bad debt experience. In addition, the recent economic turmoil in Asia
may have an impact on the regions semiconductor manufacturing industry, which in
turn would have an impact on the Company's diversified technology business.
Continued pressures on credit in Asia and the Asian economy in general, could
also impact the domestic economy and/or the Company's multinational customer
base. 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, further events or otherwise.
Financial Management
Distributed Equipment: 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 "Asset Management") to its
existing and prospective customers. The Company believes that approximately 53%
of the cost of equipment placed on lease (including International operations) in
fiscal 1997 was distributed computing systems.
The Company's Financial Management Division also buys, sells, and leases new and
refurbished telecommunications equipment. 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.
Enterprise Equipment: The Company buys or leases, and in turn sells, leases or
subleases computer 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.
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Recent technological advances in mainframe technology have focused on "parallel
processing" systems. These systems include transaction processing and database
server models, designed for both "legacy" and newer technologies in open
systems. The current generation of mainframes rely on cost-effective
"complementary metal-oxide semiconductor (referred to as "CMOS)" technology.
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 enterprise
equipment 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 30% of the cost of
equipment it placed on lease in fiscal 1997 (including International operations)
was enterprise equipment. The Company does not expect this percentage to
increase in fiscal 1998.
Integrated Technology Services
Continuity Services: These services, include continuity services for large
central processing sites, client/server, workstation and PC environments; as
well as local and wide area networks and voice availability and recovery
capabilities, as well as consulting services in continuity planning, network
services and data protection, and other related data processing services,
throughout the United States, Canada and Europe. The Company provides backup
capabilities for, among others, Digital Equipment Corporation, Hitachi Data
Systems,IBM, Hewlett Packard, Sequent, Stratus, Sun Micro Systems, Tandem and
Unisys equipment users. Comdisco's services are designed to help customers avoid
and 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 CCS 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. These facilities also are used for the Company's Millennium
Testing Services, which allows customers to test their Year 2000 conversion
projects.
Of the Company's approximately forty continuity locations, nine 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.
Comdisco believes it operates one of the largest communications networks in
North America.
Network Services: In fiscal 1996, Comdisco formed Network Services ("CNS") and
acquired NetforceMTI. CNS offers network assessment, design, implementation,
help desk and professional management services designed to reduce the total cost
of network technology. The Company's customer base is primarily North
American-based enterprises as its monitoring and on-site support capabilities
are predominantly within the United States.
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Asset Management: The Company provides strategic solutions for asset management
consulting services to its customers to assist them in managing their
information technology assets with the objective of increasing productivity and
reducing 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
Financial Management Division activities, include transitional strategies,
integration planning and implementation, financing (hardware and software), and
continuity planning. The Company's integrated asset management software tools
let customers order, track and manage their inventory of distributed systems
equipment.
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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 healthcare 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 oscilloscopes, analyzers and testers and laboratory equipment such as
microscopes and centrifuges. Additionally, the Company has a medical equipment
refurbishing facility and has earned ISO certification for its facility.
Laboratory and Scientific Group: The Company's laboratory and scientific group
assists organizations in the pharmaceutical, chemical, research, healthcare and
biotechnology industries through the implementation of an equipment life-cycle
management strategy. Its marketing strategy includes financing, technology risk
management and remarketing.
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 what it identifies
as growth industries and, in fiscal 1997, its business included Internet-related
software or services and telecommunications. Other primary markets include
client/server, multimedia and healthcare.
The Company believes that approximately 17% of the equipment placed on lease in
fiscal 1997 (including international operations in Europe and the Pacific Rim)
was placed by the Company's Diversified Technology Services group.
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 independence from the manufacturer 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 enterprise equipment 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.
In PCs, workstations, electronics, healthcare and telecommunications, the
Company believes it competes with the manufacturers and their captive leasing
companies and approximately three significant leasing companies, as well as
banks and other lessors and
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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.
In continuity services, the Company believes that it competes with approximately
two significant domestic companies, IBM and SunGard Data Systems, Inc., as well
as regional firms in the domestic, Canadian and European marketplace, which
provide contract continuity services, and that it is the largest international
provider of such services.
In network services, the Company competes with telecommunications firms, such as
AT&T and MCI Communications, consulting organizations, such as Andersen
Consulting and EDS, and other local and regional providers.
In asset management, the Company believes it competes with a number of large
general contractors such as AT&T, GE Capital ITS, Hewlett-Packard and IBM, all
companies with significant resources and with experience in leasing and
financing. In addition, other companies, such as Amdahl and Unisys--companies
that have traditionally focused on equipment break/fix and maintenance
services--have begun offering more comprehensive asset management strategies.
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, licenses, or franchises which it considers
to be significant to the Company's businesses.
The Company's businesses are not seasonal, however, quarter-to-quarter results
from operations can vary significantly.
The Company believes that 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 or 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 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 continuity services group also leases 255,000, 14,000 and
10,000 square feet in New Jersey, Missouri, and Canada, respectively. In
addition, the continuity services group leases space throughout North America
for work area recovery. Existing Company-owned facilities can be enlarged and
expanded as required to support additional growth. The Company's continuity
services division also owns and leases facilities in several European countries.
The Company's medical refurbishment subsidiary leases approximately 100,000
square feet in Illinois. The Company's electronics group leases approximately
68,000 square feet in San Jose, California, to be used primarily for equipment
demonstration maintenance and 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, 1997.
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PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
STOCK SPLIT
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 holders of record
on May 23, 1997. Accordingly, all references in the Company's Annual Report to
Stockholders' for the year ended September 30, 1997 and the Company's Annual
Report on Form 10-K for the year ended September 30, 1997 to common share data
have been adjusted to reflect the split.
PRICE RANGE OF COMMON STOCK
Price Range of Common Stock on page 22 of the Annual Report to Stockholders for
the year ended September 30, 1997 is incorporated herein by reference.
COMMON STOCK REPURCHASE PROGRAM
During fiscal 1997, the Company purchased 2.5 million shares of its outstanding
common stock at an aggregate cost of $45 million. These purchases, when added to
the shares purchased in prior years, bring the total number of common shares
purchased to 44.2 million (.7 million shares were issued under the Company's
stock option plans in fiscal 1997, .7 million shares were issued in fiscal 1996
in connection with the Company's acquisition of NetforceMTI, 2.3 million shares
were issued upon conversion of a 6% convertible subordinated promissory note in
fiscal 1995 and an additional 4.4 million shares were distributed as a common
stock dividend on March 30, 1992), at an aggregate cost of $408 million.
SHAREHOLDER RIGHTS PLAN
On November 4, 1997, the Board of Directors of the Registrant declared a
dividend distribution of one right (a "Right") for each outstanding share of the
Registrant's Common Stock, $0.10 par value per share ("Common Stock"), to
stockholders of record at the close of business on November 17, 1997 (the
"Record Date"). The Board of Directors of the Registrant also authorized the
issuance of one Right for each share of Common Stock issued after the Record
Date and prior to the earliest of the Distribution Date (as defined below), the
redemption, exchange or expiration of the Rights. Except as set forth below and
subject to adjustment as provided in the Rights Agreement (defined below), each
Right entitles the registered holder to purchase from the Registrant one
one-thousandth of a share of Series C Junior Participating Preferred Stock (the
"Preferred Stock"), at a purchase price of $150 per Right (the "Purchase
Price"). The description and terms of the Rights are set forth in a Rights
Agreement, dated as of November 17, 1997 (the "Rights Agreement"), between the
Registrant and ChaseMellon Shareholder Services, L.L.C., 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 November 6,
1997, 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.
DIVIDENDS
The Company has paid cash dividends quarterly since February 1979. Cash
dividends paid on common stock were $14 million in both fiscal 1997 and 1996.
The most recently declared quarterly common stock cash dividend, $.05 per share,
was paid on December 8, 1997 to stockholders of record on November 14, 1997.
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
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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 $.20 per share in fiscal 1997 and $.19 per
share in fiscal 1996.
Item 6. Selected Financial Data
Six Year Summary on pages 16 and 17 of the Annual Report to Stockholders for the
fiscal year ended September 30, 1997 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 18 through 22 of the Annual Report to Stockholders for the
fiscal year ended September 30, 1997 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 23 through 39 of the Annual Report to Stockholders
for the fiscal year ended September 30, 1997 is incorporated herein by
reference. Quarterly Financial Data on page 38 of the Annual Report to
Stockholders for the fiscal year ended September 30, 1997 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, 1997 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, 1997 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, 1997 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, 1997 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 15.
(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 5, 1997, the Company filed a current
report on Form 8-K, dated November 5, 1997, 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 1997
results of operations.
On November 5, 1997, the Company filed a Current
Report on Form 8-K, dated November 5, 1996, reporting
Item 5. Other Events. The filing was for the
announcement of the appointment of Nicholas K.
Pontikes to the position of chief operating officer
of the Company.
On November 6, 1997, the Company filed a Current
Report on Form 8-K dated November 5, 1997, reporting
Item 5. Other Events. The filing was for the
Company's new shareholders' rights plan.
On November 14, 1997, the Company filed a Current
Report on Form 8-K, dated November 12, 1997,
reporting Item 7. Financial Statements and Exhibits.
The exhibits included in the report related to the
Company's $600 million medium-term note program. The
report also included the By-Laws of the Company, as
amended effective November 4, 1997.
(c) Exhibits:
Included in Item (a)(3) above.
(d) Financial Statement Schedule Required by Regulation S-X:
Included in Item (a)(1) and (a)(2) above.
-13-
<PAGE>
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 22, 1997 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/ Robert A. Bardady /s/ Nicholas K. Pontikes
Robert A. Bardagy Nicholas K. Pontikes
Director Director
/s/ Harry M. Jansen Kraemer, Jr. /s/ Rick Kash
Harry M. Jansen Kraemer, Jr. Rick Kash
Director Director
/s/ C. Keith Hartley /s/ Carolyn L. Murphy
C. Keith Hartley Carolyn L. Murphy
Director Director
- --------------------------
Thomas H. Patrick
Director Each of the above signatures is
affixed as of December 22, 1997
-14-
<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, 1997, are incorporated by reference in Item
8:
<TABLE>
<CAPTION>
Annual Report
Page Number
-------------
<S> <C>
Consolidated Statements of Earnings --
Years Ended September 30, 1997, 1996 and 1995 ................................ 23
Consolidated Balance Sheets -- September 30, 1997 and 1996 ..................... 24
Consolidated Statements of Stockholders' Equity --
Years Ended September 30, 1997, 1996 and 1995 ............................... 25
Consolidated Statements of Cash Flows --
Years Ended September 30, 1997, 1996 and 1995 ............................... 26-27
Notes to Consolidated Financial Statements ..................................... 28-39
Independent Auditors' Report ................................................... 40
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 ........................ 17
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.
</TABLE>
-15-
<PAGE>
[KPMG Peat Marwick LLP Letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Comdisco, Inc.:
Under date of November 7, 1997, we reported on the consolidated balance sheets
of Comdisco, Inc. and subsidiaries as of September 30, 1997 and 1996, 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, 1997,
as contained in the 1997 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, 1997. 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 7, 1997
-16-
<PAGE>
Comdisco, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended September 30, 1997
(in millions)
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and end
Description of period expenses Other of period
- --------------------------------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Year ended September 30, 1995:
Allowance for
doubtful accounts $10 $12 $(5)<F1> $17
=== === ==== ===
Year ended September 30, 1996:
Allowance for
doubtful accounts $17 $11 $(7)<F1> $21
=== === ==== ===
Year ended September 30, 1997:
Allowance for
doubtful accounts $21 $10 $(9)<F1> $22
=== === ===== ===
<FN>
<F1> Write off of receivables net of recoveries.
</FN>
</TABLE>
-17-
<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 November 4, 1997
Incorporated by reference to Exhibit 3.1 filed
with the Company's Current Report on Form 8-K
dated November 12, 1997, as filed with the
Commission November 14, 1997 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).
-18-
<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 Rights Agreement, dated as of November 17, 1997, between
the Registrant and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent, which includes as Exhibit A
thereto the Certificate of Designation, Preferences and
Right of Series C Junior Participating Preferred Stock
and as Exhibit B thereto the Form of Rights Certificate.
Incorporated by reference to Exhibit 4.1 filed
with the Company's Current Report on Form 8-K
dated November 5, 1997, as filed with the
Commission November 6, 1997 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, 1997
10.03 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.
10.04 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.
-19-
<PAGE>
Exhibit No. Description of Exhibit
----------- ---------------------------------------------------------
10.05 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.
10.06 Amendment to 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.
10.07 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.
10.08 1996 Non-Employee Director Stock Option Plan
Incorporated by reference to Exhibit 10.10 filed
with the Company's Annual Report for the year
ended September 30, 1996 on Form 10-K, File No.
1-7725.
10.09 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.
10.10 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
10.11 1995 Long-Term Stock Ownership Incentive Plan
Incorporated by reference to Exhibit 10.13 filed
with the Company's Annual Report for the year
ended September 30, 1996 on Form 10-K, File No.
1-7725.
10.12 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.
10.13 Management Compensation Arrangements and Plans
10.14 Facility agreement dated December 29, 1995 and made
between Comdisco, Inc. National Westminster Bank PLC,
Barclays Bank PLC and the banks thereto
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.
-20-
<PAGE>
Exhibit No. Description of Exhibit
----------- ---------------------------------------------------------
10.15 Supplemental Agreement dated December 29, 1995 to the
Facility agreement dated December 30, 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.
10.16 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.
10.18 Second Supplemental Agreement to the Revolving Credit
Facility dated December 30, 1994 made on October 24, 1996
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.
10.19 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 theret 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.
10.20 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.
10.21 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.
10.22 Compensation and Award Agreement
.
-21-
<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 16 through 39 and the
Quarterly Financial Data on page 38 and the
Independent Auditors' Report on page 40 of the
Annual Report to security holders for the fiscal
year ended September 30, 1997 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 19, 1997
27.00 Financial Data Schedule
-22-
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. INCENTIVE COMPENSATION
The incentive compensation as set forth in Section 4 of the Employment
Agreement shall be revised as follows for the 1998 fiscal year:
(i) one percent (1%) of Comdisco's fiscal 1998 pre-tax earnings between
$190 million and $230 million, and (ii) two percent (2%) of pre-tax earnings in
excess of $230 million.
As an example, if Comdisco has pre-tax earnings of $240,000,000 in
fiscal 1997, the annual incentive compensation shall be $600,000.
2. ANNUAL STOCK OPTION INCENTIVE
If Comdisco achieves 1998 Pre-Tax Earnings of $240 million, you will
also be entitled to a stock option grant of 29,585 shares at the closing price
on September 30, 1998. 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 $240 million, then the number
of shares granted will be based on the following:
Pre-Tax Earnings Percentage Grant Adjusted Grant
$240M 100% 29,585
230M 80% 23,668
215M 60% 17,751
Less Than 215M 0% -0-
<PAGE>
3. LONG-TERM PERFORMANCE UNIT GRANT
The Committee of the 1995 Long Term Stock Ownership Incentive Plan hereby
awards you with 366 Performance Units.
a. Performance Objective and Performance Period
The Committee has set a target Performance Objective that Comdisco's "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, 1997 through September 30, 2000 (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:
<TABLE>
<S>
TSR % Rank in Performance x Target Unit = Actual Unit
S&P 500 % Value Value
------------- ----------- ----------- -----------
<C> <C> <C> <C>
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
</TABLE>
<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, 2000.
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 95 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 95 Plan Provisions
This award of Performance Units shall incorporate the terms and conditions
of the 95 Plan.
g. Acceptance
By execution of the attached Election Statement, you accept the terms and
conditions of this Performance Unit Grant.
<PAGE>
4. 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, 1997
- 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 33 1/3% per year commencing 10/1/97
This agreement shall not be construed to give you any employment rights.
Dated this 29th day of September, 1997.
- --------------------------- -------------------------------
On behalf of the Committee Jack Slevin
<PAGE>
ELECTION STATEMENT
The undersigned hereby acknowledges receipt of the Amendment to Employment
Agreement, a copy of the 1995 Long-Term Stock Ownership Incentive Plan, and
copies of Comdisco's latest financial statements.
Performance Unit Method of Distribution
Pursuant to Section 3, 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 4, I elect to convert the following cash compensation
components into stock options:
Base Salary $50,000
Annual Cash Incentive $50,000
Performance Units $50,000
By:____________________________
Jack Slevin
Date:___________________________
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Comdisco's
Officers and Directors, and persons who own more than ten percent of a
registered class of Comdisco's equity securities, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission ("SEC") and
any national securities exchange on which such class of equity securities is
registered. Officers, Directors and greater than ten percent stockholders are
required by SEC regulation to furnish Comdisco with copies of all Section 16(a)
forms filed.
Based solely on the Company's review of the copies of such forms received by it,
or on written representations from certain reporting persons that no Forms 5
were required for those persons during fiscal year 1997, all filing requirements
applicable to its Directors, Officers and greater than ten percent beneficial
owners were complied with except as follows: Messrs. Vosicky, Flohr and W.
Pontikes each did not timely file a monthly report of one transaction. However,
Messrs. Vosicky, Flohr and W. Pontikes did report these transactions on Forms 5
as soon as the omissions were discovered.
EXECUTIVE COMPENSATION AND BENEFITS
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 fiscal years, to or on behalf of (i) Jack Slevin, Chairman, President
and Chief Executive Officer, (ii) each of the four other most highly compensated
Executive Officers of Comdisco serving on September 30, 1997, and (iii) Alan
Andreini, who was not serving as an Executive Officer on the last day of the
fiscal year.
<TABLE>
<CAPTION>
Long-Term Compensation<F1>
----------------------
Annual Compensation Awards Payouts
-------------------------------------- ---------------------- ----------
Securities
Restricted Underlying Long-Term All Other
Name and Principal Other Annual Stock Options Incentive Compensation
Position Year Salary Bonus Compensation Awards (Shares) Payouts <F2>
- ---------------------------------------- ---- ------ ----- ------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Slevin ............................ 1997 $550,000 $440,000 -0- -0- 29,425 $831,000 $ 14,111
Chairman, President .................... 1996 500,000 580,000 -0- -0- 490,752 420,000 9,425
and CEO ................................ 1995 400,000 401,000 -0- -0- 199,469 -0- 6,074
Nicholas K. Pontikes ................... 1997 277,917 278,200 -0- -0- 13,350 478,000 14,111
Chief Operating ........................ 1996 230,000 230,000 -0- -0- 66,801 201,000 9,425
Officer................................. 1995 230,000 230,000 -0- -0- 102,462 -0- 6,074
Thomas Flohr <F5> ....................... 1997 300,000 300,000 -0- -0- 10,720 -0- -0-
Senior Vice President
William N. Pontikes .................... 1997 220,000 268,200 -0- -0- 13,350 473,000 14,111
Executive Vice ......................... 1996 220,000 220,000 -0- -0- 76,155 300,000 9,425
President............................... 1995 225,000 230,000 -0- -0- 131,796 -0- 6,074
John J. Vosicky ........................ 1997 240,000 218,200 -0- -0- 13,350 483,000 14,111
Executive Vice ......................... 1996 240,000 200,000 -0- -0- 42,444 225,000 9,425
President
& Chief Financial ...................... 1995 235,000 235,000 -0- -0- 80,047 -0- 6,074
Officer
Alan J. Andreini ....................... 1997 131,250 145,833 -0- -0- -0- 448,000 1,163,516<F3>
Executive Vice ......................... 1996 200,000 200,000 -0- -0- 94,867 225,000 9,425
President
through April 30, 1997 .................. 1995 200,000 200,000 -0- -0- 317,858 -0- 43,392<F4>
<FN>
<F1> Number of shares reported throughout this proxy reflects the 3 for 2 stock
split of Common Stock.
<F2> 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 except for the amounts shown for Mr. Andreini for
fiscal years 1997 and 1995; see footnotes (b) and (c), respectively.
<F3> Payment as described in "Employee and Consulting Agreements".
<F4> Includes $6,074 in Comdisco contributions to retirement plans as outlined
in footnote (a) above and $37,318 paid pursuant to the terms of the
Comdisco Financial Services, Inc. Residual Incentive Compensation Plan.
<F5> Mr. Flohr became an Executive Officer of Comdisco, Inc. in fiscal 1997.
</FN>
</TABLE>
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to stock
option grants made to named Executive Officers during the fiscal year ended
September 30, 1997.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants * for Option Term
------------------------------------------------------- ----------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Granted (#) Fisca Year ($/Sh) Date 0% 5% 10%
------------ ------------ -------- ---------- ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack Slevin 29,425 24 $32.6875 09/30/07 $ 0 $604,890 $1,532,909
Nicholas K. Pontikes 13,350 11 32.6875 09/30/07 0 274,436 695,474
Thomas Flohr 10,720 9 32.6875 09/30/07 0 220,371 558,463
William N. Pontikes 13,350 11 32.6875 09/30/07 0 274,436 695,474
John J. Vosicky 13,350 11 32.6875 09/30/07 0 274,436 695,474
Alan J. Andreini -0- -0- -0- -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Number of shares reported throughout this proxy reflects the 3 for 2
stock split of Common Stock
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,
and any increase will benefit all stockholders proportionately.
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 Shares Total Value of
Underlying Unexercised Unexercised,
Options Held at in-the-Money Options
September 30,1997<F1> Held at September 30, 1997<F2>
-------------------------- ------------------------------
Number of
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack Slevin 355 $4,299 523,194 558,463 $11,238,189 $9,935,415
Nicholas K. Pontikes 0 0 80,455 158,408 1,566,980 3,021,222
Thomas Flohr 4,725 64,355 189,495 203,320 3,897,541 3,309,133
William N. Pontikes 0 0 98,823 122,478 1,947,406 1,928,538
John J. Vosicky 23,625 299,801 165,197 74,145 3,838,444 1,082,200
Alan J. Andreini 47,248 568,157 180,344 220,197 3,778,070 4,372,952
- -------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Number of shares reported throughout this proxy reflects the 3 for 2
stock split of Common Stock
<F2> Based on the closing price of the Common Stock, $32.6875, on September
30, 1997.
</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, 1997. 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 1, 1996 through September 30, 1999. 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>
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 Payout Threshold Target Maximum
- ---- -------- ----------------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Jack Slevin 366 September 30, 1999 $183,000 $366,000 $1,098,000
Nicholas K. Pontikes 167 September 30, 1999 83,500 167,000 501,000
Thomas Flohr 133 September 30, 1999 66,500 133,000 399,000
William N. Pontikes 167 September 30, 1999 83,500 167,000 501,000
John J. Vosicky 167 September 30, 1999 83,500 167,000 501,000
Alan J. Andreini <F1> 167 September 30, 1999 83,500 167,000 501,000
- ----------------------------------- -------- ----------------------- -------- --------- ----------
<FN>
<F1> Performance Unit Awards granted to Mr. Andreini were terminated in
conjuction with his resignation as Executive Vice President of the Company,
effective May 1, 1997 (see "Employment and Consulting Agreements", above).
</FN>
</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 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
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 manner 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 the Company's pre-tax earnings performance and
stockholder returns. The Committee has been extremely pleased with the fact that
the Company has exceeded the maximum goal by placing above the 90th percentile
in Total Shareholder Return for the three year Performance Periods ended
September 30, 1996 and 1997. This is a clear reflection that senior management
has been able to manage the Company in a manner that directly correlates with
stockholder interests.
Chief Executive Officer Compensation
1997 Fiscal Year.. Jack Slevin's compensation package for fiscal 1997
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 $600,000 for fiscal 1997. Annual cash
incentive compensation for Mr. Slevin was 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. 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 1997. Pursuant to this award, Mr. Slevin received 29,425
option shares at $32.6875 (the closing price of Common Stock on September 30,
1997). Mr. Slevin was granted 366 Performance Units under the Comdisco, Inc.
1995 Long-Term Stock Ownership Incentive Plan. The performance period and
performance objectives are set forth in "Long Term Incentive Plan Awards",
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 46,777 shares at the
closing price ($19.25) of Comdisco's Common Stock on the date of such election.
1998 Fiscal Year.. In continuance of its past practices, the Committee
increased the pre-tax earnings targets for 1998 such that Mr. Slevin's annual
cash incentive compensation will be equal to 1% of Comdisco's 1998 fiscal year
pre-tax earnings between $190 million and $230 million and 2% of pre-tax
earnings in excess of $230 million. Mr. Slevin will also earn an annual stock
option award of 29,585 options if the Company attains certain pre-tax earnings
objectives for fiscal 1998. The exercise price of these options, if earned, will
be at the closing price of Comdisco's stock on September 30, 1998. For the long
term perspective, Mr. Slevin was granted 366 Performance Units under the
Comdisco, Inc. 1995 Long Term Stock Ownership Incentive Plan. The performance
period and performance objectives are set forth in "Long Term Incentive Plan
Awards", above. The Committee again offered Mr. Slevin the right to forego cash
compensation to be earned in 1998 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 27,525
shares at the closing price ($31.75) of Comdisco's Common Stock on the date of
such election.
Other Executive Officer Compensation
During fiscal year 1997, 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.
This report has been provided by C. Keith Hartley and Rick Kash, the
members of the Compensation Committee.
COMPENSATION AND AWARD AGREEMENT
FISCAL YEAR ENDING SEPTEMBER 30, 1998
Name
The Compensation Committee of the Board of Directors has reviewed and
approved the following compensation package which includes a grant of
Performance Units by the Committee of the Comdisco, Inc. 1995 Long-Term Stock
Ownership Incentive Plan (the "95 Plan").
1. BASE SALARY
Your annual base salary shall be $INSERT .
2. ANNUAL CASH INCENTIVE POOL
Comdisco will establish a cash incentive pool based on the following
earnings goals:
2% x Pre-Tax Earnings between $190,000,000 and $229,999,999 5%
x Pre-Tax Earnings between $230,000,000 and $239,999,999
Your share of this incentive pool share be INSERT%.
Pre-Tax Earnings will include any earnings or losses attributable to
extraordinary items.
As an example, if Comdisco has Pre-Tax Earnings of $240,000 in fiscal 1998
your annual cash incentive compensation would be $INSERT..
3. ANNUAL STOCK OPTION INCENTIVE
If Comdisco achieves 1998 Pre-Tax Earnings of $240 million, you will
also be entitled to a stock option grant of INSERT shares at the closing price
on September 30, 1998. 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 $240 million, then the number
of shares granted will be based on the following:
Pre-Tax Earnings Percentage Grant Adjusted Grant
$240M 100%
230M 80%
215M 60%
Less Than 215M 0%
4. LONG-TERM PERFORMANCE UNIT GRANT
The Committee of the 95 Plan hereby awards you with INSERT #
Performance Units.
a. Performance Objective and Performance Period
The Committee has set a target Performance Objective that Comdisco's
"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, 1997 through September 30, 2000 (the
"Performance Period").
"Total Shareholder 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:
<TABLE>
<S>
TSR % Rank in Performance x Target Unit = Actual Unit
S&P 500 % Value Value
------------- ----------- ----------- -----------
<C> <C> <C> <C>
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
</TABLE>
<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, 2000.
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 95 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 95 Plan Provisions
This award of Performance Units shall incorporate the terms and
conditions of the 95 Plan.
g. Acceptance
By execution of the attached Election Statement, you accept the terms
and conditions of this Performance Unit Grant.
5. CASH TO 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, 1997
- 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 33 1/3% per year commencing 10/1/97
This agreement shall not be construed to give you any employment
rights.
Dated this _____ day of September, 1997.
On behalf of the Committee John Vosicky
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:
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Average shares issued .............................. 110 108 107 107 107
Effect of dilutive options ......................... 5 5 3 1 --
Treasury stock ..................................... (36) (33) (27) (21) (17)
----- ----- ----- ----- -----
Total ............................................ 79 80 83 87 90
===== ===== ===== ===== =====
Earnings from continuing
operations before cumulative effect of
change in accounting principle, net of
preferred dividends ............................. $ 203 $ 106 $ 96 $ 44 $ 80
Loss from discontinued operations
(net of income taxes) ............................ -- -- -- -- (20)
Cumulative effect of change in
accounting principle ............................ -- -- -- -- 20
----- ----- ----- ----- -----
Net earnings to common stockholders ............... $ 203 $ 106 $ 96 $ 44 $ 80
===== ===== ===== ===== =====
Net earnings per common and common equivalent share:
Earnings from continuing operations ............. $1.56 $1.33 $1.15 $ .51 $ .87
Loss from discontinued operations ................ -- -- -- -- (.22)
Cumulative effect of change in
accounting principle .......................... -- -- -- -- .22
----- ----- ----- ----- -----
Net earnings to common stockholders .......... $1.56 $1.33 $1.15 $ .51 $ .87
===== ===== ===== ===== =====
</TABLE>
On May 5, 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 holders 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.
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,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed charges
Interest expense1 <F1>....................................................................... $301 $267 $278 $266 $295
Approximate portion of
rental expense representative
of an interest factor ..................................................................... 4 7 11 13 22
---- ---- ---- ---- ----
Fixed charges ............................................................................... 305 274 289 279 317
Earnings from continuing operations before income taxes and cumulative effect of
change in accounting principle, net of preferred
stock dividends ............................................................................. 203 176 160 80 137
---- ---- ---- ---- ----
Earnings from continuing operations
before income taxes, cumulative effect of
change in accounting principle and fixed charges ............................................. $508 $450 $449 $359 $454
==== ==== ==== ==== ====
Ratio of earnings to fixed charges ............................................................ 1.67 1.64 1.55 1.29 1.43
==== ==== ==== ==== ====
Rental expense:
Equipment subleases ......................................................................... $ 6 $ 14 $ 22 $ 30 $ 57
Office space, furniture, etc ................................................................ 7 8 10 8 8
---- ---- ---- ---- ----
Total ..................................................................................... $ 13 $ 22 $ 32 $ 38 $ 65
==== ==== ==== ==== ====
1/3 of rental expense ..................................................................... $ 4 $ 7 $ 11 $ 13 $ 22
==== ==== ==== ==== ====
<FN>
<F1> Includes interest expense incurred by continuity and network services
andincluded in 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>
Years ended September 30,
---------------------------------------------------------------
97 96 95 94 93 92
--------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF EARNINGS
Revenue
Leasing ...................................................... $ 2,116 $ 1,797 $ 1,573 $ 1,538 $ 1,583 $ 1,662
Sales ........................................................ 269 262 358 271 313 311
Continuity and network services .............................. 354 318 267 242 216 193
Other ........................................................ 80 54 42 47 41 39
------- ------- ------- ------- ------- -------
Total revenue .................................................... 2,819 2,431 2,240 2,098 2,153 2,205
------- ------- ------- ------- ------- -------
Costs and expenses
Leasing ...................................................... 1,534 1,246 1,023 1,004 1,040 1,094
Sales ........................................................ 210 218 304 225 275 274
Continuity and network services .............................. 296 277 238 224 206 175
Selling, general and administrative .......................... 244 244 233 213 197 198
IBM litigation settlement .................................... -- -- -- 70 -- --
Litigation and receivables charge ............................ -- -- -- 10 -- 45
Restructuring charge ......................................... -- -- -- -- -- 35
Interest ..................................................... 299 262 274 263 291 350
Other ........................................................ 25 -- -- -- -- --
------- ------- ------- ------- ------- -------
Total costs and expenses .................................. 2,608 2,247 2,072 2,009 2,009 2,171
------- ------- ------- ------- ------- -------
Earnings from continuing operations before
income taxes, extraordinary loss and
cumulative effect of change in accounting principle .......... 211 184 168 89 144 34
Income taxes ..................................................... 80 70 64 36 57 14
------- ------- ------- ------- ------- -------
Earnings from continuing operations before extraordinary
loss and cumulative effect of change in accounting principle . 131 114 104 53 87 20
Loss from discontinued operations (net of income taxes) .......... -- -- -- -- (20) --
------- ------- ------- ------- ------- -------
Earnings before extraordinary loss and cumulative effect of change
in accounting principle ...................................... 131 114 104 53 67 20
Extraordinary loss (net of income taxes) ......................... -- -- -- -- -- (29)
Earnings (loss) before cumulative effect of change in a accounting
------- ------- ------- ------- ------- -------
principle .................................................... 131 114 104 53 67 (9)
Cumulative effect of change in accounting principle .............. -- -- -- -- 20 --
------- ------- ------- ------- ------- -------
Net earnings (loss) before preferred dividends ................... 131 114 104 53 87 (9)
Preferred dividends .............................................. (8) (8) (8) (9) (7) --
------- ------- ------- ------- ------- -------
Net earnings (loss) to common stockholders ................... $ 123 $ 106 $ 96 $ 44 $ 80 $ (9)
======= ======= ======= ======= ======= =======
COMMON AND COMMON EQUIVALENT SHARE DATA
Earnings from continuing operations .............................. $ 1.56 $ 1.33 $ 1.15 $ .51 $ .87 $ .22
Loss from discontinued operations ................................ -- -- -- -- (.22) --
Extraordinary loss ............................................... -- -- -- -- -- (.31)
Cumulative effect of change in accounting principle .............. -- -- -- -- .22 --
------ ------- ------- ------- ------- -------
Net earnings (loss) to common stockholders ....................... $ 1.56 $ 1.33 $ 1.15 $ .51 $ .87 $ (.09)
====== ======= ======= ======= ======= =======
Common stockholders' equity (per common share outstanding) ....... $ 10.48 $ 9.54 $ 8.73 $ 7.77 $ 7.35 $ 6.83
Cash dividends paid on common stock............................... .20 .19 .16 .15 .13 .13
Average common and common equivalent shares (in thousands)........ 78,795 79,842 82,751 86,637 90,468 91,929
FINANCIAL POSITION
Total assets ..................................................... $ 6,350 $ 5,591 $ 5,039 $ 4,807 $ 4,960 $ 5,236
Notes payable .................................................... 1,024 1,127 661 593 655 766
Total long-term debt ............................................. 2,918 2,145 1,796 1,364 1,325 1,314
Discounted lease rentals ......................................... 742 781 1,124 1,548 1,670 1,823
Stockholders' equity ............................................. 865 799 776 741 739 699
LEASING DATA
Total noncancelable rents of new leases .......................... $3,200 $ 2,800 $ 2,300 $ 1,800 $ 1,900 $ 2,400
Future noncancelable lease rentals and continuity
subscription fees ............................................... 5,440 4,903 4,380 4,185 4,265 4,601
</TABLE>
-16 and 17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
Comdisco, Inc. achieved record revenues, earnings, equipment volume and cash
flow from operating activities in fiscal 1997. The year's performance
demonstrates the ability of the company's businesses to deliver strong financial
results.
Net Earnings: Fiscal 1997 net earnings to common stockholders (hereinafter
referred to as "net earnings") were $123 million, or $1.56 per common share,
compared to $106 million, or $1.33 per common share, and $96 million, or $1.15
per common share, in fiscal 1996 and 1995, respectively. The increase in net
earnings in fiscal 1997 compared to the prior year is due to increases in
earnings contributions from remarketing and continuity services. The increase in
net earnings in fiscal 1996 compared to the prior period is due to increased
earnings contributions from operating leases and continuity activities, offset
by decreases in earnings contributions from direct financing leases and
remarketing activities. Earnings per common share in fiscal 1997 and 1996
benefited from the company's stock repurchase program, which has reduced the
average common equivalent shares outstanding.
Business: The company's businesses are designed to bring solutions that reduce
technology cost and risk to the customer. These businesses are: 1) information
technology services, which include the leasing of distributed systems (PCs,
servers and routers) and large systems (mainframes and related equipment) 2)
diversified technology services for the healthcare, semiconductor manufacturing
("electronics group") and venture capital industries, and 3) services, which
include continuity services, asset management and network management.
Leasing volume increased in both fiscal 1997 and 1996 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. Lease volume in the current fiscal year was
the highest annual volume in the company's history.
Cost of equipment placed on lease was $3.1 billion in fiscal 1997,
compared to cost of equipment placed on lease of $2.6 billion and $2.1 billion
in fiscal 1996 and 1995, respectively. During fiscal 1997 and 1996, information
technology services had cost of equipment placed on lease of $2.6 billion and
$2.1 billion worldwide, including distributed systems volume of $1.6 billion and
$1.0 billion, respectively. Internationally, cost of equipment of all types
placed on lease increased from $595 million in fiscal 1996 to $757 million in
fiscal 1997. The growth in leasing volume 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. However, the increase in leasing volume in
fiscal 1997 will have a positive impact on leasing revenue, cash flow and
margins in future periods and will result in future earnings opportunities by
providing equipment for remarketing.
Remarketing activity, an important contributor to earnings, was strong
throughout fiscal 1997, and, in the fourth quarter of fiscal 1997, reached a
record level of quarterly earnings contribution. To meet earnings goals for
fiscal 1998, remarketing contributions have to be at approximately the level
achieved in the current fiscal year. While the company has a larger lease
portfolio for remarketing and 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 a record year with pretax earnings
of $58 million. This compares to pretax earnings of $41 million and $29 million
in fiscal 1996 and 1995, respectively. The company continued to invest
additional capital to upgrade products and enhance future revenue. In fiscal
1997, capital expenditures were $61 million, including $11 million in Europe.
This includes additions in large systems, mid-range systems, network products
and expansion of workareas to more than thirty locations. It also includes the
company's entry into trading floor continuity operations with the addition of
facilities in New Jersey, New York and Minnesota. 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 can
be greater than the company is currently achieving, and accordingly, the company
is devoting additional resources and efforts to increasing service revenue.
FINANCIAL CONDITION
The company's operating activities during the year ended September 30, 1997,
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
$10.3 billion. Expenditures for equipment in fiscal 1997 totaled approximately
-18-
<PAGE>
$2.9 billion, the highest annual total in the company's history, and an increase
of 18% compared to the prior year. Expenditures for equipment are currently
estimated at approximately $3.5 billion for fiscal 1998.
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 provided by operating activities: Net cash provided by operating activities
was $2.5 billion, $2.2 billion and $2.0 billion in fiscal 1997, 1996 and 1995,
respectively. During the last five years, net cash provided by operating
activities totaled $10.3 billion.
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 growing lease
portfolio. The company estimates that existing lease and continuity contracts at
September 30, 1997 may generate gross cash receipts of approximately $5.4
billion in the future, including $2.5 billion in fiscal 1998. 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 $1.7 billion.
Credit Lines: At September 30, 1997, the company had $1.6 billion of available
domestic and international borrowing capacity under various lines of credit from
commercial banks and commercial paper facilities, of which approximately $729
million was unused. The company had committed credit lines established with
thirty-two banks at September 30, 1997 of $1.1 billion.
Senior Notes: In November, 1996, the company filed a registration statement on
Form S-3 with the Securities and Exchange Commission (the "SEC") for a shelf
offering of up to $950 million of senior debt securities with terms to be set at
the time of each sale (the "1996 Shelf"). Pursuant to the 1996 Shelf, the
company, in fiscal 1997 issued the following senior notes:
o $250 million of 6.375% Notes Due November 30, 2001
o $250 million of 6.50% Notes Due April 30, 1999
o $377 million of medium-term notes
At September 30, 1997, an aggregate of $73 million of medium-term notes
remained available for issuance under the 1996 Shelf.
On June 23, 1997, the company filed a registration statement on Form
S-3 with the SEC 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"). No
senior debt has been sold pursuant to the 1997 Shelf, however, on November 6,
1997, the company designated $600 million of senior debt securities as
medium-term notes, Series G. The company plans to continue to be active in
issuing senior debt during fiscal 1998, primarily to support the anticipated
growth of the leased assets and, where appropriate, to refinance maturities of
interest-bearing liabilities.
Secured Debt: Proceeds from the discounting of lease rentals were $430 million,
$253 million and $279 million in fiscal 1997, 1996 and 1995, respectively.
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.
Maturities: At September 30, 1997, the company had debt of $2.5 billion
scheduled to mature in fiscal 1998, including $1.0 billion of commercial paper
and short-term bank borrowings. At September 30, 1997, the company had expected
future net cash to be provided by existing lease and continuity contracts of
$2.5 billion in fiscal 1998. See Notes 5 and 6 of Notes to Consolidated
Financial Statements for information on the lease base and interest-bearing
liabilities, respectively.
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. See Note 6 of Notes to Consolidated Financial Statements for a
discussion of interest rate swap agreements and other derivative financial
instruments.
Ratios: The ratio of debt to total stockholders' equity was 5.4:1, 5.1:1 and
4.6:1 at September 30, 1997, 1996 and 1995, respectively. The increase at
September 30, 1997 reflects the record levels of equipment purchased for lease,
and the impact of a strong United States dollar during fiscal 1997, which
reduced stockholders' equity by $25 million from deferred translation
adjustments. The company also
-19-
<PAGE>
purchased 2.5 million shares of its common stock at a total cost of $45 million.
The company expects the ratio to increase in fiscal 1998, primarily because of
the redemption, in October, 1997, of the Series A Preferred Stock, which reduced
stockholders' equity by $68 million.
REVENUE
Total revenue of approximately $2.8 billion and $2.4 billion in fiscal 1997 and
1996 represented increases of 16% and 9% respectively, over the prior year
periods. The increases in leasing revenue in fiscal 1997 and 1996 compared to
prior periods is due to increased operating lease revenue, offset by declines in
direct financing lease revenue. The declines in direct financing revenue in both
fiscal 1997 and 1996 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 "Continuity and Network Services" for a
discussion of continuity and network services revenue and margins and "Sales"
for a discussion of sales revenue and margins.
Leasing: The increase in New Leases, particularly during the last sixteen
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 costs was $338 million, or 20.7% of operating
lease revenue (the "Operating Lease Margin"), and $328 million, or 24.0% of
operating lease revenue, in fiscal 1997 and 1996, respectively. The company
expects the Operating Lease Margin to decline from current levels in fiscal 1998
because of continued pressure from New Leases and the lower margins on large
systems. The Sales-type Lease Margin increased in fiscal 1997 compared to the
prior year primarily because of a change in the mix of equipment remarketed,
with a higher percentage of distributed equipment remarketing. The following
graph presents the Lease Margin for total leasing, operating, and sales-type
leases for the five years ended September 30, 1997:
93 94 95 96 97
Total leasing 34% 35% 35% 31% 27%
Operating lease 26% 26% 26% 24% 21%
Sales-type lease 23% 26% 28% 26% 30%
Sales: Revenue from sales, which includes remarketing and buy/sell activities,
totaled $269 million in fiscal 1997, compared to $262 million and $358 million
in fiscal 1996 and 1995, respectively. In fiscal 1997 and 1996 sales and sale
revenue per unit on large systems declined. Margins on sales were 22% in fiscal
1997 compared to 17% and 15% in fiscal 1996 and 1995, respectively. Sales from
distributed systems equipment, which have higher margins than large system
sales, increased in the current year compared to the year earlier period.
Continuity and Network Services: Revenue from continuity and network services
(hereinafter referred to as "continuity") of $354 million in fiscal 1997 and
$318 million in fiscal 1996 represented increases of 11% and 19%, respectively,
over each of the preceding years. The increases are primarily the result of the
growth in products and services.
Continuity costs of $296 million in fiscal 1997 increased 7% over
continuity costs of $277 million in fiscal 1996. Fiscal 1996 costs and expenses
were 16% higher than fiscal 1995. Cost containment efforts by the company,
primarily as a result of its capital investment strategy, slowed the growth of
continuity costs in both fiscal 1997 and 1996, and improved margins
significantly over the prior years.
Other Revenue: Other revenue was $80 million, $54 million and $42 million in
fiscal 1997, 1996 and 1995, respectively. Other revenue for fiscal 1997 includes
a gain of $25 million ($16 million after-tax, or $.20 per share) resulting from
the receipt of amounts in settlement of litigation. In addition, fiscal 1997
other revenue includes approximately $11 million of gains from the sale of other
investments owned by the company. Revenue from the sale of ownership positions
generated in conjunction with the company's lease financing transactions with
early-stage high technology companies was $18 million in fiscal 1997 compared to
$13 million and $11 million in fiscal 1996 and 1995, respectively. Fiscal 1996
and 1995 includes $6 million and $5 million, respectively, of gains generated
from the sale of securities, 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.
COSTS AND EXPENSES
Total costs and expenses were $2.6 billion and $2.2 billion in fiscal 1997 and
1996, respectively. The increase in fiscal 1997 compared to fiscal 1996 is
primarily due to the growth in leasing volume including higher interest expense,
increased leasing costs related to increased operating lease and sales-type
revenue and a one-time charge of $25 million (see "Other" below). The increase
in fiscal 1996 compared to fiscal 1995 is primarily due to increased leasing and
continuity costs related to increasing operating lease revenue and continuity
revenue, respectively.
-20-
<PAGE>
Selling, General and Administrative: Selling, general and administrative
expenses totaled $244 million in fiscal 1997, $244 million in fiscal 1996, and
$233 million in fiscal 1995. Despite the level of growth in fiscal 1997, cost
containment efforts begun in fiscal 1996 allowed the company to control its
selling, general and administrative costs in fiscal 1997. Factors contributing
to the increase in fiscal 1996 compared to the prior years include the
development of the company's technology services, offset by reduced expenditures
resulting from improved efficiencies in the company's administrative operations.
Interest: Interest expense for fiscal 1997 totaled $299 million in comparison to
$262 million in fiscal 1996 and $274 million in fiscal 1995, respectively. The
increase in interest expense in fiscal 1997 compared to fiscal 1996 is due to
higher average daily borrowings resulting from the increase in equipment
purchased for lease in fiscal 1997 compared to the prior period, offset by lower
average rates. The decrease in fiscal 1996 compared to fiscal 1995 is due to
lower average interest rates. Generally, a changing interest rate environment
does not impact the company's margins since the effects of higher or lower
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. See Note 6 of Notes to Consolidated Financial Statements for
information on the company's average daily borrowings and effective interest
rates.
Other: 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.
INCOME TAXES
Note 8 of Notes to Consolidated Financial Statements on page 34 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
continuity operations, was $646 million in fiscal 1997 compared to $595 million
and $518 million in fiscal 1996 and 1995, respectively. International revenues
represented 23% of the company's total revenue in fiscal 1997, 24% in fiscal
1996 and 23% in fiscal 1995.
Europe: The company's European operations, excluding continuity activities, had
pretax earnings of $21 million and $10 million in fiscal 1997 and 1996,
respectively, compared to $6 million in fiscal 1995. Total revenue from European
operations was $537 million in fiscal 1997 compared to $461 million in fiscal
1996 and $402 million in fiscal 1995. Cost of equipment placed on lease in
fiscal 1997 and 1996 was $563 million and $492 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.
Canada: The company's Canadian operations, excluding continuity activities, had
pretax earnings of $16 million and $19 million in fiscal 1997 and 1996,
respectively. Total leasing and sales revenue for fiscal 1997 in Canada was $63
million compared to $75 million and $50 million in fiscal 1996 and 1995,
respectively. Cost of equipment placed on lease in fiscal 1997 and 1996 was $66
million and $68 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.
Geographic area data is included in Note 13 of Notes to Consolidated
Financial Statements on page 39.
OTHER MATTERS
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 44 of this annual
report to stockholders for identification of important factors which may affect
the forward-looking statements contained herein.
Recently Issued Professional Accounting Standards: Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings Per Share, was issued in
-21-
<PAGE>
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 SFAS No. 128, the company's earnings per common
and common equivalent share ("EPS") would have increased to the pro forma
amounts indicated below:
97 96 95
As reported $1.56 $1.33 $1.15
Pro forma - basic EPS 1.67 1.40 1.21
Pro forma - diluted EPS 1.56 1.33 1.15
SFAS No. 130, Reporting Comprehensive Income and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, which become effective in
fiscal 1999, will not have a material impact on the company's financial
statements.
Year 2000: The company is aware of the issues associated with the programming
code in existing computer systems as the millennium approaches. The company is
utilizing both internal and external resources to identify, correct or
reprogram, and test the systems for the Year 2000 compliance. Management has not
yet assessed the Year 2000 compliance expense and related potential effect on
the company's earnings.
Inflation: The company does not consider the present rate of inflation to have a
significant impact on the businesses in which it operates.
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, 1997, 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 1997 and 1996, adjusted for the three-for-two stock split (See
Note 10 of Notes to Consolidated Financial Statements).
<TABLE>
<CAPTION>
97 96
----------------------------------- ------------------------------------
Quarter High Low Dividends High Low Dividends
- ------- ------ ------ ---- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
First $21.83 $19.33 $.05 $15.83 $13.11 $.04
Second 21.41 20.41 .05 15.00 13.25 .05
Third 26.00 18.67 .05 19.09 14.17 .05
Fourth 32.81 26.13 .05 19.83 15.09 .05
</TABLE>
-22-
<PAGE>
Consolidated Statements of Earnings
Comdisco, Inc. and Subsidiaries
Years ended September 30, 1997, 1996 and 1995
(in millions except per share data)
<TABLE>
<CAPTION>
97 96 95
------- ------- -------
<S> <C> <C> <C>
REVENUE
Leasing:
Operating ..................................... $ 1,635 $ 1,365 $ 1,117
Direct financing .............................. 145 149 180
Sales-type .................................... 336 283 276
------- ------- -------
Total leasing ............................... 2,116 1,797 1,573
Sales ............................................. 269 262 358
Continuity and network services ................... 354 318 267
Other ............................................ 80 54 42
------- ------- -------
Total revenue ................................. 2,819 2,431 2,240
------- ------- -------
COSTS AND EXPENSES
Leasing:
Operating ..................................... 1,297 1,037 824
Sales-type .................................... 237 209 199
------- ------- -------
Total leasing ............................... 1,534 1,246 1,023
Sales ............................................. 210 218 304
Continuity and network services ................... 296 277 238
Selling, general and administrative ............... 244 244 233
Interest .......................................... 299 262 274
Other ............................................. 25 -- --
------- ------- -------
Total costs and expenses ...................... 2,608 2,247 2,072
------- ------- -------
Earnings before income taxes ...................... 211 184 168
Income taxes ...................................... 80 70 64
------- ------- -------
Net earnings before preferred dividends ........... 131 114 104
Preferred dividends ............................... (8) (8) (8)
------- ------- -------
Net earnings available to common stockholders ..... $ 123 $ 106 $ 96
======= ======= =======
Net earnings per common and common equivalent share $ 1.56 $ 1.33 $ 1.15
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
-23-
<PAGE>
Consolidated Balance Sheets
Comdisco, Inc. and Subsidiaries
September 30, 1997 and 1996
(in millions except number of shares and per share data)
<TABLE>
<CAPTION>
97 96
------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................................................ $ 37 $ 29
Cash - legally restricted ........................................................ 45 27
Receivables, net ................................................................. 262 218
Inventory of equipment ........................................................... 157 155
Leased assets:
Direct financing and sales-type .............................................. 1,717 1,768
Operating (net of accumulated depreciation) .................................. 3,571 2,842
------- -------
Net leased assets .......................................................... 5,288 4,610
Buildings, furniture and other, net .............................................. 140 149
Other assets ..................................................................... 421 403
------- -------
$ 6,350 $ 5,591
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable .................................................................... $ 1,024 $ 1,127
Term notes payable ............................................................... 497 374
Senior debt ...................................................................... 2,421 1,771
Accounts payable ................................................................. 170 135
Income taxes:
Current ...................................................................... -- 5
Deferred ..................................................................... 306 274
Other liabilities ................................................................ 325 325
Discounted lease rentals ......................................................... 742 781
------- -------
5,485 4,792
------- -------
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 ....... 89 89
Common stock $.10 par value. Authorized 200,000,000 shares;
issued 110,132,686 shares (108,778,814 in 1996) ............................ 11 7
Additional paid-in capital ................................................... 178 165
Deferred compensation (ESOP) ................................................. (3) (5)
Deferred translation adjustment .............................................. (20) 5
Retained earnings ............................................................ 965 856
------- -------
1,220 1,117
Common stock held in treasury, at cost; 36,092,025 shares (34,329,677 in 1996) (355) (318)
------- -------
Total stockholders' equity ................................................. 865 799
------- -------
$ 6,350 $ 5,591
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
-24-
<PAGE>
Consolidated Statements of Stockholders' Equity
Comdisco, Inc. and Subsidiaries
Years ended September 30, 1997, 1996 and 1995
(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, 1994 ............ $ 100 $ 5 $ 139 $ (10) $ -- $ 681 $(174)
Net earnings ............................. 104
Cash dividends - preferred ............... (8)
Cash dividends - common ($.16 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 ($.19 per share).. (14)
Stock options exercised .................. 7
Translation adjustment ................... (8)
Reduction of guaranteed ESOP debt ........ 3
Purchase of preferred stock .............. (2)
Purchase of common stock ................. (80)
Issuance of treasury stock ............... 4 5
Stock split .............................. 2 (2)
Income tax benefits resulting from the
exercise of non-qualified stock options. 2
----- ----- ----- ----- ----- ----- -----
BALANCE AT SEPTEMBER 30, 1996 ............ 89 7 165 (5) 5 856 (318)
Net earnings.............................. 131
Cash dividends - preferred................ (8)
Cash dividends - common ($.20 per share).. (14)
Stock options exercised................... 10 6
Translation adjustment.................... (25)
Reduction of guaranteed ESOP debt......... 2
Purchase of common stock.................. (45)
Retire treasury stock..................... (2) 2
Stock split............................... 4 (4)
Income tax benefits resulting from the
xercise of non-qualified stock options.. 9
----- ----- ----- ----- ----- ----- -----
BALANCE AT SEPTEMBER 30, 1997 $ 89 $ 11 $ 178 $ (3) $ (20) $ 965 $(355)
===== ===== ===== ===== ===== ===== =====
See accompanying notes to consolidated financial statements.
</TABLE>
-25-
<PAGE>
Consolidated Statements of Cash Flows
Comdisco, Inc. and Subsidiaries
Years ended September 30, 1997, 1996 and 1995
(in millions)
<TABLE>
<CAPTION>
97 96 95
------- ------- -------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
Operating lease and other leasing receipts ........................................... $ 1,727 $ 1,465 $ 1,282
Direct financing and sales-type leasing receipts ..................................... 861 907 973
Sale of direct financing and sales-type receivables .................................. 81 -- --
Leasing costs, primarily rentals paid ................................................ (32) (34) (33)
Sales ................................................................................ 264 246 352
Sales costs .......................................................................... (84) (117) (196)
Continuity and network services receipts ............................................. 343 311 266
Continuity and network services costs ................................................ (204) (174) (171)
Other revenue ........................................................................ 55 54 42
Selling, general and administrative expenses ......................................... (225) (222) (228)
Litigation settlement ................................................................ 25 -- --
Interest ............................................................................. (291) (260) (272)
Income taxes ......................................................................... (44) (23) (32)
------- ------- -------
Net cash provided by operating activities .......................................... 2,476 2,153 1,983
------- ------- -------
Cash flows from investing activities:
Equipment purchased for leasing ...................................................... (2,940) (2,486) (1,865)
Investment in continuity and network services facilities ............................. (61) (74) (78)
Other ................................................................................ (19) (17) (1)
------- ------- -------
Net cash used in investing activities .............................................. (3,020) (2,577) (1,944)
------- ------- -------
Cash flows from financing activities:
Discounted lease proceeds ............................................................ 430 253 279
Net increase (decrease) in notes payable ............................................. (103) 466 68
Issuance of term notes, senior notes, and subordinated debt .......................... 1,151 834 1,268
Maturities and repurchases of term notes, senior notes and subordinated debt ......... (378) (485) (816)
Principal payments on secured debt ................................................... (469) (596) (703)
Decrease (increase) in legally restricted cash ....................................... (18) 3 7
Preferred stock purchased ............................................................ -- (2) (9)
Common stock purchased and placed in treasury ........................................ (45) (80) (86)
Dividends paid on common stock ....................................................... (14) (14) (13)
Dividends paid on preferred stock .................................................... (8) (8) (8)
Other ................................................................................ 6 (3) 8
------- ------- -------
Net cash provided by (used in) financing activities ................................ 552 368 (5)
------- ------- -------
Net increase (decrease) in cash and cash equivalents ..................................... 8 (56) 34
Cash and cash equivalents at beginning of year ........................................... 29 85 51
------- ------- -------
Cash and cash equivalents at end of year ................................................. $ 37 $ 29 $ 85
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-26-
<PAGE>
Consolidated Statements of Cash Flows
Comdisco, Inc. and Subsidiaries
Years ended September 30, 1997, 1996 and 1995
(in millions)
<TABLE>
<CAPTION>
97 96 95
------ ------ ------
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings .................................................................. $ 131 $ 114 $ 104
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Leasing costs, primarily depreciation and amortization ..................... 1,502 1,212 990
Leasing revenue, primarily principal portion of direct
financing and sales-type lease rentals .................................. 472 575 682
Sale of direct financing and sales-type receivables ........................ 81 -- --
Cost of sales .............................................................. 126 101 108
Continuity and network services costs,
primarily depreciation and amortization ................................. 92 103 67
Income taxes ............................................................... 36 47 32
Interest ................................................................... 8 2 2
Other, net ................................................................. 28 (1) (2)
------ ------ ------
Net cash provided by operating activities .................................. $2,476 $2,153 $1,983
====== ====== ======
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
====== ====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
-27-
<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 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 deferred 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 28 through 30 for a description
of lease accounting policies, lease revenue recognition and related costs.
Continuity services: Revenue from 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.
Unrealized gains and losses on forward contracts are deferred on the balance
sheet until they are exercised. See Note 6 of the Notes to Consolidated
Financial Statements for financial information concerning derivatives.
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, 1997, 1996 and 1995 were 78,794,651,
79,842,512 and 82,751,084, 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 1996
financial statements to conform to the 1997 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.
-28-
Leased Assets:
o 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
(collectively referred to as the net investment). Residual is the estimated fair
market value at lease termination. 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, however the amounts the company will ultimately realize
could differ from the estimated amounts.
o Operating leased assets consist of the equipment cost, less the amount
depreciated to date.
Revenue, Costs and Expenses:
o 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.
o 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.
o 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,
however the amounts the company will ultimately realize could differ from the
amounts assumed in determining depreciation on the equipment in the operating
leased portfolio at September 30, 1997.
o 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)
97 96
------ ------
Minimum lease payments receivable $1,759 $1,802
Estimated residual values 180 193
Less: unearned revenue (222) (227)
------ ------
Net investment in direct financing
and sales-type leases $1,717 $1,768
====== ======
Unearned revenue is recorded as leasing revenue over the lease terms.
Operating leased assets include the following as of September 30:
(in millions)
97 96
------- -------
Operating leased assets $ 5,763 $ 4,665
Less: accumulated depreciation
and amortization (2,192) (1,823)
------- -------
Net $ 3,571 $ 2,842
======= =======
-29-
<PAGE>
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 lease commencement and by year
of projected lease termination, the cost at lease inception for all leased
assets recorded at September 30, 1997 (in millions):
Projected year of lease termination
--------------------------------------------
Cost at 2002
Year lease lease and
commenced inception 98 99 00 01 after
- --------- ------ ------ ------ ------ ---- ----
1993
and prior $1,113 $ 617 $ 249 $ 171 $ 18 $ 58
1994 587 323 213 23 10 18
1995 1,311 717 298 254 16 26
1996 2,493 524 1,075 459 334 101
1997 3,081 156 744 1,457 383 341
------ ------ ------ ------ ---- ----
$8,585 $2,337 $2,579 $2,364 $761 $544
====== ====== ====== ====== ==== ====
The following table summarizes the estimated net book value at lease
termination for all leased assets recorded at September 30, 1997. 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 2002
Year lease lease and
commenced termination 98 99 00 01 after
------ ---- ---- ---- ---- ---
1993
and prior $ 39 $ 34 $ 4 $ 1 $ - $ -
1994 46 23 22 1 - -
1995 149 91 30 28 - -
1996 398 91 200 52 51 4
1997 628 49 135 327 67 50
------ ---- ---- ---- ---- ---
$1,260 $288 $391 $409 $118 $54
====== ==== ==== ==== ==== ===
NOTE 5 Owned Equipment - Future Noncancelable Lease Rentals and Continuity
Subscription Fees
Presented below is a summary of future noncancelable lease rentals on owned
equipment and future subscription fees on noncancelable 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, 1997. 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,
------------------------------------------------------------
2002
(in millions) 98 99 00 01 and after Total
------ ------ ---- ---- --- ------
<S> <C> <C> <C> <C> <C> <C>
Expected future cash in-flows:
Operating leases $1,473 $ 964 $456 $133 $30 $3,056
Direct financing and sales-type leases 782 560 278 102 37 1,759
Continuity contracts 265 182 100 54 24 625
------ ------ ---- ---- --- ------
Total 2,520 1,706 834 289 91 5,440
------ ------ ---- ---- --- ------
Less: To be received by
financial institutions
Operating leases 225 154 71 28 5 483
Direct financing and sales-type leases 181 107 35 4 2 329
Total 406 261 106 32 7 812
------ ------ ---- ---- --- ------
To be received by the company $2,114 $1,445 $728 $257 $84 $4,628
====== ====== ==== ==== === ======
</TABLE>
-30-
<PAGE>
FINANCING
NOTE 6 Interest-Bearing Liabilities
Interest-bearing liabilities include the following:
(in millions)
<TABLE>
<CAPTION>
97 96
--------------------------------------- ---------------------------------------
At September 30 Average At September 30 Average
------------------ ----------------- ---------------- -----------------
Balance Rate Balance Rate Balance Rate Balance Rate
------ ---- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable:
Credit lines and loan
participation contracts $ 505 5.67% $ 603 6.40% $ 664 5.62% $ 443 6.56%
Commercial paper 519 5.82% 552 5.77% 463 5.62% 474 5.77%
Term notes 497 5.98% 430 6.16% 374 6.49% 322 6.67%
Senior notes 2,421 6.62% 2,125 6.93% 1,771 7.16% 1,524 7.57%
Subordinated debt - -% - -% - -% 9 9.05%
Discounted lease rentals 742 7.19% 773 7.13% 781 7.19% 938 7.24%
------ ---- ------ ---- ------ ---- ------ ----
$4,684 6.45% $4,483 6.68% $4,053 6.68% $3,710 7.06%
====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
The changes in financing activities for the years ended September 30 were as
follows (notes payable changes are shown net):
(in millions)
<TABLE>
<CAPTION>
97 96
------------------------------------------ -------------------------------------------
Out- Out- Out- Out-
standing Maturities standing standing Maturities standing
beginning Issu- and end Fair beginning Issu- and end Fair
of year ances repurchases of year value of year ances repurchases of year value
------ ------ ------- ------ ------ ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable:
Credit lines and loan
participation contracts $ 664 $ - $ (159) $ 505 $ 505 $ 365 $ 299 $ - $ 664 $ 664
Commercial paper 463 56 - 519 519 296 167 - 463 463
Term notes 374 125 (2) 497 499 507 100 (233) 374 377
Senior notes 1,771 1,026 (376) 2,421 2,440 1,276 734 (239) 1,771 1,623
Subordinated debt - - - - - 13 - (13) - -
Discounted lease rentals 781 430 (469) 742 743 1,124 253 (596) 781 778
------ ------ ------- ------ ------ ------ ------ ------- ------ ------
$4,053 $1,637 $(1,006) $4,684 $4,706 $3,581 $1,553 $(1,081) $4,053 $3,905
====== ====== ======= ====== ====== ====== ====== ======= ====== ======
</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,
1997 are shown in the table at right:
(in millions)
2002
and
98 99 00 01 after Total
------ ------ ---- ---- ---- ------
Notes payable:
Credit lines
and loan
participation
contracts $ 505 $ - $ - $ - $ - $ 505
Commercial
paper 519 - - - - 519
Term notes 497 - - - - 497
Senior notes 610 853 379 289 290 2,421
Discounted
lease rentals 365 240 100 30 7 742
------ ------ ---- ---- ---- ------
$2,496 $1,093 $479 $319 $297 $4,684
====== ====== ==== ==== ==== ======
-31-
<PAGE>
Notes payable: The company had the following unsecured bank lines available in
the United States and foreign countries at September 30:
(in millions) 97 96
------ ------
Total credit lines:
Committed $1,139 $1,016
Uncommitted 451 319
------ ------
$1,590 $1,335
====== ======
Utilized at September 30:
Committed $ 760 $ 766
Uncommitted 101 206
Total credit lines 861 972
Loan participation contracts 163 155
------ ------
Total notes payable $1,024 $1,127
====== ======
Credit lines available at
September 30 $ 729 $ 363
====== ======
Maximum amount outstanding
at any month end $1,302 $1,131
====== ======
The company had outstanding interest rate caps totaling $44 million on
short-term borrowings to mitigate interest rate risks at September 30, 1997.
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, 1997, the company had
committed domestic and foreign unsecured lines of credit as follows:
Number Expiration
Facility of banks date
- ---------------------- -------- --------------
Multi-Option Facilities 13
$300 million facility December, 1999
$200 million facility December, 1997
Global Facilities 17
$300 million facility December, 1999
$200 million facility December, 1997
Other credit agreements:
$ 75 million - domestic
and foreign 1 April, 1998
$ 64 million - foreign 4 Various
There are no compensating balance requirements on any of the committed
lines. At September 30, 1997, the company had $760 million outstanding under its
committed lines, including $519 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 basis points or, for the two $200 million facilities, twenty-two basis
points, or at the banks' then current base rates. The Facilities call for the
company to pay an annual fee of ten basis points per annum on $600 million of
the committed amount and eight basis points per annum on $400 million of the
committed amount. The two $200 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, 1998.
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 $451 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, 1997, the company had $700 million of
commercial paper facilities (of which $519 million was outstanding at September
30, 1997) all of which are supported by its committed lines of credit. The
facilities were rated D-2 by Duff & Phelps, P-2 by Moodys and A-2 by Standard &
Poors.
Term notes payable: Term notes payable include the following at September 30:
(in millions) 97 96
---- ----
Receivable backed commercial
paper (floating rate; due 1998) $450 $325
Building mortgage (9.70%; due 1998) 44 44
Guaranteed senior ESOP notes (8.12%; due 1998) 3 5
---- ----
$497 $374
==== ====
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 11 of Notes to Consolidated
Financial Statements regarding the senior ESOP notes.
-32-
<PAGE>
Senior notes: Senior notes include the following at September 30:
<TABLE>
(in millions) 97 96
------ ------
<S> <C> <C>
Medium term notes (5.22% to
9.99%)<F1> $1,184 $ 834
9.75% Senior Notes due 1997 - 200
7.25% Senior Notes due 1998 200 200
7.75% Senior Notes due 1999 89 89
6.50% Senior Notes due 1999 250 -
6.50% Senior Notes due 2000 199 199
5.75% Senior Notes due 2001 249 249
6.375% Senior Notes due 2002 250 -
------ ------
Total senior notes $2,421 $1,771
====== ======
<FN>
<F1>The company had interest rate swap agreements at September 30, 1997 that
effectively converted $25 million of medium-term floating rate borrowings to
fixed rate obligations with an effective interest rate of 6.65%. The average
remaining terms of these swap agreements was less than one year at September 30,
1997.
</FN>
</TABLE>
On November 1, 1996, the company filed a registration statement on Form S-3
with the Securities and Exchange Commission (the "SEC") 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." 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.
During fiscal 1997, the company sold $377 million of Medium-Term Notes, Series
F. As a result of these sales and the redesignation, an aggregate of $73 million
of medium-term notes remain available for issuance under the 1996 Shelf as of
September 30, 1997.
On June 23, 1997, the company filed a registration statement on Form S-3
with the SEC 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"). On
November 6, 1997, the company filed a Prospectus Supplement designating $600
million of the senior debt securities as "Medium-Term Notes, Series G."
There are no sinking fund requirements associated with any of the company's
senior notes.
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, 1997 are as follows (in millions):
Rentals to be
received by Discounted
Years ending financial lease Interest
September 30, institutions rentals expense
- ------------- ---- ---- ---
1998 $406 $365 $41
1999 261 240 21
2000 106 100 6
2001 32 30 2
2002 7 7 -
---- ---- ---
$812 $742 $70
==== ==== ===
Interest expense on discounted lease rentals was $55 million, $68 million,
and $98 million in fiscal 1997, 1996, and 1995, 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.
-33-
<PAGE>
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:
(in millions)
97 96
---------------- ------------------
Notional Fair Notional Fair
amount value amount value
--- --- ---- ---
Interest rate swap
agreements $95 $(1) $165 $(1)
Cross-currency interest
rate swap agreements 85 9 95 (1)
Interest rate caps 44 - 47 -
Forwards and futures 3 - 147 6
The impact of these contracts on interest expense for fiscal years 1997,
1996 and 1995 was immaterial. The average notional amount outstanding of the
floating rate to fixed rate contracts in fiscal 1997, including those noted in
the discussions above, was $74 million, with an average pay rate of 6.82% and an
average receive rate of 5.92%. The average notional amount outstanding of the
fixed rate to floating rate contracts in fiscal 1997 was $29 million, with an
average pay rate of 5.67% and an average receive rate of 5.45%. 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 $22 million in 1997 and
$21 million in 1996) include the following as of September 30:
(in millions) 97 96
---- ----
Accounts, net $160 $128
Income taxes 6 5
Notes 41 23
Other 55 62
---- ----
$262 $218
==== ====
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, 1997,
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 Income Taxes
The geographical sources of earnings before income taxes were as follows:
(in millions) 97 96 95
---- ---- ----
United States $163 $155 $154
Outside United States 48 29 14
---- ---- ----
$211 $184 $168
==== ==== ====
Cumulative unremitted earnings of foreign operations amounting to $104
million after foreign taxes at September 30, 1997, 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 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) 97 96 95
--- --- ---
Current:
U.S. Federal $24 $20 $16
U.S. state and local 7 6 10
Outside United States 8 14 9
--- --- ---
39 40 35
--- --- ---
Deferred:
U.S. Federal 35 32 30
U.S. state and local 2 3 (1)
Outside United States 4 (5) -
41 30 29
--- --- ---
Total tax provision $80 $70 $64
=== === ===
-34-
<PAGE>
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
--------------------------------------
97 96 95
---- ---- ----
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 3.0 3.3 3.6
Foreign income tax rate
differential .8 1.3 .1
Tax effect of foreign
losses (utilized)/
deferred (2.9) (1.9) 2.2
Changes in estimates of
previously provided
taxes - - (2.0)
Other, net 2.1 .3 (.9)
---- ---- ----
38.0% 38.0% 38.0%
==== ==== ====
Deferred tax assets and liabilities at September 30, 1997 and 1996 were as
follows:
(in millions) 97 96
---- ----
Deferred tax assets:
Equity transactions $266 $318
Foreign loss carryforwards 24 32
U.S. net operating loss
carryforwards 44 32
AMT credit carryforwards 111 91
Deferred income 34 22
Other, net 58 24
---- ----
Gross deferred tax assets 537 519
Less: valuation allowance (24) (32)
---- ----
Total deferred tax assets 513 487
---- ----
Deferred tax liabilities:
Lease accounting 782 719
Foreign 37 34
Deferred expenses - 8
---- ----
Total deferred tax liabilities 819 761
---- ----
Net deferred tax liabilities $306 $274
==== ====
For financial reporting purposes, the company has approximately $56 million
of foreign net operating loss carryforwards, most of which have no expiration
date. The company has recognized a valuation allowance of $24 million to offset
this deferred tax asset. During fiscal 1997, changes in the valuation allowance
included decreases of $6 million from utilizing foreign net operating loss
carryforwards and $2 million from foreign exchange rate and tax rate changes.
At September 30, 1997, 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 102
2009 3
----
$117
====
For U.S. Federal income tax purposes, the company has approximately $111
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.
All years prior to fiscal year 1989 are closed to further assessment by the
Internal Revenue Service (the "Service") due to the expiration of the Statute of
Limitations.
In 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 $10 million and $3 million for fiscal years 1989 and 1990,
respectively. In August, 1994, the company filed a Protest with the Service. The
Appeals Division ("Appeals") returned the case to the field for further
development. In May, 1997, the company and the Service jointly submitted a
Technical Advice Request 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. In August, 1997, the company met with the National
Office to discuss the Technical Advice and submitted additional information that
had been requested. Management believes that all issues will be resolved with no
material impact on the company's financial condition or results of operations.
During 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
-35-
<PAGE>
relate to the inventory/depreciation issue. 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 agreed to
forego the turn around calculations as part of the above assessments. If the
inventory/depreciation turn around adjustments were included, 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. However, Appeals returned the case to the
field for further development. Once the additional field work is completed,
management anticipates the case will be returned to Appeals. Management believes
that all issues raised will be resolved with no material impact on the company's
financial condition or results of operations. Additionally, in August, 1996, the
company made tax payments totaling $4 million and interest payments totaling $1
million in anticipation of expected tax and interest liabilities for fiscal
years 1992 and 1993.
In July, 1996, the Service commenced an income tax audit for fiscal years
1994 and 1995. Field work is expected to be completed by the end of calendar
year 1997 and the company expects to receive a 30-Day Letter in early 1998.
Management believes all issues will eventually be resolved with no material
impact on the company's financial condition or results of operations.
The company also undergoes audits by foreign, state and local tax
jurisdictions. As of September 30, 1997, no material assessments have been made
by these tax authorities.
NOTE 9 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 in fiscal 1997, 1996 and 1995.
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.
On September 19, 1997, the company announced the redemption, effective
October 20, 1997, of all shares of the Series A Preferred Stock (2,738,200
shares) at the redemption price per share of $25, plus accrued and unpaid
dividends. The Series B Preferred Stock is not redeemable prior to July 12,
1998. After July 12, 1998, the Series B Preferred Stock is subject to redemption
at the company's option, at any time, at $25 per share (plus accrued dividends).
NOTE 10 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 June,
1997.
Cash dividends paid were $.20 per share in fiscal 1997, $.19 per share in
fiscal 1996, and $.16 per share in fiscal 1995. The company purchased 2.5
million and 5.6 million shares of common stock at an aggregate cost of $45
million and $80 million in fiscal 1997 and 1996, respectively. On March 1, 1995,
the company issued 2.3 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 $11.11 per share.
On November 4, 1997, the board of directors of the company adopted a new
shareholder rights plan (the "New Rights Plan") to replace the company's
existing plan, which expired on November 17, 1997. Under the New Rights Plan,
shareholders of record on November 17, 1997 received a dividend distribution of
one preferred stock purchase right for each share of the company's common stock
then held. Like the shareholder rights plan it replaced, the New Rights Plan
continues the company's policy of ensuring fair value to all shareholders in the
event of an unsolicited takeover offer for the company. The New Rights Plan will
expire on November 17, 2007. The New Rights Plan is incorporated by reference in
the company's Form 10-K for fiscal 1997 and the company's filing on Form 8-K in
November, 1997.
-36-
<PAGE>
NOTE 11 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 2.3 million shares of common stock held in treasury by the company
at a market price at the date of purchase of $8.83 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. Shares purchased by the Trust with the ESOP
Debt proceeds are allocated annually to plan participants and deferred
compensation is reduced by the amount of the principal payment on the ESOP Debt.
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.
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 4,500 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)
97 96
----- -----
Net earnings available
to common stockholders
As reported $ 123 $ 106
Pro forma 120 105
Earnings per common and
common equivalant share
As reported $1.56 $1.33
Pro forma 1.53 1.31
Under the stock option plans, the exercise price of each option equals the
market price of the company's common 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 1997 and 1996, respectively: dividend yield of 1.0% for all
years; expected volatility of 26 percent and 29 percent; risk free interest
rates of 6.19% and 5.94%; and expected lives of five years.
-37-
<PAGE>
Additional information on shares subject to options is as follows:
<TABLE>
<CAPTION>
(in thousands except weighted average exercise)
97 96 95
------------------- ----------------- -----------------
Weighted- Weighted- Weighted-
Number average Number average Number average
of exercise of exercise of exercise
shares price shares price shares price
------ --- ----- --- ------- --
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 9,548 $ 9 8,217 $ 8 9,243 $8
Granted 2,641 18 2,448 13 1,071 9
Exercised (2,144) 8 (912) 8 (1,549) 7
Forfeited (453) 11 (205) 9 (548) 7
------ --- ----- --- ------ --
Outstanding at the end of year 9,592 $12 9,548 $ 9 8,217 $8
====== === ===== === ======= ==
Options exercisable at year-end 6,289 $11 5,555 $ 9 4,689 $8
====== === ===== === ======= ==
Weighted-average fair value of
options granted during the year $ 5.77 $4.49 $ 3.34
====== ===== =======
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1997 (number of shares in thousands):
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------- ---------------------
Weighted- Weighted- Weighted-
Number average average Number average
of remaining con- exercise of exercise
Range of exercise prices shares tractual life price shares price
- ------------------------ ----- --------- --- ----- ---
<S> <C> <C> <C> <C> <C>
$6 to 9 2,634 5.5 years $ 7 2,262 $ 7
$9 to 12 2,433 5.5 years 10 1,612 10
$12 to 15 2,625 8.0 years 14 1,769 14
$15 to 22 1,900 9.0 years 19 646 19
----- --------- --- ----- ---
9,592 7.0 years $12 6,289 $11
===== ========= === ===== ===
</TABLE>
NOTE 12 Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the fiscal years ended September 30,
1997 and 1996, is as follows (in millions except for per share amounts):
<TABLE>
<CAPTION>
Quarter ended
-----------------------------------------------------------------
December 31, March 31, June 30, September 30,
96 95 97 96 97 96 97 96
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue $633 $530 $690 $581 $712 $592 $784 $728
Net earnings to common stockholders $ 28 $ 25 $ 31 $ 26 $ 32 $ 27 $ 32 $ 28
Net earnings per common and
common equivalent share $.37 $.31 $.38 $.33 $.40 $.34 $.41 $.35
</TABLE>
NOTE 13 Segment Information
The company operates predominantly in the leasing industry. The company operated
in four principal geographic locations during fiscal 1997. The company also
operates in South America.
Transfers between geographic areas include a reasonable profit that is
eliminated in consolidation.
Presented on page 39 is financial information reflecting the company's
leasing and continuity and network services operations by geographic area for
the years ended September 30, 1997, 1996 and 1995.
-38-
<PAGE>
<TABLE>
<CAPTION>
(in millions)
United Pacific Export Elimin- Consol-
States Europe Canada Rim sales ations idated
------ ---- ---- ---- --- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Revenue from unaffiliated customers
Leasing $1,880 $489 $ 63 $ 33 $ - $ - $2,465
Continuity and network services 293 48 13 - - - 354
------ ---- ---- ---- --- ----- ------
Total revenue from unaffiliated customers 2,173 537 76 33 - - 2,819
Transfers between geographic areas 12 14 3 5 4 (38) -
------ ---- ---- ---- --- ----- ------
Total revenue $2,185 $551 $ 79 $ 38 $ 4 $ (38) $2,819
====== ==== ==== ==== === ===== ======
Earnings (loss) before income taxes
Leasing $ 119 $ 21 $ 16 $ (1) $ - $ (2) $ 153
Continuity and network services 51 6 1 - - - 58
------ ---- ---- ---- --- ----- ------
Total earnings (loss) before income taxes $ 170 $ 27 $ 17 $ (1) $ - $ (2) $ 211
====== ==== ==== ==== === ===== ======
Total assets (end of year)
Leasing $5,058 $790 $162 $164 $23 $(159) $6,038
Continuity and network services 270 62 20 - - (40) 312
------ ---- ---- ---- --- ----- ------
Total assets $5,328 $852 $182 $164 $23 $(199) $6,350
====== ==== ==== ==== === ===== ======
1996
Revenue from unaffiliated customers
Leasing $1,573 $420 $ 75 $ 45 $ - $ - $2,113
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
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
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
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
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
Continuity and network services 239 61 19 - - (24) 295
------ ---- ---- ---- --- ----- ------
Total assets $4,161 $741 $145 $100 $23 $(131) $5,039
====== ==== ==== ==== === ===== ======
</TABLE>
-39-
<PAGE>
Independent Auditors' Report
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1997 in conformity with generally accepted accounting
principles.
/s/KPMG PEAT MARWICK LLP
Chicago, Illinois
November 7, 1997
-40-
Exhibit 21.00
<TABLE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
--------------------- --------------------
<S> <C> <C>
CDC Realty, Inc. Illinois 100%
CDO Capital, L.L.C. Delaware 98.28%
CDO RM, Inc. Delaware 100%
CDS Foreign Holdings, Inc. Delaware 100%
CFS Railcar, Inc. Delaware 100%
COM-L 1989-A Corporation Illinois 100%
Comdisco Asia Pte Ltd Singapore 100%
Comdisco Australia Pty. Ltd. New South Wales, Australia 100%
Comdisco Belgium S.P.R.L. Belgium 100%
(f/k/a Comdisco Belgium S.A.)
Comdisco Canada Equipment Finance Ontario, Canada 100%
Limited Partnership
Comdisco Canada Finance, L.L.C. Delaware 100%
Comdisco Canada Ltd. Ontario, Canada 100%
Comdisco Continuity Services Canada Ontario, Canada 100%
Ltd. (f/k/a Comdisco Disaster Recovery
Services Canada Ltd.)
Comdisco Continuity Services (France) France 100%
(f/k/a/ Ageris International, S.A.)
Comdisco Continuity Services (UK) United Kingdom 100%
Limited (f/k/a Failsafe/ROC Ltd.)
Comdisco Direct (UK) Limited United Kingdom 100%
(f/k/a Comdisco Finance Ltd.)
Comdisco Deutschland GmbH Germany 100%
Comdisco Disaster Recovery Netherlands 100%
Services B.V.
Comdisco Factoring (Nederland) Netherlands 100%
B.V.
<PAGE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
--------------------- --------------------
Comdisco Finance (Nederland) B.V. Netherlands 100%
Comdisco Financial Services, Inc. Delaware 100%
Comdisco France S.A. France 100%
Comdisco Global, Inc. Cayman Islands 100%
Comdisco GmbH & Co. Leasing and Germany 100%
Finance KG
Comdisco Group Leasing Limited Illinois 75.25%
Partnership
Comdisco Handelsgesellschaft M.B.H. Austria 100%
Comdisco Healthcare Group, Inc. Delaware 100%
Comdisco Holdings (U.K.) Limited United Kingdom 100%
(f/k/a Comdisco Disaster Recovery
Services (U.K.) Ltd.)
Comdisco Investment Group, Inc. Delaware 100%
Comdisco Ireland Limited Ireland 100%
Comdisco Lease Finance Partnership Cayman Islands 100%
Comdisco Maintenance Services, Inc. Illinois 100%
Comdisco Management GmbH Germany 100%
Comdisco Medical Exchange, Inc. Delaware 100%
Comdisco de Mexico, S.A. de C.V. Mexico 100%
Comdisco Nederland B.V. Netherlands 100%
Comdisco Network Services, Inc. Illinois 100%
Comdisco New Zealand New Zealand 100%
(f/k/a Comdisco (NZ) Limited
Comdisco Receivables, Inc. Delaware 100%
Comdisco Sweden A.B. Sweden 100%
Comdisco (Switzerland), S.A. Switzerland 100%
<PAGE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
--------------------- --------------------
Comdisco Systems, Inc. Delaware 100%
Comdisco Trade, Inc. Delaware 100%
Comdisco United Kingdom Limited United Kingdom 100%
Commedco, Inc. Delaware 100%
Computer Discount Corporation Illinois 100%
Computer Discount Corporation, S.L. Spain 100%
(f/k/a Computer Discount Corporation
S.A.)
Computer Recovery Centre Sdn Bhd Malaysia 10%
Failsafe ROC Limited (f/k/a ROC Ltd.) United Kingdom 100%
Horizon Lease Partners, L.P. Delaware 100%
Promodata, SNC France 100%
628761 Alberta Ltd. Alberta, Canada 100%
</TABLE>
Subsidiaries of the Registrant are included in the consolidated financial
statements.
Exhibit 23.00
[KPMG Peat Marwick LLP Letterhead]
Independent Auditors' Consent
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. 333-29813 on Form S-3 and Registration Statement No.
333-15401 on Form S-3 of Comdisco, Inc. of our reports dated November 7, 1997,
relating to the consolidated balance sheets of Comdisco, Inc. and subsidiaries
as of September 30, 1997 and 1996 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, 1997 which reports
appear, or are incorporated by reference, in the September 30, 1997 annual
report on Form 10-K of Comdisco, Inc.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
December 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Annual Report on Form 10-K for the year ended September 30, 1997 and is
qualified in its entirety by reference to such financial statments.
</LEGEND>
<CIK> 0000722487
<NAME> Comdisco, Inc.
<MULTIPLIER> 1,000,000
<CURRENCY> Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> Oct-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 37
<SECURITIES> 0
<RECEIVABLES> 284
<ALLOWANCES> 22
<INVENTORY> 157
<CURRENT-ASSETS> 2,976
<PP&E> 7,480
<DEPRECIATION> 2,192
<TOTAL-ASSETS> 6,350
<CURRENT-LIABILITIES> 1,521
<BONDS> 2,421
0
89
<COMMON> 11
<OTHER-SE> 765
<TOTAL-LIABILITY-AND-EQUITY> 6,350
<SALES> 2,116
<TOTAL-REVENUES> 2,819
<CGS> 1,534
<TOTAL-COSTS> 2,284
<OTHER-EXPENSES> 25
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299
<INCOME-PRETAX> 211
<INCOME-TAX> 80
<INCOME-CONTINUING> 131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
</TABLE>
