SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Filed pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
October 9, 1998
Date of Earliest Event Reported
COMDISCO, INC.
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone (847) 698-3000
Commission file number 1-7725
I.R.S. Employer Identification Number 36-2687938
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Item 5. Other Events
Year 2000
The Securities and Exchange Commission has issued interpretive guidance
regarding disclosure of Year 2000 issues and consequences, effective August 4,
1998 (the "Interpretation"). Comdisco, Inc. (the "Company") provides this
disclosure to supplement the information contained in its 1997 Annual Report on
Form 10K and subsequent quarterly reports on Form 10Q in accordance with the
Interpretation.
This document contains historical information, as well as forward looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, particularly in reference to
statements regarding the Company's expectations with respect to the Company's
plans and objectives for assessment and remediation of Year 2000 issues; the
expected costs associated with assessment, remediation and testing; the
Company's contingency plans; the Company's expectations with respect to its
operations at Year 2000; and other forward looking statements. In addition, one
can generally identify forward looking statements by the use of terminology such
as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," or
"continue," as well as the negative thereof, variations thereon or similar
terminology. The Company bases such statements upon management's current
expectations. Forward-looking statements are subject to or may be impacted by a
number of factors, risks and uncertainties that could cause actual results to
differ materially from those described in the forward-looking statements. In
particular, give careful consideration to the cautionary statements made in this
document.
1. Overview
The Company has implemented a program to attempt to assess, remediate and
mitigate the potential impact of the "Year 2000" problem throughout the Company.
A "Year 2000" problem will occur where date-sensitive software uses two digit
year date fields, sorting the year 2000 ("00") before the year 1999 ("99"). The
Year 2000 problem may result in data corruption and processing errors occurring
where software, technology equipment, or any other equipment or process uses
date dependent software.
The Company's program has been structured to address its internal computer
systems and applications, facilities, equipment portfolio, and continuity and
network services operations. This program will include assessment and mitigation
of Year 2000 issues with respect to information technology and other equipment
that uses embedded software. In addition, the Company is attempting to monitor
the Year 2000 compliance status of its vendors, suppliers, service providers and
major customers. The Company believes that it is taking the necessary steps
regarding Year 2000 compliance with respect to matters within its control to
provide that Year 2000 issues will not materially impact the Company.
2. State of Readiness
The Company has organized its Year 2000 project into the following subprojects:
internal information systems;
customer service delivery capabilities;
facilities; and
business unit impact, including third party impact and equipment portfolio
issues.
The Company has approached each subproject in as many as four phases, as
applicable: (1) assessment; (2) remediation; (3) testing; and (4) contingency
planning. "Assessment" summarizes the process of issue identification.
"Remediation" refers to the process of taking corrective action to best mitigate
identified Year 2000 risks. "Testing" is the process of validating a specific
Company remediation effort or confirming a third party capability or
certification of Year 2000 compliance. "Contingency planning" means the process
by which the Company identifies an alternate course of action and/or procedures
in the event the Company cannot or fails to remediate or mitigate a known Year
2000 risk. The Company may or may not engage in contingency planning for
individual subproject components where successful Year 2000 remediation has been
validated through the testing process or other methods.
A. Information Systems
The Company has organized its information systems subproject in the
following areas: (1) Company-developed applications software; (2)
vendor applications software; (3) electronic data interchange trading
partners; and (4) hardware. The Company has prioritized remediation and
testing activities based upon the mission-critical nature of the
underlying business function. The following summarizes the current
status of this subproject:
(1) Company-developed software
The Company plans to complete all assessment, remediation and testing
activities with respect to Company-developed software by December 31,
1998.
(a) Mainframe. The Company has completed all assessment, remediation
and testing activities and returned into a production environment
Company-developed mainframe applications as follows:
Total Number Identified Activity Completed
Mainframe Modules: 6,838 6,076
Mainframe Database Records: 657 491
Most Company mission-critical functions are performed with applications
software on mainframe platforms, including, invoicing, accounts
receivable and contracts administration.
(b) AS-400. The Company has completed all assessment, remediation and
testing activities and returned into a production environment 8 of 13
Company-developed AS-400 applications.
(c) Client-Server. The Company has completed all assessment,
remediation and testing activities and returned into a production
environment 46 of 94 Company-developed client-server applications.
(2) Vendor Software
The Company has identified 258 vendor software packages throughout the
Company. Forty of those software packages have been classified as
obsolete and the Company will discontinue its use of such products
prior to January 1, 2000. The Company has either converted or otherwise
certified as Year 2000 compliant an additional 60 software packages.
The Company will conduct testing of mission- and business
function-critical vendor software packages. The Company plans to
complete all assessment, testing and or certification activities with
respect to vendor software by March 31, 1999.
(3) Electronic Data Interchange
Electronic data interchange ("EDI") involves the electronic
communication and exchange of information by two companies in
accordance with agreed upon protocols. A Year 2000 problem can arise
where either trading partner does not utilize Year 2000-compliant
protocols or standards. The Company plans to enable the Year
2000-compliant 4010 EDI standard by December 31, 1998. The Company has
sent out two mailings to all its EDI trading partners to survey trading
partner EDI Year 2000 compliance plans and requesting that the trading
partners schedule compatibility testing during 1999. The Company will
conduct testing and migration of its trading partners to the 4010
standard throughout 1999. The Company will enable its EDI systems to
accept both the 4010 standard and the current non-compliant EDI
standard to minimize potential disruptions in the exchange of
information.
(4) Hardware
The Company has completed its Year 2000 assessment of all internally
used and centrally maintained hardware, including desktop computers.
Replacement of non-compliant hardware will occur during the remainder
of 1998 and throughout 1999. Hardware and other equipment that is not
centrally maintained will be assessed as part of the scope of the
Company's business unit impact subproject.
B. Service Delivery Capabilities
The Company commenced assessment of Year 2000 issues in conjunction with its
business continuity services in April 1996 and network services during 1998.
This subproject includes:
* identifying the Year 2000 readiness status and compliance plans for
equipment manufacturers and software vendors of backup recovery and
infrastructure equipment used in the Company's recovery centers;
* testing such equipment to validate Year 2000 readiness; and to document
* progress on a periodic basis.
The business continuity component of the subproject has been organized by
product line: (1) mainframe; (2) midrange; (3) customer network; (4) internal
network; (5) workarea; and (6) trading floor. The Company also separately is
examining the Year 2000 readiness for the Company's 39 business continuity
service facilities including infrastructure, security systems, fire suppression,
electrical and key utilities. The hardware supporting customer subscriptions has
generally been found to be Year 2000 capable, if maintained at current firmware
release levels. All critical systems supplied to customers can be made Year 2000
compliant according to manufacturer's specifications.
The Company anticipates this subproject will be substantially completed by
September 1, 1999.
C. Facilities
The Company has commenced its assessment of its general facilities. This
subproject includes examination of the Company's leased and owned facilities
Year 2000 readiness, including an assessment of infrastructure equipment, such
as elevators, and security and HVAC systems, and critical service provider
readiness issues, such as that of utility providers. The Company has and will
separately examine facility issues with respect to its service delivery
facilities as part of the Company's service delivery capability subproject.
The Company has recently commenced its assessment of these facilities issues and
currently plans to complete its preliminary assessment efforts by December 31,
1998. The Company will undertake facilities contingency planning during the
first half of calendar year 1999.
D. Business Units
The Company has commenced assessment of Year 2000 issues within each of 42
internal business units. Each business unit will assess the impact of Year 2000
issues upon that business unit's operational capabilities. Each group will
attempt to identify, assess and remediate or otherwise mitigate the impact of
Year 2000 issues in the following areas: (1) software, hardware and equipment
outside the scope of the information systems project, including impact upon
portfolio value; (2) mission critical vendors; and (3) purchasing and other
contractual processes and procedures.
The Company anticipates that the business unit assessment will be substantially
completed by approximately December 31, 1998. The Company plans to conduct any
necessary remediation, mitigation and/or contingency planning activities during
the first half of calendar year 1999.
3. Costs
Management currently estimates the total cost of its Year 2000 remediation
efforts, including capital expenditures, will approximate $21,000,000 through
FY2000. The Company commenced its Year 2000 program in 1994 and has expended
approximately $ 10,000,000 to date as follows:
FY 1994- Less than $ 100,000
FY 1995- $2,030,000
FY 1996- $1,628,000
FY 1997- $2,790,000
FY 1998- $3,420,000
Management believes that it will incur approximately $8,985,000 in connection
with its Year 2000 remediation efforts during fiscal year 1999. Approximately
$6,250,000 of the FY 1999 estimate has been allocated to the replacement of
identified Year 2000 non-compliant hardware, software and infrastructure
equipment. The Company further estimates that it will incur approximately
$2,000,000 in FY 2000. The Company may be required to adjust its estimates for
FY 1999 and/or FY 2000 if the Company incurs unanticipated personnel costs, must
replace or accelerate replacement or upgrade of equipment, systems and
applications software as a result of Year 2000 non-compliance, or as a result of
other currently unidentified expenses or costs associated with Year 2000 risks.
The Company's Year 2000 expenditures and estimates include the Company's outside
consultants and contractors, internal personnel resources, and hardware,
software and equipment replacement and upgrades attributable to the Company's
Year 2000 efforts.
The Company's allocation of personnel resources to the Year 2000 project has not
resulted in the deferral of any significant information technology projects. The
Company believes that the Year 2000 costs incurred in connection with the
internal information systems subproject will not exceed ten percent (10%) of the
Company's information technology group budget during FY 1999.
4. Risks
Management believes that Comdisco's information technology and embedded systems
will be substantially Year 2000 capable prior to the commencement of the year
2000. Nevertheless, the Company believes that it may face potential Year
2000-related risk in several areas.
First, the Company may encounter Year 2000 risk as a result of the Year 2000
failure of equipment leased, sold and/or refurbished by the Company. The Company
may face claims from customers and their end users arising in connection with
bodily injury, property damage and business interruption as a result of a Year
2000 failure in equipment provided by the Company. Based on the Company's
standard lease agreement, the Company believes that it would not be liable for
such claims. However, there can be no assurance that such claims will not be
bought against the Company.
Second, Year 2000 may have an impact on the Company's estimates of fair market
value at lease termination, commonly referred to as "residual" value, for
equipment leased to customers for which the manufacturer does not make available
a Year 2000 compliance upgrade path or in the event an available Year 2000
upgrade is cost prohibitive relative to the market value of the equipment.
Although the Company is still in the process of evaluating any potential Year
2000 residual risks, nothing has come to the Company's attention that would lead
it to believe that the amounts the Company will ultimately realize would differ
materially from the estimated amounts recorded in the Company's financial
statements.
Third, the Company may experience intermittent business interruption to its
internal operations and service delivery capability as a result of the Company's
suppliers, vendors, service providers and/or customers failing to successfully
address their own Year 2000 issues. While the Company exercises no control over
such third parties, the Company's Year 2000 project plan includes a survey
assessment of critical third parties response and remediation plans to identify
Year 2000 issues within such companies and their potential impact upon the
Company. The Company has no significant concentration of revenue with any single
or group of customers. Revenue from the Company's largest customer in 1998 does
not exceed 2% of Comdisco's total revenue. However, if a large number of the
Company's major customers encounter operating problems due to Year 2000 that
results in their defaulting in their obligations, the Company may experience a
material impact due to higher credit losses and lower income.
5. Contingency Planning
The Company currently anticipates that its information technology and critical
non-information technology systems will be Year 2000 compliant in all material
respects. This assessment is based upon the current readiness of a majority of
the information technology systems and the Company's assessed degree of
difficulty associated with completing the remainder of its Year 2000 plans. The
Company has not yet commenced substantial contingency planning efforts in
connection with its Year 2000 efforts due to its focus on its ongoing
assessment, remediation and testing efforts. The Company believes that effective
contingency planning requires full completion of all assessment efforts. The
Company anticipates that it will engage in comprehensive contingency planning
during the first half of calendar year 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
COMDISCO, INC.
Date: October 9, 1998 by: /s/ John J. Vosicky
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John J. Vosicky
Executive Vice President and
Chief Financial Officer
