UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______________ to
_______________
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Commission file number 1-7725
I.R.S. Employer Identification Number 36-2687938
COMDISCO, INC.
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone: (847) 698-3000
Name of each Number of shares
Title of exchange on outstanding as of
each class which registered June 30, 1998
-------------- -------------------- ------------------
Common stock, New York Stock Exchange 152,003,133
$.10 par value Chicago Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No .
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<PAGE>
Comdisco, Inc. and Subsidiaries
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Earnings and Retained Earnings --
Three and Nine Months Ended June 30, 1998 and 1997.......................3
Consolidated Balance Sheets --
June 30, 1998 and September 30, 1997.....................................4
Consolidated Statements of Cash Flows --
Nine Months Ended June 30, 1998 and 1997.................................5
Notes to Consolidated Financial Statements.................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................9
PART II. OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........14
Item 5. Other Information..................................................14
Item 6. Exhibits and Reports on Form 8-K...................................15
SIGNATURES....................................................................17
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<PAGE>
PART I. FINANCIAL INFORMATION
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
(in millions except per share data)
For the Three and Nine Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1998 1997 1998 1997
Revenue ------ ------ ------ ------
<S> <C> <C> <C> <C>
Leasing
Operating ......................... $ 483 $ 415 $1,386 $1,207
Direct financing .................. 41 36 122 108
Sales-type ........................ 69 89 231 221
------ ------ ------ ------
Total leasing .................. 593 540 1,739 1,536
Sales ............................... 106 68 241 173
Continuity and network services ..... 107 91 321 260
Other ............................... 11 13 37 66
------ ------ ------ ------
Total revenue ..................... 817 712 2,338 2,035
------ ------ ------ ------
Costs and expenses
Leasing
Operating ......................... 390 332 1,114 953
Sales-type ........................ 43 62 149 151
------ ------ ------ ------
Total leasing .................. 433 394 1,263 1,104
Sales ............................... 88 51 202 130
Continuity and network services ..... 91 76 267 218
Selling, general and administrative . 62 61 185 181
Interest ............................ 81 75 245 221
Other ............................... -- -- -- 25
------ ------ ------ ------
Total costs and expenses .......... 755 657 2,162 1,879
------ ------ ------ ------
Earnings before income taxes ........... 62 55 176 156
Income taxes ........................... 22 21 63 59
------ ------ ------ ------
Net earnings before preferred dividends 40 34 113 97
Preferred dividends .................... -- (2) (2) (6)
------ ------ ------ ------
Net earnings to common stockholders ... $ 40 $ 32 $ 111 $ 91
====== ====== ====== ======
Retained earnings at beginning of period $1,029 $ 908 $ 965 $ 856
Net earnings to common stockholders ... 40 32 111 91
Cash dividends paid on common stock .... (5) (4) (12) (11)
------ ------ ------ ------
Retained earnings at end of period ..... $1,064 $ 936 $1,064 $ 936
====== ====== ====== ======
Net earnings per common share:
Earnings per common share--basic . $ .26 $ .21 $ .73 $ .61
====== ====== ====== ======
Earnings per common share--diluted $ .24 $ .20 $ .68 $ .57
====== ====== ====== ======
Common shares outstanding:
Average common shares--basic .. 153 148 151 147
====== ====== ====== ======
Average common shares--diluted 164 158 163 157
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
Comdisco, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions except number of shares)
June 30 September 30
1998 1997
----------- ------------
ASSETS (unaudited) (audited)
Cash and cash equivalents ...................... $ 67 $ 37
Cash - legally restricted ...................... 29 45
Receivables, net ............................... 337 262
Inventory of equipment ......................... 164 157
Leased assets:
Direct financing and sales-type ............... 1,689 1,717
Operating (net of accumulated depreciation).... 3,990 3,571
------- -------
Net leased assets .......................... 5,679 5,288
Buildings, furniture and other, net ............ 134 140
Other assets ................................... 417 421
------- -------
$ 6,827 $ 6,350
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable .................................. $ 1,192 $ 1,024
Term notes payable ............................. 550 497
Senior and subordinated debt ................... 2,643 2,421
Accounts payable ............................... 176 170
Income taxes ................................... 297 306
Other liabilities .............................. 379 325
Discounted lease rentals ....................... 645 742
------- -------
5,882 5,485
------- -------
Stockholders' equity:
Preferred stock $.10 par value
Authorized 100,000,000 shares:
8.75% Cumulative Preferred Stock, Series A and B
$25 stated value and liquidation preference
824,000 shares issued
(3,562,600 at September 30, 1997) ............ 21 89
Common stock $.10 par value
Authorized 750,000,000 shares
issued 221,400,330 shares
(220,263,089 at September 30, 1997) .......... 22 11
Additional paid-in capital ................... 254 178
Deferred compensation (ESOP) ................. -- (3)
Deferred translation adjustment .............. (32) (20)
Retained earnings ............................ 1,064 965
------- -------
1,329 1,220
Common stock held in treasury, at cost ....... (384) (355)
------- -------
Total stockholders' equity ............... 945 865
------- -------
$ 6,827 $ 6,350
======= =======
See accompanying notes to consolidated financial statements.
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<PAGE>
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
Nine Months Ended June 30, 1998 and 1997
Increase (decrease) in cash and cash equivalents:
1998 1997
------- -------
Cash flows from operating activities:
Operating lease and other leasing receipts .............. $ 1,500 $ 1,259
Direct financing and sales-type leasing receipts ........ 732 627
Sale of direct financing and sales-type receivables ..... 77 --
Leasing costs, primarily rentals paid ................... (15) (22)
Sales ................................................... 201 176
Sales costs ............................................. (105) (58)
Continuity and network services receipts ................ 298 251
Continuity and network services costs ................... (213) (146)
Other revenue ........................................... 37 41
Litigation settlement ................................... -- 25
Selling, general and administrative expenses ............ (190) (172)
Interest ................................................ (236) (218)
Income taxes ............................................ (54) (35)
-------- --------
Net cash provided by operating activities ............. 2,032 1,728
-------- --------
Cash flows from investing activities:
Equipment purchased for leasing .......................... (2,235) (2,175)
Investment in continuity and network services facilities . (57) (42)
Other .................................................... (35) (1)
-------- --------
Net cash used in investing activities ................. (2,327) (2,218)
-------- --------
Cash flows from financing activities:
Discounted lease proceeds ............................... 223 226
Net increase (decrease) in notes payable ................ 168 (116)
Issuance of term notes and senior notes ................. 692 1,006
Maturities and repurchases of term notes and senior notes (414) (343)
Principal payments on secured debt ...................... (320) (230)
Increase (decrease) in legally restricted cash ......... 16 (8)
Preferred stock redeemed ................................ (68) --
Common stock repurchased and placed in treasury ......... (84) (23)
Dividends paid on common stock .......................... (11) (11)
Stock Incentive Plan .................................... 109 --
Dividends paid on preferred stock ....................... (2) (6)
Other ................................................... 16 21
-------- --------
Net cash provided by financing activities ............. 325 516
-------- --------
Net increase in cash and cash equivalents .................. 30 26
Cash and cash equivalents at beginning of period ........... 37 29
-------- --------
Cash and cash equivalents at end of period ................. $ 67 $ 55
======== ========
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Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED
(in millions)
Nine Months Ended June 30, 1998 and 1997
1998 1997
------ ------
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings ............................................ $ 113 $ 97
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Leasing costs, primarily
depreciation and amortization ..................... 1,249 1,082
Leasing revenue, primarily principal portion of
direct financing and sales-type lease rentals ..... 492 346
Sale of direct financing and sales-type receivables . 77 --
Cost of sales ....................................... 70 72
Continuity and network services costs, primarily
depreciation and amortization ..................... 54 75
Interest ............................................ 9 3
Income taxes ........................................ 9 23
Other - net ......................................... (41) 30
------- -------
Net cash provided by operating activities $ 2,032 $ 1,728
======= =======
See accompanying notes to consolidated financial statements.
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Comdisco, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1998 and 1997
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended September 30, 1997.
The balance sheet at September 30, 1997 has been derived from the audited
financial statements included in the Company's Annual Report on Form 10-K for
the year ended September 30, 1997.
Legally restricted cash represents cash and cash equivalents that are restricted
solely for use as collateral in secured borrowings and are not available to
other creditors.
Certain reclassifications have been made in the 1997 financial statements to
conform to the 1998 presentation.
2. Interest-Bearing Liabilities
At June 30, 1998, the Company had $1.7 billion of available domestic and
international borrowing capacity under various lines of credit from commercial
banks and commercial paper facilities.
The average daily borrowings outstanding during the nine months ended June 30,
1998 were approximately $4.8 billion, with a related weighted average interest
rate of 6.59%. This compares to average daily borrowings during the first nine
months of fiscal 1997 of approximately $3.6 billion, with a related weighted
average interest rate of 7.03%.
3. Senior Notes
On June 23, 1997 the Company filed a registration statement on Form S-3 with the
Securities and Exchange Commission for a shelf offering of up to $1.2 billion of
senior debt securities on terms to be set at the time of each sale (the "1997
Shelf"). On November 6, 1997, the Company filed a Prospectus Supplement
designating $600 million of senior debt securities as "Medium-Term Notes, Series
G." An aggregate of $370 million of medium-term notes remain available for
resale under the 1997 Shelf as of July 13, 1998. Pursuant to the 1997 Shelf, the
Company, on January 8, 1998, issued $250 million of 6.125% Notes Due January 15,
2003, and, on July 27, 1998, issued $275 million of 6.13% Mandatory Par Put
Remarketed Securities due August 1, 2006.
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<PAGE>
4. Preferred and Common Stock
On July 13, 1998, the Company announced the redemption, effective July 13, 1998,
of all shares of the Series B Preferred Stock (824,000 shares) at the redemption
price of $25, plus accrued and unpaid dividends.
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 of $25, plus accrued and unpaid dividends.
On July 22, 1998, the Board of Directors declared a quarterly cash dividend of
$.025 per common share to be paid on September 15, 1998 to holders of record on
August 14, 1998.
On April 22, 1998, the Board of Directors authorized a two-for-one split of the
Company's common stock to be distributed on June 15, 1998, to holders of record
on May 22, 1998. Accordingly, all references in the financial statements and
notes to common share data have been adjusted to reflect the split.
On February 2, 1998, the Company announced that 106 senior managers of the
Company purchased over six million shares of the Company's common stock for
approximately $109 million (the "Proceeds"). Under the voluntary program, the
senior managers took out full recourse, personal loans to purchase the shares.
The Company has guaranteed repayment of the loans in the event of default. The
purchased shares represented over 4% of the current total shares outstanding.
During the quarter ended June 30, 1998, the Company purchased approximately 1.8
million shares of its common stock under its common stock repurchase program at
a cost of $37 million.
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<PAGE>
Comdisco, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, those
risk factors set forth generally throughout this Management's
Discussion and Analysis of Financial Condition and Results of
Operations and specifically under "Business Outlook" and "Risk Factors
that May Affect Future Results." The following discussion also should
be read in conjunction with the consolidated financial statements and
exhibits thereto included in the Company's Annual Report on Form 10-K
for the year ended September 30, 1997 filed with the Securities and
Exchange Commission on December 23, 1997.
Net Earnings
------------
Net earnings available to common stockholders (hereinafter referred to
as "net earnings") for the three months ended June 30, 1998 were $40
million, or $.24 per common share, as compared to $32 million, or $.20
per common share, for the three months ended June 30, 1997. Net
earnings for the nine months ended June 30, 1998, were $111 million, or
$.68 per common share, as compared to $91 million, or $.57 per common
share, for the year earlier period. The increase in net earnings in the
three and nine months ended June 30, 1998 compared to the year earlier
periods is primarily due to increases in earnings contributions from
remarketing and continuity services activities. Earnings per share in
the current year periods benefited from a lower effective tax rate of
36.0% compared to 38.0% in fiscal 1997.
Business Outlook
----------------
Leasing volume, as measured by the cost of equipment placed on lease,
increased in the three and nine months ended June 30, 1998 as compared
to the year earlier periods. The growth in leasing volume is expected
to have a positive impact on leasing revenue in future periods and will
provide equipment for remarketing.
Cost of equipment placed on lease was $905 million during the quarter
ended June 30, 1998. This compares to cost of equipment placed on lease
of $803 million and $783 million during the quarters ended June 30,
1997 and March 31, 1998, respectively. During the nine months ended
June 30, 1998, cost of equipment placed on lease totaled $2.4 billion
compared to $2.2 billion during the nine months ended June 30, 1997. In
the current quarter, information technology services had worldwide cost
of equipment placed on lease of $594 million, compared to $542 million
in the year earlier quarter. The increase was due to an increase in
leasing of distributed systems equipment, particularly for
communications equipment such as network, VSAT and other
telecommunications equipment. Diversified technology services had cost
of equipment placed on lease of $311 million, compared to $122 million
in the year earlier period.
Remarketing activity, an important contributor to quarterly earnings,
was at approximately the same level in the current quarter as compared
to the year earlier quarter. To meet its quarterly earnings goals,
remarketing contributions have to be at or greater than the level
achieved in the current fiscal quarter. While the Company is devoting
resources to its remarketing activities, there can be no assurance that
the Company will achieve the appropriate level of activity necessary to
meet the Company's desired operating results.
The Company continues to monitor volatility in large systems fair
market values, which during the last eighteen months in particular,
have declined faster and exhibited greater volatility than historical
trends would have otherwise indicated. As a result, there is no
assurance that fair market values on large systems will stabilize or
that further rapid declines in the value of such systems will not occur
in the near term. To the extent that declines in fair market values
exceed the Company's current estimates, there could be an adverse
effect on the Company's operating results.
After ten consecutive quarters of growth in pretax earnings, continuity
and network services had a quarter-to quarter decline in pretax
earnings from $20 million in the second quarter of fiscal 1998 to $16
million in the current quarter. This compares to pretax earnings of $15
million in the same quarter of the prior fiscal year. Revenue from
continuity contracts, which is recognized monthly during the
noncancelable continuity contract and is therefore recurring and
predictable, was approximately $72 million, $71 million and $75 million
during the three months ended June 30, 1998 and 1997, and March 31,
1998, respectively, representing approximately 67%, 78% and 68% of
continuity and network services revenue. Revenue from the Company's
Millennium Testing Services ("MTS") continues to be significantly below
the Company's targets for fiscal 1998. This shortfall in MTS revenue
may indicate that companies are still working on the coding for the
Year 2000 and are not yet ready to test their program changes. In prior
quarters, the Company had been successful in containing costs to
maintain and improve margins in its services operations. However, in
the current quarter, additional costs associated with growing the
business coupled with the longer sale cycle (see discussion following)
negatively impacted the margins on continuity and network services. To
attain its services earnings contribution goals for fiscal 1998, the
Company will have to expand its contract subscription base (through new
contract signings and contract renewals), increase its revenues from
consulting services, attain MTS revenue and contain costs.
The industry in which the Company operates is evolving, and the
Company's business is becoming more service oriented, with the business
driven by the Company's service capabilities, including life cycle
management and continuity services. One of the impacts of this changing
business model is the lengthening of the sales cycle--the length of
time between initial sales contact and final delivery of contracts--as
compared to its traditional leasing business. This increase in sales
cycle results in an increase in "backlog" (or negotiations in progress)
which ultimately impacts the timing of revenue, earnings and volume
recognition. In addition, the Company's ability to obtain new business
from customers depends on its ability to anticipate technological
changes, develop services to meet customer requirements and to achieve
delivery of services that meet customer requirements.
Three months ended June 30, 1998
--------------------------------
Total revenue for the three months ended June 30, 1998 was $817 million
compared to $712 million in the prior year quarter and $777 million in
the quarter ended March 31, 1998. The increase in the current quarter
compared to the prior year quarter was primarily due to higher total
leasing revenue, principally from operating leases, and higher revenue
from continuity services and sales. Total leasing revenue of $593
million for the quarter ended June 30, 1998 represented an increase of
10% compared to the year earlier period. Total leasing revenue was $568
million in the second quarter of fiscal 1998.
The increase in New Leases, (as defined in the discussion under "Risk
Factors that May Affect Future Results"), particularly during the last
twelve months, coupled with lower margins on large systems
transactions, (mainframes and related peripherals, including DASD and
tape drives), has resulted in lower margins on leasing, particularly
for operating leases. Operating lease revenue minus operating lease
cost was $93 million, or 19.3% of operating lease revenue
(collectively, the "Operating Lease Margin"), and $83 million, or 20.0%
of operating lease revenue, in the three months ended June 30, 1998 and
1997, respectively. The Operating Lease Margin was $90 million, or
19.8% in the quarter ended March 31, 1998.
Revenue from sales, which includes remarketing by selling and buy/sell
activities, totaled $106 million in the third quarter of fiscal 1998
compared to $68 million in the year earlier quarter. The increase in
sales revenue in the current quarter is primarily due to higher
distributed systems sales, offset by reduced sales revenue on large
systems. Margins on sales were 17% and 25% in the quarters ended June
30, 1998 and 1997, respectively. The sales margin in the third quarter
of fiscal 1997 was unusally high primarily because of one sale
transaction that had a high margin.
Other revenue for the three months ended June 30, 1998 and 1997 was $11
million and $13 million, respectively. Revenue from the sale of
ownership positions held as a result of the Company's lease financing
transactions with early-stage high technology companies (referred to as
Comdisco Ventures, part of the Company's Diversified Technologies
Group) was $6 million and $7 million in the three months ended June 30,
1998 and 1997, respectively.
Total costs and expenses for the quarter ended June 30, 1998 were $755
million compared to $657 million in the prior year period. The increase
in total costs and expenses is primarily due to the growth in leasing
volume including higher interest expense and increased leasing costs
related to increasing operating lease revenue.
Interest expense for the three months ended June 30, 1998 totaled $81
million in comparison to $75 million in the quarter ended June 30, 1997
and $83 million in the quarter ended March 31, 1998. The increase in
the current quarter compared to the year earlier quarter is due to
higher average daily borrowings resulting from increased leased assets
and the related increase in equipment purchased for lease during both
the current quarter and the first six months of fiscal 1998 compared to
the year earlier periods.
Nine Months Ended June 30, 1998
-------------------------------
Total revenue was $2.3 billion and $2.0 billion for the nine months
ended June 30, 1998 and 1997, respectively. Total leasing revenue was
$1.7 billion and $1.5 billion for the nine months ended June 30, 1998
and 1997, respectively.
Other revenue for the nine months ended June 30, 1998 and 1997 was $37
million and $66 million, respectively. Other revenue for the nine
months ended June 30, 1997 includes a gain of $25 million ($16 million
after-tax, or $.10 per common share) resulting from the receipt of
amounts in settlement of litigation during the quarter ended March 31,
1997. Revenue from the sale of equity positions held as a result of the
Company's lease financing transactions with early-stage high technology
companies was $18 million and $15 million in the nine months ended June
30, 1998 and 1997, respectively. In addition, in the second quarter of
fiscal 1997, the Company recorded approximately $10 million of gains
from the sale of other investments owned by the Company.
Total costs and expenses of $2.2 billion for the nine months ended June
30, 1998, represented an increase of 15% over the comparative period of
the prior year. The increase in total costs and expenses is primarily
due to the growth in leasing volume including higher interest expense
and increased sales costs related to increased sales revenue, offset by
a one-time charge of $25 million (see discussion below) in the nine
months ended June 30, 1997.
In the second quarter of fiscal 1997, the Company recorded a noncash,
non-operating charge of $25 million ($16 million after-tax, or $.10 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 prior three fiscal
quarters and the rapid level of technological change associated with
such equipment and continued declines in the fair market value of large
systems.
The Operating Lease Margin was $272 million, or 19.6% of operating
lease revenue, and $254 million, or 21.0% of operating lease revenue,
in the nine months ended June 30, 1998 and 1997, respectively. The
increase in lease volume, particularly during the last twelve months,
coupled with lower margins on large systems transactions, has resulted
in lower margins on leasing, particularly for operating leases.
Interest expense was $245 million for the nine months ended June 30,
1998 as compared to $221 million for the year earlier period. The
increase in interest expense is primarily due to higher average daily
borrowings offset by lower interest rates (see Note 2 of Notes to
Consolidated Financial Statements).
Financial Condition
-------------------
The Company's current financial resources and estimated cash flows from
operations are considered adequate to fund anticipated future growth
and operating requirements. The Company utilizes a variety of financial
instruments to fund its short and long-term needs.
Capital expenditures for equipment are generally financed by cash
provided by operating activities, recourse debt, or by assigning the
noncancelable lease rentals to various financial institutions at fixed
interest rates on a nonrecourse basis. Cash provided by operating
activities for the nine months ended June 30, 1998 and 1997 was $2.0
billion and $1.7 billion, respectively. Cash provided by operations has
been used to finance equipment purchases and, accordingly, had a
positive impact on the level of borrowing required to support the
Company's investment in its lease portfolio. The Company expects this
trend to continue, with cash flow from leasing and remarketing
reinvested in the equipment portfolio.
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.
Year 2000
---------
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
can arise in software, technology equipment, or any other equipment or
process that uses embedded software, resulting in data corruption and
processing errors.
The Company's program has been structured to address its internal
computer systems and applications, facilities, equipment portfolio,
and continuity and network services operations. In addition, the
Company is attempting to monitor the Year 2000 compliance status of
its vendors, suppliers and service providers.
Management believes that Comdisco's systems will be substantially Year
2000 ready prior to the commencement of the year 2000. The Company
should not have a material business risk from such Year 2000 issues
provided the Company's suppliers, vendors, service providers and
customers, over which the Company has no control, successfully address
their own Year 2000 issues. The Company will attempt to assess and
monitor its suppliers, vendors, service providers and customers Year
2000 remediation efforts.
Management believes that Comdisco's systems will be substantially Year
2000 ready prior to the commencement of the year 2000. Upon
substantial completion of such implementation and provided the
Company's suppliers, vendors, service providers and customers
successfully address their own Year 2000 issues over which the Company
has no control, the Company should not have a material business risk
from such Year 2000 issues. The Company will attempt to assess and
monitor its suppliers, vendors, service providers and customers Year
2000 remediation efforts.
Risk Factors That May Affect Future Results
-------------------------------------------
This Report contains forward-looking statements that involve risks and
uncertainties. The Company's actual revenues and results of operations
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in
the following risk factors and elsewhere in this Report.
Potential Fluctuations in Quarterly Results: The Company's operating
results are subject to quarterly fluctuations resulting from a variety
of factors, including the volume of new leases written, earnings
contributions from remarketing activities, product announcements by
manufacturers, economic conditions, interest rate fluctuations and
variations in the financial mix of leases written. 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 and finance companies.
Earnings Contributions from Leasing: The growth in leasing volume
during the last eight fiscal quarters has the effect of increasing the
proportion of leases for new equipment ("New Leases") to total leases.
New Leases traditionally have lower earnings contributions than leases
with remarketed equipment. Therefore, increasing lease volume
activities initially has the impact of putting pressure on leasing
margins. The impact of New Leases, coupled with lower margins on large
systems transactions (mainframes and related peripherals, including
DASD and tape drives), has resulted in lower margins on leasing,
particularly for operating leases, during the last five fiscal
quarters. There can be no assurance regarding the growth of new leases
or the the levels of remarketing activities in future periods or the
Company's ability to accurately predict future declines in the fair
market values of large systems equipment.
Earnings Contributions from Services: As a result of the evolving
nature of its services business, particularly the emerging asset
management and network services, the Company has limited meaningful
historical data in which to base its planned operating expenses.
Accordingly, a significant portion of the Company's expense levels
(investment in continuity facilities and hardware, consultants, experts
and back office personnel) are based in part on its expectations as to
future services revenues, including MTS revenue, and are, to a large
extent, fixed. Conversely, the Company's revenue base has become less
recurring and therefore less predictable. There can be no assurance
that the Company can maintain and increase its level of service
activities in order to derive sufficient revenue to attain the
Company's services earnings contribution goals.
Economic Conditions and the Asian Economy: 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 region's
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.
Other Factors: Other uncertainties include continued growth of the
semiconductor industry, trend of movement to client/server environment,
competition, including competition from other technology service
providers, reductions in technology budgets and related spending plans,
price competition from other technology service providers, and the Year
2000 readiness of the Company's customers and the hardware and software
offerings from the Company's suppliers and business partners.
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.
-13-
<PAGE>
Part II Other Information
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 5. Other Information
Submission of Stockholder Proposals. Stockholder proposals intended to
be presented at the next annual meeting of stockholders must be
received by Comdisco, in writing, no later than August 23, 1998, in
order to be considered for inclusion in the Proxy Statement and Proxy
form for the Comdisco annual meeting of stockholders anticipated to be
held in January, 1999 (the "1999 Annual Meeting").
Stockholder proposals not included in the Company's Proxy Statement for
the 1999 Annual Meeting will be ineligible for presentation at the 1999
Annual Meeting unless the stockholder gives timely notice of intent to
present the proposal as required by the Company's By-Laws and
summarized below.
The persons named in the Board's Proxy for the 1999 Annual Meeting will
be entitled to exercise the discretionary voting authority conferred by
such Proxy on an eligible stockholder proposal under the circumstances
specified in Rule 14a-4(c) under the Exchange Act.
Director Nominations. Under the Company's by-laws, timely notice of a
nomination must be received by the Company in advance of an annual
meeting. Ordinarily, such notice must be received not less than 120 nor
more than 150 days before the date corresponding to the date of mailing
the Company's Proxy Statement in connection with the previous year's
Annual Meeting. The stockholder filing the notice of nomination (the
"Nominating Stockholder") must provide information on the nominee,
including: (i) name, (ii) age, (iii) business and residence address,
(iv) principal occupation, and (v) class and number of sharers
beneficially owned by such nominee. Additionally, the Nominating
Stockholder must include: (i) whether he or she intends to appear at
the meeting in person or by proxy to make the nomination specified in
the notice, (ii) give a description of all arrangements or
understandings among the Nominating Stockholder and each nominee, and
any other person or persons pursuant to which the nomination is to be
made by the Nominating Stockholder, and (iii) any other information
required to be disclosed in that connection, pursuant to Regulation 14A
under the Securities Exchange Act of 1934. Finally, the following
information must be given with respect to the Nominating Stockholder,
the nominee, and any other stockholder known by the Nominating
Stockholder to be supporting the nominee on the date of Nominating
Stockholder notice: (i) the name and address as they appear on the
Company's books, and (ii) the class and number of shares of the Company
which are beneficially owned and of record.
Other Business. Notice must be received by the Company within the time
limits described above. Notice must include a description of proposed
business (including the complete text of any such resolution to be
presented at the annual meeting), the reason for conducting such
business at the annual meeting, and other specific matters set forth in
Section 9, Article 1 of the Company's by-laws (including any material
interest of stockholder or beneficial owner a representation that the
stockholder intends to appear at the meeting in person or by proxy to
submit the business specified in such notice, and the name and address
as they appear on the Company's books of: (i) the stockholder proposing
such business, (ii) the beneficial owner, if any, on whose behalf the
proposal is made, and (iii) of any other stockholder known by such
stockholder to be supporting such proposal on the date of the
stockholder's notice).
These requirements are separate from and in addition to the
requirements a stockholder must meet to have a proposal considered for
inclusion in the Company's Proxy Statement for the 1999 Annual Meeting.
-14-
<PAGE>
In each case, the notice must be given to the Secretary of the Company,
6111 N. River Road, Rosemont, Illinois 60018. Any stockholder desiring
a copy of the Company's by-laws will be furnished one without charge
upon written request to the Secretary.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.01 Restated Certificate of Incorporation of Registrant dated February 12, 1988
Incorporated by reference to Exhibit 4.1 filed with the Company's
Registration Statement on Forms S-8 and S-3, File No. 33-20715, filed
March 8, 1988.
3.02 Certificate of Amendment of Restated Certificate of Incorporation
Incorporated by reference to Exhibit 3.02 filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1997,
File No. 1-7725.
3.03 By-Laws of Registrant dated November 4, 1997
Incorporated by reference to Exhibit 4.1 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.
3.04 Certificate of Designations with respect to the Company's 8 3/4% Cumulative
Preferred Stock, Series B, as filed with the Secretary of the State of
Delaware on July 2, 1994.
Incorporated by reference to Exhibit 4.1 filed with the Company's
Current Report on Form 8-K dated June 30, 1994, as filed with the
Commission July 21, 1994, File No. 1-7725.
3.05 Certificate of Designation, Preferences and Right of Series C Junior
Participating Preferred Stock
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)
4.01 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.
-15-
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.02 Indenture Agreement between Registrant and Yasuda Bank and Trust Company
(USA), as Trustee dated as of December 1, 1995
Incorporated by reference to Exhibit 4.1 filed with the Company's
Current Report on Form 8-K dated January 12, 1996, as filed with the
Commission on January 17, 1996, File No. 1-7725, the copy of the
Indenture dated as of December 1, 1995 between the Registrant and
Yasuda Bank and Trust Company (USA), as Trustee.
10.01 Comdisco, Inc. 1998 Stock Option Program
11 Computation of Earnings Per Common Share
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
b) Reports on Form 8-K:
None.
-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMDISCO, INC.
Registrant
Date: July 29, 1998 /s/ David J. Keenan
-------------------
David J. Keenan
Senior Vice President and
Controller
-17-
Exhibit 10.01
COMDISCO, INC.
1998 STOCK OPTION PROGRAM
1. PURPOSE. The purpose of the Comdisco, Inc. 1998 Stock Option Program
("Program") is to increase stockholder value and to advance the
interests of Comdisco, Inc. ("Comdisco") and its subsidiaries
(collectively, the "Company") by providing a variety of economic
incentives designed to attract, retain, and motivate officers and other
key employees and by strengthening the mutuality of interest between
such employees and the Company's stockholders. As used in this Program,
the term "subsidiary" means any business, whether or not incorporated,
in which Comdisco has a direct or indirect ownership interest.
2. ADMINISTRATION.
2.1 Administration by Committee. The Program shall be administered
by the Compensation Committee of the Comdisco Board of
Directors ("Committee"), which shall consist of two or more
non-employee directors within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended ("Exchange Act")
who also qualify as outside directors within the meaning of
Section 162(m) and the related regulations under the Internal
Revenue Code of 1986, as amended. The Chief Executive Officer
of the Company may exercise any or all authority otherwise
delegated to the Committee under the terms of the Program with
respect to the grant or administration of incentives made to
or held by persons who, at the time of the exercise of such
authority, are not subject to Section 16(a) of the Exchange
Act.
2.2 Authority. Subject to the provisions of the Program, the
Committee shall have the authority to (a) interpret the
provisions of the Program, and prescribe, amend, and rescind
rules and procedures relating to the Program, (b) grant
incentives under the Program, in such forms and amounts and
subject to such terms and conditions as it deems appropriate,
including, without limitation, incentives which are made in
combination with or in tandem with other incentives (whether
or not contemporaneously granted) or compensation in lieu of
current or deferred compensation, (c) modify the terms of,
cancel and reissue, or repurchase outstanding incentives,
subject to subsection 7.7, and (d) make all other
determinations and take all other actions as it deems
necessary or desirable for the administration of the Program.
The determination of the Committee on matters within its
authority shall be conclusive and binding on the Company and
all other persons. The Committee shall comply with all
applicable law in administering the Program.
3. Participation. Subject to the terms and conditions of the Program, the
Committee shall designate from time to time the directors and employees
of the Company (including employees who are directors of Comdisco) who
shall receive incentives under the Program ("Participants"). All
officers, directors (including non-employee directors) and other
full-time employees of the Company are eligible to receive stock
options under the Program. Participation, the grant of options for
persons subject to Section 16(a) of the Exchange Act, must be
determined by the Committee.
4. SHARES SUBJECT TO THE PROGRAM
4.1 Number of Shares Reserved. Subject to adjustment in accordance
with subsections 4.2 and 4.3, the aggregate number of shares
of Comdisco Common Stock ("Common Stock") available for
incentives under the Program shall be 8,000,000 shares. All
shares of Common Stock issued under the Program may be
authorized and unissued shares or treasury shares. All of such
shares may, but need not, be issued pursuant to the exercise
of stock options. The maximum number of shares of common stock
that may be granted in the form of a Stock Option pursuant to
any award granted in any fiscal year to a Participant shall be
300,000 shares.
4.2 Reusage of Shares.
(a) In the event of the expiration or termination (by
reason of forfeiture, expiration, cancellation,
surrender, or otherwise) of any incentive under the
Program, that number of shares of Common Stock that
was subject to the grant but not delivered shall be
available again for grant under the Program.
(b) In the event that shares of Common Stock are
delivered under the Program and are thereafter
forfeited or reacquired by the Company pursuant to
rights reserved upon the award thereof, such
forfeited or reacquired shares shall be available
again for grant under the Program.
4.3 Adjustments to Shares Reserved. In the event of any merger,
consolidation, reorganization, recapitalization, spinoff,
stock dividend, stock split, reverse stock split, exchange, or
other distribution with respect to shares of Common Stock or
other change in the corporate structure or capitalization
affecting the Common Stock, the type and number of shares of
stock which are or may be subject to options under the Program
and the terms of any outstanding options (including the price
at which shares of stock may be issued pursuant to an
outstanding option) shall be equitably adjusted by the
Committee, in its sole discretion, to preserve the value of
options awarded or to be awarded to Participants under the
Program.
5. STOCK OPTIONS.
5.1 Awards. Subject to the terms and conditions of the Program,
the Committee shall designate the directors and/or employees
to whom options to purchase shares of Common Stock ("Stock
Options") are to be awarded under the Program and shall
determine the number, type, and terms of the Stock Options to
be awarded to each of them. Each Stock Option shall expire not
later than 10 years and one day after the date of grant. The
option price per share ("Option Price") for any Stock Option
awarded shall not be less than the Fair Market Value of a
share of Common Stock on the date the Stock Option is granted.
Each Stock Option awarded under the Program shall be a
"nonqualified stock option" for tax purposes unless the Stock
Option satisfies all of the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, and the Committee
designates such Stock Option as an "Incentive Stock Option".
5.2 Manner of Exercise. A Stock Option may be exercised by notice
to the Company specifying the number of shares of Common Stock
to be purchased and shall be accompanied by payment of the
Option Price by cash or check or, in the discretion of the
Committee, by the delivery of shares of Common Stock then
owned by the Participant or certification of such ownership.
In the discretion of the Committee, payment may also be made
by delivering a properly executed exercise notice to the
Company, together with a copy of irrevocable instructions to a
broker or lending institution to deliver promptly to the
Company the amount of sale or loan proceeds to pay the Option
Price. The exercise shall be effective upon compliance with
the foregoing, unless the Committee specifies a later date.
5.3 Dividend Equivalents. The Committee may grant dividend
equivalents in connection with any option granted under this
Program. Such dividend equivalents may be payable in cash or
in shares of Common Stock upon such terms and conditions as
the Committee in its sole discretion deems appropriate.
6. GENERAL.
6.1 Effective Date. The Program will become effective upon its
approval by the Board of Directors of Comdisco.
6.2 Duration. The Program shall remain in effect until all options
granted under the Program have been satisfied by the issuance
of shares of Common Stock, or the payment of cash, or have
been terminated in accordance with the terms of the Program or
the option. No option may be granted under the Program after
the tenth anniversary of its effective date.
6.3 Non-transferability of Options. No option granted under the
Program may be transferred, pledged, or assigned by the
Participant except by will or the laws of descent and
distribution in the event of death, and the Company shall not
be required to recognize any attempted assignment of such
rights by any Participant. During a Participant's lifetime,
options may be exercised only by the Participant or by the
Participant's guardian or legal representative.
Notwithstanding the foregoing, at the discretion of the
Committee, a grant of an option may permit the transfer of the
option by the Participant solely to members of the
Participant's immediate family or trusts or family
partnerships for the benefit of such persons, subject to such
terms and conditions as may be established by the Committee.
6.4 Compliance with Applicable Law and Withholding.
(a) The award of any benefit under the Program may also
be made subject to such other provisions as the
Committee determines appropriate, including, without
limitation, provisions to comply with federal and
state securities laws or stock exchange requirements.
(b) If, at any time, the Company, in its sole discretion,
determines that the listing, registration, or
qualification of any type of option, or the shares of
Common Stock issuable pursuant thereto, is necessary
on any securities exchange or under any federal or
state securities or blue sky law, or that the consent
or approval of any governmental regulatory body is
necessary or desirable, the issuance of shares of
Common Stock pursuant to any incentive, or the
removal of any restrictions imposed on shares subject
to an incentive, may be delayed until such listing,
registration, qualification, consent, or approval is
effected.
(c) The Company shall have the right to withhold from
any award under the Program or to collect as a
condition of any payment under the Program, as
applicable, any taxes required by law to be withheld.
To the extent permitted by the Committee, a
Participant may elect to have any distribution, or a
portion thereof, otherwise required to be made under
the Program to be withheld or to surrender to the
Company previously owned shares of Common Stock to
any tax withholding obligation.
6.5. No Continued Employment. Participation in the Program will not
give any Participant the right to be retained in the employ of
the Company or any right or claim to any benefit under the
Program unless such right or claim has specifically accrued
under the terms of any Stock Option under the Program.
6.6 Treatment as a Stockholder. No Stock Option granted to a
Participant under the Program shall create any rights in such
Participant as a stockholder of the Company until shares of
Common Stock related to the Stock Option are registered in the
name of the Participant.
6.7 Amendment or Discontinuation of the Program. The Board of
Directors may amend, suspend, or discontinue the Program at
any time; provided, however, that no amendment, suspension or
discontinuance shall adversely affect any outstanding benefit
and if any law, agreement or exchange on which Common Stock of
Comdisco is traded requires stockholder approval for an
amendment to become effective, no such amendment shall become
effective unless approved by vote of Comdisco's stockholders.
6.8 Acceleration of Incentives. Notwithstanding any provision in
this Program to the contrary or the normal terms of vesting in
any option, all outstanding Stock Options will become
exercisable immediately, if a Change of Control occurs. For
purposes of this Program, a "Change of Control" shall have
occurred if:
(1) any Person or two or more Persons acting in concert
shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of
1934), directly or indirectly, of securities of the
Company (or other securities convertible into such
securities) representing more than 35% of the
combined voting power of all securities of the
Company entitled to vote in the election of
directors, other than securities having such power
only by reason of the happening of a contingency or
(b) a majority of the members of the Board of
Directors of the Company shall cease to be Continuing
Members. For this purpose, "Continuing Member" means
a member of the Board of Directors of the Company who
either (i) was a member of the Company's Board of
Directors on the Effective Date hereof and has been
such continuously thereafter or (ii) became a member
of such Board of Directors after the Effective Date
and whose election or nomination for election was
approved by a vote of at least two-thirds of the
Continuing Members then members of the Company's
Board of Directors.
(2) the stockholders of Comdisco approve a merger or
consolidation of Comdisco with any other corporation,
other than (A) a merger or consolidation which would
result in the voting securities of Comdisco
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by
being converted into voting securities of the
surviving entity) more than 75% of the combined
voting power of the voting securities of Comdisco or
such surviving entity outstanding immediately after
such merger or consolidation, or (B) a merger or
consolidation effected to implement a
recapitalization of Comdisco (or similar transaction)
in which no Person acquires more than 35% of the
combined voting power of Comdisco's then outstanding
securities; or
(3) the stockholders of Comdisco approve a plan of
complete liquidation of Comdisco or an agreement for
the sale or disposition by Comdisco of all or
substantially all of its assets (or any transaction
having a similar effect).
The Committee may also determine, in its discretion,
that a sale of a substantial portion of Comdisco's
assets or one of its businesses constitutes a "Change
of Control" with respect to incentives held by
Participants employed in the affected operation.
6.9 Definition of Fair Market Value. Except as otherwise
determined by the Committee, the Fair Market Value of a share
of Common Stock as of any date shall be equal to the closing
sale price of a share of Common Stock on the immediately
preceding date as reported on the New York Stock Exchange
Composite Reporting Tape.
6.10 Other Compensation Plans. Nothing contained in the Program
shall prevent the Company from adopting or continuing in
effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable
only in specific cases.
6.11 No Illegal Transactions. The Program and all Stock Options
granted pursuant to it are subject to all laws and regulations
of any governmental authority which may be applicable thereto;
and notwithstanding any provision of the Program or any Stock
Options, Participants shall not be entitled to exercise Stock
Options or receive the benefits thereof and the Company shall
not be obligated to deliver any Common Stock or pay any
benefits to a Participant if such exercise, delivery, receipt
or payment of benefits would constitute a violation by the
Participant or the Company of any provision of any such law or
regulation.
6.12 No Trust or Fund Created. Neither the Program nor any Stock
Option shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between
the Company and a Participant or any other person. To the
extent that any person acquires a right to receive Common
Stock from the Company pursuant to a Stock Option, such right
shall be no greater than the right of an unsecured general
creditor of the Company.
6.13 Controlling Law. The law of the State of Illinois, except its
law with respect to choice of law and except as to matters
relating to corporate law (in which case the corporate law of
the State of Delaware shall control), shall be controlling in
all matters relating to the Program.
6.14 Tax Litigation. The Company shall have the right to contest,
at its expense, any tax ruling or decision, administrative or
judicial, on any issue that is related to the Program and that
the Company believes to be important to Participants and to
conduct any such contest or any litigation arising therefrom
to a final decision. Participants agree to cooperate with the
Company in any such contest.
6.15 Severability. If all or any part of the Program is declared by
any court of governmental authority to be unlawful or invalid,
such unlawfulness or invalidity shall not serve to invalidate
any portion of the Program not declared to be unlawful or
invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a
manner in which will give effect to the terms of such Section
or part of a Section to the fullest extent possible while
remaining lawful and valid.
6.16 Indemnification. Each person who is or at any time serves as a
member of the Board of Directors or the Committee shall be
indemnified and held harmless by the Company against and from:
(i) any loss, cost, liability or expense that may be imposed
upon or reasonably incurred by such person in connection with
or resulting from any claim, action, suit, or proceeding to
which such person may be a party or in which such person may
be involved by reason of any action or failure to act under
the Program; and (ii) any and all amounts paid by such person
in satisfaction of judgment in any such action, suit or
proceeding relating to the Program. Each person covered by
this indemnification shall give the Company an opportunity, at
its own expense, to handle and defend the same before such
person undertakes to handle and defend it on such person's own
behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such
persons may be entitled under the By-Laws of the Company, as a
matter of law, or otherwise, or any power that the Company may
have to indemnify such person or hold such person harmless.
6.17 Reliance on Reports. Each member of the Board of Directors and
the Committee shall be fully justified in relying or acting in
good faith upon any report made by the independent public
accountants of, or counsel for, the Company and upon any other
information furnished in connection with the Program. In no
event shall any person who is or shall have been a member of
the Board of Directors, or the Committee be liable for any
determination made or other action taken or any omission to
act in reliance upon any such report or information or for any
action taken, including the furnishing of information, or
failure to act, if in good faith.
6.18 Expenses. The Company shall bear all expenses of administering
the Program.
6.19 Title and Headings. The titles and headings of the sections in
the Program are for convenience of reference only, and in the
event of any conflict, the text of the Program, rather than
such titles or headings, shall control.
Comdisco, Inc. and Subsidiaries
Exhibit 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(in millions except per share data)
Average shares used in computing net earnings per common and common equivalent
share were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
ended ended
June 30 June 30
------------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding--basic 153 148 151 147
Effect of dilutive options 11 10 12 10
----- ----- ----- -----
Average shares outstanding--diluted 164 158 163 157
===== ===== ===== =====
Net earnings available to
common stockholders $ 40 $ 32 $ 111 $ 91
===== ===== ===== =====
Net earnings per common share:
Basic $ .26 $ .21 $ .73 $ .61
===== ===== ===== =====
Diluted $ .24 $ .20 $ .68 $ .57
===== ===== ===== =====
On April 22, 1998, the Board of Directors authorized a two-for-one split of the
Company's common stock to be distributed on June 15, 1998, to holders of record
on May 22, 1998. Accordingly, all references in the financial statements and
notes to common share data have been adjusted to reflect the split.
</TABLE>
Comdisco, Inc. and Subsidiaries
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Nine months ended
June 30, For the years ended September 30,
---------- ---------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges
Interest expense 1 .......................... $247 $223 $301 $267 $278 $266 $295
Approximate portion of
rental expense representative
of an interest factor ..................... 4 4 4 7 11 13 22
---- ---- ---- ---- ---- ---- ----
Fixed charges ............................... 251 227 305 274 289 279 317
Earnings from continuing operations
before income taxes,
extraordinary item, and cumulative
effect of change in accounting principle,
net of preferred stock dividends ........... 174 149 203 176 160 80 137
---- ---- ---- ---- ---- ---- ----
Earnings from continuing operations
before income taxes, extraordinary item, and
cumulative effect of change
in accounting principle, net of
preferred stock dividends, plus fixed charges $425 $376 $508 $450 $449 $359 $454
==== ==== ==== ==== ==== ==== ====
Ratio of earnings to fixed charges ............ 1.69 1.66 1.67 1.64 1.55 1.29 1.43
==== ==== ==== ==== ==== ==== ====
Rental expense:
Equipment subleases ......................... $ 4 $ 5 $ 6 $ 14 $ 22 $ 30 $ 57
Office space, furniture, etc ................ 7 6 7 8 10 8 8
---- ---- ---- ---- ---- ---- ----
Total .................................... $ 11 $ 11 $ 13 $ 22 $ 32 $ 38 $ 65
==== ==== ==== ==== ==== ==== ====
1/3 of rental expense .................... $ 4 $ 4 $ 4 $ 7 $ 11 $ 13 $ 22
==== ==== ==== ==== ==== ==== ====
<FN>
<F1>Includes interest expense incurred by business continuity and network
services and included in business continuity and network services expenses
on the statements of earnings.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information
extracted from the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998 and is qualified
in its entirety by reference to such financial statments.
</LEGEND>
<CIK> 0000722487
<NAME> Comdisco, Inc.
<MULTIPLIER> 1
<CURRENCY> dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> Oct-01-1997
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 67
<SECURITIES> 0
<RECEIVABLES> 361
<ALLOWANCES> 24
<INVENTORY> 164
<CURRENT-ASSETS> 2,778
<PP&E> 8,212
<DEPRECIATION> 2,533
<TOTAL-ASSETS> 6,827
<CURRENT-LIABILITIES> 1,873
<BONDS> 2,643
0
21
<COMMON> 22
<OTHER-SE> 902
<TOTAL-LIABILITY-AND-EQUITY> 6,827
<SALES> 1,739
<TOTAL-REVENUES> 2,338
<CGS> 1,263
<TOTAL-COSTS> 1,917
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 245
<INCOME-PRETAX> 176
<INCOME-TAX> 63
<INCOME-CONTINUING> 113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.68
</TABLE>
