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, 1998
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.
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 15, 1998 was approximately $1,633,000,000. For
purposes of the foregoing calculation only, all directors and executive officers
of the registrant have been deemed affiliates. As of September 30, 1998, there
were 152,100,362 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, 1998 are incorporated by reference into Parts I and II.
2. Portions of Comdisco, Inc.'s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on January 26, 1999 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
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PART I.
Item 1. Business .............................................................................. 3
Item 2. Properties .............................................................................. 10
Item 3. Legal Proceedings ....................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders...................................... 10
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............... 11
Item 6. Selected Financial Data................................................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................. 12
Item 8. Financial Statements and Supplementary Data............................................. 12
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 12
PART III.
Item 10. Directors and Executive Officers of Registrant.......................................... 13
Item 11. Executive Compensation ................................................................. 13
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 13
Item 13. Certain Relationships and Related Transactions.......................................... 13
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.......................... 14
SIGNATURES ........................................................................................... 15
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE........................................ 16
INDEX TO EXHIBITS .................................................................................... 19
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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 and in supporting the customers' technology
infrastructure. The Company operates in one industry segment, business services,
providing equipment leasing, technology services, including continuity services,
managed network services, and desktop management services. 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 infrastructure management services. These services include desktop
management services, managed network services, business continuity services for
customers' data, voice and network systems, financial management services
(leasing) and software tools to support these areas.
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, 1998, the Company had approximately 2,800 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 Technology Services (see discussion following).
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Technology Services ("TS"):
Continuity Services: Enterprisewide continuity services that emphasize
technology and data and voice availability across data centers,
networks, distributed systems, and the desktop computing environment.
TS is also a provider of trading floor recovery services to brokerage
firms and financial institutions.
Managed 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).
Desktop Management: Services for managing technology infrastructures,
including software tools and consulting.
Millennium Testing Services: Services for testing program conversions
for the year 2000 problem.
Business units in TS are Continuity Services, Network Services and a
consulting staff providing desktop management and continuity planning
services.
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. Subsidiaries in Europe and Canada offer services
similar to those offered in the United States.
Coordination of the business units is accomplished through the Office of the
President, which is responsible for overall control, coordination and strategic
planning, 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 35 of the Annual Report to Stockholders
for the fiscal year ended September 30, 1998 (which is incorporated herein by
reference) for a discussion of the Company's geographic results of operations in
fiscal 1998, 1997 and 1996 and Note 13 of Notes to Consolidated Financial
Statements on page 55 of the Annual Report to Stockholders for the year ended
September 30, 1998, which includes geographic segment and export sales
information and is incorporated herein by reference.
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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 "Desktop Management") to its
existing and prospective customers. The Company believes that approximately 53%
of the cost of equipment placed on lease by the Company(including International
operations) in fiscal 1998 was distributed equipment.
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 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.
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 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 20% of the cost of equipment it placed on lease in fiscal 1998
(including International operations) was enterprise equipment. The Company
expects this percentage to decrease in fiscal 1999.
Technology Services
Continuity Services: These services include continuity services for large
central processing sites, client/server, workstation and PC environments, 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.
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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.
Managed Network Services: Comdisco Network Services 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.
Desktop Management: The Company provides strategic solutions for desktop
management 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 desktop management software tools
let customers order, track and manage their inventory of distributed systems
equipment.
Collectively, the Company's financial management, continuity, managed network
and desktop management services provide infrastructure management services,
which are the underlying technological components and services necessary to
deliver information and applications.
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. The
Company assists its customers in developing an effective strategy for acquiring
and managin its high-tech assets.
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.
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 1998 and 1997, its business included
Internet-related software or services and telecommunications. Other primary
markets include client/server, multimedia and healthcare.
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The Company believes that approximately 27% of the equipment placed on lease in
fiscal 1998 by the Company (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.
Primarily as a result of technological changes, competition has increased in the
leasing industry and the number of companies offering competitive services, such
as desktop 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 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 managed 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 desktop 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.
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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 currently 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.
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.
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.
Potential Fluctuations in Operating Results: The Company's operating results are
subject to quarterly fluctuations resulting from a variety of factors, including
the volume of New Leases (as defined below), earnings contributions from
remarketing activities, product announcements by manufacturers, variations in
the financial mix of leases written and economic conditions. The financial mix
of leases written 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
three fiscal years ended September 1998, 1997 and 1996 had 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. There can be no assurance
regarding the growth of New Leases in future periods or the company's ability to
accurately predict future declines in the fair market values of large systems
equipment.
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To meet earnings goals for fiscal 1999, remarketing contributions have to be at
approximately the level achieved in fiscal 1998. 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. Attaining the expected level of remarketing will require equipment for
remarketing, appropriate sales force education and incentive and a knowledge of
the customer and customer requirements.
The Company's results can also be impacted by the fair market value volatility
in large systems. The Company continues to monitor volatility in large systems
fair market values which, during the last twenty-four 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.
The costs to address Year 2000 issues may have a negative impact on equipment
volume in fiscal 1999 if customers defer other IT projects due to Year 2000
efforts or if Year 2000 remediation costs increase as a percentage of the total
IT budget, thereby reducing capital expenditures on new technology.
Earnings Contributions from Services: As a result of the evolving nature of its
services business, particularly the emerging desktop management and managed
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 more
diverse with the growth of other technology services revenue, and therefore less
recurring and less predictable than in prior years. To attain its services
earnings contribution goals for fiscal 1999, the Company will have to expand its
contract subscription base through new contract signings and contract renewals,
increase its revenues from other technology services, attain MTS revenue and
contain costs. There can be no assurance that the Company will be able to
maintain and/or increase its margins on technology services in fiscal 1999.
One of the impacts of the Company's 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,
successfully compete with organizations offering similar services, develop
services to meet customer requirements and to achieve delivery of services that
meet customer requirements.
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 business conditions, trend
of movement to client/server environment, competition, including price
competition from other technology service providers, reductions in technology
budgets and related spending plans (either because of economic conditions or
because of Year 2000 issues), ability of the Company to attract and retain
qualified personnel in a job market that is very competitive domestically and
the Year 2000 readiness of the Company's customers, suppliers and business
partners; the ability of the Company to expand globally in general and the
ability of the Company to develop new remarketing strategies for PCs, acceptance
in Europe of desktop management services, including life cycle management,
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efficiencies and cost containment in continuity and managed network services,
and price competition from other technology service providers, continued growth
of the semiconductor and healthcare industries (including the migration by
hospitals from film to digital technology), increased acceptance of leasing as
an alternative to buying, particularly in the pharmaceutical industry, continued
growth in computer networks; the ability of the Company to successfully partner
with market leading software developers to provide state-of-the-art tools for
desktop management, market acceptance of advanced recovery, millennium testing
services, trading floor and distributed systems program management (and the
ability of the Company to sell and deliver such services), growth of the
communications equipment arena, and stabilization in the fair market values of
mainframes and related equipment.
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.
Item 2. Properties
The Company owns its principal executive office building in Rosemont, Illinois
that has approximately 269,000 square feet. 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, 1998.
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PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
STOCK SPLIT
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 Company's Annual Report to
Stockholders for the year ended September 30, 1998 and the Company's Annual
Report on Form 10-K for the year ended September 30, 1998 to common share data
have been adjusted to reflect the split.
PRICE RANGE OF COMMON STOCK
Price Range of Common Stock on page 38 of the Annual Report to Stockholders for
the year ended September 30, 1998 is incorporated herein by reference.
SHARED INVESTMENT PLAN
On February 2, 1998, the Company announced that 106 senior managers of the
Company exercised options to purchase 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
fund their purchase of 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. Most of the Proceeds were used by the Company
to purchase its common stock under the Company's existing repurchase program.
COMMON STOCK REPURCHASE PROGRAM
The Company has an on-going common stock repurchase program. During fiscal 1998
and 1997, the Company purchased six million shares at an aggregate cost of $88
million and five million shares at an aggregate cost of $45 million,
respectively.
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 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 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 in the Rights Agreement),
the redemption, exchange or expiration of the Rights. Except as set forth below
and subject to adjustment as provided in the Rights Agreement , 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 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.
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DIVIDENDS
The Company has paid cash dividends quarterly since February 1979. Cash
dividends paid on common stock were $15 million and $14 million in fiscal 1998
and 1997, respectively. The most recently declared quarterly common stock cash
dividend, $.025 per share, was paid on December 15, 1998 to stockholders of
record on November 13, 1998. There are no restrictions on the Company's present
or future ability to pay common dividends, except its agreement to maintain a
debt to net worth ratio pursuant to, and certain other limitations contained in,
the Company's multi-option and global revolving credit agreements, none of which
have any current application. The Company expects to continue its policy of
paying regular cash dividends, although there is no assurance as to future
dividends because they are dependent upon the Company's profit levels and
capital requirements as well as financial and other conditions existing at the
time. Common stock cash dividends paid were $.10 per share in fiscal 1998 and
fiscal 1997.
Item 6. Selected Financial Data
Six Year Summary on pages 30 and 31 of the Annual Report to Stockholders for the
fiscal year ended September 30, 1998 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 32 through 38 of the Annual Report to Stockholders for the
fiscal year ended September 30, 1998 is incorporated herein by reference.
Information relating to the Company's Year 2000 Readiness has been included in a
Current Report on Form 8-K dated and filed with the Commission on October 9,
1998 and is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Qualitative Information About Market Risk on page 37 of the Annual Report to
Stockholders for the fiscal year ended September 30, 1998 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 39 through 55 of the Annual Report to Stockholders
for the fiscal year ended September 30, 1998 is incorporated herein by
reference. Quarterly Financial Data on page 54 of the Annual Report to
Stockholders for the fiscal year ended September 30, 1998 is incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
-12-
<PAGE>
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, 1998 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, 1998 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, 1998 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, 1998 is incorporated herein by
reference.
-13-
<PAGE>
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 16.
(a)(3) Exhibits:
See Index to Exhibits filed as part of this Form 10-K
on pages 19 through 22.
(b) Reports on Form 8-K:
On December 30, 1998, the Company filed a Current
Report on Form 8-K, dated December 8, 1998, reporting
Item 5. Other Events. The filing was for the
announcement of the appointment of Nicholas K.
Pontikes to the position of President of the Company.
(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.
-14-
<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 20, 1998 By: /s/ David J. Keenan
-------------------------
David J. Keenan
Senior 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. Bardagy ------------------------
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
/s/ Thomas H. Patrick
Thomas H. Patrick
Director Each of the above signatures is
affixed as of December 20, 1998
-15-
<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, 1998, are incorporated by reference in Item
8:
<TABLE>
<CAPTION>
Annual Report
Page Number
-------------
<S> <C>
Consolidated Statements of Earnings --
Years Ended September 30, 1998, 1997 and 1996 . . . . . . . . . . 39
Consolidated Balance Sheets -- September 30, 1998 and 1997 . . . . . 40
Consolidated Statements of Stockholders' Equity --
Years Ended September 30, 1998, 1997 and 1996 . . . . . . . . . . 41
Consolidated Statements of Cash Flows --
Years Ended September 30, 1998, 1997 and 1996 . . . . . . . . . . 42-43
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 44-55
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . 56
The following consolidated financial statement schedule of Comdisco, Inc. and
Subsidiaries is included in Item 14(d):
</TABLE>
Form 10-K
Page Number
Schedule II -- Valuation and Qualifying Accounts . . . . . . 19
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.
-16-
<PAGE>
[KPMG Peat Marwick LLP Letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Comdisco, Inc.:
Under date of November 3, 1998, we reported on the consolidated balance sheets
of Comdisco, Inc. and subsidiaries as of September 30, 1998 and 1997, 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, 1998,
as contained in the 1998 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, 1998. 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 3, 1998
-17-
<PAGE>
Comdisco, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended September 30, 1998
(in millions)
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and end
Description of period expenses Other of period
- -------------------------------- ---------- ---------- ----- ----------
Year ended September 30, 1996:
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts $17 $11 $(7)<F1> $21
=== === ==== ===
Year ended September 30, 1997:
Allowance for
doubtful accounts $21 $10 $(9)<F1> $22
=== === ==== ===
Year ended September 30, 1998:
Allowance for
doubtful accounts $22 $12 $ (10)<F1> $24
=== === ====== ===
<FN>
<F1> Write off of receivables net of recoveries.
</FN>
</TABLE>
-18-
<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 Amendment of Restated Certificate of
Incorporation dated February 3, 1998
3.03 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).
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).
-19-
<PAGE>
Exhibit No. Description of Exhibit
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, 1998
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.
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.
-20-
<PAGE>
Exhibit No. Description of Exhibit
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 Amended and Restated 1998 Employee Stock Purchase Plan
Incorporated by reference to Exhibit 10.01 to the
Company's Quarterly Report for the quarter ended
March 30, 1998 on Form 10-Q, File No. 1-7725
10.13 Amended and Restated International Employee Stock
Purchase Plan
Incorporated by reference to Exhibit 10.02 to the
Company's Quarterly Report for the Quarter ended
March 31, 1998 on Form 10-Q, File No. 1-7725
10.14 1998 Stock Option Program
Incorporated by reference to Exhibit 10.01 to the
Company's Quarterly Report for the Quarter ended
June 30, 1998 on Form 10-Q, File No. 1-7725
10.15 Management Compensation Arrangements and Plans
10.16 Compensation and Award Agreement
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 30 through 39 and the
Quarterly Financial Data on page 55 and the
Independent Auditors' Report on page 56 of the
Annual Report to security holders for the fiscal
year ended September 30, 1998 have been
incorporated by reference as part of this Form
10-K.
-21-
<PAGE>
Exhibit No. Description of Exhibit
21.00 Subsidiaries of Registrant
23.00 Consent of KPMG Peat Marwick LLP dated December 18, 1998
27.00 Financial Data Schedule
99.00 Year 2000 Readiness Disclosure
Incorporated by reference to the Company's
Current Report on Form 8-K filed October 9, 1998,
File No. 1-7725.
-22-
Comdisco, Inc. and Subsidiaries Exhibit 3.02
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
Comdisco, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held, adopted a resolution setting forth a proposed amendment to the
Restated Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Restated Certificate of Incorporation of Comdisco,
Inc. be amended by changing the Fourth Article thereof so that, as
amended, said Article shall be and read as follows:
The aggregate number of shares which Comdisco shall have authority to
issue is 850,000,000 of which 750,000,000 shares shall be designated
as "Common Stock" of the par value of $0.10 per share and 100,000,000
shares shall be designated as "Preferred Stock" of the par value of
$0.10 per share.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon written waiver of notice signed by all stockholders at
which meeting the necessary number of shares as required by statute were voted
in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware. IN WITNESS WHEREOF, said Comdisco, Inc. has caused this certificate to
be signed by Philip A. Hewes, its Senior Vice President and Secretary, this
Third day of February, 1998.
Comdisco, Inc.
By /s/ Philip A. Hewes
Senior Vice President and Secretary
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. SALARY
The fixed salary shall be $600,000 per year for fiscal year ending
September 30, 1999.
2. INCENTIVE COMPENSATION
The incentive compensation as set forth in Section 4 of the Employment
Agreement shall be revised as follows for the 1999 fiscal year:
(i) one percent (1%) of Comdisco's fiscal 1999 pre-tax earnings between
Target 1 and Target 2, and (ii) two percent (2%) of pre-tax earnings between
Target 2 and Target 3.
As an example, if Comdisco has pre-tax earnings of Target 3 in
fiscal 1999, the annual incentive compensation shall be as computed.
3. ANNUAL STOCK OPTION INCENTIVE
If Comdisco achieves 1999 Pre-Tax Earnings of Target 3, you will
also be entitled to a stock option grant of 59,165 shares at the closing price
on September 30, 1999. These options will vest at the rate of 33.33% per year
over a three year term.
If the Pre-Tax Earnings achieved are less than Target 3, then the
number of shares granted will be based on the following:
Pre-Tax Earnings Percentage Grant Adjusted Grant
Target 3 100% 59,165
Target 2 80% 44,930
Target 1 60% 35,500
Less than Target 1 0% -0-
4. 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, 1998 through September 30, 2001 (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>
<CAPTION>
TSR % Rank in S&P 500 Performance x Target Unit = Actual Unit
% Value Value
------------------ ----------- ----------- -----------
<S> <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>
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, 2001.
d. Restrictions
The Performance Unit Award is conditioned upon (i) your continuing as
an employee or director throughout the Performance Period and (ii) if you have
elected to receive Restricted Stock, your continuing as an employee or director
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 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, 1998
- Election to forego $10,000 each from Salary, Annual
Cash Incentive and Performance Units
- Comdisco stock closes at $15.00
- $30,000 foregone x 2 = $60,000
- Option Value = $15.00/3 = $5.00
- $60,000/$5.00 = 12,000 options granted at $15.00
- Vests at 33 1/3% per year commencing 10/1/98
This agreement shall not be construed to give you any employment rights.
Dated this 29th day of September, 1998.
- --------------------------- -------------------------
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 4, 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 5, 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:___________________________
COMDISCO EXECUTIVE OFFICER COMPENSATION AND BENEFITS
SUMMARY COMPENSATION TABLE
The following table shows the compensation paid to (i) Jack Slevin, Chairman and
Chief Executive Officer during fiscal 1998 and (ii) the four other most highly
compensated executive officers of Comdisco serving on September 30, 1998. The
persons named in this table and in this section are referred to as the "Named
Executive Officers".
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards Payouts
----------- --------------------------
Securities
Underlying Long-
Name and Options Term All Other
Principal Position Year Salary Bonus (shares) Incentive Compensation <F1>
Payouts
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jack Slevin 1998 $550,000 $475,000 306,220 $764,350 $6,909
Chairman 1997 550,000 440,000 58,850 831,000 14,111
and CEO 1996 500,000 580,000 981,504 420,000 9,425
Nicholas K. Pontikes 1998 325,000 325,000 687,210 349,350 6,909
President and 1997 277,917 278,200 26,700 478,000 14,111
Chief Operating 1996 230,000 230,000 133,602 201,000 9,425
Officer
John C. Kenning <F2> 1998 267,000 267,000 195,020 0 6,909
Executive Vice 1997 268,808 286,200 24,970 0 14,111
President
William N. Pontikes 1998 230,000 230,000 240,710 339,350 6,909
Executive Vice 1997 220,000 268,200 26,700 473,000 14,111
President
1996 220,000 220,000 152,310 300,000 9,425
John J. Vosicky 1998 240,000 215,000 101,700 359,350 6,909
Executive Vice 1997 240,000 218,200 26,700 483,000 14,111
President
& Chief Financial 1996 240,000 200,000 84,888 225,000 9,425
Officer
<FN>
<F1> Amounts of "All Other Compensation" are amounts contributed by Comdisco
under the Comdisco Retirement Plan Trust Agreement, effective April 1, 1998
(formerly known as the Comdisco Profit Sharing Plan and Trust) and the Employee
Stock Ownership Plan.
<F2> Mr. Kenning became an Executive Officer of Comdisco in fiscal 1997.
</FN>
</TABLE>
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents additional information concerning the options shown
in the Summary Compensation Table for fiscal year 1998.
<TABLE>
<CAPTION>
Potential Realizable Value at
Individual Grants Assumed Annual Rates of Stock
Price Appreciation for Option Term
------------------------------------------------------- ----------------------------------
Number of % of Total
Securities Options /
Underlying SARs Granted
Options / to Employees Exercise or
Name SARs Granted in Fiscal Base Price Expiration 0% 5% 10%
(#) 1998 ($/Sh) Date
- --------------- ------------ ---------- ---------- --------- ---- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack Slevin 55,050 <F1> .64 $15.88 10/01/07 $-0- $549,776 $1,393,240
192,000 2.00 17.25 02/01/08 -0- 2,082,899 5,278,475
59,170 .68 13.625 09/30/08 -0- 507,009 1,284,861
Nicholas K. 55,050 <F1> .64 15.88 10/01/07 -0- 549,776 1,393,240
Pontikes 600,000 7.00 17.25 02/01/08 -0- 6,509,059 16,495,234
32,160 .37 13.625 09/30/08 -0- 275,569 698,346
John C. Kenning 36,330 <F1> .42 15.88 10/01/07 -0- 362,822 919,462
132,000 1.00 17.25 02/01/08 -0- 1,431,993 3,628,952
26,690 .31 13.625 09/30/08 -0- 228,698 579,566
William N. 22,020 <F1> .25 15.88 10/01/07 -0- 219,910 557,296
Pontikes 192,000 2.00 17.25 02/01/08 -0- 2,082,899 5,278,475
26,690 .31 13.625 09/30/08 -0- 228,698 579,566
John J. Vosicky 11,010 <F1> .13 15.88 10/01/07 -0- 109,955 278,648
64,000 .74 17.25 02/01/08 -0- 694,300 1,759,492
26,690 .31 13.625 09/30/08 -0- 228,698 579,566
- ---------------------------------------------------------------------------------------------------------------
<FN>
<F1> Reflects options issued in lieu of cash compensation pursuant to the
"Cash-to-Option Alternative" election referenced in the Compensation Committee
Report.
</FN>
</TABLE>
Comdisco included amounts under the columns labeled "5%" and "10%" pursuant to
certain rules promulgated by the SEC and those amounts are not intended to
forecast future appreciation, if any, in the price of the Comdisco common stock.
Such amounts are based on the assumption that the Named Executive Officers hold
the options granted for their full term. The actual value of the options will
vary in accordance with the market price of the Comdisco 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.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUE
The following table contains information with respect to the Named Executive
Officers concerning the exercise of options during fiscal 1998 and unexercised
options held as of the end of fiscal 1998.
<TABLE>
<CAPTION>
Total Number of Shares Total Value of Unexercised,
Underlying Unexercised in-the-Money Options Held at
Options Held at September September 30, 1998 <F1>
30, 1998
-------------------------------------------------------------
Number of
Shares Value
Name Acquired on Realized Exercisable Unexercisable Exercisable Unexercisable
Exercise
------------------- ------- ---------- --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack Slevin 547,946 $5,670,283 1,247,293 674,295 $8,502,071 $3,455,136
Nicholas K. Pontikes 600,000 -0- 264,918 300,018 1,711,500 1,648,730
John C. Kenning 182,788 684,722 126,968 260,760 659,317 1,220,969
William N. Pontikes 380,624 2,814,438 132,495 170,193 697,037 617,748
John J. Vosicky 127,478 1,019,459 346,075 106,831 2,818,419 300,874
</TABLE>
<F1> Based on the closing price of the Comdisco common stock, $13.625, on
September 30, 1998.
LONG TERM INCENTIVE PLAN ("LTIP") AWARDS
The following table provides information on the Performance Unit Awards granted
during the fiscal year ended September 30, 1998 under the Comdisco, Inc. 1995
Long-Term Stock Ownership Incentive Plan to the Named Executive Officers.
<PAGE>
<TABLE>
<CAPTION>
Estimated Future Payouts under
Non-Stock Price-Based Plans <F1>
--------------------------------------
Performance or Other
Number of Period Until Maturation
Name Units or Payout Threshold Target Maximum
- -------------------- ---- ----------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Jack Slevin 366 September 30, 2000 $183,000 $366,000 $1,098,000
Nicholas K. Pontikes 167 September 30, 2000 83,500 167,000 501,000
John C. Kenning 155 September 30, 2000 77,500 155,000 465,000
William N. Pontikes 167 September 30, 2000 83,500 167,000 501,000
John J. Vosicky 167 September 30, 2000 83,500 167,000 501,000
<FN>
<F1> The target performance objective is that Comdisco's total shareholder
return, which is 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 threshold 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.
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Comdisco and its subsidiaries have transactions in the ordinary course of
business with other corporations of which certain Comdisco directors are
executive officers. Comdisco does not consider the amounts involved in such
transactions to be material in relation to its business and believes that such
amounts are not material in relation to the business of such other corporations
or the interests of the directors involved.
Mr. Kraemer is President and Director of Baxter International, Inc. In fiscal
1998, Comdisco received approximately $681,000 per quarter in rental payments
for computer related equipment leased to Baxter Healthcare Corporation, a
subsidiary of Baxter International, Inc.
Mr. Patrick is an Executive Vice President of Merrill Lynch & Co. In fiscal
1998, Merrill Lynch & Co. acted as one of Comdisco's agents in connection with
the sale of Comdisco's medium term notes and served as one of the underwriters
of Comdisco's debt offerings. Merrill Lynch & Co. also acted as a dealer in the
sale of Comdisco's domestic commercial paper. In addition, Merrill Lynch Group
Employee Services, a division of Merrill Lynch and Co., has agreed to perform
various services in connection with the implementation and ongoing
administration of Comdisco's U.S. and International Employee Stock Purchase
Plans.
Mr. Andreini is Director, President and Chief Executive Officer of InterWorld
Corporation. In January, 1998, Comdisco caused a $1,600,000 Letter of Credit to
be renewed on behalf of InterWorld for one year ending January, 1999. On October
7, 1998, Comdisco entered into a Loan and Security Agreement with InterWorld
Corporation for an $11,000,000 line of credit. As of December 15, 1998,
$4,000,000 was outstanding under the line of credit, which bears interest at
10%. Comdisco also received approximately $125,000 per quarter in rental
payments in fiscal 1998 for computer related equipment leased to InterWorld.
Comdisco has also invested a total of $2,225,000 in InterWorld preferred stock
representing 3.1% of the outstanding equity in InterWorld, and also holds
warrants to purchase additional stock in InterWorld.
During fiscal 1998, Comdisco made a personal loan in an aggregate amount of $2.1
million to Mr. Slevin. The loan was evidenced by an unsecured demand note
bearing interest at the LIBOR rate plus 125 basis points.
Exhibit 10.16
COMPENSATION AND AWARD AGREEMENT
FISCAL YEAR ENDING SEPTEMBER 30, 1999
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 $.
2. ANNUAL CASH INCENTIVE POOL
Comdisco will establish a cash incentive pool based on the following
earnings goals:
2% x Pre-Tax Earnings between Target 1 and Target 2, 7%
x Pre-Tax Earnings between Target 2 and Target 3
Your share of this incentive pool share be x%.
Pre-Tax Earnings will include any earnings or losses attributable to
extraordinary items.
As an example, if Comdisco has Pre-Tax Earnings of Target 3 in fiscal
1999 your annual cash incentive compensation would be $x.
3. ANNUAL STOCK OPTION INCENTIVE
If Comdisco achieves 1999 Pre-Tax Earnings of Target 3, you will
also be entitled to a stock option grant of XXX shares at the closing price on
September 30, 1999. 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 Target 3, then the
number of shares granted will be based on the following:
Pre-Tax Earnings Percentage Grant Adjusted Grant
Target 3 100%
Target 2 80%
Target 1 60%
less than Target 1 0% -0-
4. LONG-TERM PERFORMANCE UNIT GRANT
The Committee of the 95 Plan hereby awards you with XXX 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, 1998 through September 30, 2001 (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>
<CAPTION>
TSR % Rank in S&P 500 Performance x Target Unit = Actual Unit
% Value Value
------------------ ---------- ----------- ----------
<S> <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>
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, 1998
- Election to forego $10,000 each from Salary, Annual
Cash Incentive and Performance Units
- Comdisco stock closes at $15.00
- $30,000 foregone x 2 = $60,000
- Option Value = $15.00/3 = $5.00
- $60,000/$5.00 = 12,000 options granted at $15.00
- Vests at 33 1/3% per year commencing 10/1/98
This agreement shall not be construed to give you any employment
rights.
Dated this _____ day of September, 1998.
On behalf of the Committee
Comdisco, Inc. and Subsidiaries Exhibit 11.00
COMPUTATION OF EARNINGS PER SHARE
(in millions except per share data)
Average shares used in computing earnings per common and common equivalent share
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Average shares issued 221 220 216 214 214
Effect of dilutive options 12 10 10 6 2
Treasury stock (70) (72) (66) (54) (42)
----- ----- ----- ----- -----
Total 163 158 160 166 174
===== ===== ===== ===== =====
Net earnings to common stockholders $ 151 $ 123 $ 106 $ 96 $ 44
===== ===== ===== ===== =====
Net earnings per common share:
Earnings per common share-basic $ .99 $ .83 $ .70 $ .60 $ .26
===== ===== ===== ===== =====
Earnings per common share-diluted .93 .78 .67 .57 .26
===== ===== ===== ===== =====
</TABLE>
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. 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 two-for-one 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,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed charges
Interest expense1<F1> $329 $301 $267 $278 $266
Approximate portion of
rental expense representative
of an interest factor 5 4 7 11 13
---- ---- ---- ---- ----
Fixed charges 334 305 274 289 279
Earnings from operations
before income taxes , net of preferred
stock dividends 238 203 176 160 80
---- ---- ---- ---- ----
Earnings from operations before income taxes
and fixed charges $572 $508 $450 $449 $359
==== ==== ==== ==== ====
Ratio of earnings to fixed charges 1.71 1.67 1.64 1.55 1.29
==== ==== ==== ==== ====
Rental expense:
Equipment subleases $ 5 $ 6 $ 14 $ 22 $ 30
Office space, furniture, etc. 9 7 8 10 8
---- ---- ---- ---- ----
Total $ 14 $ 13 $ 22 $ 32 $ 38
==== ==== ==== ==== ====
1/3 of rental expense $ 5 $ 4 $ 7 $ 11 $ 13
==== ==== ==== ==== ====
<FN>
<F1>Includes interest expense incurred by technology services and included in
technology 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,
---------------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF EARNINGS
Revenue
Leasing .................................................. $ 2,435 $ 2,116 $ 1,797 $ 1,573 $ 1,538 $ 1,583
Sales .................................................... 329 269 262 358 271 313
Technology services ...................................... 433 354 318 267 242 216
Other .................................................... 46 80 54 42 47 41
--------- --------- --------- --------- --------- ---------
Total revenue ................................... 3,243 2,819 2,431 2,240 2,098 2,153
--------- --------- --------- --------- --------- ---------
Costs and expenses
Leasing .................................................. 1,791 1,534 1,246 1,023 1,004 1,040
Sales .................................................... 275 210 218 304 225 275
Technology services ...................................... 362 296 277 238 224 206
Selling, general and administrative 249 244 244 233 213 197
Litigation settlement .................................... -- -- -- -- 70 --
Litigation charge ........................................ -- -- -- -- 10 --
Interest ................................................. 326 299 262 274 263 291
Other .................................................... -- 25 -- -- -- --
--------- --------- --------- --------- --------- ---------
Total costs and expenses ........................ 3,003 2,608 2,247 2,072 2,009 2,009
--------- --------- --------- --------- --------- ---------
Earnings from continuing operations before income taxes and
cumulative effect of change in accounting principle ...... 240 211 184 168 89 144
Income taxes ...................................................... 87 80 70 64 36 57
--------- --------- --------- --------- --------- ---------
Earnings from continuing operations before cumulative effect
of change in accounting principle ........................ 153 131 114 104 53 87
Loss from discontinued operations (net of income taxes) ........... -- -- -- -- -- (20)
--------- --------- --------- --------- --------- ---------
Earnings before cumulative effect of change in accounting principle 153 131 114 104 53 67
Cumulative effect of change in accounting principle ............... -- -- -- -- -- 20
--------- --------- --------- --------- --------- ---------
Net earnings before preferred dividends ........................... 153 131 114 104 53 87
Preferred dividends ............................................... (2) (8) (8) (8) (9) (7)
--------- --------- --------- --------- --------- ---------
Net earnings to common stockholders ...................... $ 151 $ 123 $ 106 $ 96 $ 44 $ 80
========= ========= ========= ========= ========= =========
COMMON SHARE DATA
Earnings per common share--basic .................................. $ .99 $ .83 $ .70 $ .60 $ .26 $ .44
Earnings per common share--diluted ................................ .93 .78 .67 .57 .26 .43
Common stockholders' equity (per common share outstanding) ........ 6.44 5.24 4.77 4.37 3.89 3.68
Cash dividends paid on common stock ............................... .10 .10 .09 .08 .07 .06
Average common shares (in thousands)--diluted ..................... 162,770 157,590 159,684 165,502 173,274 180,936
FINANCIAL POSITION
Total assets ...................................................... $ 7,063 $ 6,350 $ 5,591 $ 5,039 $ 4,807 $ 4,960
Notes payable ..................................................... 1,121 1,024 1,127 661 593 655
Total long-term debt .............................................. 3,318 2,918 2,145 1,796 1,364 1,325
Discounted lease rentals .......................................... 596 742 781 1,124 1,548 1,670
Stockholders' equity .............................................. 979 865 799 776 741 739
OTHER DATA
Total rents of new leases ......................................... $ 3,400 $ 3,200 $ 2,800 $ 2,300 $ 1,800 $ 1,900
Future lease rentals and technology services revenue .............. 6,089 5,440 4,903 4,380 4,185 4,265
</TABLE>
-30- and -31-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain statements herein 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. These
forward-looking statements 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 "Risk Factors that
May Affect Future Results" and in the "Note on Forward-Looking Information" on
page 60 of this annual report to stockholders.
SUMMARY
Comdisco, Inc. achieved record revenues, earnings, equipment volume and cash
flows from operating activities in fiscal 1998. The year's performance
demonstrates the ability of the company's businesses to deliver strong financial
results.
Fiscal 1998 net earnings to common stockholders (hereinafter referred
to as "net earnings") were $151 million, or $.93 per common share-diluted,
compared to $123 million, or $.78 per common share-diluted, and $106 million, or
$ .67 per common share-diluted, in fiscal 1997 and 1996, respectively. The
increase in net earnings in fiscal 1998 and 1997 compared to the prior years is
due to increases in earnings contributions from remarketing and technology
services. Earnings per common share (basic and diluted) in fiscal 1998 and 1997
benefited from the company's stock repurchase program, which has reduced the
average common shares outstanding. However, average common shares outstanding
increased during fiscal 1998 as compared to fiscal 1997 primarily as a result of
the company's Shared Investment Program (the"SIP")(see Note 10 of Notes to
Consolidated Financial Statements). Shares issued under the SIP exceeded the
number of shares repurchased in fiscal 1998.
BUSINESS
The company's businesses are designed to bring solutions that reduce technology
cost and risk to the customer and in supporting the customerOs technology
infrastructure. These businesses are: 1) financial management services, which
includes the leasing of distributed systems (PCs, servers and routers), large
systems (mainframes and related equipment) and communications equipment; 2)
diversified technology services-equipment leasing and technology lifecycle
management services for the healthcare, semiconductor manufacturing
("electronics group") and venture capital industries, and 3) technology
services, which includes business continuity services, desktop management
services, managed network services and software tools to support these areas.
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 desktop management and
continuity services.
Leasing volume increased in both fiscal 1998 and 1997 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 $3.3 billion in fiscal 1998,
compared to cost of equipment placed on lease of $3.1 billion and $2.6 billion
in fiscal 1997 and 1996, respectively. Internationally, cost of equipment of all
types placed on lease increased from $757 million in fiscal 1997 to $905 million
in fiscal 1998. The increase in leasing volume in fiscal 1998 is expected to
have a positive impact on leasing revenue in future periods and is expected to
result in future earnings opportunities by providing equipment for remarketing.
In addition to originating new equipment lease financing, the company
remarkets used equipment from its lease portfolio. Remarketing is the sale or
re-lease of equipment either at original lease termination or during the
original lease. These transactions may be with existing lessees or, when
equipment is returned, with new customers. Remarketing activities are comprised
of earnings from follow-on leases and gross profit on equipment sales.
Remarketing activity, an important contributor to earnings, was strong
throughout fiscal 1998 and 1997.
-32-
<PAGE>
Technology services had a record year with pretax earnings of $71
million in fiscal 1998. This compares to pretax earnings of $58 million and $41
million in fiscal 1997 and 1996, respectively. Revenue from continuity
contracts, which is recognized monthly during the noncancelable continuity
contract and is therefore recurring and predictable, was approximately $298
million, $280 million and $262 million during fiscal 1998, 1997 and 1996,
respectively, representing approximately 69%, 79% and 82% of technology services
revenue. Revenue from the company's Millennium Testing Services ("MTS") was
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. The company has been
successful in containing costs to maintain and improve margins in its services
operations during the last three fiscal years.
The company continued to invest additional capital to upgrade our service
capabilities and enhance future continuity services revenues. In fiscal 1998,
capital expenditures were $87 million. This includes additions in large systems,
mid-range systems, network products and expansion of work areas. In addition, a
focus area for capital expenditures in fiscal 1998 was Advanced Recovery
Services ("ARS"). ARS is designed to reduce data exposures as well as recovery
time across all market-leading platforms. The company is also investing in
additional personnel to expand its other technology services offerings and to
ensure the quality of its services offerings.
FINANCIAL CONDITION
The company's operating activities during the year ended September 30, 1998,
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
$11.8 billion. Expenditures for equipment in fiscal 1998 totaled approximately
$3.0 billion, the highest annual total in the company's history, and an increase
of 3% compared to the prior year. Expenditures for equipment are currently
estimated at approximately $3.5 billion for fiscal 1999.
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 $2.8 billion, $2.5 billion and $2.2 billion in fiscal 1998, 1997 and 1996,
respectively. During the last five years, net cash provided by operating
activities totaled $11.1 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. As of September 30, 1998, the company estimates that existing lease
and technology services contracts and commitments, including continuity
subscription contracts, could generate gross cash receipts of approximately $6.1
billion in the future, including $2.9 billion in fiscal 1999. The company's
liquidity is augmented by the realization of cash from the future remarketing of
leased equipment. Assuming realization of independent forecasts of equipment
values at lease termination and management estimates, the estimated gross cash
receipts to be provided from remarketing in future years totals $2.0 billion.
Credit Lines: At September 30, 1998, 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 $853
million was unused. The company had committed credit lines established with
twenty-eight banks at September 30, 1998 of $1.3 billion.
Senior Notes: In June, 1997, 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 $1.2 billion of senior debt securities with terms to be set at the time
of each sale (the "1997 Shelf"). Pursuant to the 1997 Shelf, the company, in
fiscal 1998 issued the following senior notes:
o $250 million of 6.125% Notes Due January 15, 2003
o $275 million of 6.13% Notes Due August 1, 2006
o $230 million of medium-term notes (the company also issued an additional $73
million of medium-term notes in fiscal 1998 pursuant to a registration
statement filed in November, 1996).
At September 30, 1998, an aggregate of $370 million of medium-term
notes remained available for issuance under the 1997 Shelf.
On October 9, 1998, the company filed a registration statement on Form
S-3 with the SEC for a shelf offering of up to $1.5 billion of senior debt
securities on terms to be set at the time of each sale (the "1998 Shelf"). No
senior debt has been sold pursuant to the 1998 Shelf. The company plans to
continue to be active in issuing senior debt during fiscal 1999, primarily to
support the anticipated growth of the leased assets and, where appropriate, to
refinance maturities of interest-bearing liabilities.
-33-
<PAGE>
Secured Debt: Proceeds from the discounting of lease rentals were $279 million,
$430 million and $253 million in fiscal 1998, 1997 and 1996, respectively.
Secured debt is currently utilized as a tool to manage credit risk and
concentration risk. However, the company believes that in a changing rate
environment, secured debt may offer attractive financing rates during fiscal
1999. The company's credit committee establishes concentration levels by credit
rating and customer.
Maturities: At September 30, 1998, the company had debt of $2.9 billion
scheduled to mature in fiscal 1999, including $1.1 billion of commercial paper
and short-term bank borrowings. At September 30, 1998, the company had expected
future cash to be provided by existing lease and technology services contracts
and commitments, including continuity subscription contracts, of $2.9 billion in
fiscal 1999. See Notes 5 and 6 of Notes to Consolidated Financial Statements for
information on the lease base and interest-bearing liabilities, respectively.
Ratios: The ratio of debt to total stockholdersO equity (the "Ratio") was 5.1:1,
5.4:1 and 5.1:1 at September 30, 1998, 1997 and 1996, respectively. During
fiscal 1998, the company redeemed its outstanding preferred stock, which reduced
stockholders' equity by $89 million. The 1998 Ratio was positively impacted by
the company's SIP, under which 106 senior managers of the company purchased over
six million shares of the company's common stock for approximately $109 million.
REVENUE
Total revenue of approximately $3.2 billion and $2.8 billion in fiscal 1998 and
1997 represented increases of 15% and 16% respectively, over the prior year
periods. The increase in fiscal 1998 compared to fiscal 1997 was primarily due
to higher total leasing revenue, principally from operating leases, and higher
revenue from technology services and sales. Total leasing revenue of $2.4
billion for the year ended September 30, 1998 represented an increase of 15%
compared to the prior year. Technology services revenue increased 22% in fiscal
1998 compared to fiscal 1997. See "Technology Services" for a discussion of
technology services revenue and margins and "Sales" for a discussion of sales
revenue and margins.
Leasing: The increase in New Leases (as defined in the discussion under "Risk
Factors that May Affect Future Results"), particularly during the last
thirty-six 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 costs was $369 million, or 19.5%
of operating lease revenue (the "Operating Lease Margin"), and $338 million, or
20.7% of operating lease revenue, in fiscal 1998 and 1997, respectively. The
company expects the Operating Lease Margin to decline from current levels in
fiscal 1999 because of continued pressure from New Leases and the lower margins
on large systems. The Sales-type Lease Margin increased in fiscal 1998 compared
to the prior year primarily because of a change in the mix of equipment
remarketed, with a higher percentage of distributed and communications equipment
remarketing. The following graph presents the Lease Margin for total leasing,
operating, and sales-type leases for the five years ended September 30, 1998:
94 95 96 97 98
--- --- --- --- ---
Total leasing 35% 35% 31% 27% 26%
Operating lease 26% 26% 24% 21% 20%
Sales-type lease 26% 28% 26% 30% 30%
Sales: Revenue from sales, which includes remarketing and buy/sell activities,
totaled $329 million in fiscal 1998, compared to $269 million and $262 million
in fiscal 1997 and 1996, respectively. In fiscal 1998 and 1997 sales and sale
revenue per unit on large systems declined. Margins on sales were 16% in fiscal
1998 compared to 22% and 17% in fiscal 1997 and 1996, respectively. Margins in
fiscal 1997 were unusually high, primarily as a result of significant sales of
distributed systems equipment.
Technology services: Revenue from technology services was $433 million, $354
million and $318 million in fiscal 1998, 1997 and 1996, respectively. The
increases are primarily the result of the growth in products and services.
Technology services costs of $362 million for fiscal 1998 increased 22%
over technology services costs of $296 million in fiscal 1997. Fiscal 1997 costs
and expenses were 7% higher than fiscal 1996. Cost containment efforts by the
company, primarily as a result of its capital investment strategy, slowed the
growth of continuity costs in fiscal 1997, and improved margins significantly
over the prior year. Although the company made significant investments in its
technology services facilities and staff during fiscal 1998, margins on
technology services remained at approximately fiscal 1997 levels. The company
expects margins in fiscal 1999 to be at or above fiscal 1998 levels primarily as
a result of the growth in other technology services which generally have higher
margins than continuity services.
-34-
<PAGE>
Other Revenue: Other revenue was $46 million, $80 million and $54 million in
fiscal 1998, 1997 and 1996, respectively. Revenue from the sale of ownership
positions generated in conjunction with the company's lease financing
transactions with early-stage high technology companies was $21 million in
fiscal 1998 compared to $18 million and $13 million in fiscal 1997 and 1996,
respectively. Fiscal 1998 and 1997 other revenue includes $5 million and $4
million, respectively, of gains from the sale of direct financing and sales-type
receivables. Other revenue for fiscal 1997 includes a gain of $25 million ($16
million after-tax, or $.10 per common share-diluted) 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. Fiscal 1996 includes $6 million 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 $3.0 billion and $2.6 billion in fiscal 1998 and
1997, respectively. The increase in fiscal 1998 and 1997 compared to the prior
years 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, increased costs associated with the company's technology
services and, in fiscal 1997, a one-time charge of $25 million (see "Other"
below).
Selling, General and Administrative: Selling, general and administrative
expenses totaled $249 million in fiscal 1998, $244 million in fiscal 1997, and
$244 million in fiscal 1996. Despite the level of growth in fiscal 1998 and
1997, cost containment efforts begun in fiscal 1996 allowed the company to
control its selling, general and administrative costs. Factors contributing to
the increase in fiscal 1998 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 1998 totaled $326 million in comparison to
$299 million in fiscal 1997 and $262 million in fiscal 1996, respectively. The
increase in interest expense in fiscal 1998 compared to fiscal 1997 is due to
higher average daily borrowings resulting from the increase in equipment
purchased for lease in fiscal 1998 compared to the prior period, offset by lower
average 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 $.10 per common
share) as a one-time addition to the equipment valuation allowance.
INCOME TAXES
Note 8 of Notes to Consolidated Financial Statements on page 50 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.
Revenue from international operations, including export sales and
technology services, was $730 million in fiscal 1998 compared to $646 million
and $595 million in fiscal 1997 and 1996, respectively. International revenues
represented 23% of the company's total revenue in fiscal 1998, 23% in fiscal
1997 and 24% in fiscal 1996.
Europe: The company's European operations had pretax earnings of $39 million and
$27 million in fiscal 1998 and 1997, respectively, compared to $10 million in
fiscal 1996. Total revenue from European operations was $592 million in fiscal
1998 compared to $537 million in fiscal 1997 and $461 million in fiscal 1996.
Cost of equipment placed on lease in fiscal 1998 and 1997, including diversified
technology equipment, was $582 million and $563 million, respectively. The
European lease base has been financed primarily by utilizing existing short-term
lines of credit, including European commercial paper, parent company loans and
where required, additional capital investment from the parent, and discounted
lease rentals.
Canada: The company's Canadian operations had pretax earnings of $12 million and
$17 million in fiscal 1998 and 1997, respectively. Total leasing and sales
revenue for fiscal 1998 in Canada was $60 million compared to $63 million and
$75 million in fiscal 1997 and 1996, respectively. Cost of equipment placed on
lease in fiscal 1998 and 1997 was $100 million and $66 million, respectively.
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 55.
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.
-35-
<PAGE>
Potential Fluctuations in Operating Results: The company's operating results are
subject to quarterly fluctuations resulting from a variety of factors, including
the volume of New Leases, earnings contributions from remarketing activities,
product announcements by manufacturers, economic conditions and variations in
the financial mix of leases written. The financial mix of leases written 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. There can be no assurance regarding the growth of New Leases
in future periods or the company's ability to accurately predict future declines
in the fair market values of large systems equipment.
To meet earnings goals for fiscal 1999, remarketing contributions have
to be at approximately the level achieved in fiscal 1998. 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.
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.
The costs to address the Year 2000 issues may have a negative impact on
equipment volume in fiscal 1999 if customers defer other IT projects due to the
Year 2000 efforts or if Year 2000 remediation costs increase as a percentage of
the total IT budget, thereby reducing capital expenditures on new technology.
Earnings Contributions from Services: As a result of the evolving nature of its
services business, particularly the emerging desktop management and managed
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 more
diverse with the growth of other technology services revenue, and therefore less
recurring and less predictable than in prior years. To attain its services
earnings contribution goals for fiscal 1999, the company will have to expand its
contract subscription base (through new contract signings and contract
renewals), increase its revenues from other technology services, attain MTS
revenue and contain costs. In addition, there can be no assurance that the
company will be able to maintain and/or increase its margins on technology
services in fiscal 1999.
One of the impacts of the company's 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 ObacklogO (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, successfully compete with organizations offering similar services,
develop services to meet customer requirements and to achieve delivery of
services that meet customer requirements.
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 business conditions, 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, suppliers and
business partners.
-36-
<PAGE>
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.
OTHER MATTERS
Qualitative Information About Market Risk: The company's primary market risk
exposure is interest rate risk, primarily related to the company's
interest-bearing obligations. 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.
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. The company
does not use derivatives for trading purposes. See Note 6 of Notes to
Consolidated Financial Statements for information on the company's average daily
borrowings, the company's derivative financial instruments, comprising interest
rate swaps and foreign currency forward exchange contracts, fair values and
effective interest rates.
The table below presents principal (or notional) amounts and related
weighted-average interest rates by year of maturity for the company's notes
payable, term notes and senior notes (in millions).
<TABLE>
<CAPTION>
99 00 01 02 03+
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Notes payable
Fixed rate ........... $1,121 $ -- $ -- $ -- $ --
Average interest rate 5.33%
Term notes
Floating rate ........ 550 -- -- -- --
Average interest rate 5.52%
Senior notes
Fixed rate ........... 940 619 367 294 548
Average interest rate 6.50% 6.72% 6.91% 6.54% 6.13%
</TABLE>
As the above table incorporates only the company's interest-bearing
obligations and not its lease portfolio, the information presented therein has
limited predictive value.
Recently Issued Professional Accounting Standards: The company does not believe
that SFAS No. 130, Reporting Comprehensive Income, SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, which will become
effective in fiscal 1999, or SFAS 132, EmployersO Disclosures about Pensions and
Other Postretirement Benefits, and SFAS 133, Accounting for Derivative
Instruments and Hedging Activity, which will become effective in fiscal 2000,
will have a material impact on the company's financial statements.
Year 2000: The company has implemented a program to attempt to assess, remediate
and mitigate the potential impact of the OYear 2000O 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 includes 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. Although it is very difficult to assess with any
certainty, the company believes that it is taking reasonable and appropriate
steps regarding Year 2000 compliance with respect to matters within its control
to provide that Year 2000 issues will not materially impact the company. It
remains uncertain whether or to what extent the company may be affected.
The SEC issued an interpretive guidance regarding disclosure of Year
2000 issues and consequences, effective August 4, 1998. On October 9, 1998, the
company provided this disclosure in a Form 8-K filing, a copy of which is
available for download at the SEC Internet home page (www.sec.gov). This Year
2000 Readiness is incorporated by reference in the company's Annual Report on
Form 10-K for the year ended September 30, 1998.
-37-
<PAGE>
Euro Compliance: Eleven of the fifteen member countries of the European Union
are scheduled to establish fixed conversion rates between their existing
sovereign currencies and the Euro and to adopt the Euro as their common legal
currency effective January 1, 1999. The company expects that its internal
systems that will be affected by the initial introduction of the Euro will be
substantially Euro capable by January 1, 1999, and does not expect the costs of
system modifications to be material. While the company will continue to evaluate
the impact of the Euro introduction over time, based on currently available
information, management does not believe that the introduction of the Euro
currency will have a material adverse impact on the company's financial
condition or overall trends in results of operations.
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, 1998, 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 1998 and 1997, adjusted for the three-for-two stock split (See
Note 10 of Notes to Consolidated Financial Statements).
<TABLE>
<CAPTION>
98 97
----------------------------- -----------------------------
Quarter High Low Dividends High Low Dividends
- ------- ------ ------ ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
First $16.88 $14.16 $.025 $10.92 $ 9.67 $.025
Second 21.94 14.88 .025 10.71 10.21 .025
Third 22.44 16.50 .025 13.00 9.34 .025
Fourth 20.88 12.44 .025 16.41 13.07 .025
</TABLE>
-38-
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
Comdisco, Inc. and Subsidiaries
(in millions except per share data)
<TABLE>
<CAPTION>
Years ended September 30,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
REVENUE
Leasing:
Operating ...................................... $1,897 $1,635 $1,365
Direct financing ............................... 162 145 149
Sales-type ..................................... 376 336 283
------ ------ ------
Total leasing .................................... 2,435 2,116 1,797
Sales ................................................... 329 269 262
Technology services ..................................... 433 354 318
Other ................................................... 46 80 54
------ ------ ------
Total revenue .................................. 3,243 2,819 2,431
------ ------ ------
COSTS AND EXPENSES
Leasing:
Operating ...................................... 1,528 1,297 1,037
Sales-type ..................................... 263 237 209
------ ------ ------
Total leasing .................................. 1,791 1,534 1,246
Sales ................................................... 275 210 218
Technology services ..................................... 362 296 277
Selling, general and
administrative ........................................ 249 244 244
Interest ................................................ 326 299 262
Other ................................................... -- 25 --
------ ------ ------
Total costs and expenses ............................... 3,003 2,608 2,247
------ ------ ------
Earnings before income taxes ............................ 240 211 184
Income taxes ............................................ 87 80 70
------ ------ ------
Net earnings before preferred dividends ................. 153 131 114
Preferred dividends ..................................... (2) (8) (8)
------ ------ ------
Net earnings to common stockholders ..................... $ 151 $ 123 $ 106
====== ====== ======
Net earnings per common share:
Earnings per common share--basic ....................... $ .99 $ .83 $ .70
====== ====== ======
Earnings per common share--diluted ..................... $ .93 $ .78 $ .67
====== ====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
-39-
<PAGE>
CONSOLIDATED BALANCE SHEETS
Comdisco, Inc. and Subsidiaries
(in millions except number of shares and per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1997
------ ------
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................................................ $ 63 $ 37
Cash--legally restricted ......................................................... 30 45
Receivables, net ................................................................. 340 262
Inventory of equipment ........................................................... 165 157
Leased assets:
Direct financing and sales-type .............................................. 1,779 1,717
Operating (net of accumulated depreciation) .................................. 4,121 3,571
Net leased assets ....................................................... 5,900 5,288
Buildings, furniture and other, net .............................................. 137 140
Other assets ..................................................................... 428 421
------ ------
$7,063 $6,350
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable .................................................................... $1,121 $1,024
Term notes ....................................................................... 550 497
Senior notes ..................................................................... 2,768 2,421
Accounts payable ................................................................. 308 170
Income taxes:
Current ................................................................. 14 --
Deferred ................................................................ 319 306
Other liabilities ................................................................ 408 325
Discounted lease rentals ......................................................... 596 742
------ ------
6,084 5,485
------ ------
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 0 shares
(3,562,600 shares in 1997) .................................................. -- 89
Common stock $.10 par value
Authorized 750,000,000 shares;
issued 221,657,318 shares (220,265,372 in 1997) .............................. 22 11
Additional paid-in capital ..................................................... 257 178
Deferred compensation (ESOP) ................................................... -- (3)
Deferred translation adjustment ................................................ (13) (20)
Retained earnings .............................................................. 1,101 965
------ ------
1,367 1,220
Common stock held in treasury, at cost; 69,556,956 shares (72,184,050 in 1997) . (388) (355)
------ ------
Total stockholders' equity .............................................. 979 865
------ ------
$7,063 $6,350
====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
-40-
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Comdisco, Inc. and Subsidiaries
(in millions except per share data)
Years Ended September 30, 1998, 1997 and 1996
<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, 1995 ................ $ 91 $ 5 $154 $(8) $ 13 $ 764 $(243)
Net earnings.................................. 114
Cash dividends--preferred .................... (8)
Cash dividends--common ($.09 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 ($.10 per share) ...... (14)
Stock options exercised ...................... 10 6
Translation adjustment ....................... (25)
Reduction of guaranteed ESOP debt ............ 2
Purchase of common stock...................... (45)
Retire treasury stock ........................ (2) 2
Stock split .................................. 4 (4)
Income tax benefits resulting from the
exercise of non-qualified stock options..... 9
---- ---- ---- ---- ---- ----- -----
BALANCE AT SEPTEMBER 30, 1997 ................ 89 11 178 (3) (20) 965 (355)
---- ---- ---- ---- ---- ----- -----
Net earnings ................................. 153
Cash dividends--preferred .................... (2)
Cash dividends--common ($.10 per share) ...... (15)
Shared Investment Program .................... 77 31
Stock options exercised ...................... (4) 24
Translation adjustment ....................... 7
Reduction of guaranteed ESOP debt ............ 3
Purchase of preferred stock................... (89)
Purchase of common stock ..................... (88)
Stock split .................................. 11 (11)
Income tax benefits resulting from the
exercise of non-qualified stock options...... 17
---- ---- ---- ---- ---- ------ -----
BALANCE AT SEPTEMBER 30, 1998 $ - $22 $257 $ - $(13) $1,101 $(388)
==== ==== ==== ==== ==== ====== =====
See accompanying notes to consolidated financial statements.
</TABLE>
-41-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comdisco, Inc. and Subsidiaries
(in millions)
<TABLE>
<CAPTION>
Years Ended September 30,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
Operating lease and other leasing receipts ............................. $ 1,989 $ 1,727 $ 1,465
Direct financing and sales-type leasing receipts ....................... 905 861 907
Sale of direct financing and sales-type receivables .................... 125 81 --
Leasing costs, primarily rentals paid .................................. (20) (32) (34)
Sales .................................................................. 335 264 246
Sales costs ............................................................ (69) (84) (117)
Technology services receipts ........................................... 408 343 311
Technology services costs .............................................. (278) (204) (174)
Other revenue .......................................................... 44 55 54
Selling, general and administrative expenses ........................... (249) (225) (222)
Litigation settlement .................................................. -- 25 --
Interest ............................................................... (326) (291) (260)
Income taxes ........................................................... (42) (44) (23)
------- ------- -------
Net cash provided by operating activities ..................... 2,822 2,476 2,153
------- ------- -------
Cash flows from investing activities:
Equipment purchased for leasing ........................................ (3,026) (2,940) (2,486)
Investment in continuity and network services facilities ............... (87) (61) (74)
Other .................................................................. (2) (19) (17)
------- ------- -------
Net cash used in investing activities ......................... (3,115) (3,020) (2,577
------- ------- -------
Cash flows from financing activities:
Discounted lease proceeds .............................................. 279 430 253
Net increase (decrease) in notes payable ............................... 97 (103) 466
Issuance of term notes and senior notes ................................ 1,017 1,151 834
Maturities of term notes and senior notes .............................. (617) (378) (485)
Principal payments on secured debt ..................................... (425) (469) (596)
Decrease (increase) in legally restricted cash ......................... 15 (18) 3
Preferred stock purchased .............................................. (89) -- (2)
Common stock purchased and placed in treasury .......................... (88) (45) (80)
Dividends paid on common stock ......................................... (15) (14) (14)
Dividends paid on preferred stock ...................................... (2) (8) (8)
Shared Investment Program .............................................. 109 -- --
Other .................................................................. 38 6 (3)
------- ------- -------
Net cash provided by financing activities ..................... 319 552 368
------- ------- -------
Net increase (decrease) in cash and cash equivalents ............................ 26 8 (56)
Cash and cash equivalents at beginning of year .................................. 37 29 85
------- ------- -------
Cash and cash equivalents at end of year ........................................ $ 63 $ 37 $ 29
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
-42-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comdisco, Inc. and Subsidiaries
(in millions)
<TABLE>
<CAPTION>
Years Ended September 30,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings ..................................................................... $ 153 $ 131 $ 114
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Leasing costs, primarily depreciation and amortization ...................... 1,771 1,502 1,212
Leasing revenue, primarily principal portion of direct
financing and sales-type lease rentals ................................ 459 472 575
Sale of direct financing and sales-type receivables ..................... 120 81 --
Cost of sales ........................................................... 193 126 101
Technology services costs,
primarily depreciation and amortization .............................. 84 92 103
Income taxes ............................................................ 45 36 47
Interest ................................................................ -- 8 2
Other, net .............................................................. (3) 28 (1)
------ ------ ------
Net cash provided by operating activities ............................... $2,822 $2,476 $2,153
====== ====== ======
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Issuance of treasury stock for acquisition of NetforceMTI ........................ $ -- $ -- $ 9
====== ====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
-43-
<PAGE>
Notes to Consolidated Financial Statements
(In millions, except share and per share data)
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 technology services such as continuity services, 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 45 and 46 for a description of
lease accounting policies, lease revenue recognition and related costs.
Technology services: Revenue from continuity contracts is recognized monthly as
subscription fees become due. Revenue from other technology services is
recognized over the terms of the related contracts or as the service is
provided.
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. 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 share-Dbasic are computed by
dividing the net earnings to common stockholders by the weighted average number
of common shares outstanding for the period. All shares held in the Employee
Stock Ownership Plan (ESOP) are considered outstanding for both basic and
diluted earnings per share calculations. Earnings per common share-Ddiluted
reflect the maximum dilution that would have resulted from the exercise of stock
options. Earnings per common share-Ddiluted are computed by dividing the net
earnings to common stockholders by the weighted average number of common shares
outstanding and all dilutive stock options (dilutive stock options are based on
the treasury stock method). Anti-dilutive stock options were immaterial for
fiscal 1998, 1997 and 1996.
-44-
<PAGE>
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 1996 and 1997
financial statements to conform to the 1998 presentation.
LEASING
NOTE 2
Lease Accounting Policies
FASB Statement of Financial Accounting Standards No. 13 requires that a lessor
account for each lease by either the direct financing, sales-type or operating
method.
Leased Assets:
* Direct financing and sales-type leased assets consist of the present value of
the future minimum lease payments plus the present value of the residual
(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.
* Operating leased assets consist of the equipment cost, less the amount
depreciated to date.
Revenue, Costs and Expenses:
* Direct financing leases - Revenue consists of interest earned on the present
value of the lease payments and residual. Revenue is recognized periodically
over the lease term as a constant percentage return on the net investment. There
are no costs and expenses related to direct financing leases since leasing
revenue is recorded on a net basis.
* Sales-type leases - Revenue consists of the present value of the total
contractual lease payments which is recognized at lease inception. Costs and
expenses consist of the equipment's net book value at lease inception, less the
present value of the residual. Interest earned on the present value of the lease
payments and residual, which is recognized periodically over the lease term as a
constant percentage return on the net investment, is included in direct
financing lease revenue in the statement of earnings.
* Operating leases - Revenue consists of the contractual lease payments and is
recognized on a straight-line basis over the lease term. Costs and expenses are
principally depreciation of the equipment. Depreciation is recognized on a
straight-line basis over the lease term to the company's estimate of the
equipmentOs fair market value at lease termination, also commonly referred to as
"residual" value. In estimating the equipmentOs 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 companyOs 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
lease portfolio at September 30, 1998.
* Initial direct costs related to operating and direct financing leases,
including salespersonOs 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)
98 97
------ ------
Minimum lease payments receivable.. $1,790 $1,759
Estimated residual values.......... 203 180
Less: unearned revenue ............ (214) (222)
------ ------
Net investment in direct financing
and sales-type leases ........... $1,779 $1,717
====== ======
Unearned revenue is recorded as leasing revenue over the lease terms.
Operating leased assets include the following as of September 30:
(in millions)
98 97
------- -------
Operating leased assets ........... $ 6,803 $ 5,763
Less: accumulated depreciation
and amortization ................ (2,682) (2,192)
------- -------
Net ............................... $ 4,121 $ 3,571
======= =======
-45-
<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, 1998 (in millions):
PROJECTED YEAR OF LEASE TERMINATION
-------------------------------------------
Cost at
Year lease lease
commenced inception 99 00 01 02 03+
- ----------- --------- ------ ------ ------ ------ -------
1994
and prior $ 937 $ 586 $ 151 $ 127 $ 62 $ 11
1995 711 420 191 66 29 5
1996 1,838 993 368 359 109 9
1997 2,889 752 1,206 506 378 47
1998 3,417 150 805 1,578 547 337
--------- ------ ------ ------ ------ ------
$9,792 $2,901 $2,721 $2,636 $1,125 $ 409
========= ====== ====== ====== ====== ======
The following table summarizes the estimated net book value at lease
termination for all leased assets recorded at September 30, 1998. 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 a
Year lease lease
commenced termination 99 00 01 02 03+
- --------- ----------- ------ ------ ------ ------ --------
1994
and prior $ 30 $ 21 $ 4 $ - $ 5 $ -
1995 62 38 23 1 - -
1996 257 157 46 50 4 -
1997 474 127 230 65 50 2
1998 661 42 144 337 90 48
-------- ------ ------ ------ ------ -------
$1,484 $ 385 $ 447 $ 453 $ 149 $ 50
======== ====== ====== ====== ====== =======
NOTE 5
Future Noncancelable Lease Rentals and Technology Services Revenue
Presented below is a summary of future noncancelable lease rentals on owned
equipment and future technology services revenue including 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, 1998.
<TABLE>
<CAPTION>
(IN MILLIONS)
YEARS ENDING SEPTEMBER 30,
-----------------------------------------------
99 00 01 02 03+ Total
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Expected future cash in-flows:
Operating leases $1,670 $1,058 $ 498 $ 128 $ 28 $3,382
Direct financing and sales-type leases 877 551 268 78 16 1,790
Technology services 374 251 174 78 40 917
------ ------ ------ ------ ------ ------
Total $2,921 $1,860 $ 940 $ 284 $ 84 $6,089
====== ====== ====== ====== ====== ======
</TABLE>
-46-
<PAGE>
NOTE 6
Interest-Bearing Liabilities
Interest-bearing liabilities include the following:
(in millions)
<TABLE>
<CAPTION>
98 97
-------------------------------------- --------------------------------------
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 ............... $ 774 5.39% $ 541 6.20% $ 505 5.67% $ 603 6.40%
Commercial paper ........................ 347 5.21% 606 5.72% 519 5.82% 552 5.77%
Term notes ................................. 550 5.52% 526 6.41% 497 5.98% 430 6.16%
Senior notes ............................... 2,768 6.47% 2,576 6.76% 2,421 6.62% 2,125 6.93%
Discounted lease rentals ................... 596 7.29% 676 7.32% 742 7.19% 773 7.13%
------ ----- ------ ---- ------ ---- ------ ----
$5,035 6.21% $4,925 6.62% $4,684 6.45% $4,483 6.68%
====== ==== ====== ==== ====== ==== ====== ====
</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>
98 97
------------------------------------------------------- -------------------------------------------------------
Outstanding Maturities Outstanding Maturities
beginning and Outstanding Fair beginning and Outstanding Fair
of year Issuances repurchases end of year value of year Issuances repurchases end of year value
------ ------ ------- ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable:
Credit lines and loan
participation
contracts ...... $ 505 $ 269 $ -- $ 774 $ 774 $ 664 $ -- $ (159) $ 505 $ 505
Commercial paper . 519 -- (172) 347 347 463 56 -- 519 519
Term notes ......... 497 100 (47) 550 550 374 125 (2) 497 499
Senior notes ....... 2,421 917 (570) 2,768 2,585 1,771 1,026 (376) 2,421 2,440
Discounted lease
rentals .......... 742 279 (425) 596 594 781 430 (469) 742 743
------ ------ ------- ------ ------ ------ ------ ------- ------ ------
$4,684 $1,565 $(1,214) $5,035 $4,850 $4,053 $1,637 $(1,006) $4,684 $4,706
====== ====== ======= ====== ====== ====== ====== ======= ====== ======
</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, 1998 are
shown in the table at right:
<TABLE>
<CAPTION>
(in millions)
Years Ending September 30,
99 00 01 02 03+ Total
------ ----- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Notes payable:
Credit lines and loan
participation contracts $ 774 $ -- $ -- $ -- $ -- $ 774
Commercial paper .......... 347 -- -- -- -- 347
Term notes ................ 550 -- -- -- -- 550
Senior notes .............. 940 619 367 294 548 2,768
Discounted lease rentals .. 310 189 82 14 1 596
------ ----- ---- ---- ---- ------
$2,921 $808 $449 $308 $549 $5,035
====== ===== ==== ==== ==== ======
</TABLE>
-47-
<PAGE>
Notes payable: The company had the following unsecured bank lines available in
the United States and foreign countries at September 30:
(in millions)
98 97
------ ------
Total credit lines:
Committed $1,253 $1,139
Uncommitted 393 451
------ ------
$1,646 $1,590
====== ======
Utilized at September 30:
Committed $ 644 $ 760
Uncommitted 149 101
Total credit lines 793 861
Loan participation contracts 328 163
------ ------
Total notes payable $1,121 $1,024
====== ======
Credit lines available at
September 30 $ 853 $ 729
====== ======
Maximum amount outstanding
at any month end $1,304 $1,302
====== ======
Committed lines: The company's committed lines have been established with
twenty-eight banks, six of which are U.S. banks. A majority of the banks are
rated AA or better by rating agencies. At September 30, 1998, the company had
committed domestic and foreign unsecured lines of credit as follows:
Number Expiration
of banks date
Facility
Multi-Option Facilities 12
$275 million facility December, 2002
$275 million facility December, 1998
Global Facilities 14
$275 million facility December, 2002
$275 million facility December, 1998
Other credit agreements:
$ 75 million - domestic
and foreign 1 April, 1999
$ 78 million - foreign 5 Various
There are no compensating balance requirements on any of the committed
lines. At September 30, 1998, the company had $644 million outstanding under its
committed lines, including $347 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 $275 million facilities expiring December,
1998, twenty-two basis points, or at the banks' then current base rates. The
Facilities call for the company to pay a weighted average annual fee of nine
basis points per annum on the total committed amount. The two $275 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, 1999.
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 $393 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, 1998, the company had $900 million of
commercial paper facilities (of which $347 million was outstanding at September
30, 1998) 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: Term notes payable include the following at September 30:
(in millions)
98 97
---- ----
Receivable backed commercial
paper (floating rate; due 1999) $550 $450
Building mortgage
(9.70%; due 1998) -- 44
Guaranteed senior ESOP
notes (8.12%; due 1998) -- 3
---- ----
$550 $497
==== ====
See Note 11 of Notes to Consolidated Financial Statements regarding the
senior ESOP notes.
-48-
<PAGE>
Senior notes: Senior notes include the following at September 30:
(in millions)
98 97
------ ------
Medium term notes (5.54% to 9.95%) $1,200 $1,184
7.250% Senior Notes due 1998 ..... -- 200
7.750% Senior Notes due 1999 ..... 89 89
6.500% Senior Notes due 1999 ..... 250 250
6.500% Senior Notes due 2000 ..... 200 199
5.750% Senior Notes due 2001 ..... 250 249
6.375% Senior Notes due 2002 ..... 250 250
6.125% Senior Notes due 2003 ..... 250 --
6.130% Senior Notes due 2006 ..... 279 --
------ ------
Total senior notes ........ $2,768 $2,421
====== ======
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." An
aggregate of $370 million of medium-term notes remain available for resale under
the 1997 Shelf as of September 30, 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% Notes Due August 1,
2006.
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, 1998 are as follows (in millions):
Years Ending September 30,
Rentals to be
received by Discounted
financial lease Interest
Years Ending September 30, institutions rentals expense
---- ---- ----
1999 ..................... $344 $310 $ 34
2000 ..................... 205 189 16
2001 ..................... 86 82 4
2002 ..................... 14 14 --
2003 ..................... 1 1 --
---- ---- ----
$650 $596 $ 54
==== ==== ====
Interest expense on discounted lease rentals was $49 million, $55
million, and $68 million in fiscal 1998, 1997 and 1996, 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 notional 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.
-49-
<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:
98 97
Notional Fair Notional Fair
amount value amount value
------- ----- ---- -----
Interest rate swap
greements .......... $460 $ 2 $ 95 $ (1)
Cross-currency interest
rate swap agreements 33 4 85 9
Interest rate caps ..... -- -- 44 --
Forwards and futures ... 65 (3) 3 --
The impact of these contracts on interest expense for fiscal years
1998, 1997 and 1996 was immaterial. The average notional amount outstanding of
the floating rate to fixed rate contracts in fiscal 1998, including those noted
in the discussions above, was $321 million, with an average pay rate of 5.24%
and an average receive rate of 5.04%. The average notional amount outstanding of
the fixed rate to floating rate contracts in fiscal 1998 was $60 million, with
an average pay rate of 3.86% and an average receive rate of 5.48%. The company
is exposed to credit loss in the event of non-performance by the other parties
to the interest rate swap agreements. Although contract or notional amounts
provide one measure of the volume of these transactions, they do not represent
the amount of the company's exposure to credit risk. The amounts subject to
credit risk (arising from the possible inability of the counterparties to meet
the terms of their contracts) are generally limited to the amounts, if any, by
which the counterparties obligation(s) exceed the obligation(s) of the company.
The company controls credit risk through credit approvals, limits and monitoring
procedures.
NOTE 7
Receivables
Receivables (net of allowance for doubtful accounts of $24 million in 1998 and
$22 million in 1997) include the following as of September 30:
(IN MILLIONS)
98 97
---- ----
Accounts, net $191 $160
Income taxes 6 6
Notes 75 41
Other 68 55
---- ----
$340 $262
==== ====
The allowance for doubtful accounts includes managementOs 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, 1998,
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)
98 97 96
---- ---- ----
United States $183 $163 $155
Outside United States 57 48 29
---- ---- ----
$240 $211 $184
==== ==== ====
Cumulative unremitted earnings of foreign operations amounting to $143
million after foreign taxes at September 30, 1998, 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)
98 97 96
---- ---- ----
Current:
U.S. Federal $ 28 $ 24 $ 20
U.S. state and local 2 7 6
Outside United States 36 8 14
---- ---- ----
66 39 40
---- ---- ----
Deferred:
U.S. Federal 33 35 32
U.S. state and local 9 2 3
Outside United States (21) 4 (5)
21 41 30
---- ---- ----
Total tax provision $ 87 $ 80 $ 70
==== ==== ====
-50-
<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
-----------------------------
98 97 96
----- ----- -----
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 3.0 3.3
Foreign income tax rate
differential 2.0 .8 1.3
Tax effect of foreign
losses utilized (4.0) (2.9) (1.9)
Other, net - 2.1 .3
----- ----- -----
36.0% 38.0% 38.0%
===== ===== =====
Deferred tax assets and liabilities at September 30, 1998 and 1997 were
as follows:
PERCENTAGE OF PRETAX EARNINGS
98 97
---- ----
Deferred tax assets:
Equity transactions $264 $266
Foreign loss carryforwards 12 24
U.S. net operating loss
carryforwards 61 44
AMT credit carryforwards 123 111
Deferred income 35 34
Deferred expenses 5 -
Other, net 82 58
---- ----
Gross deferred tax assets 582 537
Less: valuation allowance (12) (24)
---- ----
Total deferred tax assets 570 513
---- ----
Deferred tax liabilities:
Lease accounting 873 782
Foreign 16 37
---- ----
Total deferred tax liabilities 889 819
---- ----
Net deferred tax liabilities $319 $306
==== ====
For financial reporting purposes, the company has approximately $26
million of foreign net operating loss carryforwards, most of which have no
expiration date. The company has recognized a valuation allowance of $12 million
to offset this deferred tax asset. During fiscal 1998, changes in the valuation
allowance included decreases of $10 million from utilizing foreign net operating
loss carryforwards and $2 million from foreign exchange rate and tax rate
changes.
At September 30, 1998, 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 122
2009 3
2012 27
----
$164
====
For U.S. Federal income tax purposes, the company has approximately
$123 million of alternative minimum tax (OAMTO) 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 OServiceO) due to the expiration of the
Statute of Limitations.
The company has received 30-Day Letters for fiscal years 1989, 1990,
1991, 1992 and 1993 proposing tax deficiencies in the amounts of $10 million, $3
million, $14 million, $28 million and $30 million, respectively. In December
1997, the company received a favorable response to a Technical Advice Request
submitted to the Internal Revenue Service National Office which related to the
treatment of leased assets for inventory and depreciation purposes. This
response will substantially reduce the aforementioned proposed tax deficiencies.
In 1996, the company made tax payments totaling $4 million in anticipation of
expected tax and interest liabilities for fiscal years 1992 and 1993. Protests
to the 30-Day Letters have been filed and the company is currently working with
the Service and the Appeals Division of the Service to resolve all remaining
issues. Management believes that all remaining issues can be resolved with no
material impact on the companyOs financial condition or results of operations.
-51-
<PAGE>
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 1998 and the company expects to receive a 30-Day Letter in
calendar 1999.
The company also undergoes audits by foreign, state and local tax
jurisdictions. As of September 30, 1998, 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, of
which none were outstanding at September 30, 1998. 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. Dividends
paid on preferred stock were $2 million, $8 million and $8 million, respectively
in fiscal 1998, 1997 and 1996.
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 1998.
8.75% Cumulative 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. 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.
NOTE 10
Common Stock
All references in the financial statements and notes to common share data have
been adjusted to reflect the two-for-one stock split distributed in June, 1998.
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 then current total shares
outstanding.
The share amounts for basic diluted earnings per share calculations was
as follows (in thousands):
YEARS ENDED SEPTMBER 30,
98 97 96
-------- -------- --------
Average shares issued 220,910 218,907 216,702
Average shares held in treasury (69,663) (71,859) (65,077)
Basic shares outstanding 151,247 147,048 151,625
Stock options 11,523 10,541 8,060
Diluted shares outstanding 162,770 157,589 159,685
There are no adjustments to net earnings to common stockholders for
basic and diluted earnings per share calculations for any of the years ended
September 30, 1998, 1997 and 1996.
-52-
<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 4.6 million shares of common stock held in treasury by the company
at a market price at the date of purchase of $4.42 per share. The outstanding
balance of the ESOP Debt was recorded in term notes payable in the consolidated
balance sheet and a like amount of deferred compensation was recorded as a
reduction of stockholders' equity.
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 9,000 shares of
the company's common stock at the then fair market value.
The company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for the company"s stock
option plans been determined consistent with FASB Statement of Financial
Accounting Standards No. 123 ("FAS 123"), the company's net earnings available
to common stockholders and earnings per common and common equivalent share would
have been reduced to the pro forma amounts indicated below:
(in millions except per share data)
98 97
---- ----
Net earnings
to common stockholders
As reported .......... $151 $123
Pro forma ............ 147 120
Earnings per common share:
As reported--basic ... $.99 $.83
Pro forma--basic ..... .97 .82
As reported--diluted . .93 .78
Pro forma--diluted ... .90 .76
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 1998 and 1997, respectively: dividend
yield of 1.0% for all years; expected volatility of 32 percent and 26 percent;
risk free interest rates of 6.07% and 6.19%; and expected lives of five years.
-53-
<PAGE>
Additional information on shares subject to options is as follows:
(in thousands except weighted-average exercise price)
<TABLE>
<CAPTION>
98 97 96
------------------- --------------------- ----------------------
Weighted- Weighted- Weighted-
average average average
Number exercise Number exercise Number exercise
of shares price of shares price of shares price
------- ---- ------ ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year .................. 19,185 $ 6 19,096 $5 16,434 $4
Granted ........................................... 3,274 13 5,282 9 4,896 7
Exercised ......................................... (3,953) 5 (4,288) 4 (1,824) 4
Forfeited ......................................... (523) 7 (905) 6 (410) 5
------ --- ------ -- ------ --
Outstanding at the end of year .................... 17,983 $ 7 19,185 $6 19,096 $5
====== === ====== == ====== ==
Options exercisable at year-end ................... 12,858 $ 6 12,578 $5 11,110 $5
====== === ====== == ====== ==
Weighted-average fair value of options
granted during the year $ 4.72 $ 2.89 $ 2.25
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options
outstanding at September 30, 1998 (number of shares in thousands):
Options outstanding Options exercisable
------------------------------------ -------------------
Weighted- Weighted- Weighted-
average average average
Number remaining exercise Number exercise
of shares contractual life price of shares price
--------- ---------------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$0 to 4 3,321 4.5 years $ 4 3,014 $ 3
$4 to 6 4,195 5.0 years 5 3,309 5
$6 to 8 4,038 7.0 years 7 3,712 7
$8 to 16 6,429 8.0 years 12 2,823 10
------ --------- --- ------ ---
17,983 6.5 years $ 7 12,858 $ 6
====== ========= === ====== ===
</TABLE>
NOTE 12
Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the fiscal years ended September 30,
1998 and 1997, is as follows (in millions except for per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
December 31, March 31, June 30, September 30,
----------- ----------- ------------ -------------
97 96 98 97 98 97 98 97
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue $744 $633 $777 $690 $817 $712 $904 $784
Net earnings to common stockholders $ 34 $ 28 $ 37 $ 31 $ 40 $ 32 $ 40 $ 32
Net earnings per common share--diluted $.21 $ .18 $ .23 $.19 $.24 $.20 $.25 $.21
</TABLE>
-54-
<PAGE>
NOTE 13
Segment Information
The company operates predominantly in the leasing industry. The company operated
in four principal geographic locations during fiscal 1998. The company also
operates in South America.
Transfers between geographic areas include a reasonable profit that is
eliminated in consolidation. Presented below is financial information
reflecting the company's leasing and continuity and network services
operations by geographic area for the years ended September 30, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
(IN MILLIONS)
United Pacific Export Elimi- Consoli-
States Europe Canada Rim sales nations dated
------ ------ ------ ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Revenue from unaffiliated customers
Leasing $2,150 $ 534 $ 60 $ 67 $ - $ - $2,811
Technology services 363 58 11 - - - 432
------ ------ ------ ------ ------ ------ ------
Total revenue from unaffiliated customers 2,513 592 71 67 - - 3,243
Transfers between geographic areas 8 16 - 6 - (30) -
------ ------ ------ ------ ------ ------ ------
Total revenue $2,521 $ 608 $ 71 $ 73 $ - $ (30) $3,243
====== ====== ====== ====== ====== ====== ======
Earnings before income taxes
Leasing $ 125 $ 32 $ 12 $ 2 $ - $ (2) $ 169
Technology services 64 7 - - - - 71
------ ------ ------ ------ ------ ------ ------
Total earnings before income taxes $ 189 $ 39 $ 12 $ 2 $ - $ (2) $ 240
====== ====== ====== ====== ====== ====== ======
Total assets (end of year)
Leasing $5,179 $1,109 $ 161 $ 326 $ 23 $ (114) $6,684
Technology services 343 72 5 - - (41) 379
------ ------ ------ ------ ------ ------ ------
Total assets $5,522 $1,181 $ 166 $ 326 $ 23 $ (155) $7,063
====== ====== ====== ====== ====== ====== ======
1997
Revenue from unaffiliated customers
Leasing $1,880 $ 489 $ 63 $ 33 $ -- $ -- $2,465
Technology 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
Technology 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
Technology 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
Technology 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 before income taxes
Leasing $ 113 $ 10 $ 19 $ 1 $ 1 $ (1) $ 143
Technology services 40 -- 1 -- -- -- 41
------ ------ ------ ------ ------ ------ ------
Total earnings 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
Technology services 264 60 19 -- -- (40) 303
------ ------ ------ ------ ------ ------ ------
Total assets $4,661 $ 783 $ 170 $ 83 $ 23 $ (129) $5,591
====== ====== ====== ====== ====== ====== ======
</TABLE>
-55-
Exhibit 23.00
[KPMG Peat Marwick LLP Letterhead]
Exhibit 23.00
Consent of KPMG Peat Marwick LLP
The Board of Directors
Comdisco, Inc.:
We consent to incorporation by reference in Registration Statement No. 33-20715
on Forms S-8 and S-3, Registration Statement No. 333-29813 on Form S-3,
Registration Statement No. 333-65535 on Form S-3, Registration Statement No.
333-12765 on Form S-8, Registration Statement No. 333-32215 on Form S-8,
Registration Statement No. 333-45263 on Form S-8, and Registration Statement No.
333-50001 on Form S-8 of Comdisco, Inc. of our reports dated November 3, 1998,
relating to the consolidated balance sheets of Comdisco, Inc. and subsidiaries
as of September 30, 1998 and 1997 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, 1998 which reports
appear, or are incorporated by reference, in the September 30, 1998 annual
report on Form 10-K of Comdisco, Inc.
Chicago, Illinois
December 18, 1998
<TABLE>
<CAPTION>
Exhibit 21.00
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>
-26-
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 Management GmbH Germany 100%
Comdisco Medical Exchange, Inc. Delaware 100%
Comdisco de Mexico, S.A. de C.V. Mexico 100%
Comdico Nederland B.V. Netherlands 100%
Comdisco Network Services, Inc. Illinois 100%
Comdisco New Zealand New Zealand 100%
(f/k/a Comdisco (NZ) Limited
Comdisco Sweden A.B. Sweden 100%
Comdisco (Switzerland), S.A. Switzerland 100%
-27-
<PAGE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
--------------------- --------------------
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%
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.
-28-
<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, 1998 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-30-1998
<PERIOD-START> Oct-01-1997
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1
<CASH> 63
<SECURITIES> 0
<RECEIVABLES> 364
<ALLOWANCES> 24
<INVENTORY> 165
<CURRENT-ASSETS> 3,489
<PP&E> 8,582
<DEPRECIATION> 2,682
<TOTAL-ASSETS> 7,063
<CURRENT-LIABILITIES> 1,671
<BONDS> 2,768
0
0
<COMMON> 22
<OTHER-SE> 957
<TOTAL-LIABILITY-AND-EQUITY> 7,063
<SALES> 2,435
<TOTAL-REVENUES> 3,243
<CGS> 1,791
<TOTAL-COSTS> 2,677
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326
<INCOME-PRETAX> 240
<INCOME-TAX> 87
<INCOME-CONTINUING> 153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-PRIMARY> 0.990
<EPS-DILUTED> 0.930
</TABLE>
