SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Filed pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
April 16, 1999
Date of Earliest Event Reported
COMDISCO, INC.
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone (847) 698-3000
Commission file number 1-7725
I.R.S. Employer Identification Number 36-2687938
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Item 5. Other Events
Year 2000
1. Overview
The Company has implemented a program to attempt to assess, remediate and
mitigate the potential impact of "Year 2000" issues throughout the Company.
"Year 2000" issues arise where date-sensitive software uses two digit year date
fields, sorting the year 2000 ("00") before the year 1999 ("99"). As a result,
these systems may not process dates beyond 1999, resulting in data corruption
and processing errors and possible system failures.
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 software embedded on computer chips. In addition, the Company is attempting
to monitor the Year 2000 compliance status of its vendors, suppliers and service
providers. The Company believes that it is taking the necessary steps regarding
Year 2000 compliance with respect to matters within its control to provide that
Year 2000 issues will not materially impact the Company. However, there can be
no assurance that Year 2000 issues will not adversely affect the Company.
2. State of Readiness
The Company has organized its Year 2000 project into the following subprojects:
internal information systems;
customer service delivery capabilities;
facilities; and
business unit impact, including third party impact and equipment portfolio
issues.
The Company has approached each subproject in as many as four phases, as
applicable: (1) assessment; (2) remediation; (3) testing; and (4) contingency
planning. "Assessment" summarizes the process of issue and risk identification.
"Remediation" refers to the process of taking corrective action to best mitigate
identified Year 2000 risks. "Testing" is the process of validating a specific
Company remediation effort or confirming a third party capability or
certification of Year 2000 compliance. "Contingency planning" is the process by
which the Company identifies an alternate course of action and/or procedures in
the event the Company cannot or fails to remediate or mitigate a known Year 2000
risk. The Company may not engage in contingency planning for individual
subproject components where successful Year 2000 remediation has been
substantially validated through the testing process or other methods.
A. Internal Information Systems
The Company has organized its internal information systems subproject into
four areas: (1) Company-developed applications software; (2) vendor
applications software; (3) electronic data interchange trading partners;
and (4) hardware. The Company has prioritized remediation and testing
activities based upon the mission-critical nature of the underlying
business function. The following summarizes the current status of this
subproject:
(1) Company-developed software
The Company has nearly completed assessment, remediation and testing
activities with respect to Company-developed mainframe and midrange
software. The Company anticipates completing substantially all remaining
assessment, remediation, and testing activities by July 31, 1999.
(a) Mainframe. The Company has completed remediation and testing, and
operates in its normal production environment, all mission-critical
Company-developed mainframe modules and database records.
(b) AS-400. The Company has completed all remediation and testing, and
operates in its normal production environment, all mission-critical
Company-developed AS-400 applications.
(c) Client-Server. The Company has either completed all remediation and
testing activities, returned into a production environment, or classified
as obsolete with plans to discontinue usage prior to January 1, 2000, 85
of 101 Company-developed client-server applications.
(2) Vendor Software
The Company has identified 258 vendor software packages throughout the
Company. Forty six (46) of those software packages have been classified as
obsolete and the Company will discontinue their use prior to January 1,
2000. The Company has either converted or had the vendor certify as Year
2000 compliant 186 additional software packages. The Company plans to
complete all assessment, testing and/or certification activities for
vendor software by June 30, 1999.
(3) Electronic Data Interchange
Electronic data interchange ("EDI") involves the electronic communication
and exchange of information by two companies in accordance with agreed
upon protocols. A Year 2000 problem can arise where either trading partner
does not utilize Year 2000-compliant protocols or standards. The Company
completed development enabling the Year 2000-compliant 4010 EDI standard
on December 31, 1998. The Company has sent out two mailings to all its EDI
trading partners to survey trading partner EDI Year 2000 compliance plans
and requesting that the trading partners schedule compatibility testing
during 1999. The Company plans to conduct testing and migration of its
trading partners to the 4010 standard throughout 1999. The Company intends
to enable its EDI systems to accept both the 4010 standard and the current
non-compliant EDI standard to minimize potential disruptions in the
exchange of information.
(4) Hardware
The Company has completed its Year 2000 assessment of all internally used
and centrally maintained hardware, including desktop computers.
Replacement of non-compliant hardware will occur throughout 1999. As part
of the business unit impact subproject, the Company will assess hardware
and other equipment that is not centrally maintained.
B. Customer Service Delivery Capabilities
The Company commenced assessment of Year 2000 issues in conjunction with its
business continuity services in April 1996 and network services during 1998.
This subproject includes:
assessing the Year 2000 readiness status and compliance plans for
backup recovery equipment, infrastructure equipment, and software
used in the Company's recovery centers;
testing backup recovery and infrastructure equipment to validate
Year 2000 readiness and document progress on a periodic basis.
The business continuity component of the subproject has been organized by
customer product line: (i) mainframe; (ii) midrange; (iii) customer network;
(iv) internal network; (v) workarea; and (vi) trading floor. The Company is
separately examining the Year 2000 readiness for the Company's thirty nine
(39) business continuity service facilities including infrastructure,
security systems, fire suppression, electrical and key utilities. The
hardware supporting customer subscriptions has generally been found to be
Year 2000 capable, if maintained at current firmware release levels. All
critical systems supplied to customers can be made Year 2000 compliant
according to manufacturer's specifications.
The Company anticipates this subproject will be substantially completed by
July 1, 1999.
C. Facilities
The Company has completed a preliminary assessment of its general and
service delivery facilities. This subproject includes examination of the
Company's leased and owned facilities Year 2000 readiness, including an
assessment of infrastructure equipment, such as elevators, security and HVAC
systems, and critical service provider readiness issues, including utility
providers. The Company will continue to work with its landlords throughout
1999 to identify and minimize potential Year 2000 facility disruptions. The
Company plans to continue facilities contingency planning during the first
half of calendar year 1999.
D. Business Units
The Company has substantially completed an assessment of Year 2000 issues
within each of its internal business units. Each business unit has assessed
the impact of Year 2000 issues upon that business unit's operational
capabilities. Each group will attempt to remediate or otherwise mitigate the
impact of Year 2000 issues in the following areas: (1) software, hardware
and equipment outside the scope of the information systems project,
including impact upon portfolio value; (2) mission critical vendors; and (3)
purchasing and other contractual processes and procedures. The Company plans
to substantially complete remediation, mitigation and/or contingency
planning activities by June 30, 1999.
3. Costs
Management currently estimates the total cost of its Year 2000 remediation
efforts, including capital expenditures, will approximate $21,000,000 through
FY2000. The Company commenced its Year 2000 program in 1994 and has expended
approximately $10,000,000 to date as follows:
FY 1994- Less than $ 100,000
FY 1995- $2,030,000
FY 1996- $1,628,000
FY 1997- $2,790,000
FY 1998- $3,420,000
Management believes that it will incur approximately $9,000,000 in connection
with its Year 2000 remediation efforts during fiscal year 1999. Approximately
$6,250,000 of the FY 1999 estimate has been allocated to the replacement of
identified Year 2000 non-compliant hardware, software and infrastructure
equipment. The Company further estimates that it may incur approximately
$2,000,000 in FY 2000. The Company may be required to adjust its estimates for
FY 1999 and/or FY 2000 if the Company incurs unanticipated personnel costs, must
replace or accelerate replacement or upgrade of equipment, systems and
applications software as a result of Year 2000 non-compliance, or as a result of
other currently unidentified expenses or costs associated with Year 2000 risks.
The Company's Year 2000 expenditures and estimates include costs associated with
the Company's outside consultants and contractors, internal personnel resources,
and hardware, software and equipment replacement and upgrades attributable to
the Company's Year 2000 efforts.
The Company's allocation of personnel resources to the Year 2000 project has not
resulted in the deferral of any significant information technology projects. The
Company believes that the Year 2000 costs incurred in connection with the
internal information systems subproject will not exceed ten percent (10%) of the
Company's information technology group budget during FY 1999.
4. Risks
Management believes that the Company's information technology and embedded
systems will be substantially Year 2000 compliant prior to January 1, 2000,
meaning they will be able to accurately process date/time data (including but
not limited to, calculating, composing, and sequencing) from, into and between
the twentieth and twenty-first centuries, and the year 1999 and 2000, including
leap year calculations. Nevertheless, the Company believes that it may face
potential Year 2000-related risk in several areas, given the inherent
uncertainty in any assessment or remediation relating to Year 2000 issues,
including the following:
The Company may encounter Year 2000 risk as a result of the failure of equipment
leased, sold and/or refurbished, or software licensed, by the Company to be Year
2000 compliant. The Company may face claims from customers and their end users
arising in connection with bodily injury, property damage and business
interruption as a result of a Year 2000 failure in equipment or software
provided by the Company. Based on the Company's standard lease and license
agreements, the Company believes that it would not be liable for such claims.
However, there can be no assurance that such claims will not be brought against
the Company.
Year 2000 issues may have an impact on the Company's estimates of fair market
value at lease termination, commonly referred to as "residual" value, for
equipment leased to customers for which the manufacturer does not make available
a Year 2000 compliance upgrade path or in the event an available Year 2000
upgrade is cost prohibitive relative to the market value of the equipment.
Although the Company still is evaluating potential Year 2000 residual risks, the
Company does not believe that the amounts the Company will ultimately realize
would differ materially from the estimated residual amounts recorded in the
Company's financial statements as a result of Year 2000 issues.
The Company may experience intermittent business interruption to its internal
operations and service delivery capability as a result of the Company's
suppliers, vendors, service providers, business partners and/or customers
failing to successfully address their own Year 2000 issues. While the Company
exercises no control over such third parties, the Company's Year 2000 project
plan includes a survey assessment of critical third parties response and
remediation plans to identify Year 2000 issues within such companies and their
potential impact upon the Company. The Company has no significant concentration
of revenue with any single or group of customers. Revenue from the Company's
largest customer in 1998 does not exceed 2% of Comdisco's total revenue.
However, if a large number of the Company's major customers encounter operating
problems due to Year 2000 issues that results in their inability to meet their
obligations, including payment obligations, the Company may experience a
material impact due to higher credit losses and lower income.
Some commentators believe that a significant amount of litigation will arise
from Year 2000 issues. Notwithstanding the Company's belief that its information
technology and critical non-information technology systems will be Year 2000
compliant in all material respects by January 1, 2000, there can be no assurance
that third parties will not assert claims based on Year 2000 compliance
standards other than those articulated by the Company. Further, given the
uncertainty inherent in any assessment of the potential Year 2000 issues, third
parties may assert claims against the Company based on Year 2000 issues not
currently anticipated by the Company.
The Year 2000 issue also presents a number of other risks and uncertainties that
could affect the Company, including utilities and telecommunications failures,
the lack of personnel skilled in the resolution of Year 2000 issues, and the
nature of government responses to the issues, among others. While the Company
continues to believe that the Year 2000 matters discussed above will not have a
material impact on its business, financial condition or results of operations,
it remains uncertain whether or to what extent the Company may be affected.
5. Contingency Planning
The Company currently anticipates that its information technology and critical
non-information technology systems will be Year 2000 compliant in all material
respects by January 1, 2000. This assessment is based upon the current readiness
of a substantial majority of the information technology systems and the
Company's assessed degree of difficulty associated with completing the remainder
of its Year 2000 program. The Company has developed and maintains contingency
plans for its business continuity operations.
The remaining business units have not yet undertaken substantial contingency
planning efforts in connection with Year 2000 risks. As necessary, the Company
will evaluate the need for, and commence comprehensive contingency planning
within the identified business units to address Year 2000 risks during the first
half of calendar year 1999.
This document contains historical information, as well as forward-looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company's statements regarding the
Company's expectations with respect to its Company's plans and objectives for
assessment and remediation of Year 2000 issues; the anticipated costs associated
with assessment, remediation and testing; the dates by which such efforts will
be accomplished; the Company's contingency plans; and the Company's expectations
with respect to its operations at Year 2000 are based on management's best
current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the ability to
identify and remediate all relevant information technology and noninformation
technology systems, results of Year 2000 testing, the nature and amount of
programming required to fix affected systems, the costs of labor and consultants
related to such efforts, adequate resolution of Year 2000 issues by businesses
and other third parties who are service providers, suppliers, business partners
or customers of the Company, unanticipated system costs, and the adequacy of and
ability to develop and implement contingency plans and similar uncertainties.
.
The Year 2000 statements set forth above are designated "Year 2000 Readiness
Disclosures" pursuant to the Year 2000 Information and Readiness Disclosure Act
(P.L. 105-271).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
COMDISCO, INC.
Date: April 16, 1999 by: /s/ John J. Vosicky
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John J. Vosicky
Executive Vice President and
Chief Financial Officer
