SIX-YEAR SUMMARY
COMDISCO, INC. AND SUBSIDIARIES
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF EARNINGS
Revenue
Leasing .............................................. $ 2,259 $ 2,643 $ 2,428 $ 2,113 $ 1,797 $ 1,573
Sales ................................................ 440 293 329 269 262 358
Mainframe, medical and vendor portfolio sale ......... - 598 - - - -
Technology services .................................. 637 522 433 354 318 267
Other ................................................ 531 122 53 83 54 42
--------- --------- --------- --------- --------- ---------
Total revenue ..................................... 3,867 4,178 3,243 2,819 2,431 2,240
--------- --------- --------- --------- --------- ---------
Costs and expenses
Leasing .............................................. 1,653 1,969 1,791 1,534 1,246 1,023
Sales ................................................ 358 250 275 210 218 304
Mainframe, medical and vendor portfolio sale ......... - 596 - - - -
Technology services .................................. 572 440 362 296 277 238
Selling, general and administrative .................. 532 326 249 244 244 233
Interest ............................................. 354 337 326 299 262 274
Other ................................................ - 150 - 25 - -
--------- --------- --------- --------- --------- ---------
Total costs and expenses .......................... 3,469 4,068 3,003 2,608 2,247 2,072
--------- --------- --------- --------- --------- ---------
Earnings from continuing operations before income taxes .. 398 110 240 211 184 168
Income taxes ............................................. 143 40 87 80 70 64
--------- --------- --------- --------- --------- ---------
Earnings from continuing operations ...................... 255 70 153 131 114 104
Loss from discontinued operations (net of income taxes) .. (322) (22) - - - -
Preferred dividends ...................................... - - (2) (8) (8) (8)
--------- --------- --------- --------- --------- ---------
Net earnings (loss) to common stockholders ........... $ (67) $ 48 $ 151 $ 123 $ 106 $ 96
========= ========= ========= ========= ========= =========
COMMON SHARE DATA
Earnings from continuing operations-diluted .............. $ 1.58 $ .44 $ .93 $ .78 $ .67 $ .57
Loss from discontinued operations-diluted ................ (1.99) (.14) - - - -
--------- --------- --------- --------- --------- ---------
Net earnings (loss) to common stockholders-diluted ... $ (.41) $ .30 $ .93 $ .78 $ .67 $ .57
========= ========= ========= ========= ========= =========
Common stockholders' equity (per common share outstanding) $ 7.96 $ 6.94 $ 6.44 $ 5.24 $ 4.77 $ 4.37
Cash dividends paid on common stock ...................... .10 .10 .10 .10 .09 .08
Average common shares (in thousands)-diluted ............. 161,782 161,787 162,770 157,590 159,684 165,502
FINANCIAL POSITION
Total assets ............................................. $ 8,754 $ 7,807 $ 7,063 $ 6,350 $ 5,591 $ 5,039
Notes payable ............................................ 1,314 820 1,121 1,024 1,127 661
Total long-term debt ..................................... 4,147 4,236 3,318 2,918 2,145 1,796
Discounted lease rentals ................................. 794 515 596 742 781 1,124
Stockholders' equity ..................................... 1,214 1,060 979 865 799 776
OTHER DATA
Total rents of new leases ................................ $ 2,800 $ 3,100 $ 3,400 $ 3,200 $ 2,800 $ 2,300
Future contractual cash flows ............................ 7,063 6,731 6,089 5,440 4,903 4,380
</TABLE>
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report and the discussion below contain forward-looking statements that are
based on the beliefs of Comdisco's management, as well as assumptions made by,
and information currently available to, Comdisco's management. See "Risk Factors
That May Affect Future Results" on page 31 for reference to the risks,
uncertainties and events that could cause those underlying beliefs and
assumptions to change and cause Comdisco's results, performance and achievements
in the current fiscal periods and beyond to differ materially from those
expressed in, or implied by, any forward-looking statements.
BUSINESS
The company's businesses are designed to bring solutions that reduce technology
cost and risk to the customer and in supporting the customer's technology
infrastructure.
The industry in which the company operates has become service oriented,
with the business driven by service capabilities. Accordingly, the company is
aligned into three primary business lines: 1) technology services ("Services"),
which includes continuity services, storage services, web services, network
services, desktop management services (marketed under the company's IT CAP
Solutions brand name), and software tools to support these areas; 2) global
leasing ("Leasing"), in sectors such as electronics, telecommunications,
pharmaceutical, biotechnology, manufacturing and other high technology
businesses, which includes the leasing and remarketing of distributed systems,
such as PCs, servers, workstations and routers, communications equipment,
equipment leasing and technology lifecycle management services; and 3) venture
financing, referred to as Comdisco Ventures group, which provides venture
leases, venture debt and direct equity financing to venture capital-backed
companies. Services and Leasing are referred to as Comdisco group.
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.
On March 24, 1999, the company announced a major shift in corporate
strategy, focusing on high-margin service businesses and shedding low-margin
businesses, including its mainframe leasing portfolio and medical refurbishing
business. In the fiscal quarter ended June 30, 1999, the company completed the
sale of its mainframe computer leasing portfolio (hereinafter referred to as the
"Sale") and the sale of the medical refurbishing business. The company also
completed the sale of the majority of its vendor lease portfolio in September
1999.
NET EARNINGS
On October 2, 2000, the company's board of directors voted to cease funding
ongoing operations of Prism Communication Services, Inc. ("Prism"), a
majority-owned subsidiary. As a result of this decision, the Prism board of
directors voted to cease operations and pursue the immediate sale of Prism's
assets. As a result of this discontinuance, the company's fourth quarter results
for fiscal 2000 reflected after-tax charges of $238 million, or $1.49 per
share-diluted, for the expected loss on disposal as well as the operating losses
on the discontinued operations during the quarter. All periods presented,
including restatement of previously published results, reflect the results of
Prism as discontinued operations.
In conjunction with its repositioning in fiscal 1999, the company recorded
a one-time pre-tax charge (the "Charge") of $150 million, $96 million after-tax,
or approximately $.59 per share-diluted, in the quarter ended March 31, 1999.
The components of the 1999 Charge include $100 million associated with the
company's plans to exit the mainframe residual leasing business, $20 million to
exit the medical refurbishing business and $30 million associated with a
realignment of the service businesses. The 1999 Charge is shown as "Other" on
the Consolidated Statements of Earnings.
Net earnings from continuing operations were $255 million, or $1.58 per
share-diluted in fiscal 2000, compared to $70 million, or $.44 per
share-diluted, and $151 million, or $.93 per share-diluted in fiscal 1999 and
1998, respectively. Excluding the Charge, earnings from continuing operations in
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fiscal 1999 were $166 million, or $1.03 per share-diluted. The increase in net
earnings from continuing operations in fiscal 2000 compared to fiscal 1999 was
due to higher earnings contributions from Comdisco Ventures group. Excluding the
Charge, the increase in net earnings from continuing operations in fiscal 1999
compared to the prior year was primarily due to remarketing activities and
higher earnings contributions from Comdisco Ventures group.
Earnings per common share (basic and diluted) in fiscal 2000 and 1999
benefited from the company's stock repurchase program, which has reduced the
average common shares outstanding.
FINANCIAL CONDITION
The company's operating activities during the year ended September 30, 2000,
including capital expenditures, were funded primarily by cash flow from
operations (primarily lease receipts), including the realization of residual
values through remarketing activities, and external financing.
The company's capital expenditures are primarily on equipment purchased for
leasing, facilities expansion and service upgrades, venture financing by
Comdisco Ventures group and, in fiscal 2000 and 1999, Prism.
o During the last five years, equipment purchased for leasing totaled $13.9
billion. Expenditures for equipment in fiscal 2000 totaled approximately
$2.6 billion, including $438 million by Comdisco Ventures group. Cost of
leased equipment at lease inception totaled $9.2 billion at September 30,
2000 (see Note 6 of Notes to Consolidated Financial Statements).
o The company continues to invest additional capital to upgrade its service
capabilities and enhance future continuity and other services revenues. In
fiscal 2000, capital expenditures were $202 million, compared to $151
million and $87 million in fiscal 1999 and 1998, respectively. This
includes additions in large systems, mid-range systems, network products
and expansion of its work areas, as well as continued investment in Advance
Recovery Services ("ARS"). ARS is designed to reduce the risk of data loss
as well as recovery time across all market-leading platforms. The company
is also investing in the development of its Web Hosting Services and in
additional personnel to expand its other technology services offerings and
to ensure the quality of its services offerings.
o Comdisco Ventures group's operating activities in fiscal 2000 and 1999,
including capital expenditures for equipment, venture debt originations and
direct equity investment, were funded primarily by cash flow from
operations and inter-group loans from Comdisco. Total net cash provided to
Comdisco Ventures group was $405 million, $327 million and $33 million in
fiscal 2000, 1999 and 1998, respectively.
o During fiscal 2000, the company invested approximately $377 million in
Prism, including $257 million in the development and expansion of this
business. The company ceased funding Prism effective October, 2000 (see
Note 2 of Notes to Consolidated Financial Statements).
The company's liquidity depends on cash provided by operating activities
and on its access to capital markets, specifically medium-term and senior notes,
commercial paper, and on its lines of credit and the willingness of the banks to
renew these lines.
Following the announcement that the company would cease funding the ongoing
operations of Prism, Moody's Investors Service ("Moody's"), Standard & Poor's
("S&P"), and Fitch IBCA ("Fitch") lowered the company's senior unsecured credit
ratings from Baa1/BBB+/A- to Baa2/BBB/BBB+. The company's short-term ratings
were reaffirmed at P-2/A-2/F2. Following is a summary of the company's ratings
as of October 3, 2000:
Long-term Short-term
----------------- ----------------
Agency Rating Outlook Rating Outlook
------- -------- ------- ------ -------
Moody's Baa2 Stable P-2 Stable
S&P BBB Stable A-2 Stable
Fitch BBB+ Negative F2 Stable
On December 4, 2000, the company renewed a $275 million, 364-day revolving
credit facility for another year to 2001. Negotiations for the renewal of a
second $275 million, 364-day facility continue, and the company expects to
complete these negotiations by late December, 2000.
CASH PROVIDED BY OPERATING ACTIVITIES: Net cash provided by operating activities
was $3.2 billion, $3.2 billion and $2.9 billion in fiscal 2000, 1999 and 1998,
respectively. During the last five years, net cash provided by operating
activities totaled $14.0 billion.
As of September 30, 2000, the company estimates that future contractual
cash flows from leasing, services and Comdisco Ventures group could
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generate gross cash receipts of approximately $7.1 billion, including $3.1
billion in fiscal 2001. The company's liquidity has typically been 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 $1.4 billion.
The company's cash flow from operating activities is dependent on a number
of variables, including, but not limited to, the ability of the company to
implement its strategic plan and respond to external market conditions, the
ability of the company to dispose of the securities held by Comdisco Ventures
group, timely payment by its customers, global economic conditions and control
of operating costs and expenses.
CREDIT LINES: At September 30, 2000, 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 $661
million was unused. The company had committed credit lines of $1.4 billion
established with twenty-nine banks at September 30, 2000. Interest rates on debt
outstanding under the committed lines are negotiated at the time of the
borrowings based either on "bid rates" from participating banks, LIBOR plus
twenty-to-twenty-two basis points or, for the two $275 million facilities
expiring December, 2000, forty basis points, or at the banks' then current base
rates. Average daily borrowings under committed and uncommitted lines, loan
participation contracts and other bank borrowings was $1.1 billion in fiscal
2000, compared to $1.2 billion and $1.1 billion in fiscal 1999 and 1998,
respectively. Average interest rates were 5.82%, 5.07% and 5.95% in fiscal 2000,
1999 and 1998, respectively.
SENIOR NOTES: The company issued $145 million of medium-term notes in fiscal
2000 pursuant to a registration statement filed in October 1998. In September
1999, 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 $1.5 billion
of senior debt securities with terms to be set at the time of each sale (the
"1999 Shelf"). Pursuant to the 1999 Shelf, the company, in fiscal 2000 issued
the following senior notes:
o $500 million of 9.5% Notes Due August 15, 2003
o $75 million of medium-term notes
At September 30, 2000, an aggregate of $462 million of medium-term notes
remained available for issuance under the 1999 and 1998 Shelfs.
Subject to market conditions, the company plans to continue to be active in
issuing senior debt during fiscal 2001, primarily to support the anticipated
growth of the leased assets, services, Comdisco Ventures group, and, where
appropriate, to refinance maturities of interest-bearing liabilities. However,
market conditions during the fourth quarter of fiscal 2000 were not favorable
for the company, primarily as a result of increasing interest rates and investor
uncertainty and concerns about the continued cash requirements of Prism, and, to
a lesser extent, Comdisco Ventures group. There can be no assurance that the
company will be able to raise sufficient capital utilizing senior debt in fiscal
2001 or that such capital would be available on terms considered acceptable by
the company. If the company is unable to issue senior debt in sufficient amounts
or at appropriate interest rates in fiscal 2001, the company expects to use
secured nonrecourse debt as its primary source of long term funding. See
"Secured Nonrecourse Debt."
Although the company has ceased funding Prism (see "Discontinued
Operations"), lowered senior unsecured credit ratings, coupled with continued
investor concerns about the company's financial commitment to Comdisco Ventures
group, are expected to have a negative impact on the company's cost of borrowing
in fiscal 2001.
SECURED NONRECOURSE DEBT: Proceeds from the discounting of lease rentals were
$619 million, $341 million and $279 million in fiscal 2000, 1999 and 1998,
respectively. Secured nonrecourse debt was primarily utilized as a tool to
manage credit risk and concentration risk. However, the company believes that in
a changing rate environment (see "Senior Notes"), secured nonrecourse debt may
offer attractive financing rates and availability during fiscal 2001. The
company's credit committee establishes concentration levels by credit rating and
customer.
MATURITIES: At September 30, 2000, the company had debt of $3.1 billion
scheduled to mature in fiscal 2001, including $1.3 billion of commercial paper
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and short-term bank borrowings. At September 30, 2000, the company had expected
future contractual cash flows from existing lease, services and Comdisco
Ventures group contracts of $3.1 billion in fiscal 2001. See Notes 7 and 8 of
Notes to Consolidated Financial Statements for information on future contractual
cash flows and interest-bearing liabilities, respectively.
If the company is not able to refinance its indebtedness or obtain new
financing (either through the issuance of senior notes, commercial paper, or
secured nonrecourse debt), the company would have to consider other options,
including: sales of some assets; sales of equity; negotiations with lenders to
restructure applicable indebtedness; or other options available to the company
under applicable law.
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.
RATIOS: The ratio of debt to total stockholders' equity (the "Ratio") was 5.2:1,
5.3:1 and 5.1:1 at September 30, 2000, 1999 and 1998, 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 Shared Investment Plan (see Note 14 of Notes to Consolidated
Financial Statements), under which 106 senior managers of the company purchased
over six million shares of the company's common stock for approximately $109
million.
RESULTS OF OPERATIONS
OVERVIEW
SERVICES: The company's technology services attained record revenues in fiscal
2000, however, higher costs, primarily associated with higher personnel costs,
European expansion and investment in new service development, primarily Web
Services, negatively impacted margins on the company's technology services
business.
Technology services had pre-tax earnings of $65 million compared to pre-tax
earnings of $82 million (excluding the Charge in fiscal 1999, see below) and $71
million in fiscal 1999 and 1998, respectively.
The company's business continuity services are its principal contributor to
its services pre-tax earnings. Network services had pre-tax losses in fiscal
2000, 1999 and 1998, with its losses increasing in each fiscal year. Although,
the company believes that network services remain an important service offering,
the company will continue to evaluate alternatives to its network services
strategies. Managed desktop services, marketed under the company's IT CAP, had
solid growth during fiscal 2000, particularly in the fourth fiscal quarter. The
company expects IT CAP to continue to provide pre-tax earnings in fiscal 2001.
Included in the fiscal 1999 Charge was $30 million associated with the
realignment of the company's service businesses, including costs associated with
the relocation of its network management center and consolidation and
reconfiguration of some of its continuity services facilities worldwide.
See "Risk Factors That May Affect Future Results" for a discussion of the
factors that may affect earnings contributions from services.
LEASING: Leasing volume decreased in fiscal 2000 and 1999 as compared to the
prior years. The decreases in fiscal 2000 and 1999 compared to the prior years
is primarily as a result of the company's decision to exit the mainframe leasing
business and its focus on technology services (such as IT CAP).
Cost of equipment placed on lease was $2.6 billion in fiscal 2000, compared
to cost of equipment placed on lease of $2.9 billion and $3.3 billion in fiscal
1999 and 1998, respectively.
In fiscal 2000, a change in the mix of leases written resulted in a higher
percentage of new leases classified as direct financing leases rather than
operating leases when compared to prior years. This is primarily the result of
the company's decision to reduce its residual exposure in personal computers,
workstations and other related desktop equipment. Accordingly, leases written
for desktop equipment in fiscal 2000 were generally full payout leases (leases
in which the company recovers through lease payments, all acquisition and other
costs incurred with respect to the lease plus an acceptable rate of return),
which resulted in their classification as direct financing leases.
Remarketing activity, an important contributor to earnings, was at record
levels throughout fiscal 2000 and was strong in fiscal 1999. The company
believes that remarketing activity will continue to be an important contributor
to quarterly earnings in the near and long term because of the size of the
company's lease portfolio at September 30, 2000, and as a result of the residual
leasing business for electronics, telecommunication, pharmaceutical,
biotechnology, and manufacturing equipment. See "Risk Factors That May Affect
Future Results" for a discussion of the factors that may affect remarketing
activities.
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COMDISCO VENTURES GROUP: Fiscal 2000 was a high growth year for Comdisco
Ventures group, with record levels of new fundings for all of its financing
products. Total new fundings for fiscal 2000, 1999 and 1998 by product was a
follows:
(IN MILLIONS) 2000 1999 1998
------ ----- -----
Leases ......... $ 438 $ 206 $ 114
Debt ........... 621 334 57
Equity ......... 145 40 8
------ ----- -----
Total .......... $1,204 $ 580 $ 179
====== ===== =====
REVENUE
Total revenue in fiscal 2000 was approximately $3.9 billion compared to $4.2
billion in fiscal 1999 and $3.2 billion in fiscal 1998. The decrease in total
revenue in fiscal 2000 compared to fiscal 1999 and the increase in fiscal 1999
compared to fiscal 1998 was primarily due to the Sale, which increased sales
revenue by $485 million. See "Sales" for a discussion of sales revenue and
margins.
Technology services revenue increased 22% in fiscal 2000 compared to fiscal
1999. See "Services" for a discussion of technology services revenue.
LEASING: Total leasing revenue was $2.3 billion, $2.6 billion and $2.4 billion
in fiscal 2000, 1999 and 1998, respectively. The decrease in total leasing
revenue in fiscal 2000 compared to fiscal 1999 is primarily due to reduced
revenue from sales-type transactions, and a reduction in operating lease
revenue. Remarketing activity was strong in both fiscal 2000 and 1999 and,
although sales-type revenue decreased in fiscal 2000, sales, which also
represent remarketing activity, increased in the current year period. The
increase in total leasing revenue in fiscal 1999 compared to fiscal 1998 was due
to an increase of 44% in sales-type revenue, reflecting the company's emphasis
on, and the importance of, remarketing activities.
Operating lease revenue minus operating lease costs was $332 million, or
19.5% of operating lease revenue (the "Operating Lease Margin"), and $375
million, or 19.3% of operating lease revenue, in fiscal 2000 and 1999,
respectively. The Operating Lease Margin was $369 million, or 19.5% of operating
lease revenue in fiscal 1998. The company expects the Operating Lease Margin to
be at approximately current levels throughout fiscal 2001, depending on the mix
of equipment leased and the volume of operating leases. The decrease in
operating lease revenue minus operating lease cost in the current year is due to
the change in the mix of leases written, with a higher percentage of new leases
classified as direct financing leases. The relatively modest increase in
operating lease revenue minus operating lease cost in fiscal 1999 compared to
fiscal 1998 was due to the Sale. See "Risk Factors that May Affect Future
Results" for a discussion of factors that could affect the Operating Lease
Margin.
The following graph presents the Lease Margin for total leasing, operating
and sales-type leases for the five years ended September 30, 2000:
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Total leasing ............. 31% 27% 26% 26% 27%
Operating lease ........... 24% 21% 20% 19% 20%
Sales-type lease .......... 26% 30% 30% 25% 25%
SALES: Revenue from sales, which includes remarketing and buy/sell activities,
in fiscal 2000, 1999 and 1998 is shown in the table below:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------ ------------------------- ------------------------
(IN MILLIONS) Revenue Expense Margin Revenue Expense Margin Revenue Expense Margin
------- ------- ------ ------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales .......................... $440 $358 19% $293 $250 15% $329 $275 16%
Sale of mainframe portfolio .... - - - 485 485 - - - -
Sale of vendor portfolio ....... - - - 95 93 2% - - -
Sale of medical
refurbishment business ..... - - - 18 18 - - - -
---- ---- --- ---- ---- ---- ---- ---- ----
$440 $358 19% $891 $846 5% $329 $275 16%
==== ==== === ==== ==== ==== ==== ==== ====
</TABLE>
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SERVICES: Revenue from technology services was $637 million, $522 million and
$433 million in fiscal 2000, 1999 and 1998, respectively. The increases are
primarily the result of the growth in products and services. Revenue from
continuity contracts, which is recognized monthly during the noncancelable
continuity contract and is therefore recurring and predictable, was
approximately $362 million, $325 million and $298 million during fiscal 2000,
1999 and 1998, respectively, representing approximately 57%, 62% and 69% of
technology services revenue.
COMDISCO VENTURES GROUP: Comdisco Ventures group revenue of approximately $673
million in fiscal 2000 and $229 million in fiscal 1999 represent an increase of
194% and 100%, respectively, over the prior year periods. The increases were due
to higher revenue from the sale of equity investments, and higher leasing
revenue and interest income on venture debt.
Total leasing revenue of $197 million for the year ended September 30, 2000
represented an increase of 67% compared to the prior year.
Revenue from the sale of equity interests obtained in conjunction with the
company's financing transactions, which is included in "Other revenue" on the
Statement of Earnings, was $406 million in fiscal 2000 compared to $81 million
and $15 million in fiscal 1999 and 1998, respectively. Warrant sale proceeds and
capital gains for fiscal 2000, 1999 and 1998 were as follows:
(IN MILLIONS) 2000 1999 1998
---- ---- ----
Proceeds from sale of
equity securities ....... $226 $ 11 $ 2
Less: cost of equity
securities .............. 24 5 1
---- ---- ----
Capital gains ............... 202 6 1
Warrant sale proceeds ....... 204 75 14
---- ---- ----
Net revenue from the sale
of equity holdings ...... $406 $ 81 $ 15
==== ==== ====
During fiscal 2000, approximately one hundred-thirteen companies were
acquired or merged or completed an initial public offering, compared to
sixty-two companies and thirty companies in fiscal 1999 and 1998, respectively.
Comdisco Ventures group records the proceeds from the sale of warrants received
in conjunction with its financing transactions as income when received.
Historically, Comdisco Ventures group's general policy has been to sell its
equity positions in an orderly manner as soon as possible after a liquidity
event. See "Risk Factors that May Affect Future Results" for a discussion of
factors that could affect the timing of, and the amounts received, from the
sales of the company's equity interests in these companies.
OTHER REVENUE: Other revenue was $531 million, $122 million and $53 million in
fiscal 2000, 1999 and 1998, respectively. The components of other revenue were
as follows:
(IN MILLIONS) 2000 1999 1998
---- ---- ----
Comdisco Ventures group:
Sale of equity holdings .... $406 $ 81 $ 15
Interest income on notes ... 56 23 7
Other ...................... 3 1 -
---- ---- ----
465 105 22
---- ---- ----
Comdisco group:
Equity sales ............... 42 (5) -
Sale of receivables ........ - - 5
Investment income .......... 16 17 7
Other ...................... 8 5 19
---- ---- ----
66 17 31
---- ---- ----
Total other revenue ........ $531 $122 $ 53
==== ==== ====
Investment income is primarily from the overnight investment of excess
funds.
COSTS AND EXPENSES
Total costs and expenses were $3.5 billion, $4.1 billion and $3.0 billion in
fiscal 2000, 1999 and 1998, respectively. The decrease in fiscal 2000 compared
to the prior year is primarily due to the Sale and the Charge. Excluding the
Charge, factors contributing to the higher costs and expenses in fiscal 2000 and
1999 compared to the prior years were increased costs associated with the
company's technology services and higher selling, general and administrative
expenses.
LEASING COSTS: Leasing costs totaled $1.7 billion in fiscal 2000, $2.0 billion
in fiscal 1999 and $1.8 billion in fiscal 1998. The decrease in the fiscal 2000
compared to fiscal 1999 is due to reduced operating lease revenue resulting from
the change in the mix of leases written and a reduction in sales-type lease
transactions. The decrease in sales-type lease transactions is primarily a
result of a higher percentage of remarketing transactions done as sales rather
than as leases. The increase in fiscal 1999 compared to fiscal 1998 is due to
related increases in operating lease revenue and sales-type lease revenue.
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SALES COSTS: Sales costs were $358 million, $846 million and $275 million in
fiscal 2000, 1999 and 1998, respectively. The decrease in fiscal 2000 compared
to fiscal 1999, and the increase in fiscal 1999 compared to fiscal 1998, is
primarily due to the Sale in fiscal 1999. Excluding the Sale and the sale of
vendor portfolio, the increase in sales costs in fiscal 2000 compared to fiscal
1999 is due to increased remarketing transactions recorded as sales, rather than
as sales-type leases. These remarketing transactions had higher margins than the
sales activity in fiscal 1999. See "Sales" for information on sales margins.
SERVICES COSTS: Technology services costs were $572 million in fiscal 2000, $440
million in fiscal 1999 and $362 million in fiscal 1998. The increases were due
to higher personnel costs and continued investment in new service development,
including, in fiscal 2000, Web Hosting services.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses totaled $532 million in fiscal 2000, $326 million in fiscal 1999, and
$249 million in fiscal 1998. The increase in fiscal 2000 compared to fiscal 1999
is primarily due to an increase in Comdisco Ventures group incentive
compensation costs as a result of gains realized on the sale of equity
positions, and an increase in bad debt expense. The following table summarizes
selling, general and administrative expenses:
(IN MILLIONS) 2000 1999 1998
---- ---- ----
Incentive compensation $139 $ 69 $ 49
Other compensation
and benefits 132 120 103
Outside services 60 40 31
Bad debt expense
Comdisco Ventures group 112 23 5
Bad debt expense
Comdisco group 36 13 7
Other expenses 53 61 54
---- ---- ----
$532 $326 $249
==== ==== ====
INTEREST: Interest expense for fiscal 2000 totaled $354 million in comparison to
$337 million in fiscal 1999 and $326 million in fiscal 1998, respectively. The
increase in interest expense in fiscal 2000 compared to fiscal 1999 is due to
higher average daily borrowings resulting from the company's increased
investment in leasing, Comdisco Ventures group and Prism (see "Discontinued
Operations") compared to the prior period, and higher average rates. The
increase in interest expense in fiscal 1999 compared to fiscal 1998 is due to
higher average daily borrowings, offset by lower average rates.
See "Financial Condition" for a discussion of credit ratings and expected
impact on interest expense in fiscal 2001. See "Qualitative Information About
Market Risk" for a discussion of the anticipated impact of a changing interest
rate environment on the company.
The company borrowed significant amounts to invest in the infrastructure of
its discontinued operations. In fiscal 2000 and 1999, the interest expense
associated with these borrowings is included in the loss on discontinued
operations through the anticipated wind down date. Subsequent to the wind down
date, interest costs associated with these borrowings will be included in
interest expense until such borrowing is paid off by cash flow from continuing
operations. Accordingly, the company expects interest expense to increase
significantly in fiscal 2001. See "Risk Factors That May Affect Future Results"
for a discussion of the factors that may affect interest expense.
OTHER: See "Net earnings" for a discussion of the Charge recorded in the second
quarter of fiscal 1999.
DISCONTINUED OPERATIONS: Loss from discontinued operations at Prism was $120
million, in fiscal 2000 compared to a loss of $22 million in fiscal 1999. In
addition, the company recorded an estimated after-tax loss on disposal in the
fourth quarter of fiscal 2000 of $202 million. The estimated loss on disposal
represents the company's estimate of operational losses to be incurred through
December 31, 2000 (the expected wind down date) and the expected losses from the
disposition of the assets. Through November 6, 2000, Prism had received letters
of intent from buyers on a portion of the equipment totaling approximately $40
million. Discussions with other potential buyers continue. Proceeds from the
sale of assets, expected to total approximately $80 million, will be used to
fund operating costs during its phase out period and for payment of its
obligations to creditors, including Comdisco. Actual losses could differ from
those estimates and will be reflected as adjustments in future financial
statements. No assurances can be given that the recorded losses will be
sufficient to cover the actual operational losses and losses incurred upon
disposition or winding down of the discontinued operations.
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<PAGE>
INCOME TAXES
Note 10 of Notes to Consolidated Financial Statements on page 48 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. In its operations, the company works with
multinational corporations and provides global solutions in its services.
Revenue from international operations, excluding export sales, was $828
million in fiscal 2000 compared to $905 million and $659 million in fiscal 1999
and 1998, respectively. International revenues represented 21% of the company's
total revenue in fiscal 2000, 22% in fiscal 1999 and 20% in fiscal 1998.
Geographic area data is included in Note 18 of Notes to Consolidated
Financial Statements on page 56.
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.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS: The company's operating results are
subject to quarterly fluctuations resulting from a variety of factors, including
earnings contributions from Comdisco Ventures group, remarketing activities and
services, the timing and ability of Comdisco Ventures group to sell equity
positions (see "Comdisco Ventures group" below), 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 the maintenance and pricing policies of equipment
manufacturers, and price competition from other lessors and finance companies.
DEPENDENCE ON PRODUCT AND MARKET: The markets for the company's principal
products are characterized by rapidly changing technology, evolving industry
standards, and declining prices. The company's operating results will depend to
a significant extent on its ability to continue to introduce new services and to
control and/or reduce costs on existing services. The success of these and other
new offerings is dependent on several factors, including proper identification
of customer needs, cost, timely completion and introduction, differentiation
from offerings of the company's competitors and market acceptance.
EARNINGS CONTRIBUTIONS FROM LEASING: The market for leasing and services is
characterized by rapid technological developments, evolving customer demands and
frequent new product announcements and enhancements. Failure to anticipate or
adapt to new technological developments or to recognize changing market
conditions could adversely affect the company's business, including its lease
volume, leasing revenue and earnings contributions from leasing.
Remarketing has been and will continue to be an important factor in
determining quarterly earnings. To meet earnings goals for fiscal 2001,
remarketing contributions, primarily for the company's global equipment leasing
businesses, must be at or above the level achieved in fiscal 2000. Quarterly
operating results depend substantially upon the remarketing transactions within
the quarter, which are difficult to forecast accurately. While the company is
devoting resources to its remarketing activities, there can be no assurance that
the company will achieve the appropriate level of activity necessary to meet or
match the company's prior and desired operating results.
The emergence of the communications market - facilities-based broadband
communications companies, Internet Service Providers and other
telecommunications carriers - and the growth of broadband networks provide the
company with an industry in which leasing is an attractive alternative to
ownership. The company's communications equipment customers are generally
companies with accumulated net deficits and extensive liquidity requirements. To
the extent that these companies are unable to meet their business plans, or
unable to obtain funding or funding at reasonable rates to complete their
business plans, there could be an increase in the company's credit losses above
historical levels.
EARNINGS CONTRIBUTIONS FROM SERVICES: As a result of the evolving nature of its
services business, the company has limited meaningful historical data on which
to base its planned operating expenses. Accordingly, a significant portion of
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<PAGE>
the company's expense levels (investment in continuity facilities and hardware,
consultants, experts and back office personnel) is based in part on its
expectations as to future services revenues, and is, 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 2001, the
company must meet its obligations under the agreements underlying transactions
in process at September 30, 2000 (also referred to by the company as its "sales
backlog"); expand its contract subscription base (through new contract signings
and contract renewals); increase its revenues from other technology services;
develop, promote and sell additional service products, such as IT CAP Solutions,
advanced recovery services, availability options, remote computing services and
web hosting; and contain costs. The company must also successfully compete with
organizations offering similar services.
The company's ability to obtain new business and realize revenue on its
sales backlog depends on its ability to anticipate technological changes,
develop services to meet customer requirements and achieve delivery of services
that meet customer requirements. 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 2001.
Comdisco's business is becoming more service oriented, with the business
driven by the company's service offerings. These transactions, which generally
include a combination of services and leasing, are more complex than the
company's traditional leasing business. In addition, because these service
offerings represent new services, the company has to spend more time explaining
the value of these services to the customer. Accordingly, 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 the sales
cycle results in an increase in negotiations in progress which ultimately
impacts the timing of revenue, earnings and volume recognition.
COMDISCO VENTURES GROUP: Comdisco Ventures group has made loans to and equity
investments in various privately held companies. These companies, typically in
an early stage of development with limited operating histories, limited or no
resources, may be expected to incur substantial losses and may be unable to
complete their business plans. Accordingly, investments in these companies may
not result in any return and the company may lose its entire investment and/or
principal balance. Equity instruments held by the company are generally subject
to lockups restricting its ability to sell until several months after an initial
public offering. The public market for high technology and other emerging growth
companies is extremely volatile, increasing the risk of such equity investments.
Such volatility may adversely affect the ability of the company to dispose of
the equity securities and the value of those securities on the date of sale. To
the extent these companies do not meet their plans or the company is unable to
dispose of its equity securities, the company's business and financial results
may suffer.
There can be no assurance that the company's relationships with venture
capital organizations can be maintained or sustained. To the extent that the
company is unable to maintain these relationships, its ability to identify
potential customers may be substantially impaired.
Comdisco Ventures group policy with respect to disposition of its equity
holdings is not intended to, and does not, assure that Comdisco Ventures group
will maximize its return on any particular holding. Furthermore, because the
creation of a public market or an acquisition/merger is beyond Comdisco Ventures
group's control and is difficult, if not impossible, to predict, its operating
results are subject to significant and material quarterly fluctuations.
Fluctuations in future quarters may be greater than those experienced in past
quarters as a result of the growth in the number of direct equity financings
made by the company, market volatility for emerging growth companies and the
company's focus on Internet-related, communications and other high-technology
companies. For those securities without a public trading market, the realizable
value of Comdisco Ventures group's interests may prove to be lower than the
carrying value currently reflected in the financial statements.
Comdisco Ventures group depends on certain important employees and the loss
of those employees could harm and disrupt Comdisco Ventures group's business.
INTEREST RATES: Historically, a changing interest rate environment did 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 or in the fees for
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<PAGE>
technology services. If the company's borrowing costs increase in fiscal 2001,
there can be no assurance that the company will be able to reflect such
increases in its lease rates or service fees. Factors which may impact the
company's ability to adjust its rates or otherwise mitigate the impact of
increasing cost of funds in fiscal 2001 are the market for secured nonrecourse
debt, interest rate spreads on company borrowings compared to similarly rated
companies and organizations, changes, if any, in the company's terms and
conditions under its lines of credit and other market concerns, including the
company's commitments to Comdisco Ventures group. Many, if not all, of these
factors are beyond the control of the company.
The company borrowed significant amounts to invest in the infrastructure of
its discontinued operations. After the wind down date, interest costs associated
with these borrowings will be included in interest expense until such borrowing
is paid off by cash flow from operations. Accordingly, the company expects
interest expense to increase significantly in fiscal 2001. In order to meet
earnings goals for fiscal 2001, the company must increase (compared to fiscal
2000) its earnings contributions from leasing, including from remarketing
activities, margins on services, and cash flow from operating activities. In
addition, the company must dispose of its equity securities (See "Comdisco
Ventures group" above), manage its capital expenditures and control costs and
expenses.
ECONOMIC CONDITIONS: The economic environment has been sustained over a number
of years and was the longest period of continuous economic growth in the last
thirty years. This environment encouraged entrepreneurs to conceive, develop and
bring to market new products and services. Comdisco Ventures group targeted
these early-stage companies for its services and products. The recent slow down
in economic growth could materially affect the market in which Comdisco Ventures
group operates.
Many of the companies to which the company provides financing are dependent
on third parties for liquidity. Any significant change in the availability of
funds would have a material impact on the company's customer base, and,
potentially, the collectability of its lease and venture debt receivables, as
well as, the fair market value of its equity holdings.
In the present economic climate, Comdisco Ventures group's customers may not
be able to complete securities offerings and Comdisco Ventures group may not be
able to generate gains or receive proceeds from the sale of equity holdings.
A slow down in economic growth may result in companies either reducing their
capital budgets, or delaying equipment upgrades and enhancements.
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 and price competition from other technology service
providers.
Due to all of the foregoing factors, in some future quarter the company's
operating results may fall below the expectations of securities analysts and
investors. In such an event, the trading price of the company's common stock
would likely be materially and adversely affected. Many of the factors that will
determine results of operations are beyond Comdisco's ability to control or
predict.
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
exposures are equity security price risk and 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 and notes receivables, 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
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<PAGE>
does not use derivatives for trading purposes. See Note 8 of Notes to
Consolidated Financial Statements for information on the company's average daily
borrowings, the company's derivative financial instruments, comprising of
interest rate swaps and foreign currency forward exchange contracts, 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) 2001 2002 2003 2004 2005+
---- ---- ---- ---- ----
Notes payable
Fixed rate ........ $1,314 $ - $ - $ - $ -
Average
interest rate .. 6.53%
Term notes
Floating rate ..... 428 193 59 15 -
Average
interest rate .. 6.58% 6.58% 6.58% 6.58% -
Senior notes
Fixed rate ........ 1,009 1,406 770 - 267
Average
interest rate .. 6.67% 6.42% 8.43% - 6.13%
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.
The company's investment in equity securities is subject to market price
risk as of September 30, 2000. A 10% decrease in market values would reduce the
carrying value of the company's publicly traded equity securities by $85
million. Many of these equity securities are highly volatile stocks.
RECENTLY ISSUED PROFESSIONAL ACCOUNTING STANDARDS: In June 1998, the FASB issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which was later amended by Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" and by Statement No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133 (collectively, SFAS No. 133 or the Standard). The Standard
requires companies to record derivatives on the balance sheet as assets or
liabilities measured at fair value. The accounting treatment of gains and losses
resulting from changes in the value of derivatives depends on the use of the
derivatives and whether they qualify for hedge accounting. The company adopted
the new Standard on October 1, 2000. Adoption of the Standard will be recorded
as a cumulative effect of a change in accounting principle and will not result
in restatement of previously issued financial statements. The company has
assessed the impact of adoption on its consolidated financial statements and
believes the impact will not be material.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which was later amended by SAB No. 101A and SAB No. 101B. These
SABs, which provide guidance on the recognition, presentation and disclosure of
revenue in financial statements, are effective in the first quarter of fiscal
2001 and are not expected to have a material impact on the company's
consolidated financial statements.
In September 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus on Issue 00-19, "Determination of
Whether Share Settlement is Within the Control of the Issuer for Purposes of
Applying Issue No. 96-13, Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock." The consensus
provides specific guidance regarding when a contract indexed to a company's own
stock must be classified in stockholders' equity versus classified as an asset
or liability. Any new contracts entered into after the date of consensus must
comply with the consensus, and any contracts outstanding as of the September
2000 consensus date are grandfathered until June 2001 before compliance is
required. Management anticipates that compliance with the consensus will not
have a material impact on the company's consolidated financial statements.
INFLATION: The company does not consider the present rate of inflation to have a
significant impact on the businesses in which it operates.
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<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
COMDISCO, INC. AND SUBSIDIARIES
YEARS ENDED SEPTEMBER 30,
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
REVENUE
Leasing:
Operating .............................................. $ 1,700 $ 1,938 $ 1,897
Direct financing ....................................... 178 162 155
Sales-type ............................................. 381 543 376
------- ------- -------
Total leasing ....................................... 2,259 2,643 2,428
Sales ...................................................... 440 891 329
Technology services ........................................ 637 522 433
Other ...................................................... 531 122 53
------- ------- -------
Total revenue .......................................... 3,867 4,178 3,243
------- ------- -------
COSTS AND EXPENSES
Leasing:
Operating .............................................. 1,368 1,563 1,528
Sales-type ............................................. 285 406 263
------- ------- -------
Total leasing ....................................... 1,653 1,969 1,791
Sales ...................................................... 358 846 275
Technology services ........................................ 572 440 362
Selling, general and administrative ........................ 532 326 249
Interest ................................................... 354 337 326
Other ...................................................... - 150 -
------- ------- -------
Total costs and expenses ............................... 3,469 4,068 3,003
------- ------- -------
Earnings from continuing operations before income taxes .... 398 110 240
Income taxes ............................................... 143 40 87
------- ------- -------
Earnings from continuing operations ........................ 255 70 153
Loss from discontinued operations (net of taxes) ........... (322) (22) -
Preferred dividends ........................................ - - (2)
------- ------- -------
Net earnings (loss) to common stockholders ................. $ (67) $ 48 $ 151
======= ======= =======
Basic earnings (loss) per common share:
Earnings from continuing operations .................... $ 1.68 $ .46 $ .99
Loss from discontinued operations ...................... (2.12) (.14) -
------- ------- -------
Net earnings (loss) .................................... $ (.44) $ .32 $ .99
======= ======= =======
Diluted earnings (loss) per common share:
Earnings from continuing operations .................... $ 1.58 $ .44 $ .93
Loss from discontinued operations ...................... (1.99) (.14) -
------- ------- -------
Net earnings (loss) .................................... $ (.41) $ .30 $ .93
======= ======= =======
See accompanying notes to consolidated financial statements
</TABLE>
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<PAGE>
CONSOLIDATED BALANCE SHEETS
COMDISCO, INC. AND SUBSIDIARIES
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................... $ 316 $ 361
Cash-legally restricted ................................................. 54 46
Receivables, net ........................................................ 1,181 735
Inventory of equipment .................................................. 127 115
Leased assets:
Direct financing and sales-type ..................................... 2,316 2,107
Operating (net of accumulated depreciation) ......................... 3,161 3,516
------- -------
Net leased assets ................................................ 5,477 5,623
------- -------
Property, plant and equipment, net ...................................... 287 229
Equity securities ....................................................... 899 252
Other assets ............................................................ 413 446
------- -------
$ 8,754 $ 7,807
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable ........................................................... $ 1,314 $ 820
Term notes .............................................................. 695 550
Senior notes ............................................................ 3,452 3,686
Accounts payable ........................................................ 182 263
Income taxes:
Current ............................................................. 11 15
Deferred ............................................................ 404 367
Other liabilities ....................................................... 688 531
Discounted lease rentals ................................................ 794 515
------- -------
7,540 6,747
------- -------
Stockholders' equity:
Preferred stock $.10 par value
Authorized 100,000,000 shares; Series C and Series D ............. - -
Comdisco stock $.10 par value. Authorized 750,000,000 shares;
issued 225,151,420 (223,464,344 in 1999) ......................... 23 22
Comdisco Ventures stock $.10 par value. Authorized 750,000,000 shares
(none issued) .................................................... - -
Additional paid-in capital .......................................... 360 302
Accumulated other comprehensive income .............................. 317 58
Retained earnings ................................................... 1,051 1,134
------- -------
1,751 1,516
Comdisco stock held in treasury, at cost; 72,582,053 shares
(70,672,094 in 1999) ............................................. (537) (456)
------- -------
Total stockholders' equity ....................................... 1,214 1,060
------- -------
$ 8,754 $ 7,807
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMDISCO, INC. AND SUBSIDIARIES
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
Additional Deferred other Common
Preferred Common paid-in compen- comprehensive Retained stock in
stock stock capital sation income earnings treasury Total
--------- ------ -------- -------- ------------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 .................... $ 89 $ 11 $ 178 $ (3) $ (20) $ 965 $ (355) $ 865
Net earnings ..................................... 153 153
Translation adjustment ........................... 7 7
Total comprehensive income ................... 160
Cash dividends-preferred ......................... (2) (2)
Cash dividends-common ($.10 per share) ........... (15) (15)
Shared Investment Program ........................ 77 31 108
Stock options exercised .......................... (4) 24 20
Reduction of guaranteed ESOP debt ................ 3 3
Purchase of preferred stock ...................... (89) (89)
Purchase of common stock ......................... (88) (88)
Stock split ...................................... 11 (11)
Income tax benefits resulting from the
exercise of non-qualified stock options ...... 17 17
------ ------ ------ ------ ------ ------ ------ -----
BALANCE AT SEPTEMBER 30, 1998 .................... -- 22 257 -- (13) 1,101 (388) 979
------ ------ ------ ------ ------ ------ ------ -----
Net earnings ..................................... 48 48
Translation adjustment ........................... (21) (21)
Change in unrealized gain ........................ 92 92
Total comprehensive income ................... 119
Cash dividends-common ($.10 per share) ........... (15) (15)
Stock options exercised .......................... 21 14 35
Purchase of common stock ......................... (82) (82)
Income tax benefits resulting from the
exercise of non-qualified stock options ...... 24 24
------ ------ ------ ------ ------ ------ ------ -----
BALANCE AT SEPTEMBER 30, 1999 .................... -- 22 302 -- 58 1,134 (456) 1,060
------ ------ ------ ------ ------ ------ ------ -----
Net loss ......................................... (67) (67)
Translation adjustment ........................... (64) (64)
Change in unrealized gain ........................ 323 323
Total comprehensive income ................... 192
Cash dividends-common ($.10 per share) ........... (16) (16)
Stock options exercised .......................... 1 26 10 37
Purchase of common stock ......................... (91) (91)
Income tax benefits resulting from the
exercise of non-qualified stock options ...... 32 32
------ ------ ------ ------ ------ ------ ------ -----
BALANCE AT SEPTEMBER 30, 2000 .................... $ -- $ 23 $ 360 $ -- $ 317 $1,051 $ (537) $1,214
====== ====== ====== ====== ====== ====== ====== =====
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMDISCO, INC. AND SUBSIDIARIES
(IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
Operating lease and other leasing receipts ............. $ 1,789 $ 2,002 $ 2,013
Direct financing and sales-type leasing receipts ....... 1,107 958 905
Sale of direct financing and sales-type receivables .... - - 125
Sale of portfolio ...................................... - 502 -
Leasing costs, primary rentals paid .................... (10) (14) (20)
Sales .................................................. 467 316 335
Sales costs ............................................ (116) (105) (69)
Technology services receipts ........................... 609 485 408
Technology services costs .............................. (470) (390) (278)
Notes receivable receipts .............................. 272 66 33
Warrant proceeds ....................................... 470 55 15
Other revenue .......................................... 13 22 29
Selling, general and administrative expenses ........... (384) (309) (249)
Interest ............................................... (351) (338) (326)
Income taxes ........................................... (57) (12) (34)
------- ------- -------
Net cash provided by continuing operations .......... 3,339 3,238 2,887
Net cash used by discontinued operations ............ (120) (19) -
------- ------- -------
Net cash provided by operating activities ........... 3,219 3,219 2,887
------- ------- -------
Cash flows from investing activities:
Equipment purchased for leasing ........................ (2,558) (2,838) (3,026)
Investment in continuity and network services facilities (202) (151) (87)
Notes receivable ....................................... (626) (334) (57)
Equity investments ..................................... (176) (43) (8)
Capital expenditures on discontinued operations ........ (257) (117) (8)
Other .................................................. (31) 22 6
------- ------- -------
Net cash used in investing activities ............... (3,850) (3,461) (3,180)
------- ------- -------
Cash flows from financing activities:
Discounted lease proceeds .............................. 619 341 279
Net increase (decrease) in notes and term notes payable 639 (301) 97
Issuance of senior notes ............................... 802 1,842 1,017
Maturities and repurchases of senior notes ............. (1,036) (924) (617)
Principal payments on secured debt ..................... (340) (322) (425)
Common stock purchased and placed in treasury .......... (91) (82) (88)
Preferred stock purchased .............................. - - (89)
Dividends paid on common stock ......................... (16) (15) (15)
Dividends paid on preferred stock ...................... - - (2)
Shared Investment Program .............................. - - 109
Issuance of Prism Communication Services common stock .. 11 - -
Decrease (increase) in legally restricted cash ......... (8) (16) 15
Other .................................................. 6 17 38
------- ------- -------
Net cash provided by financing activities ........... 586 540 319
------- ------- -------
Net increase (decrease) in cash and cash equivalents ....... (45) 298 26
Cash and cash equivalents at beginning of period ........... 361 63 37
------- ------- -------
Cash and cash equivalents at end of period ................. $ 316 $ 361 $ 63
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMDISCO, INC. AND SUBSIDIARIES
(IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
RECONCILIATION OF EARNINGS FROM CONTINUING OPERATIONS
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Earnings from continuing operations .................................. $ 255 $ 70 $ 153
Adjustments to reconcile earnings from continuing operations to
net cash provided by operating activities:
Leasing costs, primarily depreciation and amortization ........... 1,643 1,954 1,771
Leasing revenue, primarily principal portion of direct
financing and sales-type lease rentals ........................ 637 327 452
Sale of direct financing and sales-type receivables .............. - - 125
Cost of sales .................................................... 242 641 193
Technology services costs, primarily depreciation and amortization 103 50 84
Interest ......................................................... 3 - -
Income taxes ..................................................... 86 15 45
Principal portion of notes receivable ............................ 216 43 26
Selling, general, and administrative expenses .................... 148 16 -
Income tax benefit resulting from the exercise of
non-qualified stock options ................................... 32 24 17
Other expense .................................................... - 150 -
Other, net ....................................................... (26) (52) 21
------- ------- -------
Net cash provided by continuing activities .................... 3,339 3,238 2,887
Net cash used by discontinued operations ...................... (120) (19) -
------- ------- -------
Net cash provided by operating activities ..................... $ 3,219 $ 3,219 $ 2,887
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Reduction of discounted lease rentals in lease portfolio sale .... $ - $ 100 $ -
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
-39-
<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 provides global technology services to help its
customers maximize technology functionality, predictability and availability.
The company offers a complete suite of information technology services including
business continuity, storage services, network services, web hosting services,
and IT Control and Predictability Solutions. Comdisco also offers equipment
services to key vertical industries, including electronics, telecommunications,
pharmaceutical, biotechnology and manufacturing. Through Comdisco Ventures
group, it provides equipment leasing and other financing and services to venture
capital-backed companies.
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 42 and 43 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.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at
cost. Depreciation of property, plant and equipment is calculated on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful life of the asset. The carrying value of property, plant and equipment is
assessed annually and/or when factors indicating an impairment are present. If
an impairment is present, the assets are reported at the lower cost of carrying
value or fair value.
The company capitalized costs associated with the design and implementation
of the Prism network, including internally and externally developed software.
Capitalized external software costs included the actual costs to purchase
existing software from vendors. Capitalized internal software costs generally
included personnel costs incurred in the enhancement and implementation of
purchased software packages.
INVESTMENT IN EQUITY SECURITIES: The company determines the appropriate
classification of marketable securities at the time of purchase and reevaluates
such designation at each balance sheet date. Marketable securities classified as
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available-for-sale are carried at fair value, based on quoted market prices, net
of estimated commission expenses, with unrealized gains and losses excluded from
earnings and reported in accumulated other comprehensive income. Equity
investments for which there is no readily determinable fair value are carried at
cost.
WARRANTS: The company's investments in warrants (received in connection with its
lease or other financings) are initially recorded at zero cost and carried in
the financial statements as follows:
o Warrants that meet the criteria for classification as
available-for-sale are carried at fair value based on quoted market
prices with unrealized gains excluded from earnings and reported in
accumulated other comprehensive income.
o Warrants that do not meet the criteria for classification as a
marketable security are carried at zero value.
The proceeds received from the sale or liquidation are recorded as income on the
trade date.
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 realized. See
Note 8 of the Notes to Consolidated Financial Statements for financial
information concerning derivatives.
EARNINGS PER COMMON SHARE: Earnings per common share-basic are computed by
dividing the net earnings to common stockholders by the weighted average number
of common shares outstanding for the period. Earnings per common share-diluted
reflect the maximum dilution that would have resulted from the exercise of stock
options. Earnings per common share-diluted 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 2000, 1999 and 1998.
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 1998 and 1999
financial statements to conform to the 2000 presentation.
NOTE 2
DISCONTINUED OPERATIONS
The company acquired Prism Communication Services, Inc. ("Prism"), a provider of
dedicated high-speed connectivity, on February 28, 1999, for a cash purchase of
approximately $53 million, of which approximately $45 million was paid in fiscal
1999. From the date of acquisition through September 30, 2000, the company
provided Prism with cash totaling $478 million for the expansion of its network
and for its operating costs.
On October 1, 2000, the company's board of directors voted to cease funding
ongoing operations of Prism. As a result of this decision, the Prism board of
directors voted to cease operations and pursue the immediate sale of Prism's
assets. As of October 2, 2000, Prism had thirty-three carrier class switches and
over three hundred collocations. Through November 6, 2000, Prism had received
letters of intent from buyers on a portion of the equipment totaling
approximately $40 million. Discussions with other potential buyers continue.
Proceeds from the sale of assets, estimated to total approximately $80 million,
will be used to fund operating costs during its phase out period and for payment
of its obligations to creditors, including Comdisco.
Prism's results of operations have been shown as discontinued operations
through the expected disposition in the first quarter of fiscal 2001.
Following is summary financial information for the company's discontinued
operations:
(IN MILLIONS) 2000 1999 1998
----- ----- ----
Revenue .......................... $ 4 $ 1 $ -
Loss from discontinued operations:
Before income taxes ............ (196) (35) -
Income tax benefit ............. (76) (13) -
----- ----- -----
Net ............................ (120) (22) -
Estimated loss on disposal:
Before income taxes ............ (331) - -
Income tax benefit ............. (129) - -
----- ----- -----
Net ............................ (202) - -
----- ----- -----
Total .......................... $(322) $ (22) $ -
===== ===== =====
Interest expense charged to discontinued operations was $29 million and $2
million in 2000 and 1999, respectively. Interest expense for the period
subsequent to the measurement date included in the estimated loss on disposal of
$9 million was calculated based on debt attributed to the Prism operations.
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The estimated loss on disposal before income taxes of the discontinued
operations includes the following:
(IN MILLIONS)
Carrying value of net assets in excess of
anticipated proceeds ...................... $256
Expenses of asset disposal and anticipated
operating loss for the period October 3, 2000
through the estimated date of disposal ...... 75
----
Loss on disposal before income taxes ........ $331
====
Goodwill written off totaled $52 million.
Expenses of asset disposal and anticipated operating losses represent the
company's estimate of operational losses to be incurred and the expected losses
from disposition of the operations. Actual losses could differ from those
estimates and will be reflected as adjustments in future financial statements.
No assurances can be given that the recorded losses will be sufficient to cover
the actual operational losses and losses incurred upon asset disposition or
winding down of the discontinued operations.
NOTE 3
SALE OF ASSETS
On March 24, 1999, the company announced a major shift in corporate strategy,
focusing on high-margin service businesses and shedding low-margin businesses,
including its mainframe leasing and vendor lease portfolios and its medical
refurbishing business. In conjunction with this repositioning, the company
recorded a pre-tax charge of $150 million, $96 million after tax, or
approximately $.59 per share, in the quarter ended March 31, 1999. The
components of the pre-tax charge included $100 million associated with the
company's plan to exit the mainframe residual leasing business, $20 million to
exit the medical refurbishing business and $30 million associated with the
realignment of the company's services businesses. On May 3, 1999, the company
announced it had reached an agreement in principle to sell its mainframe
computer leasing portfolio. The sale of the mainframe portfolio and the sale of
the medical refurbishing business were both concluded in the fiscal quarter
ended June 30, 1999. The sale of a majority of the vendor lease portfolio was
completed in the quarter ended September 30, 1999.
The primary component of the pre-tax charge for selling its mainframe
residual leasing business and its medical refurbishing business was asset
writedowns, which totaled $90 million and $20 million, respectively. The primary
components of the pre-tax charge for realignment of the services business were
asset writedowns totaling $20 million and lease termination fees totaling $5
million, both as a result of closing facilities. At September 30, 1999, the
company had $4 million included in other liabilities related to the charge ($0
at September 30, 2000), consisting of the $150 million pre-tax charge, less
asset writedowns totaling $130 million, other costs of $15 million and cash
payments of $1 million.
LEASING
NOTE 4
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:
o Direct financing and sales-type leased assets consist of the present value of
the future minimum lease payments plus the present value of the residual
(collectively referred to as the net investment). Residual is the estimated fair
market value at lease termination. In estimating the equipment's fair value at
lease termination, the company relies on historical experience by equipment type
and manufacturer and, where available, valuations by independent appraisers,
adjusted for known trends. The company's estimates are reviewed continuously to
ensure realization, however the amounts the company will ultimately realize
could differ from the estimated amounts.
o Operating leased assets consist of the equipment cost, less the amount
depreciated to date.
REVENUE, COSTS AND EXPENSES:
o Direct financing leases - Revenue consists of interest earned on the present
value of the lease payments and residual. Revenue is recognized periodically
over the lease term as a constant percentage return on the net investment. There
are no costs and expenses related to direct financing leases since leasing
revenue is recorded on a net basis.
o Sales-type leases - Revenue consists of the present value of the total
contractual lease payments which is recognized at lease inception. Costs and
expenses consist of the equipment's net book value at lease inception, less the
present value of the residual. Interest earned on the present value of the lease
payments and residual, which is recognized periodically over the lease term as a
constant percentage return on the net investment, is included in direct
financing lease revenue in the statement of earnings.
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<PAGE>
o Operating leases - Revenue consists of the contractual lease payments and is
recognized on a straight-line basis over the lease term. Costs and expenses are
principally depreciation of the equipment. Depreciation is recognized on a
straight-line basis over the lease term to the company's estimate of the
equipment's fair market value at lease termination, also commonly referred to as
"residual" value. In estimating the equipment's fair value at lease termination,
the company relies on historical experience by equipment type and manufacturer
and, where available, valuations by independent appraisers, adjusted for known
trends. The company's estimates are reviewed continuously to ensure realization,
however the amounts the company will ultimately realize could differ from the
amounts assumed in determining depreciation on the equipment in the operating
lease portfolio at September 30, 2000.
o Initial direct costs related to operating and direct financing leases,
including salesperson's commissions, are capitalized and amortized over the
lease term.
NOTE 5
LEASED ASSETS
The components of the net investment in direct financing and sales-type leases
as of September 30 are as follows:
(IN MILLIONS)
2000 1999
------ ------
Minimum lease payments receivable $2,400 $2,162
Estimated residual values ........ 218 219
Less: unearned revenue ........... (302) (274)
------ ------
Net investment in direct financing
and sales-type leases .......... $2,316 $2,107
====== ======
Unearned revenue is recorded as leasing revenue over the lease terms.
Operating leased assets include the following as of September 30:
(IN MILLIONS)
2000 1999
------ -------
Operating leased assets ...... $5,693 $6,054
Less: accumulated depreciation
and amortization .......... (2,532) (2,538)
------ -------
Net .......................... $3,161 $ 3,516
====== =======
NOTE 6
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, 2000 (in millions):
Cost at
YEAR LEASE lease PROJECTED YEAR OF LEASE TERMINATION
COMMENCED inception 01 02 03 04 05+
---------- --------- ------ ------ ------ ------ ------
1996
and prior $ 870 $ 541 $ 233 $ 56 $ 20 $ 20
1997 967 541 231 156 3 36
1998 1,949 1,070 363 408 67 41
1999 2,614 601 1,100 436 321 156
2000 2,844 87 323 1,150 996 288
------ ------ ------ ------ ------ ------
$9,244 $2,840 $2,250 $2,206 $1,407 $ 541
====== ====== ====== ====== ====== ======
The following table summarizes the estimated net book value at lease
termination for all leased assets recorded at September 30, 2000. The table is
presented by year of lease commencement and by year of projected lease
termination (in millions):
Net book
value
YEAR LEASE at lease PROJECTED YEAR OF LEASE TERMINATION
COMMENCED termination 01 02 03 04 05+
---------- ----------- ------ ------ ------ ------ ------
1996
and prior $ 41 $ 32 $ 8 $ 1 $ - $ -
1997 83 56 26 1 - -
1998 251 160 58 32 1 -
1999 395 91 148 105 44 7
2000 318 16 39 92 129 42
------ ------ ------ ------ ------ ------
$1,088 $ 355 $ 279 $ 231 $ 174 $ 49
====== ====== ====== ====== ====== ======
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<PAGE>
LIQUIDITY
NOTE 7
FUTURE CONTRACTUAL CASH FLOWS
Presented below is a summary of future noncancelable lease rentals on owned
equipment, future technology services revenue, including noncancelable
continuity contracts, and maturities of notes receivable (collectively, "cash
in-flows").
The summary presents expected cash in-flows due in accordance with the
contractual terms in existence as of September 30, 2000.
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30,
-----------------------------------------------------
(IN MILLIONS) 01 02 03 04 05+ Total
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Expected future cash in-flows:
Operating leases-leasing .................... $ 980 $ 559 $ 277 $ 109 $ 30 $1,955
Operating leases-Comdisco Ventures group .... 264 228 120 15 - 627
Notes receivable-Comdisco Ventures group .... 296 320 170 4 - 790
Direct financing and sales-type
leases-leasing ............................ 1,066 721 388 128 106 2,409
Direct financing and sales-type
leases-Comdisco Ventures group ............ 3 1 - - - 4
Technology services ......................... 469 342 231 128 108 1,278
------ ------ ------ ------ ------ ------
Total ..................................... $3,078 $2,171 $1,186 $ 384 $ 244 $7,063
====== ====== ====== ====== ====== ======
</TABLE>
FINANCING
NOTE 8
INTEREST-BEARING LIABILITIES
Interest-bearing liabilities include the following:
<TABLE>
<CAPTION>
2000 1999
-------------------------------- --------------------------------
At September 30 Average At September 30 Average
(IN MILLIONS) 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 ......... $ 729 6.44% $ 491 5.77% $ 369 4.19% $ 593 5.04%
Commercial paper ................ 585 6.64% 567 5.87% 451 5.42% 586 5.11%
Term notes .......................... 695 6.58% 596 6.69% 550 5.25% 550 5.52%
Senior notes ........................ 3,452 6.92% 3,629 6.72% 3,686 6.45% 3,155 6.59%
Discounted lease rentals ............ 794 6.82% 579 5.59% 515 6.60% 576 6.76%
------ ----- ------ ------ ------ ----- ------ ------
$6,255 6.79% $5,862 6.44% $5,571 6.11% $5,460 6.17%
====== ===== ====== ====== ====== ===== ====== ======
</TABLE>
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<PAGE>
The changes in financing activities for the years ended September 30 were as
follows (notes payable changes are shown net):
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------ ---------------------------------------------------------
Outstanding Maturities Outstanding Outstanding Maturities Outstanding
beginning and end beginning and end
(IN MILLIONS) of year Issuances repurchases of year of year Issuances repurchases Other of year
----------- --------- ----------- ----------- ----------- --------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable:
Credit lines and
loan participation
contracts ........ $ 369 $ 360 $ - $ 729 $ 774 $ - $ (405) $ - $ 369
Commercial paper . 451 134 - 585 347 104 - - 451
Term notes .......... 550 145 - 695 550 - - - 550
Senior notes ........ 3,686 802 (1,036) 3,452 2,768 1,842 (924) - 3,686
Discounted
lease rentals .... 515 619 (340) 794 596 341 (322) (100) 515
------ ------ ------- ------ ------ ------ ------- ------ ------
$5,571 $2,060 $(1,376) $6,255 $5,035 $2,287 $(1,651) $ (100) $5,571
====== ====== ======= ====== ====== ====== ======= ====== ======
</TABLE>
The annual maturities of all interest-bearing liabilities at September 30,
2000 are shown in the table below:
YEARS ENDING SEPTEMBER 30,
------------------------------------------------
(IN MILLIONS) 01 02 03 04 05+ Total
---- ---- ---- ---- ---- -----
Notes payable:
Credit lines
and loan
participation
contracts ... $ 729 $ - $ - $ - $ - $ 729
Commercial
paper ....... 585 - - - - 585
Term notes ..... 428 193 59 15 - 695
Senior notes ... 1,009 1,406 770 - 267 3,452
Discounted
lease rentals 348 250 149 45 2 794
----- ----- ----- ----- ----- ------
$3,099 $1,849 $ 978 $ 60 $ 269 $6,255
===== ===== ===== ===== ===== ======
NOTES PAYABLE: The company had the following unsecured bank lines available in
the United States and foreign countries at September 30:
(IN MILLIONS) 2000 1999
------ ------
Total credit lines:
Committed .................. $1,372 $1,312
Uncommitted ................ 248 289
------ ------
$1,620 $1,601
====== ======
Utilized at September 30:
Committed .................. $ 915 $ 756
Uncommitted ................ 44 44
------ ------
Total credit lines ....... 959 800
Loan participation contracts
and other bank borrowings 355 20
------ ------
Total notes payable ...... $1,314 $ 820
====== ======
Credit lines available at
September 30 ............... $ 661 $ 801
====== ======
Maximum amount outstanding
at any month end ........... $1,537 $1,441
====== ======
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<PAGE>
COMMITTED LINES: The company's committed lines have been established with
twenty-nine banks, six of which are U.S. banks. A majority of the banks are
rated AA or better by rating agencies. At September 30, 2000, the company had
committed domestic and foreign unsecured lines of credit as follows:
Number
FACILITY of banks Expiration date
------------------------ -------- ---------------
Multi-Option Facilities 12
$275 million facility December, 2002
$275 million facility December, 2000
Global Facilities 16
$275 million facility December, 2002
$275 million facility December, 2000
Other credit agreements:
$100 million - domestic
and foreign 1 April, 2001
$172 million - foreign 7 Various
There are no compensating balance requirements on any of the committed
lines. At September 30, 2000, the company had $915 million outstanding under its
committed lines, including $585 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,
2000, forty basis points, or at the banks' then current base rates. The
Facilities call for the company to pay a weighted average annual fee of ten
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, 2001.
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 $248 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, 2000, the company had $900 million of
commercial paper facilities (of which $585 million was outstanding at September
30, 2000) all of which are supported by its committed lines of credit. The
facilities were rated F2 by Fitch IBCA, P-2 by Moodys and A-2 by Standard &
Poors.
TERM NOTES: At September 30, 2000, the company had $695 million of receivable
backed commercial paper.
SENIOR NOTES: Senior notes include the following at September 30:
(IN MILLIONS) 2000 1999
------ -------
Medium term notes (5.72% to 9.95%)... $1,045 $1,461
6.500% Senior Notes due 2000 ...... - 200
5.750% Senior Notes due 2001 ...... 250 250
6.375% Senior Notes due 2002 ........ 250 250
6.000% Senior Notes due 2002 ........ 345 350
5.950% Senior Notes due 2002 ........ 345 350
7.250% Senior Notes due 2002 ...... 257 300
6.125% Senior Notes due 2003 ...... 194 250
9.500% Senior Notes due 2003 ........ 499 -
6.130% Senior Notes due 2006 ........ 267 275
------ ------
Total senior notes .............. $3,452 $3,686
====== ======
On October 9, 1998 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 $1.5 billion of senior debt securities on terms to be set at the time of
each sale (the "1998 Shelf"). On January 19, 1999, the company designated $600
million in Senior Debt Securities as "Senior Medium-Term Notes, Series H" to be
issued under the 1998 Shelf, of which $37 million remained available for
issuance as of September 30, 2000. Pursuant to the 1998 Shelf, the company, on
January 26, 1999, issued $350 million of 6.0% Senior Notes due January 30, 2002,
and, on April 21, 1999, $350 million of 5.95% Notes due April 30, 2002. On
August 26, 1999, the company redesignated $100 million of the Series H
Medium-Term Notes, which together with the remaining $200 million in securities
previously unallocated under the shelf registration, were issued by the company
as $300 million of 7.25% Notes due September 1, 2002.
On September 24, 1999 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 "1999 Shelf"). On
February 29, 2000, the company designated $500 million in Senior Debt Securities
as "Senior Medium-Term Note, Series I" to be issued under the 1999 Shelf, of
which $425 million remained available for issuance as of September 30, 2000.
Pursuant to the 1999 Shelf, the company on August 3, 2000, issued $500 million
of 9.5% Senior Notes due August 15, 2003.
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<PAGE>
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, 2000 are as follows (in millions):
Rentals to be
received by Discounted
YEARS ENDED financial lease Interest
SEPTEMBER 30, institutions rentals expense
------------- ------------- ---------- --------
2001 $389 $348 $41
2002 271 250 21
2003 156 149 7
2004 46 45 1
2005 2 2 -
---- ---- ---
$864 $794 $70
==== ==== ===
Interest expense on discounted lease rentals was $32 million, $38
million, and $49 million in fiscal 2000, 1999 and 1998, respectively.
INTEREST RATE SWAP AGREEMENTS AND OTHER DERIVATIVE FINANCIAL INSTRUMENTS: The
company is a party to 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.
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:
2000 1999
------------------- ---------------------
Notional Fair Notional Fair
(IN MILLIONS) amount value amount value
-------- ------ -------- ------
Interest rate swap
agreements .......... $477 $ - $820 $ 5
Cross-currency interest
rate swap agreements 87 (5) 96 (6)
Forwards ............. 74 11 86 6
The impact of these contracts on interest expense for fiscal years 2000,
1999 and 1998 was immaterial. The average notional amount outstanding of the
floating rate to fixed rate contracts in fiscal 2000 was $134 million, with an
average pay rate of 5.87% and an average receive rate of 5.73%. The average
notional amount outstanding of the fixed rate to floating rate contracts in
fiscal 2000 was $302 million, with an average pay rate of 6.20% and an average
receive rate of 6.46%. 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 16
of Notes to Consolidated Financial Statements on page 54 provides details about
the company's fair value of financial instruments.
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<PAGE>
OTHER FINANCIAL INFORMATION
NOTE 9
RECEIVABLES
Receivables include the following as of September 30:
(IN MILLIONS) 2000 1999
----- -----
Notes ....................... $ 724 $ 367
Accounts .................... 378 297
Unsettled equity transactions 67 26
Income taxes ................ 15 6
Other ....................... 121 82
----- -----
Total receivables ........... 1,305 778
Allowance for credit losses . (124) (43)
----- -----
Total ....................... $1,181 $ 735
===== =====
NOTES: The company provides loans to privately held venture capital-backed
companies in networking, optical networking, software, communications,
Internet-based and other industries. The company's loans are generally
structured as equipment loans or subordinated loans.
The amount of each loan varies, but generally does not exceed $10 million.
The loans bear fixed interest rates with coupons currently ranging from 8% to
13% per annum. In addition, loan processing fees typically ranging from .75% to
1.5% of the principal amount of the loan commitment may be paid at closing. As
part of the transaction, the company receives warrants to purchase an equity
interest in its customer, or a conversion option, in each case at a stated
exercise price based on the price paid by venture capitalists. Loans provide
current income from interest and fees.
Contractual maturities of total notes receivables as of September 30, 2000,
were as follows: 2001 - $296 million; 2002 - $320 million; 2003 - $170 million;
2004 - $4 million. Actual cash flows will vary from contractual maturities due
to prepayments and charge-offs.
ALLOWANCE: The allowance for credit loss includes management's estimate of the
amounts expected to be lost on specific accounts and for losses on other as of
yet unidentified accounts included in receivables at September 30, 2000,
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.
Changes in the allowance for credit losses (combined notes and accounts
receivable) for the year ended September 30 were as follows:
Comdisco
Consolidated Ventures group
------------ --------------
(IN MILLIONS) 2000 1999 2000 1999
----- ----- ----- -----
Balance at beginning
of year ............ $ 43 $ 24 $ 17 $ 6
Provision for
credit losses ...... 156 41 112 23
Net credit losses .... (75) (22) (34) (12)
----- ----- ----- -----
Balance at end of year $ 124 $ 43 $ 95 $ 17
===== ===== ===== =====
Provision for credit losses incurred by technology services and included in
the statements of earnings in technology services expenses were $8 million in
fiscal 2000 and $5 million in fiscal 1999.
NOTE 10
INCOME TAXES
The geographical sources of earnings from continuing operations before income
taxes were as follows:
(IN MILLIONS) 2000 1999 1998
---- ---- ----
United States .......... $329 $ 47 $183
Outside United States .. 69 63 57
---- ---- ----
$398 $110 $240
==== ==== ====
Cumulative unremitted earnings of foreign operations amounting to $210
million after foreign taxes at September 30, 2000, 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.
Income taxes included in the consolidated statements of earnings were as
follows:
(IN MILLIONS) 2000 1999 1998
---- ---- ----
Continuing operations .. $143 $ 40 $ 87
Discontinued operations (205) (13) -
---- ---- ----
$(62) $ 27 $ 87
==== ==== ====
-48-
<PAGE>
The components of the income tax provision (benefit) charged (credited) to
continuing operations were as follows:
(IN MILLIONS) 2000 1999 1998
---- ---- ----
Current:
U.S. Federal ........ $ 66 $ 8 $ 28
U.S. state and local 21 5 2
Outside United States 6 13 36
---- ---- ----
93 26 66
Deferred:
U.S. Federal ........ 36 7 33
U.S. state and local (3) (2) 9
Outside United States 17 9 (21)
---- ---- ----
50 14 21
---- ---- ----
Total tax provision $143 $ 40 $ 87
==== ==== ====
The reasons for the difference between the U.S. Federal income tax rate
and the effective income tax rate for earnings were as follows:
2000 1999 1998
---- ---- ----
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 ........... 3.2 .7 3.0
Foreign income tax rate
differential ....... .9 2.8 2.0
Tax effect of foreign
losses utilized .... (1.1) (2.2) (4.0)
Other, net ........... (2.0) (.3) -
---- ---- ----
36.0% 36.0% 36.0%
==== ==== ====
Deferred tax assets and liabilities at September 30, 2000 and 1999 were as
follows:
(IN MILLIONS) 2000 1999
---- ----
Deferred tax assets (liabilities):
Foreign loss carryforwards ....... $ 15 $ 13
U.S. net operating loss
carryforwards .................. 14 68
AMT credit carryforwards ......... 144 120
Deferred income .................. 49 44
Deferred expenses ................ 151 (20)
Other, net ....................... 92 101
Lease accounting ................. (566) (579)
Other comprehensive income ....... (234) (60)
Foreign .......................... (43) (26)
---- ----
Gross deferred tax liabilities ..... (378) (339)
Less: valuation allowance ........ (26) (28)
---- ----
Net deferred tax liabilities ....... $(404) $(367)
==== ====
For financial reporting purposes, the company has approximately $40 million
of foreign net operating loss carryforwards, most of which have no expiration
date. The company has recognized a valuation allowance of $15 million to offset
this deferred tax asset.
During fiscal 2000, changes in the valuation allowance included a decrease
of $4 million from utilizing foreign net operating loss carryforwards, increases
totalling $3 million from foreign exchange rate and tax rate changes, and a
decrease of $1 million from utilizing Prism's pre-acquisition net operating
losses. These losses are subject to certain limitations under Section 382 of the
Internal Revenue Code of 1986 as amended. The company believes it is more likely
than not the deferred tax assets, less the valuation allowance, will be realized
in the future.
At September 30, 2000, the company has available for U.S. Federal income tax
purposes, the following carryforwards (in millions):
YEAR SCHEDULED Net
TO EXPIRE operating loss
-------------- --------------
2004 $ 2
2005 5
2006 3
2018 28
----
$38
====
For U.S. Federal income tax purposes, the company has approximately $144
million of alternative minimum tax ("AMT") credit carryforwards available to
reduce regular taxes in future years. AMT credit carryforwards do not have an
expiration date.
All years prior to fiscal year 1989 are closed to further assessment by the
Internal Revenue Service (the "Service") due to the expiration of the Statute of
Limitations.
The company and the Service have settled fiscal years 1989-1995 for $7.7
million of tax plus interest thereon. As a result of the above mentioned
settlement, amended federal income tax returns for fiscal years 1996, 1997 and
1998 were filed requesting tax refunds of approximately $8.2 million.
Additionally, the company has requested interest netting for the above
deficiencies and refunds which would substantially reduce any cash payment of
tax and interest.
The Service commenced a routine income tax audit for fiscal years 1996,
1997, and 1998 in November, 2000.
The company also undergoes audits by foreign, state and local tax
jurisdictions. As of September 30, 2000, no material assessments have been made
by these tax authorities.
-49-
<PAGE>
NOTE 11
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following assets at September 30:
SEPTEMBER 30,
(IN MILLIONS) 2000 1999
---- ----
TECHNOLOGY SERVICES PROPERTY, PLANT AND EQUIPMENT
Land ....................................................... $ 9 $ 8
Buildings .................................................. 50 62
Leasehold improvements ..................................... 118 110
Computers and telecom equipment ............................ 58 58
Furniture, fixtures and office equipment ................... 33 32
----- -----
Total ............................................... 268 270
Less: Accumulated depreciation and amortization ............ (160) (162)
----- -----
108 108
Assets of technology services held for resale, net ......... 14 -
----- -----
Technology services property, plant and equipment, net ..... 122 108
----- -----
PRISM PROPERTY, PLANT AND EQUIPMENT
Network, communication and customer premise equipment ...... 170 27
Uninstalled customer premise equipment ..................... 20 3
Computers and software ..................................... 45 10
Leasehold improvements ..................................... 67 24
Furniture, fixtures and office equipment ................... 5 1
Construction work-in-progress .............................. 7 1
----- -----
Total ............................................... 314 66
Less: Accumulated depreciation and amortization ............ (32) (3)
----- -----
Prism property, plant and equipment, net ............ 282 63
Less: Assets written off ................................... (202) -
----- -----
Assets of discontinued operations held for resale .......... 80 63
----- -----
OTHER PROPERTY, PLANT AND EQUIPMENT, NET ................... 85 58
----- -----
Total property, plant and equipment, net ............ $ 287 $ 229
===== =====
Depreciation and amortization expenses, excluding Prism, were $20 million,
$14 million and $13 million in fiscal 2000, 1999 and 1998, respectively.
Depreciation and amortization expenses for Prism, included in the loss from
discontinued operations, were $36 million and $6 million in fiscal 2000 and
1999, respectively.
-50-
<PAGE>
NOTE 12
EQUITY SECURITIES
The company provides financing to privately held companies, in networking,
optical networking, software, communications, Internet-based and other
industries through the purchase of equity securities. Substantially all of these
investments are made by Comdisco Ventures group. For equity investments, which
are non-quoted investments, the company's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The company identifies and records impairment
losses on equity securities when events and circumstances indicate that such
assets might be impaired. During 2000 and 1999, certain of these investments in
privately held companies became available-for-sale securities when the issuers
completed initial public offerings.
Equity securities at September 30, 2000 were as follows:
Gross Gross
unrealized unrealized Market
(IN MILLIONS) Cost gains losses value
----- ---------- ---------- ------
Comdisco Ventures group
public holdings
and other strategic
investments .................... $ 34 $653 $ (4) $683
Preferred stock
and other equity ............... 216 - - 216
----- ----- ----- -----
$250 $653 $ (4) $899
===== ===== ===== =====
Equity securities at September 30, 1999 were as follows:
Gross Gross
unrealized unrealized Market
(IN MILLIONS) Cost gains losses value
----- ---------- ---------- ------
Comdisco Ventures group
public holdings
and other strategic
investments .................... $ 49 $174 $(22) $201
Preferred stock
and other equity ............... 51 - - 51
----- ----- ----- -----
$100 $ 174 $(22) $252
===== ===== ===== =====
Realized gains or losses are recorded on the trade date based upon the
difference between the proceeds and the cost basis determined using the specific
identification method. Changes in the valuation of available-for-sale securities
are included as changes in the unrealized holding gains in accumulated other
comprehensive income. Net realized gains from the sale of equity investments
were $233 million in fiscal 2000 and $1 million in both fiscal 1999 and 1998.
Gross realized gains from the sales of equity securities were $252 million, $9
million, and $3 million in fiscal years 2000, 1999 and 1998, respectively.
The company records the proceeds received from the sale or liquidation of
warrants received in conjunction with its lease or other financings as income on
the trade date. These proceeds were $215 million, $75 million and $14 million in
fiscal 2000, 1999 and 1998, respectively.
NOTE 13
PREFERRED STOCK
There are 100,000,000 authorized shares of preferred stock - $.10 par value, of
which none were outstanding at September 30, 2000. 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 in fiscal 1998.
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 was
amended in May, 2000 to reflect the company's tracking stock structure and will
expire on November 17, 2007. The New Rights Plan is incorporated by reference in
the company's Form 8-K filed with the SEC on June 14, 2000.
8.75% CUMULATIVE PREFERRED STOCK: On July 13, 1998, the company announced the
redemption, effective July 13, 1998, of all shares of the Series B Preferred
Stock (824,000 shares) at the redemption price of $25, plus accrued and unpaid
dividends.
At a special meeting of stockholders on April 20, 2000, the company's
stockholders authorized the company to amend and restate its current certificate
of incorporation. The Amended and Restated Certificate of Incorporation
designated 200,000 shares of the authorized and unissued shares of preferred
stock as Series C Junior Participating Preferred Stock and an additional 200,000
shares of the authorized and unissued shares of preferred stock as Series D
Junior Participating Preferred Stock. See Note 14 for further detail of the
special meeting of stockholders on April 20, 2000.
-51-
<PAGE>
NOTE 14
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. 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.
At a special meeting of stockholders on April 20, 2000, the company's
stockholders approved the company's tracking stock proposal, which authorized
the company to amend and restate its current certificate of incorporation to
increase the total authorized shares of common stock from 750,000,000 to
1,800,000,000; authorized the board of directors to issue common stock in
multiple series, with the initial two series of common stock being Comdisco
stock and Comdisco Ventures stock; and reclassified each outstanding share of
existing common stock as one share of Comdisco stock. No Comdisco Ventures stock
has been issued to date.
The share amounts for basic and diluted earnings per share calculations was
as follows:
YEARS ENDED SEPTEMBER 30,
---------------------------------
(IN THOUSANDS) 2000 1999 1998
----- ----- -----
Average shares issued ................ 224,259 222,454 220,910
Average shares held in treasury ...... (72,374) (70,376) (69,663)
------- ------- -------
Basic shares outstanding ............. 151,885 152,078 151,247
Stock options ........................ 9,897 9,709 11,523
------- ------- -------
Diluted shares outstanding ........... 161,782 161,787 162,770
======= ======= =======
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, 2000, 1999 and 1998.
During fiscal 2000 and 1999, the company entered into a series of forward
purchase transactions on its common stock. These transactions can be settled, at
the option of the company, by paying cash for the forward purchase amount and
receiving the underlying shares of common stock, or on a net basis in shares of
the company's stock.
Information on these forward transactions is as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------- -------------------------------
Average Average
forward price forward price
(IN MILLIONS EXCEPT PER SHARE DATA) Amount Shares per share Amount Shares per share
------ ------ ------------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Transactions in place at September 30 ..... $80 3 $28.42 $61 3 $20.41
Settlements during fiscal year ............ 91 4 20.41 59 4 16.26
</TABLE>
In June 1997, FASB issued Statement of Financial Accounting Standards No.
130- Reporting Comprehensive Income, which requires presentation of
comprehensive earnings (net earnings (loss) plus all changes in net assets from
non-owner sources) and its components in the financial statements.
Components of other comprehensive earnings (loss) consists of the following:
(IN MILLIONS) 2000 1999 1998
---- ---- ----
Foreign currency
translation adjustments ................... $(64) $(21) $ 7
Unrealized gains on securities:
Unrealized holding gains
arising during the period ................ 945 228 -
Reclassification adjustments
for gains included in earnings
(loss) before income taxes ............... (448) (76) -
---- ---- ----
Net unrealized gains, before
income taxes .............................. 497 152 -
Income taxes ................................ (174) (60) -
---- ---- ----
Net unrealized gains ........................ 323 92 -
---- ---- ----
Other comprehensive income .................. 259 71 7
Net earnings (loss) ......................... (67) 48 153
---- ---- ----
Total comprehensive income .................. $192 $119 $160
==== ==== ====
-52-
<PAGE>
Accumulated other comprehensive income presented below and in the
accompanying balance sheets consists of the accumulated net unrealized loss on
foreign currency translation adjustments and the accumulated net unrealized gain
on available-for-sale securities:
<TABLE>
<CAPTION>
Foreign Unrealized Accumulated
currency gain on other
translation available-for- comprehensive
(IN MILLIONS) adjustment sale securities income
----------- --------------- -------------
<S> <C> <C> <C>
Balance at
September 30, 1997 ............... $(20) $ - $(20)
Pretax amount ...................... 7 - 7
Income taxes ....................... - - -
---- ---- ----
Balance at
September 30, 1998 ............... (13) - (13)
Pretax amount ...................... (21) 152 131
Income taxes ....................... - 60 60
---- ---- ----
Balance at
September 30, 1999 ............... (34) 92 58
Pretax amount ...................... (64) 497 433
Income taxes ....................... -- 174 174
---- ---- ----
Balance at
September 30, 2000 ............... $(98) $415 $317
==== ==== ====
</TABLE>
NOTE 15
EMPLOYEE BENEFIT PLANS
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 1999 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 9,450 shares of the company's
common stock at the then fair market value.
Under the 1996 Deferred Fee Option Plan, each Non-Employee Director
received 2,714 shares on October 1, 1999 at an option price of $1.00.
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) 2000 1999 1998
---- ---- ----
Net earnings (loss)
-to common stockholders
-As reported ....................... $ (67) $ 48 $151
Pro forma ......................... (76) 42 147
Earnings (loss) per common share:
As reported-basic .................. $(.44) $.32 $.99
Pro forma-basic .................... (.50) .27 .97
As reported-diluted ................ (.41) .30 .93
Pro forma-diluted .................. (.47) .26 .90
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 2000, 1999 and 1998, respectively: dividend yield of 1.0% for
all years; expected volatility of 49%, 40% and 32%; risk free interest rates of
5.51%, 5.26% and 6.07%; and expected lives of five years.
-53-
<PAGE>
Additional information on shares subject to options is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------- -------------------- ---------------------
Weighted- Weighted- Weighted-
(IN THOUSANDS EXCEPT average average average
WEIGHTED-AVERAGE Number exercise Number exercise Number exercise
EXERCISE PRICE) of shares price of shares price of shares price
-------------------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ..... 16,977 $ 10 17,983 $ 7 19,185 $ 6
Granted .............................. 3,839 18 5,001 15 3,274 13
Exercised ............................ (4,254) 8 (5,198) 7 (3,953) 5
Forfeited ............................ (944) 10 (809) 9 (523) 7
------ ---- ------ ---- ------ ----
Outstanding at the end of year ....... 15,618 $ 12 16,977 $ 10 17,983 $ 7
====== ==== ====== ==== ====== ====
Options exercisable at year-end ...... 11,207 $ 10 11,930 $ 8 12,858 $ 6
====== ==== ====== ==== ====== ====
Weighted-average fair value of options
granted during the year .......... $ 8.35 $ 5.46 $ 4.72
====== ====== ======
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 2000 (number of shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ----------------------
Weighted- Weighted- Weighted-
average average average
RANGE OF EXERCISE Number remaining exercise Number exercise
EXERCISE PRICES of shares contractual life price of shares price
----------------- --------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0 to 6 3,180 3.1 years $ 4 3,180 $ 6
$6 to 10 3,758 5.6 years 8 3,758 8
$10 to 16 3,501 7.3 years 14 2,199 14
$16 to 30 5,179 8.3 years 18 2,070 17
------ --------- ---- ------ ----
15,618 6.4 years $ 12 11,207 $ 10
====== ========= ==== ====== ====
</TABLE>
NOTE 16
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the company's financial instruments are as follows:
<TABLE>
<CAPTION>
2000 1999
------------------- ------------------
Carrying Fair Carrying Fair
(IN MILLIONS) amount value amount value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ........................... $ 316 $ 316 $ 361 $ 361
Equity securities ................................... 899 899 252 252
Notes receivable including noncurrent portion ....... 724 724 367 367
Liabilities:
Notes payable and commercial paper .................. 1,314 1,314 820 820
Term notes, senior notes and discounted lease rentals 4,941 4,738 4,751 4,681
Off-balance sheet financial instruments:
Interest rate swap agreements ....................... - - - 5
Cross-currency interest rate swap agreements ........ - (5) - (6)
Forwards ............................................ - 11 - (6)
</TABLE>
-54-
<PAGE>
Fair values were determined as follows:
The carrying amounts of cash and cash equivalents, notes payable and
commercial paper approximates fair value because of the short-term maturity of
these instruments.
Equity instruments are based on quoted market prices for available-for-sale
securities, and, for non-quoted equity instruments, based on the lower of
management's estimates of fair value or cost. The company's investment in
warrants of public companies were valued at the bid quotation.
Notes receivable are estimated by discounting future cash flows using the
current rates at which similar loans would be made to borrowers with similar
business profiles.
The fair value of term notes, senior notes and discounted lease rentals 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.
Off-balance sheet financial instruments were estimated by obtaining quotes
from brokers.
NOTE 17
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the fiscal years ended September 30,
2000 and 1999, is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
(IN MILLIONS EXCEPT DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
PER SHARE DATA) -------------- ---------------- --------------- ----------------
99 98 00 99 00 99 00 99
----- ----- ------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue .............................. $ 876 $ 921 $1,012 $ 952 $ 952 $1,302 $1,027 $1,003
Earnings (loss) from continuing operations . $ 59 $ 38 $ 69 $ (54) $ 58 $ 43 $ 70 $ 44
Loss from discontinued operations .......... (17) - (26) (2) (41) (7) (238) (14)
----- ----- ------ ------ ----- ------ ------ ------
Net earnings (loss) to common stockholders $ 42 $ 38 $ 43 $ (56) $ 17 $ 36 $ (168) $ 30
===== ===== ====== ====== ===== ====== ====== ======
Earnings (loss) from continuing
operations-diluted ...................... $ .36 $ .24 $ .42 $ (.36) $ .36 $ .26 $ .44 $ .27
Loss from discontinued operations-diluted .. (.10) - (.16) (.01) (.26) (.04) (1.49) (.08)
----- ----- ------ ------ ----- ------ ------ ------
Net earnings (loss) per common share-diluted $ .26 $ .24 $ .26 $ (.37) $ .10 $ .22 $(1.05) $ .19
===== ===== ====== ====== ===== ====== ====== ======
</TABLE>
-55-
<PAGE>
NOTE 18
INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREAS
The company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" in fiscal 1999 which changes the way the company
reports information about its operating segments. The information for 1999 and
1998 has been restated from the prior year's presentation in order to conform to
the 2000 presentation.
The company's operations are conducted through its principal office in the
Chicago area and approximately one hundred offices in North America, Europe and
the Pacific Rim. Coordination of the business units is accomplished through the
Office of the President, which is responsible for overall corporate control,
coordination and strategic planning, regional reporting structures that
coordinate marketing and support efforts across business units, and through the
home office with centralized budgeting and shared services.
LEASING: This segment provides leasing, asset management, equipment remarketing
and equipment refurbishment services. The principal markets for this segment
include North America, Europe and the Pacific Rim. Customers include major
multi-national corporations, independent and national or state-owned companies,
"Fortune 500" corporations or companies of a similar size as well as smaller
organizations.
TECHNOLOGY SERVICES: This segment consists of four business units - Continuity
Services, Web Services, Network Management and IT CAP Solutions - that provide
platform-based hotsite recovery, mobile, workarea and trade floor recovery,
continuity and recovery planning services (services that emphasize data
availability across data centers, networks and work areas); secure,
production-hosting environment to deliver a continuous web presence; network
assessment, design, implementation and professional management services; and
services designed to help companies plan, manage, and accomplish their IT
initiatives through increased control and predictability of spending and
infrastructure to a broad range of industries. The principal markets for this
segment include all major manufacturing and financial services regions of North
America and Europe.
COMDISCO VENTURES GROUP: Comdisco Ventures group provides venture leases,
venture debt and direct equity financing to venture capital-backed companies.
The existing venture leases, venture debt and equity portfolio are diversified
across many sectors, including networking, optical networking, software,
communications, Internet-based and other industries. The principal markets for
this segment are the high-tech regions in California and Massachusetts.
The accounting policies of the reportable segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements. The company
evaluates the performance of its operating segments based on earnings from
continuing operations before income taxes. Intersegment sales are not
significant.
-56-
<PAGE>
Summarized financial information (excluding loss from discontinued
operations) concerning the company's reportable segments is shown in the
following table.
<TABLE>
<CAPTION>
Comdisco
Ventures Discontinued
(IN MILLIONS) Leasing Services group operations Total
------- -------- -------- ------------ -----
<S> <C> <C> <C> <C> <C>
2000
Revenues ................... $2,557 $ 637 $ 673 $ - $3,867
Segment profit .............. 87 65 246 - 398
Total assets ................ 5,942 586 2,141 85 8,754
Investing activities ........ 2,185 202 1,206 257 3,850
Depreciation and amortization 1,493 103 150 36 1,782
1999
Revenues .................... $3,427 $ 522 $ 229 $ - $4,178
Segment profit (loss) ....... (13) 52 71 - 110
Total assets ................ 6,332 479 872 124 7,807
Investing activities ........ 2,613 151 580 117 3,461
Depreciation and amortization 1,866 50 88 6 2,010
1998
Revenues .................... $2,696 $ 433 $ 114 $ - $3,243
Segment profit .............. 140 71 29 - 240
Total assets ................ 6,403 379 281 - 7,063
Investing activities ........ 2,916 87 177 - 3,180
Depreciation and amortization 1,711 84 60 - 1,855
</TABLE>
The following table presents revenue by geographic location based on the
location of the company's local office:
(IN MILLIONS) 2000 1999 1998
------ ------ ------
North America ............... $3,039 $3,273 $2,584
Europe ...................... 673 628 592
Pacific Rim ................. 155 277 67
------ ------ ------
Total ....................... $3,867 $4,178 $3,243
====== ====== ======
The following table presents total assets by geographic location based on the
location of the asset:
(IN MILLIONS) 2000 1999 1998
------ ------ ------
North America ............... $6,961 $6,272 $5,556
Europe ...................... 1,201 1,029 1,181
Pacific Rim ................. 592 506 326
------ ------ ------
Total ....................... $8,754 $7,807 $7,063
====== ====== ======
-57-
<PAGE>
NOTE 19
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
2000
---------------------------------------
Consolidated Comdisco
Comdisco, Comdisco Ventures
Inc. group group
(IN MILLIONS) ------------ -------- --------
Consolidating Condensed Summary of Earnings
<S> <C> <C> <C>
REVENUE
Leasing and sales ..................................... $2,699 $2,491 $208
Services .............................................. 637 637 -
Other
Warrant sale proceeds and capital gains ........... 448 42 406
Interest income on notes .......................... 56 - 56
Other ............................................. 27 24 3
----- ----- ----
Total revenue .................................. 3,867 3,194 673
----- ----- ----
COSTS AND EXPENSES
Leasing and sales ..................................... 2,011 1,851 160
Services .............................................. 572 572 -
Selling, general and administrative ................... 532 326 206
Interest .............................................. 354 293 61
Other ................................................. - - -
----- ----- ----
Total expenses .................................... 3,469 3,042 427
----- ----- ----
Earnings from continuing operations before income taxes 398 152 246
Income taxes .......................................... 143 45 98
----- ----- ----
Earnings from continuing operations ................... 255 107 148
Loss from discontinued operations ..................... (322) (322) -
----- ----- ----
Net earnings (loss) ................................... $ (67) $ (215) $148
===== ===== ====
Consolidating Condensed Cash Flows
From Operating Activities
Cash flows from operating activities:
Leasing and sales ................................. $3,237 $3,033 $204
Services .......................................... 139 139 -
Other ............................................. (37) (659) 622
----- ----- ----
Net cash provided by continuing operations ..... 3,339 2,513 826
Net cash used by discontinued operations ....... (120) (120) -
----- ----- ----
Net cash provided by operating activities ...... $3,219 $2,393 $826
===== ===== ====
</TABLE>
-58-
<PAGE>
<TABLE>
<CAPTION>
1999
---------------------------------------
Consolidated Comdisco
Comdisco, Comdisco Ventures
Inc. group group
(IN MILLIONS) ------------ -------- --------
Consolidating Condensed Summary of Earnings
<S> <C> <C> <C>
REVENUE
Leasing and sales ..................................... $3,534 $3,410 $124
Services .............................................. 522 522 -
Other
Warrant sale proceeds and capital gains ........... 76 (5) 81
Interest income on notes .......................... 23 - 23
Other ............................................. 23 22 1
----- ----- ----
Total revenue .................................. 4,178 3,949 229
----- ----- ----
COSTS AND EXPENSES
Leasing and sales ..................................... 2,815 2,722 93
Services .............................................. 440 440 -
Selling, general and administrative ................... 326 285 41
Interest .............................................. 337 313 24
Other ................................................. 150 150 -
----- ----- ----
Total expenses .................................... 4,068 3,910 158
----- ----- ----
Earnings from continuing operations before income taxes 110 39 71
Income taxes .......................................... 40 12 28
----- ----- ----
Earnings from continuing operations ................... 70 27 43
Loss from discontinued operations ..................... (22) (22) -
----- ----- ----
Net earnings (loss) ................................... $ 48 $ 5 $ 43
===== ===== ====
Consolidating Condensed Cash Flows
From Operating Activities
Cash flows from operating activities:
Leasing and sales ................................. $3,659 $3,534 $125
Services .......................................... 95 95 -
Other ............................................. (516) (644) 128
----- ----- ----
Net cash provided by continuing operations ..... 3,238 2,985 253
Net cash used by discontinued operations ....... (19) (19) -
----- ----- ----
Net cash provided by operating activities ...... $3,219 $2,966 $253
===== ===== ====
</TABLE>
-59-
<PAGE>
<TABLE>
<CAPTION>
1998
---------------------------------------
Consolidated Comdisco
Comdisco, Comdisco Ventures
Inc. group group
(IN MILLIONS) ------------ -------- --------
Consolidating Condensed Summary of Earnings
<S> <C> <C> <C>
REVENUE
Leasing and sales ..................................... $2,757 $2,665 $ 92
Services .............................................. 433 433 -
Other
Warrant sale proceeds and capital gains ........... 15 - 15
Interest income on notes .......................... 7 - 7
Other ............................................. 31 31 -
----- ----- ----
Total revenue .................................. 3,243 3,129 114
----- ----- ----
COSTS AND EXPENSES
Leasing and sales ..................................... 2,066 2,002 64
Services .............................................. 362 362 -
Selling, general and administrative ................... 249 239 10
Interest .............................................. 326 315 11
Other ................................................. - - -
----- ----- ----
Total expenses .................................... 3,003 2,918 85
----- ----- ----
Earnings from continuing operations before income taxes 240 211 29
Income taxes .......................................... 87 75 12
----- ----- ----
Earnings from continuing operations ................... 153 136 17
Loss from discontinued operations ..................... (2) (2) -
----- ----- ----
Net earnings (loss) ................................... $ 151 $ 134 $ 17
===== ===== ====
Consolidating Condensed Cash Flows
From Operating Activities
Cash flows from operating activities:
Leasing and sales ................................. $3,289 $3,193 $ 96
Services .......................................... 130 130 -
Other ............................................. (532) (580) 48
----- ----- ----
Net cash provided by continuing operations ..... 2,887 2,743 144
Net cash used by discontinued operations ....... - - -
----- ----- ----
Net cash provided by operating activities ...... $2,887 $2,743 $144
===== ===== ====
</TABLE>
-59-
<PAGE>
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------- ---------------------------------------------
Consolidated Comdisco Consolidated Comdisco
Comdisco, Elimi- Comdisco Ventures Comdisco, Elimi- Comdisco Ventures
Inc. nations group group Inc. nations group group
(IN MILLIONS) ------------ ------- -------- --------- ------------ ------- -------- ---------
Consolidating Condensed
Balance Sheet Data
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash ........................ $ 370 $ - $ 345 $ 25 $ 407 $ - $ 407 $ -
Receivables ................. 1,181 - 458 723 735 - 355 380
Inter-group receivable ...... - (1,142) 1,142 - - (559) 559 -
Equity securities ........... 899 - 67 832 252 - 55 197
Leased assets ............... 5,477 - 4,922 555 5,623 - 5,335 288
Other ....................... 827 - 821 6 790 - 783 7
------ ------- ------ ------ ------ ------ ------ ----
$8,754 $(1,142) $7,755 $2,141 $7,807 $ (559) $7,494 $872
====== ======= ====== ====== ====== ====== ====== ====
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities $6,255 $ - $6,255 $ - $5,571 $ - $5,571 $ -
Inter-group payable ......... - (1,142) - 1,142 - (559) - 559
Income taxes ................ 415 - 155 260 382 - 310 72
Other ....................... 870 - 785 85 794 - 753 41
------ ------- ------ ------ ------ ------ ------ ----
7,540 (1,142) 7,195 1,487 6,747 (559) 6,634 672
------ ------- ------ ------ ------ ------ ------ ----
Stockholders' equity ........ 1,214 - 560 654 1,060 - 860 200
------ ------- ------ ------ ------ ------ ------ ----
$8,754 $(1,142) $7,755 $2,141 $7,807 $ (559) $7,494 $872
====== ======= ====== ====== ====== ====== ====== ====
</TABLE>
The previous schedules present consolidating financial information of
Comdisco, Inc. The financial information reflects the businesses of Comdisco
group and Comdisco Ventures group, including the allocation of expenses between
Comdisco group and Comdisco Ventures group in accordance with our allocation
policies. We have presented this information to illustrate the respective
financial results of Comdisco group and Comdisco Ventures group, including the
impact of inter-group allocated expenses, and how the financial results of those
groups relate to the consolidated financial results of Comdisco, Inc. This
information, which has been prepared in accordance with generally accepted
accounting principles, should be read together with the consolidated financial
statements of Comdisco, Inc. beginning on page 35 and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Comdisco, Inc."
beginning on page 24.
The consolidating statements of earnings of Comdisco, Inc. for the fiscal
years ended September 30, 2000, 1999 and 1998 and the consolidating balance
sheets at September 30, 2000 and 1999 have been derived from audited financial
statements.
In the accompanying consolidating statements of earnings, earnings per share
for Comdisco group and for Comdisco Ventures group are not presented because
neither group has been a "stand-alone entity" and, as a result, the presentation
of earnings per share is not applicable.
-60-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors, Comdisco, Inc.: We have audited the
accompanying consolidated balance sheets of Comdisco, Inc. and subsidiaries as
of September 30, 2000 and 1999, 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, 2000. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Comdisco,
Inc. and subsidiaries at September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 2000 in conformity with accounting principles generally
accepted in the United States of America.
Chicago, Illinois
November 7, 2000
-61-
<PAGE>
PRICE RANGE OF COMMON STOCK
The company's outstanding common stock is listed on the New York Stock Exchange
and the Chicago Stock Exchange under the symbol CDO. At September 30, 2000,
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 2000 and 1999, adjusted for the two-for-one stock split
(See Note 14 of Notes to Consolidated Financial Statements).
2000 1999
---------------------------- ----------------------------
QUARTER High Low Dividends High Low Dividends
------- ------- ------ --------- ------ ------ ---------
First $43.00 $17.44 $.025 $19.44 $12.50 $.025
Second 53.69 30.88 .025 17.88 10.75 .025
Third 44.75 22.31 .025 30.88 15.81 .025
Fourth 33.50 18.00 .025 26.94 17.50 .025
-64-
