UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________ to ___________
Commission file number 1-7725
I.R.S. Employer Identification Number 36-2687938
COMDISCO, INC.
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone: (847) 698-3000
Name of each Number of shares
Title of exchange on outstanding as of
each class which registered December 31, 1999
Common stock, New York Stock Exchange 152,574,602
$.10 par value Chicago Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No .
-1-
<PAGE>
Comdisco, Inc. and Subsidiaries
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Earnings --
Three Months Ended December 31, 1999 and 1998 .......................3
Consolidated Balance Sheets --
December 31, 1999 and September 30, 1999 ............................4
Consolidated Statements of Cash Flows --
Three Months Ended December 31, 1999 and 1998 .......................5
Notes to Consolidated Financial Statements ...........................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..............................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk ........24
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ...............24
Item 6. Exhibits and Reports on Form 8-K ..................................25
SIGNATURES ...................................................................28
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<PAGE>
PART I. FINANCIAL INFORMATION
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(in millions except per share data)
<TABLE>
<CAPTION>
Three Months Ended
December 31
1999 1998
---- ----
<S> <C> <C>
Revenue
Leasing
Operating........................................................ $ 434 $ 531
Direct financing................................................. 43 41
Sales-type....................................................... 78 160
----- -----
Total leasing.............................................. 555 732
Sales............................................................... 68 58
Technology services................................................. 147 118
Other............................................................... 107 13
----- -----
Total revenue................................................... 877 921
----- -----
Cost and expenses
Leasing
Operating....................................................... 351 430
Sales-type...................................................... 60 127
----- -----
Total leasing............................................. 411 557
Sales............................................................. 50 51
Technology services............................................... 125 100
Selling, general and administrative............................... 115 69
Interest.......................................................... 84 84
Prism Communication Services...................................... 27 --
----- -----
Total costs and expenses........................................ 812 861
Earnings before income taxes........................................ 65 60
Income taxes........................................................ 23 22
----- -----
Net earnings available to common
stockholders.................................................... $ 42 $ 38
===== =====
Net earnings per common share:
Earnings per common share--basic.............................. $ .27 $ .25
===== =====
Earnings per common share--diluted............................ $ .26 $ .24
===== =====
Cash dividends paid per common share................................ $.025 $.025
===== =====
Common shares outstanding:
Average common shares outstanding--basic....................... 152 152
Average common shares outstanding--diluted..................... 162 161
See accompanying notes to consolidated financial statements
</TABLE>
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<PAGE>
Comdisco, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions except share data)
<TABLE>
<CAPTION>
December 31 September 30
1999 1999
----------- ------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ 291 $ 387
Cash - legally restricted........................................... 32 46
Receivables, net.................................................... 801 696
Inventory of equipment.............................................. 140 115
Leased assets:
Direct financing and sales-type................................... 2,245 2,107
Operating (net of accumulated depreciation)....................... 3,533 3,516
------ ------
Net leased assets................................................ 5,778 5,623
Buildings, furniture and other, net................................. 370 229
Other assets........................................................ 1,021 711
------ ------
$8,433 $7,807
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable....................................................... $1,059 $820
Term notes payable.................................................. 550 550
Senior notes........................................................ 3,686 3,686
Accounts payable.................................................... 219 263
Income taxes........................................................ 487 382
Other liabilities................................................... 658 531
Discounted lease rentals............................................ 546 515
------ ------
7,205 6,747
------ ------
Stockholders' equity:
Preferred stock $.10 par value
Authorized 100,000,000 shares; issued 0 shares.................... -- --
Common stock $.10 par value
Authorized 750,000,000 shares;
issued 223,007,939 shares
(223,464,344 at September 30, 1999)............................... 22 22
Additional paid-in capital.......................................... 337 302
Accumulated other comprehensive income.............................. 182 58
Retained earnings................................................... 1,172 1,134
------ ------
1,713 1,516
Common stock held in treasury, at cost............................. (485) (456)
------ ------
Total stockholders' equity........................................ 1,228 1,060
------ ------
$8,433 $7,807
====== ======
See accompanying notes to consolidated financial statements
</TABLE>
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<PAGE>
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
Three Months Ended December 31, 1999 and 1998
Increase (decrease) in cash and cash equivalents:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Operating lease and other leasing receipts......................... $ 472 $ 543
Direct financing and sales-type leasing receipts................... 239 245
Leasing costs, primarily rentals paid.............................. (5) (5)
Sales.............................................................. 103 94
Sales costs........................................................ (29) (50)
Technology services receipts....................................... 138 123
Technology services costs.......................................... (114) (97)
Other revenue...................................................... 102 13
Note receivable receipts........................................... 11 71
Selling, general and administrative expenses....................... (98) (84)
Interest........................................................... (73) (84)
Income taxes....................................................... (2) (3)
------ ------
Net cash provided by operating activities....................... 804 706
====== ======
Cash flows from investing activities:
Equipment purchased for leasing.................................... (824) (852)
Investment in continuity and network services facilities........... (55) (36)
Notes receivable................................................... (161) (71)
Investment in Prism Communication Services......................... (76) --
Other investing activities (33) (20)
------ ------
Net cash used in investing activities (1,149) (979)
====== ======
Cash flows from financing activities:
Discounted lease proceeds.......................................... 118 133
Net increase in notes payable...................................... 239 33
Issuance of term notes and senior notes............................ 25 351
Maturities and repurchases of term notes and senior notes......... (25) (90)
Principal payments on secured debt................................. (87) (117)
Common stock purchased and placed in treasury...................... (33) (10)
Dividends paid on common stock..................................... (4) (4)
Issuance of Prism Communication Services common stock.............. 10 --
Decrease (increase) in legally restricted cash..................... 14 (8)
Other, net......................................................... (8) (5)
------ ------
Net cash provided by financing activities ...................... 249 283
====== ======
Net increase (decrease) in cash and cash equivalents................ (96) 10
Cash and cash equivalents at beginning of period..................... 387 63
------ ------
Cash and cash equivalents at end of period........................... $ 73 $ 291
====== ======
See accompanying notes to consolidated financial statements
</TABLE>
-5-
<PAGE>
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED
(in millions)
Three Months Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings......................................................... $ 42 $ 38
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Leasing costs, primarily
depreciation and amortization.................................. 406 552
Leasing revenue, primarily principal portion of
direct financing and sales-type lease rentals.................. 227 67
Cost of sales..................................................... 26 1
Technology services costs, primarily
depreciation and amortization.................................. 11 3
Interest.......................................................... 11 --
Income taxes...................................................... 21 20
Other - net....................................................... 60 25
----- -----
Net cash provided by operating activities.............. $804 $706
===== =====
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
Comdisco, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1999 and 1998
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and notes thereto included in the company's Annual Report on Form
10-K for the year ended September 30, 1999.
The financial results of the company's services, leasing and Prism are
collectively referred to as "Comdisco Group" or "Group."
The balance sheet at September 30, 1999 has been derived from the audited
financial statements included in the company's Annual Report on Form 10-K for
the year ended September 30, 1999.
Legally restricted cash represents cash and cash equivalents that are restricted
solely for use as collateral in secured borrowings and are not available to
other creditors.
Certain reclassifications have been made in the 1999 financial statements to
conform to the 2000 presentation.
2. Receivables
Receivables include the following as of December 31, 1999 and September 30, 1999
(in millions):
December 31, September 30,
1999 1999
----------- ------------
Notes ................................................. $ 444 $ 354
Accounts .............................................. 364 297
Income taxes .......................................... 6 6
Other ................................................. 55 82
----- -----
Total receivables ..................................... 869 739
Allowance for credit losses ........................... (68) (43)
----- -----
Balance at end of period .............................. $ 801 $ 696
===== =====
Notes consist primarily of loans to privately held companies in networking,
communications, software, Internet-based and other industries. The company's
loans are generally structured as loans secured by equipment or subordinated
loans. Interest income on loans is recorded in the Statements of Earnings as
other revenue. At December 31, 1999 and September 30, 1999, Comdisco Ventures
("Ventures") had loans of approximately $431 million and $343 million,
respectively. As part of the loan transaction, the company receives warrants to
purchase an equity interest in the borrower at a negotiated exercise price,
generally at a price based on the most recent venture capital transaction. The
amount of the warrants received and the exercise price varies based upon
borrower-specific valuation factors. Loans provide current income from interest
and fees.
-7-
Changes in the allowance for credit losses (combined notes and accounts
receivable) for the periods ended December 31, 1999 and 1998 were as follows (in
millions):
December 31, December 31,
1999 1998
----------- -----------
Balance at beginning of period ........................ $ 43 $ 24
Provision for credit losses, Group .................... 4 3
Provision for credit losses, Ventures ................. 22 1
Net credit losses ..................................... (1) (3)
---- ----
Balance at end of period .............................. $ 68 $ 25
==== ====
3. Equity Securities
The company invests in equity instruments of privately held companies in
networking, communications, software, Internet-based and other industries. For
equity instruments, 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 1999, certain of these
investments in privately held companies became available-for-sale securities
when the investees completed initial public offerings.
Equity securities, which are included in Other Assets, include the following as
of December 31, 1999 and September 30, 1999 (in millions):
December 31, September 30,
1999 1999
----------- ------------
Available-for-sale-securities:
Cost ............................................... $ 52 $ 49
Unrealized gain .................................... 386 152
---- ----
Market value ....................................... 438 201
Equity instruments (at cost less
valuation adjustments) ............................ 79 51
---- ----
Carrying value .................................... $517 $252
==== ====
Realized gains or losses are recorded upon disposition of investments based upon
the difference between the proceeds and the cost basis determined using the
specific identification method. All other changes in the valuation of portfolio
investments are included as changes in the unrealized appreciation or
depreciation of investments in the accumulated comprehensive income. Net
realized gains from the sales of equity investments were $49 million during the
first three months of fiscal 2000. During the three months ended December 31,
1998, the company did not liquidate any of their equity investment positions.
Net realized gains are included in other revenue.
The company records the proceeds received from the sale or liquidation of
warrants received in conjunction with its lease or other financings as income
when received. These proceeds were $36 million during the first three months of
fiscal 2000 compared to $7 million in the year earlier period. These amounts are
included in other revenue.
-8-
4. 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 company capitalizes costs associated with the design and implementation of
the Prism Communication Services ("Prism") network including internally and
externally developed software. Capitalized external software costs include the
actual costs to purchase existing software from vendors. Capitalized internal
software costs generally include personnel costs incurred in the enhancement and
implementation of purchased software packages.
Customer premise equipment consists of communications equipment that will be
installed at customer premises for the duration of their service agreement with
the company.
Property, plant and equipment consist of the following assets at December 31,
1999 and September 30, 1999 (in millions):
December 31, September 30,
1999 1999
----------- ------------
Technology services property, plant and equipment
- -------------------------------------------------
Land ................................................. $ 8 $ 8
Buildings ............................................ 62 62
Leasehold improvements ............................... 115 110
Computers and telecom equipment ...................... 58 58
Furniture, fixtures and office equipment ............. 32 32
----- -----
Total ....................................... 275 270
Less: accumulated depreciation and amortization ..... (166) (162)
----- -----
Technology services property, plant and
equipment, net .......................... 109 108
----- -----
Prism property, plant and equipment
- -----------------------------------
Network, communication and customer premise equipment. 139 27
Uninstalled customer premise equipment ............... 3 3
Computers and software ............................... 14 10
Leasehold improvements ............................... 35 24
Furniture, fixtures and office equipment ............. 2 1
Construction work-in-progress ........................ 3 1
----- -----
Total ....................................... 196 66
Less: accumulated depreciation and amortization ..... (4) (3)
----- -----
Prism property, plant and equipment, net..... 192 63
----- -----
Other, property, plant and equipment, net ............ 69 58
----- -----
Total property, plant and equipment, net .... $ 370 $ 229
===== =====
-9-
5. Interest-Bearing Liabilities
At December 31, 1999, the company had $1.7 billion of available domestic and
international borrowing capacity under various lines of credit from commercial
banks and commercial paper facilities.
The average daily borrowings outstanding during the three months ended December
31, 1999 were approximately $5.4 billion, with a related weighted average
interest rate of 6.25%. This compares to average daily borrowings during the
first three months of fiscal 1998 of approximately $5.2 billion, with a related
weighted average interest rate of 6.45%.
6. Senior Notes
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 (later reduced to $500 million as described below) in Senior Debt
Securities as "Senior Medium-Term Notes, Series H" to be issued under the 1998
Shelf, of which $162 million remained available for issuance as of December 31,
1999. 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 senior debt securities
on terms to be set at the time of each sale ("1999 Shelf"). As of December 31,
1999, the entire 1999 Shelf remains available for sale.
The company plans to continue to be active in issuing senior debt during fiscal
2000, primarily to support the anticipated growth of the leased assets and,
where appropriate, to refinance maturities of interest-bearing liabilities.
7. Stockholders' Equity
In June 1997, FASB issued Statement of Financial Accounting Standards No. 130-
Reporting Comprehensive Income, which requires presentation of comprehensive
income (net earnings (loss) plus all changes in net assets from non-owner
sources) and its components in the financial statements.
-10-
Other comprehensive earnings (loss) consists of the following (in millions):
Three months ended
December 31,
1999 1998
------ ------
Foreign currency translation adjustments ............ $ (16) $ --
Unrealized gains on securities:
Unrealized holding gains (losses) arising
during the period ................................ 303 (4)
Reclassification adjustment for gains
included in earnings before income
taxes ............................................ (84) (7)
----- -----
Net unrealized gains and losses, before
income taxes ..................................... 219 (11)
Income (tax) benefit ................................ (79) 4
----- -----
Net unrealized gains and losses ..................... 140 (7)
----- -----
Other comprehensive income (loss) ................... 124 (7)
Net earnings ........................................ 42 38
----- -----
Total comprehensive income .......................... $ 166 $ 31
===== =====
On January 25, 2000 the Board of Directors declared a quarterly cash dividend of
$.025 per common share to be paid on March 13, 2000 to holders of record on
February 11, 2000.
During the quarter ended December 31, 1999, the company purchased 1,559,700
shares of its common stock at an aggregate cost of approximately $33 million.
8. Prism Communication Services, Inc.
On February 28, 1999, the company completed the acquisition of Prism for a cash
purchase price of approximately $53 million, of which approximately $45 million
was paid in fiscal 1999. Prism is a provider of dedicated high-speed
connectivity and other services to small businesses, telecommuters and other
power users.
The Prism acquisition has been accounted for by the purchase method of
accounting and, accordingly, the results of operations of Prism from February
28, 1999 are included in the accompanying consolidated financial statements.
Assets acquired and liabilities assumed have been recorded at their estimated
fair values, and are subject to adjustment when additional information
concerning asset and liability valuations is finalized.
-11-
The excess of cost over the estimated fair value of net assets acquired was
approximately $61 million and has been recorded as goodwill, which is being
amortized on a straight-line basis over 10 years. The following selected,
unaudited pro forma data is presented to provide a summary of the combined
results of the company and Prism as if the acquisition had been made as of the
beginning of fiscal 1999 (in millions except per share data):
Three months ended
December 31, 1998
------------------
Total revenue ................... $ 921
Net income ..................... 35
Net income per common share
Basic .................. $ .23
Diluted ................ $ .22
The selected, unaudited pro forma data is for informational purposes only and
may not necessarily reflect the results of operations had the companies operated
as one for the three-month period ending December 31, 1998. No effect has been
given for synergies, if any, that may be realized through the acquisition. In
addition, the company expects to expand its network within existing and into new
regions, which will require significant capital expenditures as well as sales
and marketing expenditures. Accordingly, the company expects to incur
substantial and increasing operating expenses and net losses from Prism
operations for at least the next few years.
9. Industry Segment and Operations by Geographic Areas
During fiscal year 1999, the company adopted SFAS No.131, "Disclosures about
Segments of an Enterprise and Related Information." The company evaluates the
performance of its operating segments based on earnings before income taxes.
Intersegment sales are not significant. Summarized financial information
concerning the company's reportable segments is shown in the following table (in
millions):
<TABLE>
<CAPTION>
Three months ended
December 31, 1999 Leasing Services Prism Ventures Total
- ------------------ ------- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Revenues ...................... $ 588 $ 147 $ 1 $ 141 $ 877
Segment profit (loss) ......... 9 22 (27) 61 65
Capital expenditures .......... 774 55 76 244 1,149
Depreciation and amortization.. 375 11 3 28 417
Three months ended
December 31, 1998 Leasing Services Prism Ventures Total
- ------------------ ------- -------- ----- -------- -----
Revenues ...................... $ 767 $ 118 $ -- $ 36 $ 921
Segment profit ................ 32 18 -- 10 60
Capital expenditures .......... 835 36 -- 108 979
Depreciation and amortization.. 534 3 -- 18 555
</TABLE>
-12-
The following table presents total assets for each of the company's reportable
segments (in millions):
December 31 September 30
1999 1999
----------- ------------
Leasing ....................... $6,428 $6,358
Services ...................... 545 479
Prism ......................... 270 124
Ventures ...................... 1,190 846
------ ------
Total ......................... $8,433 $7,807
====== ======
The following table presents revenue by geographic location based on the
location of the company's local office (in millions):
Three months ended
December 31,
1999 1998
----- -----
North America ................. $ 707 $ 654
Europe ........................ 140 172
Pacific Rim ................... 30 95
----- -----
Total ......................... $ 877 $ 921
===== =====
The following table presents total assets by geographic location based on the
location of the asset (in millions):
December 31 September 30
1999 1999
----------- ------------
North America ................. $6,822 $6,272
Europe ........................ 1,019 1,029
Pacific Rim ................... 592 506
------ ------
Total ......................... $8,433 $7,807
====== ======
-13-
<PAGE>
Comdisco, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
Certain statements herein constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and the company intends that such
forward-looking statements be subject to the safe harbors created thereby. The
words and phrases "looking ahead," "we are confident," "should be," "will be,"
"predicted," "believe," "expect" and "anticipate" and similar expressions
identify forward-looking statements. These forward-looking statements reflect
the company's current views with respect to future events and financial
performance, but are subject to many uncertainties and factors relating to the
company's operations and business environment which may cause the actual results
of the company to be materially different from any future results expressed or
implied by such forward-looking statements. Examples of such uncertainties
include, but are not limited to, those risk factors set forth generally
throughout this Management's Discussion and Analysis of Financial Condition and
Results of Operations and specifically under "Risk Factors that May Affect
Future Results" and should be read in conjunction with the company's Annual
Report on Form 10-K dated December 21, 1999 and filed with the Securities and
Exchange Commission on December 22, 1999, under Business-Forward-Looking
Information which is incorporated herein by reference.
Overview
The industry in which the company operates has become service oriented, with the
business driven by service capabilities. Accordingly, Comdisco has aligned into
four primary business lines: technology services, global leasing in areas such
as electronics, communications, medical, laboratory and scientific equipment
(referred to as "Equipment Services") and the financing of other high technology
equipment (including information technology equipment) and Prism (as defined and
described in "Business"), (services, leasing and Prism are collectively referred
to as "Comdisco Group") and Comdisco Ventures ("Ventures").
Net Earnings
Net earnings available to common stockholders (hereinafter referred to as "net
earnings") for the three months ended December 31, 1999 were $42 million, or
$.26 per diluted common share, as compared to $38 million, or $.24 per diluted
common share, for the three months ended December 31, 1998. The increase in net
earnings and earnings per share in the three months ended December 31, 1999
compared to the year earlier period is primarily due to increased earnings by
Ventures, offset by lower earnings contributions from leasing and the impact of
Prism losses. Remarketing (as discussed below) decreased in the current year
quarter as compared to both the fourth and first quarter of fiscal 1999, which
had a negative impact on earnings contributions from leasing.
-14-
Business
Comdisco Group:
Services: The company's technology services business attained record revenues in
the first quarter of fiscal 2000, however, higher costs, primarily associated
with higher personnel costs and continued investment in new service development,
negatively impacted margins on the company's technology services business. Costs
associated with the development and implementation of the company's network
services infrastructure had a negative impact on the network services earnings
contribution. Technology services had pretax earnings of $22 million in the
quarter ended December 31, 1999. This compares to pretax earnings of $18 million
in the quarter ended December 31, 1998 and $23 million in the quarter ended
September 30, 1999. Revenue from continuity contracts, which is recognized
monthly during the noncancelable continuity contract and is therefore recurring
and predictable, was approximately $89 million, $80 million and $84 million
during the three months ended December 31, 1999 and 1998, and September 30,
1999, respectively, representing approximately 60%, 68% and 57% of technology
services revenue. See "Risk Factors That May Affect Future Results" for a
discussion of the factors that may affect earnings contributions from services.
Leasing: Cost of equipment placed on lease was $780 million during the quarter
ended December 31, 1999. This compares to cost of equipment placed on lease of
$797 million and $766 million during the quarters ended December 31, 1998 and
September 30, 1999, respectively. Equipment Services had worldwide cost of
equipment placed on lease of $381 million, compared to $216 million in the year
earlier period. See below for a discussion of remarketing and "Risk Factors that
May Affect Future Results" for a discussion of leasing.
In addition to originating new equipment lease financing, the company remarkets
used equipment from its lease portfolio. Remarketing is the sale or re-lease of
equipment either at original lease termination or during the original lease.
These transactions may be with existing lessees or, when equipment is returned,
with new customers. Remarketing activities are comprised of earnings from
follow-on leases and gross profit on equipment sales. Remarketing activity, an
important factor in quarterly earnings, decreased in the current quarter as
compared to both the first and fourth quarters of fiscal 1999. 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. In
addition, remarketing activity will be critical in the residual leasing business
provided by Equipment Services.
On March 24, 1999, the company announced a major shift in corporate strategy,
including focusing on high-margin service businesses and shedding low-margin
businesses, including its mainframe leasing portfolio and medical refurbishing
business. The sale of the mainframe portfolio (the "Sale") and the sale of the
medical refurbishing business were both concluded in the fiscal quarter ended
June 30, 1999. In addition to these sales, the company completed the sale of
substantially its entire vendor lease portfolio in September 1999.
Prism: The company finalized the acquisition of Prism during the quarter ended
March 31, 1999. Prism is building out a high-speed, always-on digital network,
which will provide customers with leading-edge connectivity. Prism markets its
services to enterprise customers to provide employees with high-speed remote
access to their Local Area Network to improve employee productivity and reduce
operating costs, and to consumer end users. Prism's services are provided over
standard copper telephone lines at speeds significantly faster than the speed
available through a 56.6 Kilobits per second modem. Prism introduced its
services in the New York City area in January 1999 and has plans for a
nationwide rollout of its network and services to thirty-three of the largest
markets in the United States, as well as three markets in Canada. In January
2000,
-15-
In January 2000, Prism began offering carrier-grade voice and high-speed data
services simultaneously over existing telephone lines to customers in the New
York metropolitan area. Prism believes it is the first competitive local
exchange carrier to offer such services. Prism also introduced its high-speed
Internet service to the Philadelphia market.
Prism has entered into an agreement with Nortel to purchase up to $460 million
of switches, integrated line cards, customer premise equipment and ancillary
technology to establish a national, facilities-based network. Based on its
financial commitments to date, Prism will deploy the largest amount of Nortel's
digital modem technology in the United States, and because of this relationship
with Nortel, Prism expects to further benefit from advances in Nortel's future
network technology, such as its optical Internet platform. Prism believes its
network architecture, centered on Nortel's integrated voice and data approach,
offers cost benefits and could reduce provisioning time lags. As part of the
Nortel strategic relationship, Nortel purchased for cash common stock of Prism
valued at $10 million.
Prism recently entered into an agreement to purchase a 20-year indefeasible
right to use ("IRU") approximately 2,500 miles of dark fiber from Williams
Communications, Inc. ("Williams"). This purchase will allow Prism to transport
data and voice traffic, utilizing dense wave division multiplexing ("DWDM") and
high speed SONET technology, over its own dedicated fibers covering the Eastern
half of the United States for the foreseeable future. Prism also agreed to
purchase a minimum of approximately $110 million of network capacity from
Williams over the next 20 years to convey voice and data traffic in areas not
covered by its dark fiber IRU purchase. In return, Prism issued to Williams $10
million of common stock and will pay for the remainder of its obligation to
Williams with cash as capacity is used or as Prism accepts segments of the dark
fiber IRU. With this transaction and the Nortel relationship, Prism believes it
can achieve carrier class network reliability and performance, a world class
benchmark for all telecommunications companies.
Ventures:
The first quarter of fiscal 2000 was a record quarter for Ventures, with record
revenues from leasing, interest income on notes receivable and from the sale of
equity investments. Total revenue of approximately $141 million and $38 million
represented increases of 271% and 31%, respectively over the prior year periods.
Revenue from the sale of equity investments (warrant sale proceeds and capital
gains) for the quarter ended December 31, 1999 and 1998 were as follows:
1999 1998
---- ----
Proceeds from sale of equity securities....... $ 56 $ --
Less: Cost of equity securities .............. (3) --
---- ----
Capital gains ................................ 53 --
Warrant sale proceeds ........................ 36 7
---- ----
Total ........................................ $ 89 $ 7
==== ====
-16-
In addition, the valuation of Ventures' warrant and equity investment portfolio
has increased significantly, during the last twelve months, primarily as a
result strong equity markets for these securities. Accordingly, Ventures
expects, based at current stock market valuations, an increase in revenue and
earnings contributions from its equity investments in fiscal 2000. See "Risk
Factors That May Affect Future Results" for a discussion of factors that may
affect warrant sale proceeds and capital gains.
On October 15, 1999, Hybrid Venture Partners, LP ("Hybrid") was formed to act as
a funding vehicle for the Ventures' loan and equity transactions. The
partnership is in the process of raising up to $750 million from a limited
number of accredited investors, including Comdisco, which has committed $250
million. Under the terms of the partnership, Ventures will participate in the
earnings of the partnership as a limited partner. Ventures is also a member of
the general partner of Hybrid and will participate in the fees received by the
general partner.
On December 22, 1999 the company announced its intention to create a new series
of Comdisco common stock that will track the performance of Ventures, subject to
shareholder approval and resolution of certain regulatory issues. On January 26,
2000, the company filed a preliminary proxy statement with the Securities and
Exchange Commission relating to the tracking stock proposal.
Three months ended December 31, 1999
Total revenue for the three months ended December 31, 1999 was $877 million
compared to $921 million in the prior year quarter and $984 million in the
quarter ended September 30, 1999. Total leasing revenue of $555 million for the
quarter ended December 31, 1999 represented a decrease of 24% compared to the
year earlier period. Total leasing revenue was $601 million in the fourth
quarter of fiscal 1999. The decrease in the current quarter's total revenues and
leasing revenues compared to the prior year quarter was primarily due to the
Sale. Approximately $65 million of mainframe leasing revenue was included in the
revenue reported for the period ended December 31, 1998. The decrease in total
revenue in the current quarter compared to the quarter ended September 30, 1999
can be attributed to the vendor portfolio sale that occurred during the fourth
quarter of fiscal 1999.
Operating lease revenue minus operating lease cost was $83 million, or 19.1% of
operating lease revenue (collectively, the "Operating Lease Margin"), and $101
million, or 19.0% of operating lease revenue, in the three months ended December
31, 1999 and 1998, respectively. The Operating Lease Margin was $89 million, or
19.5% in the quarter ended September 30, 1999. The company expects the Operating
Lease Margin to be at approximately current levels throughout fiscal 2000,
depending on the mix of equipment leased and product announcements by
manufacturers. The decrease in operating lease revenue minus operating lease
cost in the quarter ended December 31, 1999 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.
Revenue from sales, which includes remarketing by selling and buy/sell
activities, totaled $68 million in the first quarter of fiscal year 2000
compared to $58 million in the year earlier quarter. Margins on sales were and
26% and 12% in the quarters ended December 31, 1999 and 1998, respectively.
Revenue from technology services for the three months ended December 31, 1999
and 1998 was $147 million and $118 million, respectively, a 25% increase. Cost
of technology services for the three months ended December 31, 1999 and 1998 was
$125 million and $100 million, respectively, a 25% increase.
-17-
Other revenue for the three months ended December 31, 1999 and 1998 was $107
million and $13 million, respectively. Revenue from the sale of equity positions
held as a result of the company's lease and other financing transactions with
early-stage high technology companies was $89 million and $7 million in the
three months ended December 31, 1999 and 1998, respectively. Prism revenue from
subscribers was approximately $1 million in the quarter ended December 31, 1999.
Total costs and expenses for the quarter ended December 31, 1999 were $812
million compared to $861 million in the prior year period. The decrease in total
costs and expenses is primarily due to the Sale.
Selling, general and administrative expenses totaled $115 million in the quarter
ended December 31, 1999 compared to $69 million in the quarter ended December
31, 1998 and $87 million in the quarter ended September 30, 1999. The principal
reasons for the increase in the current year quarter compared to the year
earlier period are an increase in bad debt expense for the company's Ventures
division and an increase in compensation costs as a result of gains realized on
the sale of equity positions held in the Ventures portfolio. As the Ventures
business grows, the company will continue to adequately reserve for doubtful
accounts. The company expects selling, general and administrative expenses to
increase throughout fiscal 2000 because of Ventures.
Interest expense for the three months ended December 31, 1999 and 1998 totaled
$84 million. Increases in interest expense resulting from a higher average daily
borrowings in the current quarter compared to the prior year quarter were offset
by lower interest rates in the current period.
Prism expenses for the three months ended December 31, 1999 totaled $27 million.
Network and product costs for the three months ended December 31, 1999 totaled
$9 million. These costs are attributable to the expansion of Prism's networks
and increased orders resulting from their sales and marketing efforts. Sales,
marketing, general and administrative expenses were $13 million for the three
months ended December 31, 1999. These costs are attributable to growth in
headcount in all areas of Prism, continued expansion of Prism's sales and
marketing efforts, deployment of Prism's networks and building of Prism's
operating infrastructure. Depreciation and amortization was approximately $3
million for the three months ended December 31, 1999. Prism has incurred losses
in every month since its inception and the company expects to substantially
increase its operating expenditures in an effort to rapidly expand its network
infrastructure and service areas. Prism expects to incur substantial operating
losses, net losses and net operating cash outflows during its network build-out
and during the initial penetration of each new market. Its losses and net
operating cash outflows are expected to continue and to increase as it expands
its operations.
Financial Condition
The company's current financial resources and estimated cash flows from
operations are considered adequate to fund anticipated future growth and
operating requirements. The company utilizes a variety of financial instruments
to fund its short and long-term needs.
Capital expenditures for equipment are generally financed by cash provided by
operating activities, recourse debt, or by assigning the noncancelable lease
rentals to various financial institutions at fixed interest rates on a
nonrecourse basis. Cash provided by operating activities for the three months
ended December 31, 1999 and 1998 was $804 million and $706 million,
respectively. Cash provided by operations has been used to finance equipment
purchases and, accordingly, had a positive impact on the level of borrowing
required to support the company's investment in its lease portfolio. The company
expects this trend to continue, with cash flow from leasing and remarketing
reinvested in the equipment portfolio.
-18-
Risk Factors That May Affect Future Results
This Report contains forward-looking statements that involve risks and
uncertainties. The company's actual revenues and results of operations could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth in the following risk
factors and elsewhere in this Report.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
These forward-looking statements reflect the company's current views with
respect to future events and financial performance, but are subject to many
uncertainties and factors relating to the company's operations and business
environment which may affect the accuracy of forward-looking statements and
cause the actual results of the company to be materially different from any
future results expressed or implied by such forward-looking statements.
The company's actual revenues and results of operations could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the "Risk Factors." As a result of
these and other 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 the company's ability to control or predict.
OPERATING RESULTS ARE SUBJECT TO QUARTERLY FLUCTUATIONS
The company's operating results are subject to quarterly fluctuations resulting
from a variety of factors, including earnings contributions from remarketing
activities and services, product announcements by manufacturers, economic
conditions and variations in the financial mix of leases written. The financial
mix of leases written is a result of a combination of factors, including, but
not limited to, changes in customer demands and/or requirements, new product
announcements, price changes, changes in delivery dates, changes in maintenance
policies and the pricing policies of equipment manufacturers, and price
competition from other lessors and finance companies.
THE COMPANY'S GROWTH STRATEGY DEPENDS ON PRODUCT AND MARKET DEVELOPMENT
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.
THE COMPANY'S SUCCESS DEPENDS IN PART ON ANTICIPATING AND ADAPTING TO NEW
TECHNOLOGICAL DEVELOPMENTS AND CHANGING MARKET CONDITIONS.
Lower margins on large systems transactions (mainframes and related peripherals,
including DASD and tape drives) have resulted in lower margins on leasing.
Although the company has sold its mainframe residual leasing business, which may
have a positive impact on leasing margins in future quarters, 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.
-19-
REMARKETING IS AN IMPORTANT CONTRIBUTOR TO ANNUAL AND QUARTERLY EARNINGS
Notwithstanding the sale of the mainframe lease portfolio, remarketing has been
and will continue to be an important factor in determining quarterly earnings.
To meet earnings goals for fiscal 2000, remarketing contributions, primarily for
the company's global equipment leasing businesses, must be at the level achieved
in fiscal 1999. 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 COMPANY'S GROWTH STRATEGY DEPENDS IN PART ON THE COMMUNICATIONS INDUSTRY. IF
THAT INDUSTRY DOES POORLY, THE COMPANY'S BUSINESS AND FINANCIAL RESULTS MAY
SUFFER
The emergence of the communications market--facilities-based broadband
communications companies, Internet Service Providers and other
telecommunications carriers--and the growth of broadband networks, provides 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.
THE COMPANY'S SUCCESS IS HIGHLY DEPENDENT ON DEVELOPING AND EXPANDING ITS
SERVICES' BUSINESS. THE SERVICES BUSINESS MAY BE LESS PREDICTABLE AND THE
REVENUE LESS RECURRING THAN CONTRACTUAL LEASE AND CONTINUITY SERVICES REVENUE.
COMPETITION IN SERVICES MAY NEGATIVELY IMPACT THE COMPANY'S BUSINESS STRATEGY.
REVENUE RECOGNITION CAN BE NEGATIVELY AFFECTED BY LONGER SALES CYCLES
As a result of the evolving nature of its services business, particularly the
emerging desktop management and managed network services, the company has
limited meaningful historical data in which to base its planned operating
expenses. Accordingly, a significant portion of the company's expense levels
(investment in continuity facilities and hardware, consultants, experts and back
office personnel) are based in part on its expectations as to future services
revenues, and are, to a large extent, fixed. Conversely, the company's revenue
base has become more diverse with the growth of other technology services
revenue. To attain its services earnings contribution goals for fiscal 2000, the
Company must: meet its obligations under the agreements underlying transactions
in process at September 30, 1999 (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 2000.
-20-
One impact of the company's changing business model is the lengthening of the
sales cycle--the length of time between initial sales contact and final delivery
of contracts--as compared to its traditional leasing business. This increase in
sales cycle results in an increase in negotiations in progress which ultimately
impacts the timing of revenue, earnings and volume recognition.
COMDISCO VENTURES CUSTOMERS ARE IN AN EARLY STAGE OF DEVELOPMENT AND MAY BE
UNABLE TO COMPLETE THEIR BUSINESS PLANS. EQUITY INSTRUMENTS HELD BY COMDISCO
VENTURES ARE RISKY INVESTMENTS AND THE PUBLIC MARKET FOR THESE COMPANIES IS
EXTREMELY VOLATILE. 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.
The company has made loans to and equity investments in various privately held
companies. These companies typically are in an early stage of development with
limited operating histories, and limited or no revenues and may be expected to
incur substantial losses. 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 subject to lockup agreements
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. 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.
The company has established working relationships with successful venture
capital organizations. There can be no assurance that these relationships 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.
The current economic environment has been sustained over a number of years and
is currently the longest continuous period of economic growth in the last thirty
years. This environment has encouraged entrepreneurs to conceive, develop and
bring to market new products and services. The company targets these early-stage
companies for its services and products. A slow down in economic growth could
materially affect the market in which the company operates. Furthermore, a slow
down would impact potential investors in any limited partnerships the company
may form, and this in turn, would have a material impact on Ventures liquidity
and access to funds.
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, its loan collectability, as well as, the fair market value of its
equity instruments.
If companies with which Ventures has effected transactions are not successful or
the markets become unfavorable, Ventures' customers may not be able to complete
securities offering and Ventures may not be able to generate gains or receive
proceeds from the sale of securities.
-21-
Fluctuations in future periods may be greater that those experienced in past
periods as a result of Ventures' focus on companies related to the Internet and
telecommunications. Furthermore, for those customers whose securities are not
publicly traded, the realizable value of Ventures' interests may ultimately
prove to be lower than the carrying value currently reflected in the
consolidated and the separate Ventures' financial statements.
In the past Ventures financed its operations with inter-company loans from
Comdisco. Ventures may need to obtain funding from outside sources and may not
be able to obtain funding from outside sources. Furthermore, even if funding is
available, such financing may not be on terms as favorable as those obtained
from Comdisco.
A portion of Ventures future revenue and earnings will be based upon the
performance of Hybrid. There can be no assurance that Hybrid will be successful
of profitable in its operations.
Ventures depends on certain important employees and the loss of those employees
could harm and disrupt Ventures' business.
THE COMPANY'S PRISM SUBSIDIARY IS A START UP COMPANY WITH AN AGGRESSIVE BUSINESS
PLAN IN A NEW AND UNPROVEN INDUSTRY.
Prism is a start up company that has incurred operating losses since inception
and the company expects that Prism's operating losses will continue to increase
as it introduces its services throughout New York City and the Northeast
corridor. In addition, Prism will require substantial additional capital to
support its data network, to expand its services, to increase its sales and
marketing efforts and to support the its growth. To the extent that revenues do
not grow at anticipated rates or that increases in such operating expenses
precede or are not subsequently followed by commensurate increases in revenues,
or that the company is unable to adjust operating expense levels and/or capital
expenditures of Prism accordingly, the company's business, results of operations
and financial condition could be significantly affected. There can be no
assurance that in the future Prism will be profitable on a quarterly or annual
basis.
Prism operates in a highly regulated environment. Changes in regulatory policies
may adversely impact its ability to provide services and increase the costs of
providing those services.
Prism's business strategy is largely unproven. A number of factors may affect
Prism's ability to attain its business plan, including the following:
o its ability to successfully market its existing and planned services to
current and new customers;
o its ability to generate customer demand for its services in target markets;
o the development of its target market and market opportunities;
o market pricing for its services and for competing services;
o the extent of increasing competition;
o ability to acquire funds to expand its network;
o the ability of its equipment and service suppliers to meet its needs;
o trends in regulatory, legislative and judicial developments;
o its ability to manage growth of its operations;
o its ability to access regions and enter into suitable interconnection
agreements with traditional telephone companies;
o its ability to improve its existing services and to introduce new service
offerings without interruption or interference with its operations, in a timely
and cost effective manner;
o its ability to improve its technology infrastructure to respond to
technological change and new industry standards;
o its reliance on third parties, including
some of its competitors and potential competitors to develop and provide Prism
with access to communications and networking technology;
o its ability to rapidly expand the geographic coverage of its services; o its
ability to attract, retain and motivate qualified persons; o its ability to
rapidly install high-speed access lines; o its ability to effectively manage
growth of operations; and o its ability to deliver additional value-added
services to its customers.
-22-
Furthermore, Prism's operating results are likely to fluctuate significantly in
the future as a result of numerous factors, many of which are outside of its
control. These factors include, but are not limited to: o the timing and
willingness of traditional telephone companies to provide it with central office
space and the prices, terms and conditions on which they make available the
space to Prism;
o the amount and timing of capital expenditures and other costs relating to the
expansion of its networks and the marketing of its services;
o delays in the commencement of operations in new regions and the generation of
revenue because certain network elements have lead times that are controlled by
traditional telephone companies and other third parties;
o the ability to develop and commercialize new services by Prism or its
competitors;
o the ability to deploy on a timely basis its services to adequately satisfy
end-user demand;
o the ability to successfully operate its networks;
o the rate at which customers subscribe to its services;
o decreases in the prices for its services due to competition, volume-based
pricing and other factors;
o the mix of line orders between consumer end-users, and business
end-users (which typically have higher margins);
o the success of its relationship with Williams, Nortel and other potential
strategic partners;
o the development and operation of Prism's billing and collection systems and
other operational systems and processes;
o the rendering of accurate and verifiable bills by Prism's traditional
telephone suppliers and resolution of billing disputes;
o the incorporation of enhancements, upgrades and new software and hardware
products into its network and operation processes that may cause unanticipated
disruptions; and
o the interpretation and enforcement of regulatory developments and court
rulings concerning the 1996 telecommunications act, interconnection agreements
and the anti-trust laws.
ECONOMIC CONDITIONS AND OTHER FACTORS MAY NEGATIVELY IMPACT THE COMPANY'S
OPERATIONS
With respect to economic conditions, a recession can cause customers to put off
new investments and increase the company's bad debt experience.
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.
-23-
The company undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new information, further
events or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the company's market risk during the
three months ended December 31, 1999. For additional information, refer to page
33 of the company's Annual Report to Stockholders for the fiscal year ended
September 30, 1999.
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting of Shareholders was held on January 25, 2000.
c) The three nominees, C. Keith Hartley, Rick Kash, and William N. Pontikes
listed in the company's Notice of Annual Meeting of Stockholders and Proxy
Statement dated and mailed December 27, 1999 were elected to the Board of
Directors of the company for a term of three years.
Votes Cast Percent of Votes Votes
Nominee For Votes Cast Withheld Against
- ------- ----------- ----------- --------- -------
C. Keith Hartley 132,961,102 87% 660,726 12,394
Rick Kash 132,696,636 87% 655,192 6,860
William N. Pontikes 132,462,273 87% 889,555 241,223
Directors continuing in office until the 2001 Annual Meeting include Robert A.
Bardagy, Philip A. Hewes, Thomas H. Patrick, and Nicholas K. Pontikes. Directors
continuing in office until the 2002 Annual Meeting include Harry M. Jansen
Kraemer, Jr., Carolyn L. Murphy, and John J. Vosicky.
As set forth in the company's Notice of Annual Meeting of Stockholders and Proxy
Statement dated and mailed December 27, 1999, as Item 2, approval of KPMG LLP,
as independent auditors, to audit the financial statements for fiscal 2000 and
to perform other accounting services, as appropriate. There were 133,127,164
(87%) common shares voted for this proposal, 135,268 (less than 1%) common
shares voted against, 106,981 (less than 1%) common shares abstained and
19,174,460 (13%) were not voted.
-24-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
3.01 Restated Certificate of Incorporation of Registrant dated
February 12, 1988
Incorporated by reference to Exhibit 4.1 filed
with the company's Registration Statement on
Forms S-8 and S-3, File No. 33-20715, filed March
8, 1988.
3.02 Certificate of Amendment of Restated Certificate of
Incorporation dated February 3, 1998
Incorporated by reference to Exhibit 3.02 filed
with the company's Annual Report for the year
ended September 30, 1998 on Form 10-K, File No.
1-7725.
3.03 Certificate of Designations for Series C Junior Participating
Preferred Stock
Incorporated by reference to Exhibit 4.1 filed
with the company's Current Report on Form 8-K
dated November 5, 1997, as filed with the
Commission November 6, 1997, File No. 1-7725
3.04 By-Laws of Registrant dated November 4, 1997
Incorporated by reference to Exhibit 3.1 filed
with the company's Current Report on Form 8-K
dated November 12, 1997, as filed with the
Commission November 14, 1997 File No. 1-7725.
4.01 Indenture Agreement between Registrant and Citibank, N.A., as
Trustee dated as of June 15, 1992
Incorporated by reference to Exhibit 4.1 filed
with the company's Current Report on Form 8-K
dated September 1, 1992, as filed with the
Commission on September 2, 1992, File No. 1-7725,
the copy of Indenture, dated as of June 15, 1992,
between Registrant and Citibank, N.A., as Trustee
(said Indenture defines certain rights of
security holders).
4.02 Indenture Agreement between Registrant and Chemical Bank, N.A.,
as Trustee, dated as of April 1, 1988
Incorporated by reference to Exhibit 4.5 filed
with the company's Form 8 dated February 21,
1991, File No. 1-7725, the copy of Indenture
dated as of April 1, 1988, between Registrant and
Manufacturers Hanover Trust Company (said
Indenture defines certain rights of security
holders).
-25-
Exhibit No. Description of Exhibit
4.03 First Supplemental Indenture between Registrant and Chemical
Bank, N.A., as Trustee, dated as of January 1, 1990
Incorporated by reference to Exhibit 4.8 filed
with the company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1990, File No.
1-7725, the copy of the First Supplemental
Indenture dated as of January 1, 1990, between
Registrant and Manufacturers Hanover Trust
Company, as Trustee (said Indenture defines
certain rights of security holders).
4.04 Rights Agreement, dated as of November 17, 1997, between the
Registrant and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent, which includes as Exhibit A thereto the
Certificate of Designation, Preferences and Right of Series
C Junior Participating Preferred Stock and as Exhibit B
thereto the Form of Rights Certificate.
Incorporated by reference to Exhibit 4.1 filed
with the company's Current Report on Form 8-K
dated November 5, 1997, as filed with the
Commission November 6, 1997 File No. 1-7725.
4.05 Indenture Agreement between Registrant and The Fuji Bank and
Trust Company, as Trustee, dated as of February 1, 1995
Incorporated by reference to Exhibit 4.1 filed
with the company's Current Report on Form 8-K
dated May 15, 1995, as filed with the Commission
on May 15, 1995, File No. 1-7725, the copy of the
Indenture dated as of February 1, 1995 between the
Registrant and The Fuji Bank and Trust Company, as
Trustee (said Indenture defines certain rights of
security holders).
4.06 Indenture Agreement between Registrant and The Fuji Bank and
Trust Company, as Trustee, dated as of December 15, 1998
Incorporated by reference to Exhibit 4.1 filed
with the company's Current Report on Form 8-K
dated January 19, 1999, as filed with the
Commission on January 20, 1999, File No. 1-7725,
the copy of the Indenture dated as of December
15, 1998 between the Registrant and The Fuji Bank
and Trust Company, as Trustee (said Indenture
defines certain rights of security holders).
-26-
<PAGE>
Exhibit No. Description of Exhibit
4.07 Indenture Agreement between Registrant and SunTrust Bank,
Atlanta, as Trustee, dated as of September 15, 1999
Incorporated by reference to Exhibit 4.1
filed with the company's Registration Statement
on Form S-3 dated September 24, 1999, as filed
with the Commission on September 24, 1999,
File No. 333-87725, the copy of the Indenture
dated as of September 15, 1999 between the
Registrant and SunTrust Bank, Atlanta, as
Trustee (said Indenture defines certain rights
of security holders).
11.00 Computation of Earnings Per Share
12.00 Ratio of Earnings to Fixed Charges
27.00 Financial Data Schedule
b) Reports on Form 8-K:
None.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMDISCO, INC.
Registrant
Date: February 14, 2000 /s/ David J. Keenan
David J. Keenan
Senior Vice President
and Controller
-28-
Comdisco, Inc. and Subsidiaries
Exhibit 11.00
COMPUTATION OF EARNINGS PER COMMON SHARE
(in millions except per share data)
Average shares used in computing net earnings per common and common equivalent
share were as follows:
Three months
ended
December 31
------------
1999 1998
---- ----
Average shares outstanding ........... 152 152
Effect of dilutive options ........... 10 9
---- ----
Total ............................. 162 161
Net earnings available
to common stockholders ........... $ 42 $ 38
==== ====
Net earnings per common share
Basic ....................... $.27 $.25
==== ====
Diluted ..................... $.26 $.24
==== ====
-29-
Comdisco,Inc. and Subsidiaries
Exhibit 12.00
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Three months ended
December 31 For the years ended September 30
------------------ --------------------------------
1999 1998 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges
Interest expense (1).................................. $ 84 $ 85 $341 $329 $301 $267 $278
Approximate portion of
rental expense representative
of an interest factor .............................. 2 1 6 5 4 7 11
---- ---- ---- ---- ---- ---- ----
Fixed charges ........................................ 86 86 347 334 305 274 289
Earnings before income taxes,
net of preferred stock dividends .................... 65 60 75 238 203 176 160
---- ---- ---- ---- ---- ---- ----
Earnings before income taxes,
net of preferred stock dividend ..................... $151 $146 $422 $572 $508 $450 $449
==== ==== ==== ==== ==== ==== ====
Ratio of earnings to fixed charges ..................... 1.76 1.70 1.22 1.71 1.67 1.64 1.55
==== ==== ==== ==== ==== ==== ====
Rental expense:
Equipment subleases .................................. $ 1 $ 1 $ 4 $ 5 $ 6 $ 14 $ 22
Office space, furniture, etc ......................... 4 3 14 9 7 8 10
---- ---- ---- ---- ---- ---- ----
Total ............................................. $ 5 $ 4 $ 18 $ 14 $ 13 $ 22 $ 32
==== ==== ==== ==== ==== ==== ====
1/3 of rental expense ............................. $ 2 $ 1 $ 6 $ 5 $ 4 $ 7 $ 11
==== ==== ==== ==== ==== ==== ====
<FN>
(1) Includes interest expense incurred by technology services and included in
technology services expenses on the statements of earnings.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information
extracted from the Quarterly Report on Form 10-Q
for the quarter ended December 31, 1999 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000722487
<NAME> Comdisco, Inc.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> Oct-01-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 323
<SECURITIES> 517
<RECEIVABLES> 869
<ALLOWANCES> 68
<INVENTORY> 140
<CURRENT-ASSETS> 3,817
<PP&E> 8,372
<DEPRECIATION> 2,594
<TOTAL-ASSETS> 8,433
<CURRENT-LIABILITIES> 1,609
<BONDS> 3,686
<COMMON> 22
0
0
<OTHER-SE> 1,206
<TOTAL-LIABILITY-AND-EQUITY> 8,433
<SALES> 555
<TOTAL-REVENUES> 877
<CGS> 411
<TOTAL-COSTS> 728
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> 65
<INCOME-TAX> 23
<INCOME-CONTINUING> 42
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.26
</TABLE>
