Capitalization:
CAPITALIZATION
Comdisco, Inc.
The following table sets forth the total capitalization of Comdisco, Inc.
at June 30, 2000 and as adjusted to reflect (1) the sale of 10,000,000 newly-
issued shares of Comdisco Ventures group stock pursuant to this offering and
(2) the re-classification of the existing common stock of Comdisco into
Comdisco group stock. This table should be read in conjunction with the
consolidated financial statements of Comdisco and related notes appearing
elsewhere in this prospectus, and in Comdisco's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000 that are incorporated by reference into
this prospectus.
<TABLE>
<CAPTION>
June 30, 2000
-----------------------
Actual As Adjusted
---------- -----------
(in millions, except
for per share data)
<S> <C> <C>
Interest bearing liabilities
Notes payable and term notes...................... $ 2,143 $ 2,005
Senior notes...................................... 3,384 3,384
Other............................................. 526 526
Preferred stock, $.10 par value; authorized
100,000,000 shares; issued 0 shares................ -- --
Comdisco group stock, $.10 par value; authorized
750,000,000 shares; issued 224,906,304............. 22 22
Comdisco Ventures group stock, $.10 per value per
share; authorized 750,000,000 shares; issued
10,000,000 shares; and 75,000,000 shares in respect
of Comdisco, Inc. interest in Comdisco Ventures
group allocated to Comdisco group (1).............. -- 1
Additional paid-in capital.......................... 375 512
Accumulated other comprehensive income.............. 162 162
Retained earnings................................... 1,223 1,223
---------- ----------
1,782 1,920
Common stock held in treasury, at cost.............. (538) (538)
---------- ----------
Total stockholders' equity........................ 1,244 1,382
---------- ----------
Total capitalization............................ $ 7,297 $ 7,297
========== ==========
--------
(1) The number of shares of Comdisco Ventures group stock outstanding
excludes 12,750,000 shares of Comdisco Ventures group stock that have been
reserved for issuance under a management incentive plan in which those
employees responsible for the operation of Comdisco Ventures group participate.
As of May 26, 2000, options for 11,666,250 shares had been granted under that
plan. The number of shares also excludes 8,250,000 shares of Comdisco Ventures
group stock reserved for issuance under our other stock-based compensation
plans.
Comdisco Ventures Group
The following table sets forth as of June 30, 2000 the total
capitalization of Comdisco Ventures group as adjusted to give effect to the
issuance of 10,000,000 newly-issued shares of Comdisco Ventures group stock and
the use of proceeds from this offering as described above in "Use of Proceeds."
This table should be read in conjunction with the historical financial
information we include elsewhere in this prospectus, and assumes no exercise of
the underwriters' options to purchase additional shares that are described
under "Underwriting," beginning on page 121.
<CAPTION>
June 30, 2000
-----------------------
Actual As Adjusted
---------- -----------
(in thousands)
<S> <C> <C>
Inter-group payable................................. $1,033,040 $ 895,430
Division net worth.................................. 439,090 576,700
---------- ----------
Total capitalization.............................. $1,472,130 $1,472,130
========== ==========
</TABLE>
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF COMDISCO, INC.
The discussion below contains certain 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 "Special
Note Regarding Forward-Looking Statements" on page 44 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.
This discussion should be read along with Comdisco, Inc.'s consolidated
financial statements included in this prospectus. Historical results and
percentage relationships may not necessarily be indicative of operating results
for any future periods.
Recent Developments
On July 26, 2000, Prism announced its intention to focus its network
expansion efforts in ten markets for the present. Also, Comdisco, Inc.
announced its intention to review strategic alternatives for its investment in
Prism. The implementation of these decisions could significantly effect Prism's
business, results of operations and financial condition.
On May 4, 2000, Comdisco filed our amended and restated charter to
implement a tracking stock structure that was approved by our stockholders on
April 20, 2000. As a result, two new series of stock were created: "Comdisco
group stock" and "Comdisco Ventures group stock." Comdisco Ventures group stock
is intended to separately track the performance of Comdisco Ventures group and
Comdisco group stock is intended to separately track the performance of
Comdisco group, and the shares of Comdisco Ventures group stock reserved for
issuance for the benefit of Comdisco group or to the holders of Comdisco group
stock.
Business
Comdisco'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 Comdisco, Inc. operates has become service
oriented, with the business driven by service capabilities. Accordingly, we
have aligned into four primary business lines: (1) technology services, which
includes business continuity services, desktop management services, marketed
under the company's IT CAP Solutions brand name, managed network services and
software tools to support these areas; (2) global leasing, which we refer to as
"Leasing", in sectors such as electronics, communications, medical,
pharmaceutical, laboratory and scientific 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; (3) Prism
Communication Services, Inc., our subsidiary which provides high-speed data
connectivity, local and long-distance voice, video, Internet and secure
business applications such as automatic data storage and recovery along with
other teleworking and business-critical solutions, and which, together with our
services and Leasing, we refer to as the Comdisco group; and (4) our venture
financing business, which we refer to as the Comdisco Ventures group, which
provides venture debt and venture leasing to emerging technology companies.
In addition to originating new equipment lease financing, Comdisco
remarkets used equipment from our 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 generate
earnings from follow-on leases and gross profit on equipment sales. Remarketing
activity, an important factor in quarterly
50
<PAGE>
earnings, increased in the current quarter as compared to both the first
quarter of fiscal 2000 and fourth quarter 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 Comdisco's lease portfolio. In addition,
remarketing activity will be critical in the residual leasing business.
Comdisco finalized the acquisition of Prism during the quarter ended
March 31, 1999.
On March 24, 1999, Comdisco 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, which we refer to
as 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, we completed the sale of substantially our entire vendor lease portfolio
in September 1999.
Fiscal 1999 compared to Fiscal 1998 and Fiscal 1998 compared to Fiscal 1997
Net Earnings
Fiscal 1999 net earnings to common stockholders, referred to below as
"net earnings," were $48 million, or $.30 per common share-diluted, compared to
$151 million, or $.93 per common share-diluted, and $123 million, or $.78 per
common share-diluted, in fiscal 1998 and 1997, respectively. The decrease in
net earnings in fiscal 1999 compared to fiscal 1998 was due to $150 million of
pre-tax charges, collectively referred to as the "Charge," related to the
divestiture of low-margin businesses and the realignment of Comdisco's service
businesses and due to losses attributable to Prism, which reduced net earnings
by $36 million, or $.14 per diluted common share. Excluding the Charge and
Prism, net earnings for the year ended September 30, 1999 were $167 million, or
$1.03 per diluted common share. Excluding the Charge and Prism, the increase in
net earnings in the year ended September 30, 1999 compared to fiscal 1998 is
primarily due to remarketing activities and earnings contributions from
Comdisco Ventures group. The increase in net earnings in fiscal 1998 and 1997
compared to the prior year is due to increases in earnings contributions from
remarketing and technology services. See "Business" on page 50 for a discussion
of the Charge.
Earnings per common share, basic and diluted, in fiscal 1999 and 1998
benefited from Comdisco's stock repurchase program, which has reduced the
average common shares outstanding. However, average common shares outstanding
increased during fiscal 1998 as compared to fiscal 1997 primarily as a result
of our shared investment program, which we refer to as the "SIP." See Note 12
of Notes to Consolidated Financial Statements on page F-22. Shares issued under
the SIP in fiscal 1998 exceeded the number of shares repurchased in fiscal
1998.
In conjunction with our shift in corporate strategy, we recorded a one-
time pre-tax charge of $150 million, $96 million after tax, or approximately
$0.59 diluted per share, in the quarter ended March 31, 1999. The components of
the Charge include $100 million associated with Comdisco'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.
Leasing volume decreased in fiscal 1999 as compared to fiscal 1998,
primarily as a result of our decision to exit the mainframe leasing business
and focus on technology services. Cost of equipment placed on lease was $2.9
billion in fiscal 1999, compared to cost of equipment placed on lease of $3.3
billion and $3.1 billion in fiscal 1998 and 1997, respectively.
Comdisco's technology services attained record revenues in fiscal 1999.
However, higher costs, primarily associated with higher personnel costs and
continued investment in new service development, negatively impacted margins on
our technology services business. Costs associated with the development and
implementation of Comdisco's network services infrastructure had a negative
impact on the network services earnings contribution. Technology services had
pre-tax earnings of $82 million, excluding the pre-tax charge, compared to pre-
tax earnings of $71 million and $58 million in fiscal 1998 and 1997,
respectively. Included in the Charge is $30 million associated with the
realignment of our service
51
<PAGE>
businesses, including costs associated with the relocation of its network
management center and consolidation and reconfiguration of some of our
continuity services facilities worldwide. |
