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Cash and marketable securities at end of period $175,215 $4,586

Notes to Consolidated Financial Statements
June 30, 1983 and 1982 (unaudited)

1. Principles of Reporting
The accompanying consolidated ¬nancial statements include the accounts of the
Company and its wholly-owned subsidiaries after elimination of intercompany accounts
and transactions. In the opinion of management, the accompanying consolidated ¬nan-
cial statements contain all adjustments necessary for a fair presentation. The Company
has a ¬scal year that ends September 30.
The balance sheet at September 30, 1982 has been derived from the audited ¬nan-
cial statements at that date.

2. Subordinated Debentures
On November 4, 1982, the Board of Directors announced the redemption of all of
the Company™s 13% Convertible Subordinated Debentures Due 2001 (the “Convertible
Debentures”) at a redemption price of $1,117 for each $1,000 principal amount of Con-
Case: Comdisco, Inc. (A)

Part 4 Additional Cases

vertible Debenture, plus accrued and unpaid interest to December 6, 1982. The Convert-
ible Debentures were convertible into shares of common stock of the Company, at the
option of the Convertible Debenture holder, at a conversion price of $9.75 per share.
Common stock issued upon conversion of $49,839,000 principal amount of the convert-
ible Debentures totaled 5,111,360 shares.
On May 4, 1983, the Company completed the sale of $250,000,000 principal
amount of its 8% Convertible Subordinated Debentures Due May 1, 2003 (the “Deben-
tures”). The Debentures are convertible into common stock of the Company at the rate of
$36.50 per share. An aggregate of 6,849,315 shares has been reserved for issuance
upon conversion of the Debentures. Temporarily, the net proceeds from the Debentures,
which amounted to approximately $245,250,000, have been invested in short-term
instruments and used to ¬nance an increase in the Company™s lease portfolio pending
receipt of cash upon discounting of the related lease receivables.

Comdisco (A)
3. Income Taxes
The rates used in computing the provision for federal income taxes at June 30, 1983
and 1982 vary from the statutory tax rate primarily due to investment tax credits gener-
ated in the respective years and Domestic International Sales Corporation (DISC) tax ben-
e¬ts. During the third quarter of ¬scal 1983, the Company generated substantial
investment tax credits resulting from the increase in leasing activity. Accordingly, the Com-
pany estimates that the annual effective tax rate will be approximately 27% for ¬scal 1983
compared to the estimated rates of 33% and 40% used in the ¬rst six months of ¬scal
1983 and the ¬rst nine months of ¬scal 1982, respectively. The reduction in the estimated
income tax rate resulted in an increase of approximately $2,100,000 in net earnings or
$.07 per share in the third quarter of ¬scal 1983. The effective tax rate for the quarter
and nine months ended June 30, 1982 varies from the estimated annual rate due to a
reinstatement of deferred income taxes resulting from the sale of investment tax credits
which had been used to reduce deferred income taxes at September 30, 1981.

4. Common Stock
All references in the ¬nancial statements and notes to the number of common shares
and per share data have been adjusted for the two-for-one stock split distributed in
March 1983.
814 Case: Comdisco, Inc. (A)

84 Part 4 Additional Cases

Comdisco, Inc. Annual Report for Fiscal Year 1982 (abridged)

To Our Stockholders
In ¬scal 1982 Comdisco continued its outstanding marketing efforts led to a 31% increase in its cus-
performance with record earnings and revenues. tomers, which include most of the largest corpora-
Net earnings of $29.4 million, or $2.27 per share, tions in the United States. In ¬scal 1981 Comdisco
represented increases of 88% and 68%, respectively, set up a “mid-range” marketing force that has suc-
over ¬scal 1981, while total revenue increased 56% cessfully expanded the Company™s customer base
to $471.6 million. These results were achieved among medium-sized corporations. Comdisco™s
despite the recessionary economic environment. The foreign subsidiaries continued to increase their mar-
compound annual growth rate in net earnings over keting presence and also produced record results in
the last ¬ve years is an exceptional 43%. The pri- the twelve months ended September 30, 1982.
Comdisco (A)

mary factors contributing to the record earnings in Fiscal 1982 also saw the continued re¬nement of
¬scal 1982 were the increased volume and pro¬t- Comdisco™s computerized marketing data base that
ability of ¬nancial services activity, the growth of the tracks user information for virtually all large IBM sys-
Company™s lease and customer bases, and the abil- tems installed in the United States.
ity of the Company to capitalize on the active market Two of Comdisco™s newer subsidiaries, Comdisco
for IBM 3033 processors and disk storage devices. Disaster Recovery Services and Comdisco Technical
Services, made signi¬cant progress in ¬scal 1982.
The higher level of ¬nancial services activity was the
The addition of the Texas Disaster Recovery Center
result of tax-advantaged leasing transactions associ-
by December 31, 1982 will bring the number of
ated with the Company™s lease portfolio of used
centers to four, providing further evidence that Com-
equipment and also the arrangement of “tax bene¬t
disco Disaster Recovery Services can provide its cus-
transfers” that were structured under the Economic
tomers with the most comprehensive disaster back-
Recovery Tax Act of 1981. Late in ¬scal 1982, Con-
up services available. Comdisco Technical Services
gress passed the Tax Equity and Fiscal Responsibility
expanded its equipment installation and facilities
Act of 1982, which included legislation that will
planning operations and showed increased pro¬t-
eventually eliminate “tax bene¬t transfers.” This will
cause the arrangement of traditional leveraged
leases to re-emerge as a primary ¬nancial services Probably as signi¬cant as the record earnings results
activity of the Company. achieved in ¬scal 1982, was the strengthening of
Comdisco™s ¬nancial position. Total assets increased
The growth of Comdisco™s lease base continued on
33% to $536.7 million, while stockholders™ equity
a strong trend in ¬scal 1982 as more users commit-
increased 55% to $9.1 million. The announcement
ted themselves to the leasing of equipment. The
in early November 1982 of the redemption of the
Company signi¬cantly increased its activity in the
Company™s $50 million convertible debentures is
leasing of peripheral equipment. During ¬scal 1982
anticipated to increase stockholders™ equity to
the Company entered into 2,259 new leases with
approximately $140 million and will reduce the
total revenue of $701.6 million during the initial
Company™s interest expense by $6.5 million per
term of these leases. This compares to 1,620 leases
year. In addition, the Company had nearly $40 mil-
and $338.8 million in revenue during ¬scal 1981.
lion in cash and marketable securities at September
The initial deliveries by IBM of its 3081 processor 30, 1982 while borrowing under various revolving
stimulated activity in all Comdisco™s businesses. The credit agreements was zero. Because of its improved
Company participated in the lease placement of ¬nancial position, Comdisco is ideally situated to
3081 processors, and in the remarketing of the dis- capitalize on opportunities in its traditional market-
placed 3033 processors. The Company™s increased place as well as those that arise in other areas.
Case: Comdisco, Inc. (A)

Part 4 Additional Cases

Management™s Discussion and Analysis of
In September 1982 Raymond F. Sebastian, formerly
President of Comdisco Financial Services (CFS), was Financial Condition and Result of
appointed to the position of Senior Vice President/
Corporate Development of Comdisco and will
devote full time to the analysis of various investment Summary
opportunities available to the Company. He was
The Company continued to achieve outstanding
replaced as President of CFS by Basil R. Twist, Jr.
growth during ¬scal 1982 as total revenue and net
who, with Mr. Sebastian, has formulated the strate-
earnings increased 56% and 88%, respectively,
gies that have made CFS so successful since its for-
compared to ¬scal 1981. Increases in revenue and
mation in 1976. Michael J. O™Connell has resigned
net earnings were accomplished despite the reces-
as Executive Vice President of Comdisco effective
sionary economic climate. Total revenue for ¬scal
January 1, 1983 to pursue other endeavors, but will
1982 and 1981 was $471.6 million and $301.5
continue as a Director. Mr. O™Connell has been with
million respectively. Net earnings increased from
Comdisco since 1971 and has made valuable con-
$15.6 million, or $1.35 a share, in ¬scal 1981 to a

Comdisco (A)
tributions to the Company™s success.
record of $29.4 million, or $2.27 a share in ¬scal
In March 1982 Comdisco split its common stock 1982. The primary factors contributing to the record
3-for-2 and paid dividends in ¬scal 1982 totaling earnings were the increased volume and pro¬tability
$.23 per share, an increase of 28% over the prior of ¬nancial services activity, the growth of the Com-
year, as adjusted. More importantly, return on aver- pany™s lease and customer base, and the ability of
age stockholders™ equity has averaged 34.0% over the Company to capitalize on the active market for
the last ¬ve years. This has occurred over a period of 3033 processors and disk storage devices.
time in which most of the Company™s borrowings,
other than discounted lease rentals, have been
eliminated. Total revenue for ¬scal 1982 re¬‚ected increases in
Comdisco begins ¬scal 1983 in a strong capital all activities. In ¬scal 1981, total revenue increased
position with high liquidity, a strong, competitive 19% over ¬scal 1980 total revenue, as a result of
market position and a comprehensive array of com- higher revenue from all activities other than sale of
plementary services for its customers. The Company computer equipment. For the ¬ve year period ended
provides leasing and other cost-effective services September 30, 1982, the Company has achieved
which continue to be attractive despite the current an annual compound growth rate of 25% for total
economic outlook. The delivery of more IBM 3081 revenue.
processors will also increase opportunities for The growth of the Company™s lease base continued
Comdisco in its marketplace. on a strong trend during ¬scal 1982. This growth
Perhaps more so than many companies, Comdisco has been achieved as a result of the increased
relies on the determination, skill and creative ener- demand for leasing, broader penetration of the
gies of its employees for its past and future success. market, and the increase of activity levels created by
This is another factor that gives me much optimism initial product deliveries by IBM. Leasing offers com-
for Comdisco™s continued success. With the on- puter users ¬‚exibility through short term commit-
going dedication of Comdisco™s employees and the ments and conserves capital in a weak economy. As
support of the Company™s customers and stockhold- a result of this growth, rental revenue of $206.6 mil-
ers, I am con¬dent that Comdisco™s superior growth lion in ¬scal 1982 and $131.6 million in ¬scal 1981
rates in earnings and revenue can be maintained. represented increases of 57% and 62%, respectively,
over the preceding year.
Kenneth N. Pontikes
Revenue from the sale of computer equipment
Chairman of the Board and
increased during ¬scal 1982 as a result of the active
market for the IBM 3033 processor. The market for
November 11, 1982 3033 processors was stimulated by initial deliveries
816 Case: Comdisco, Inc. (A)

86 Part 4 Additional Cases

of IBM™s 3081 processor and by the impact of IBM Income Taxes
purchase price reductions on the 3033, which
Income taxes as a percentage of earnings before
improved its price/performance ratio. Revenue from
income taxes were 45.4% in ¬scal 1982 compared
the sale of computer equipment declined 16% in ¬s-
to 26.8% in ¬scal 1981 and 20.8% in ¬scal 1980.
cal 1981 compared to ¬scal 1980, primarily due to
Note 7 of Notes to Consolidated Financial State-
computer users™ increased preference for leasing.
ments provides details about the Company™s
Financial services revenue totaled $73.9 million in income tax provisions and effective tax rates. The
¬scal 1982 in comparison to $30.8 million in ¬scal higher effective tax rate in ¬scal 1982 was attribut-
1981. The increase in ¬nancial services revenue was able to lower investment tax credits due to the sale
primarily the result of tax-advantaged computer of such bene¬ts by the Company as permitted under
leasing transactions associated with a portion of the the Economic Recovery Tax Act of 1981 (the “Act”).
Company™s lease portfolio of used equipment and The Act liberalized the leasing provisions of the tax
also tax bene¬t transfers that were structured under law and made it possible for corporations which
the Economic Recovery Tax Act of 1981. Fiscal 1981
Comdisco (A)

cannot use all their current year tax deductions and
¬nancial services revenue increased 119% over ¬s- credits to transfer them to other corporations. The
cal 1980 due to higher revenue from tax leveraged tax bene¬t transfers completed by the Company in
leases with third-party investors. ¬scal 1982 provided cash ¬‚ow bene¬ts which other-
wise would not have been available until future
Cost and Expenses


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