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Estimated residual values of
after giving retroactive effect to the three-for-two
leased property 12,324 9,160
split effected in March 1982 (See Note 9). Dilutive
Less unearned income 12,784 9,774
stock options included in the number of common
Net investment in sales-type and
and common equivalent shares are based on the direct ¬nancing leases $23,682 $17,890
treasury stock method. The number of common and
common equivalent shares used in the computation
Future minimum lease payments to be received
of earnings per share for the years ended Septem-
under the above lease agreements are as follows:
ber 30, 1982, 1981 and 1980 were 14,486,738,
12,269,703 and 11,050,277, respectively.
Sales-type and
Foreign Currency Translation: Fiscal 1982 consoli- direct ¬nancing
Years ending September 30 leases
dated ¬nancial statements have been prepared in
accordance with Financial Accounting Standards (in thousands)
1983 $ 7,306
Board Statement No. 52, “Foreign Currency Trans-
1984 7,416
lation,” the provisions of which were adopted by the
1985 5,534
Company on a prospective basis as of October 1,
1986 2,637
1981. Previous consolidated ¬nancial statements
1987 1,249
have been prepared in accordance with Statement
$24,142
No. 8, “Accounting for the Translation of Foreign
Currency Transactions and Foreign Currency Finan-
cial Statements.” The effect of the change was not The Company ¬nances most sales-type and direct
material. ¬nancing leases by assigning the non-cancellable
825
Case: Comdisco, Inc. (A)




95
Part 4 Additional Cases




rentals on a non-recourse basis. The proceeds from ment, which expires March 31, 1983, carries an
the assignment reduce the investment in sales-type interest cost of prime rate (13.5% at September 30,
and direct ¬nancing leases. Any gain or loss on the 1982) and includes a fee of 3/8% per annum of the
assignment is recognized at the time of such assign- average daily unused amount. If the Company or
ment. the bank elects not to renew the agreement, the
loan becomes a two-year term loan payable in
4. Capitalized Leases equal quarterly installments with an interest cost of
Capitalized leases “ computer equipment at Sep- prime rate plus 1%. Under the agreement, the Com-
tember 30 is comprised of the following: pany is required to maintain a de¬ned debt to net
worth ratio and dividend payments cannot exceed
1982 1981 20% of consolidated net earnings subsequent to
September 30, 1980. At September 30, 1982,
Capitalized leases “ computer (in thousands)
approximately $4,280,000 of retained earnings
equipment $24,158 $23,225
were available for payment of dividends.
Less accumulated amortization 15,354 12,099




Comdisco (A)
Net capitalized leases “ com-
In accordance with the terms of the agreement, the
puter equipment $ 8,804 $11,126
Company is required to maintain average cash
balances with the bank equal to 5% of the
At September 30, 1982, the Company, as lessee, $25,000,000 loan commitment. The amount of
was obligated to pay rentals under capitalized unused available borrowings under the agreement
leases. The related equipment has been subleased was $25,000,000 at September 30, 1982.
and accounted for either as operating leases or as
At September 30, 1982, the Company had addi-
direct ¬nancing leases. The following table summa-
tional unused lines of credit totaling $20,000,000
rizes minimum rentals payable by the Company as
under which borrowings would bear interest at the
lessee under capitalized leases:
prime rate. Under the agreements, the Company is
required to maintain compensating balances equal
Capitalized
to 5% of the outstanding borrowings.
Years ending September 30 leases
(in thousands)
6. Note Payable to Bank and Subordinated
1983 $ 8,196
Debentures
1984 6,987
1985 4,801 Note Payable to Bank: The note payable to bank at
1986 2,618 September 30, 1982 and 1981 was an 113„4% term
1987 1,810 note payable in quarterly installments through
Later years 521 December, 1984.
Total minimum lease payments 24,933
13% Convertible Subordinated Debentures: In June
Less imputed interest (9% to 17%) 6,297
1981, the Company issued $50,000,000 of 13%
Present value of net mimum lease
convertible subordinated debentures (“Convertible
payments $18,636
Debentures”) due in 2001. Issue costs of
$1,440,000 relating to the Convertible Debenture
Total minimum lease payments for capitalized leases
may be converted into shares of common stock of
have not been reduced by minimum non-cancelable
the Company, prior to maturity, at the option of the
sublease rentals of $16,094,000 due the Company
convertible Debenture holder at a conversion price
in the future.
of $19.50 per share.
5. Bank Borrowings and Compensating The Convertible Debentures are redeemable in full
Balances or in part at the option of the company beginning in
The Company has a revolving credit agreement 1981 at an amount equal to 113.0% of the principal
which entitles the Company to borrow up to amount of the Convertible Debentures, the premium
$25,000,000 on an unsecured basis. The agree- on redemption declining 1.3% per annum com-
826 Case: Comdisco, Inc. (A)




96 Part 4 Additional Cases




mencing in 1982 through 1991, and redeemable 1982 1981 1980
thereafter at par.
Earnings before income taxes:
111„2% Subordinated Debentures: At September 30, Domestic $51,166 $18,992 $8,203
Foreign 2,643 2,379 781
1982, $12,250,000 of 111„2% subordinated deben-
Total $53,809 $21,371 $8,984
tures (the “Debentures”) due December 1, 1992,
were outstanding. Annual sinking fund payments of
Income tax bene¬ts of $1,252,000 and $1,123,000
$1,350,000 (9% of the aggregate original principal
resulting from the exercise of non-quali¬ed stock
amount) commence December 1, 1982, and are
options were utilized to reduce the current Federal
calculated to retire 90% of the issue prior to matu-
tax provision in ¬scal 1982 and 1980, respectively.
rity. During ¬scal 1981, the Company, in connection
with future sinking fund requirements, acquired The reasons for the difference between the U.S. Fed-
$2,750,000 principal amount of the outstanding eral income tax rate of 46% and the effective income
debentures which resulted in a gain of $318,000 tax rate were as follows:
(net of income taxes of $270,000).
Comdisco (A)




Percentage of Pretax Earnings
Both the Debentures and the Convertible Deben-
Years ended September 30, 1982 1981 1980
tures are subordinated to all senior indebtedness as
U.S. Federal income tax 46.0% 46.0% 46.0%
de¬ned in the indenture agreements. At September
Increase (reduction) resulting
30, 1982, the Company™s senior indebtedness was from:
approximately $2,473,000. Domestic International Sales
Corporation tax bene¬t (.1) (1.2) (6.8)
The annual maturities and sinking fund require- Reduction of deferred income
ments of the note payable and subordinated deben- taxes applicable to invest-
ment tax credit carryforward ” (20.4) (20.1)
tures for the next ¬ve years are as follows:
Investment tax credit (2.0) ” ”
State income taxes, net of U.S.
Aggregate tax bene¬t 1.4 1.2 1.1
Years ending September 30 Maturities Other “ net .1 1.2 .6
(in thousands) 45.4% 26.8% 20.8%
1983 $1,060
1984 1,060 The Company has not provided for income taxes on
1985 1,565
the unremitted earnings of the Domestic Interna-
1986 1,350
tional Sales Corporation (DISC) subsidiary aggre-
1987 1,350
gating $4,253,000 through September 30, 1982,
since the Company intends to postpone inde¬nitely
7. Income Taxes the remittance of such earnings.
The following data relate to the provision for income Deferred income taxes provided for timing differ-
taxes for the years ended September 30: ences were as follows:
1982 1981 1980 Years ended
September 30, 1982 1981 1980
Provision in lieu of income
taxes $1,252 ” $1,123 (in thousands)
Current: Sale of tax bene¬ts $38,661 ” ”
Federal 5,000 ” ” Difference between depre-
State 1,076 ” ” ciation for tax purposes
and ¬nancial statement
6,076 ” ”
purposes (18,125) 6,311 570
Deferred:
Deferred compensation
Federal 16,281 4,216 147
expense 754 (754) ”
State 273 553 220
Deferred leasing income 2,934 (2,093) ”
Foreign 550 961 380
Deferred leasing costs 1,518 1,164 793
17,104 5,730 747 Portion of undistributed
Total tax provision $24,432 $5,730 $1,870 earnings in DISC (178) (454) 231
827
Case: Comdisco, Inc. (A)




97
Part 4 Additional Cases




per share. On January 28, 1981, the Board of
Years ended
Directors of the Company declared a ¬ve-for-four
September 30, 1982 1981 1980
split of the Company™s common stock. All references
Difference between leases
in the ¬nancial statements and notes to the number
accounted for as sales-
type leases for ¬nancial of shares of common stock and per share amounts
statement purposes and
have been adjusted for the aforementioned stock
operating leases for tax
splits.
purposes (23,601) 194 2,915
Reinstatement (reduction)
On November 18, 1981, the Board of Directors
of deferred income
taxes applicable to: approved the Settlement Agreement (the “Agree-
Investment tax credit
ment”) between the Company and participants in
carryforward 12,021 (4,356) (1,803)
the Residual Incentive Compensation Plan (the
Tax net operating loss
“Plan”) related to vested residual computer interests.
realization (carryfor-
ward) ” 2,323 (650)
The Plan provided in part for the allocation of a per-
Income tax bene¬t result-
centage interest in the residual value of computer




Comdisco (A)
ing from exercise of
equipment to the participants. The Agreement was
non-quali¬ed stock
options ” 1,903 (1,123)
approved by the stockholders on March 15, 1982,
Other “ net 3,120 1,492 (186)
and pursuant to the terms of the Agreement, the
$17,104 $5,730 $747
Company distributed to participants in accordance
with the terms of the Plan, the aggregate sum of
$3,000,000 plus 150,000 shares of the Company™s
8. Discounted Lease Rentals common stock.
Leased equipment owned by the Company is Dividends on Common Stock: Common stock divi-
¬nanced by assigning the noncancellable rentals to dends paid were $.23 per share in 1982 compared
various lenders at ¬xed interest rates on a nonre- with $.18 in 1981 and $.15 in 1980. Certain of¬c-
course basis. The proceeds from the assignment of ers and directors of the Company and their af¬li-
the lease rentals (discounted lease rentals) represent ates, owning an aggregate of 5,028,645 shares

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