Comdisco, Inc. Records Second Quarter Loss Resulting From Write-Offs and Reserve Additions; Suspends Quarterly Cash Dividend.Business Editors ROSEMONT Rosemont can have many meanings, including: Places
Comdisco (Comdisco, Inc., Rosemont, IL, www.comdisco.com) A technology services company, originally founded as Computer Discount Company in 1969 by Ken Pontikes. By the mid-1990s, Comdisco had become one of the largest independent computer and electronics equipment leasing companies as well as a , Inc. (NYSE NYSE See: New York Stock Exchange :CDO (Collaborative Data Objects) A programming interface from Microsoft for accessing MAPI-based e-mail, calendaring and scheduling servers. Originally called "OLE Messaging" and "Active Messaging," CDO wraps the Enhanced MAPI library into a COM object that provides the ) today reported operating results for its second quarter ended March 31, 2001. Operating results: Primarily as a result of recording additional reserves for credit losses for its Ventures operations, Comdisco reported a loss from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the of $8 million, or $.05 per common share, compared with earnings from continuing operations of $71 million, or $.44 per common share, for the year earlier period. Overall, the company had a net loss of $54 million, or $.35 per common share, compared with net earnings of $43 million, or $.26 per common share, for the year earlier period. Total revenue for the quarter was $940 million, compared with $1.0 billion for the prior year period. For the six months ended March 31, 2001, the company reported earnings from continuing operations of $82 million, or $.53 per common share, compared to $131 million, or $.80 per common share. Overall, the company had net earnings of $34 million, or $.22 per common share, compared to net earnings of $84 million, or $.52 per common share, for the prior year period. Total revenue for the six months ended March 31, 2001, was $1.84 billion, versus $1.87 billion, for the prior year period. CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. commentary: "Since joining Comdisco, I have worked with senior managers and advisers to review the company's businesses," said Norm Blake, the company's newly appointed ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. chairman and chief executive officer. "It became apparent during this review that we needed to evaluate our strategic options. Specifically, it is clear that the growth and profitability of our core businesses have been challenged by the cost and availability of funds, as well as structural costs. In addition, the company incurred higher interest costs, which in part, are associated with the debt incurred to finance discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. . Moreover, it was necessary to take additional write-offs and reserves associated with the previously announced decisions to exit Prism Communication Services and Network Services. We believe the charges taken with respect to Comdisco Ventures were necessary given the recent and rapid decline in the economic environment for venture capital-backed companies. Comdisco continues to honor As a verb, to accept a bill of exchange, or to pay a note, check, or accepted bill, at maturity. To pay or to accept and pay, or, where a credit so engages, to purchase or discount a draft complying with the terms of the draft. funding commitments to which it is obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. . We also have worked to strengthen Ventures' management and credit practices to maximize In a graphical environment, to enlarge a window to the full size of the screen. See Win Maximize windows. value. During the review process, we have retained the services of Goldman Gold·man , Emma 1869-1940. Russian-born American anarchist. Jailed repeatedly for her advocacy of birth control and opposition to military conscription, she was deported to the Soviet Union in 1919. , Sachs Sachs , Hans 1494-1576. German writer and Meistersinger noted for his many dramas, poems, and songs. His life inspired Wagner's opera Die Meistersinger von Nürnberg (1868). & Co. and McKinsey and Company to advise us in considering various strategic alternatives that best serve the interests of our stakeholders Stakeholders All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. . That process is continuing. Given the sensitivity of these matters, we are not at liberty at this time to disclose the process or timing of these actions. While the company's core businesses in leasing and in services remain sound, Comdisco will not achieve the level of earnings previously forecast primarily as a result of changing economic conditions, the credit quality of the Ventures portfolio, our cost of funds Cost of Funds The interest rate paid on an outstanding loan. Notes: Money isn't free! Cost of funds is the cost of borrowing money. See also: Interest Rate Cost of funds Interest rate associated with borrowing money. , limited access to the company's traditional funding sources, and other developments. Having recently arrived at Comdisco and with our initial strategic review still underway, I am not prepared to provide any earnings guidance regarding the company's current fiscal year at this time," Blake said. Explanation of Charges: During the second quarter of fiscal 2001, the company initiated a strategic review of all business segments. As a result of this review and deteriorating de·te·ri·o·rate v. de·te·ri·o·rat·ed, de·te·ri·o·rat·ing, de·te·ri·o·rates v.tr. To diminish or impair in quality, character, or value: market conditions, it was determined that write-offs and reserve provisions should be recorded for certain assets of its Ventures operation. In addition, additional reserves and write offs were taken relative to the exit costs of Prism Communication Services and Network Services. Continuing Operations: Ventures: The company determined that approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $206 million of additional reserves for Ventures portfolio credit losses were required. The company wrote off approximately $100 million of non-performing loans A non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 3 months, but this can depend on the contract terms. during the quarter, leaving a balance of $210 million in the reserve for credit losses as of March 31, 2001. Discontinued Operations: Prism: The company re-evaluated its estimated proceeds from the sale of certain assets of its discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: Prism operations, based primarily on current market conditions for such assets. As a result, the company recorded a noncash pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta charge of $30 million, $18 million after tax, or $.12 per common share, to write down these assets to current estimated fair market value. Loss from discontinued operations of Prism for the three and six months ended March 31, 2000 was $26 million, or $.16 per common share, and $43 million, or $.26 per common share, respectively. Network Services: Network consulting has been terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: and the network management services are being transferred to a new provider. The termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. and transfer resulted in a pre-tax charge of $38 million, $24 million after tax, or $.15 per common share. The current quarter pre-tax loss from discontinued operations was $7 million, $4 million after tax, or $.03 per common share compared to a loss of $2 million, or $.03 per common share, in the year earlier period. Loss from discontinued operations of Network Services for the six months ended March 31, 2001 and 2000 was $8 million, or $.02 per common share, and $4 million, or $.02 per common share. Dividend Information: On May 2, 2001, the Board of Directors voted to suspend the payment of quarterly dividends on its common stock until the company's liquidity and capital position warrants the resumption RESUMPTION. To reassume; to promise again; as, the resumption of payment of specie by the banks is general. It also signifies to take things back; as the government has resumed the possession of all the lands which have not been paid for according to the requisitions of the law, and the of dividend payments. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. : The foregoing contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. regarding Comdisco. They reflect the company's current views with respect to current events and financial performance, are subject to many risks, uncertainties and factors relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the company's operations and business environment which may cause the actual results of the company to be materially different from any future results, express or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. by such forward-looking statements. The company intends that such forward-looking statements be subject to the Safe Harbor created by Section 27(a) of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. The words and phrases Words and Phrases® A multivolume set of law books published by West Group containing thousands of judicial definitions of words and phrases, arranged alphabetically, from 1658 to the present. "expect," "estimate," and "anticipate" and similar expressions identify forward-looking statements. Certain factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: Adjustments arising in the course of completing the analysis of information with respect to the review of the company's businesses and evaluation of impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges; continuing volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the in the equity markets, which can affect the availability of credit and other funding sources to the high technology sector companies in the Ventures portfolio, resulting in the inability of those companies to satisfy their obligations in a timely manner and an increase in bad debt experience beyond current reserves; continued consolidation in the telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. industry and curtailment Curtailment The act of contracting or reducing operations of a company in the hope of bringing it financial or operational stability. This management technique is often used when a company has grown too fast and is unable to effectively manage its operations. of the growth plans of the remaining companies in that sector, which could result in fewer buyers and reduced prices for available Prism assets, and a further reduction in the proceeds actually received from the sale of those assets compared to prior estimates and an increase in the losses associated with the discontinued operation discontinued operation A segment of a business that has been abandoned or sold or for which plans for one or another of these actions have been approved. See also continuing operations. .. Other risk factors are listed from time to time in the company's SEC reports, including, but not limited to, the report on Form 10-Q Form 10-Q See 10-Q. for the quarter ended December December: see month. 31, 2000. Comdisco disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. About Comdisco Comdisco (www.comdisco.com) provides technology services worldwide to help its customers maximize technology functionality, predictability and availability, while freeing them from the complexity of managing their technology. The Rosemont, (IL) company offers a complete suite of information technology services including business continuity, managed web hosting Making a Web site available on the Internet. Many ISPs host a few personal Web pages for an individual at no additional cost above the monthly service fee, but the address is subordinate to the ISP; for example, www.friendlyisp.com/pat_smith. , storage and IT Control and Predictability Solutions(SM). Comdisco offers equipment solutions to key vertical industries, including semiconductor manufacturing and electronic assembly, healthcare, telecommunications, pharmaceutical, biotechnology biotechnology, the use of biological processes, as through the exploitation and manipulation of living organisms or biological systems, in the development or manufacture of a product or in the technological solution to a problem. and manufacturing. Through its Ventures division, Comdisco provides equipment leasing Equipment Leasing is a financing option to lease equipment for a certain amount of time. Leasing Benefits
Comdisco, Inc.
Revenue and Earnings Breakdown
By Lines of Business
Below are the results by lines of business for the three and six
months ended March 31, 2001 and 2000 (dollars in millions):
Three Months Ended Six Months Ended
3/31/01 3/31/00 3/31/01 3/31/00
---------- ---------- ---------- ----------
Revenue
Leasing $ 510 $ 696 $ 1,002 $ 1,284
Services 158 146 314 284
Ventures 272 160 528 302
---------- ---------- ---------- ----------
Total $ 940 $ 1,002 $ 1,844 $ 1,870
========== ========== ========== ==========
Pretax Earnings (Loss)
from normal operations
Leasing $ 11 $ 27 $ 31 $ 36
Services 7 21 18 45
Ventures (30) 63 80 124
---------- ---------- ---------- ----------
Total $ (12)$ 111 $ 129 $ 205
========== ========== ========== ==========
Earnings (Loss) Per Share
Normal operations $ (0.05)$ 0.44 $ 0.53 $ 0.80
Discontinued
operations:
Prism (0.12) (0.16) (0.12) (0.26)
Network Services (0.18) (0.02) (0.20) (0.02)
Cumulative effect of
change in accounting
principle
- - 0.01 -
---------- ---------- ---------- ----------
Diluted EPS $ (0.35)$ 0.26 $ 0.22 $ 0.52
========== ========== ========== ==========
Comdisco, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2001 and 2000 and September 30, 2000
(dollars in millions)
Mar 31, Sept 30, Mar 31,
2000 2000 2001
---------- ---------- ----------
ASSETS
Cash and cash equivalents $ 132 $ 316 $ 468
Cash - legally restricted 35 54 66
Receivables, net 980 1,181 936
Inventory of equipment 112 127 98
Leased assets 5,638 5,477 5,089
Property, plant and equipment, net 441 287 200
Equity securities 591 899 270
Other assets 486 413 397
---------- ---------- ----------
$ 8,415 $ 8,754 $ 7,524
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 1,157 $ 1,314 $ 1,174
Term notes payable 550 695 658
Senior debt 3,683 3,452 2,910
Accounts payable 164 182 152
Income taxes 467 415 170
Other liabilities 609 688 565
Discounted lease rentals 512 794 1,113
---------- ---------- ----------
7,142 7,540 6,742
---------- ---------- ----------
Stockholders' equity:
Common stock 22 23 23
Additional paid-in capital 361 360 365
Accumulated other comprehensive
income (loss) 189 317 (100)
Retained earnings 1,210 1,051 1,078
---------- ---------- ----------
1,782 1,751 1,366
Common stock held in treasury,
at cost (509) (537) (584)
---------- ---------- ----------
Total stockholders' equity 1,273 1,214 782
---------- ---------- ----------
$ 8,415 $ 8,754 $ 7,524
========== ========== ==========
Comdisco, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2001 and 2000
(in millions)
Increase (decrease) in cash and cash 2001 2000
equivalents: (Unaudited) (Unaudited)
---------- ----------
Cash flows from operating activities:
Leasing $ 1,068 $ 1,250
Services 108 61
Ventures 713 393
---------- ----------
Subtotal 1,889 1,704
Prism (60) (53)
Network Services (12) (7)
---------- ----------
Net cash provided by operating
activities 1,817 1,644
---------- ----------
Cash flows from investing activities:
Leasing (675) (1,277)
Services (108) (173)
Ventures (392) (535)
---------- ----------
Subtotal (1,175) (1,985)
Prism 5 (167)
Network Services - (2)
---------- ----------
Net cash used in investing activities (1,170) (2,154)
---------- ----------
---------- ----------
Net cash provided by (used in)
financing activities (495) 281
---------- ----------
Net increase (decrease) in cash and cash
equivalents 152 (229)
Cash and cash equivalents at beginning of period 316 361
---------- ----------
Cash and cash equivalents at end of period $ 468 $ 132
========== ==========
Comdisco, Inc.
Consolidated Statements of Earnings
For the Three and Six Months Ended March 31, 2001 and 2000
(dollars in millions except per share data)
Three Months Six Months
Ended Ended
Mar 31, % Mar 31, %
2001 2000 +/- 2001 2000 +/-
------ ------ ---- ------ ------ ----
Revenue
Leasing $ 389 $ 440 -12%$ 780 $ 874 -11%
Direct financing 45 43 5% 91 86 6%
Sales-type 45 128 -65% 87 206 -58%
------ ------ ---- ------ ------ ----
Total leasing 479 611 -22% 958 1,166 -18%
Equipment sales 104 98 6% 176 166 6%
Technology services 158 146 8% 314 284 11%
Other 199 147 35% 396 254 56%
------ ------ ---- ------ ------ ----
Total revenue 940 1,002 -6% 1,844 1,870 -1%
------ ------ ---- ------ ------ ----
Costs and expenses
Leasing
Operating 306 356 -14% 615 707 -13%
Sales-type 26 102 -75% 52 162 -68%
------ ------ ---- ------ ------ ----
Total leasing 332 458 -28% 667 869 -23%
Equipment sales 77 78 -1% 126 128 -2%
Technology services 151 125 21% 296 239 24%
Selling, general and
administrative 290 143 103% 422 258 64%
Interest 102 87 17% 204 171 19%
------ ------ ---- ------ ------ ----
Total costs and
expenses 952 891 7% 1,715 1,665 3%
------ ------ ---- ------ ------ ----
Earnings (loss) from continuing
operations before income taxes
and cumulative effect of change
in accounting principle (12) 111 -111% 129 205 -37%
Income taxes (benefit) (4) 40 -110% 47 74 -36%
------ ------ ---- ------ ------ ----
Earnings (loss) from continuing
operations before cumulative
effect of change in accounting
principle (8) 71 -111% 82 131 -37%
Loss from discontinued operations (46) (28) 64% (50) (47) 6%
------ ------ ---- ------ ------ ----
Earnings (loss) before
cumulative effect of change in
accounting principle (54) 43 -226% 32 84 -62%
Cumulative effect of change in
accounting principle - - N/A 2 - N/A
------ ------ ---- ------ ------ ----
Net earnings (loss) to common
stockholders $ (54)$ 43 -226%$ 34 $ 84 -60%
====== ====== ==== ====== ====== ====
Retained earnings at beginning
of period $1,135 $1,172 $1,051 $1,134
Net earnings (loss) to common
stockholders (54) 43 34 84
Cash dividends paid on common
stock (3) (5) (7) (8)
------ ------ ------ ------
Retained earnings at end of
period $1,078 $1,210 $1,078 $1,210
====== ====== ====== ======
Basic earnings (loss) per common
share:
Earnings (loss) from
continuing operations $(0.05)$ 0.47 -111%$ 0.54 $ 0.86 -37%
==== ====
Loss from discontinued
operations (0.30) (0.19) (0.33) (0.31)
Cumulative effect of change
in accounting principle - - 0.01 -
------ ------ ------ ------
Net earnings (loss) $(0.35)$ 0.28 $ 0.22 $0.55
====== ====== ====== ======
Diluted earnings (loss) per
common share:
Earnings (loss) from
continuing operations $(0.05)$ 0.44 -111%$ 0.53 $ 0.80 -34%
==== ====
Loss from discontinued
operations (0.30) (0.18) (0.32) (0.28)
Cumulative effect of change
in accounting principle - - 0.01 -
------ ------ ------ ------
Net earnings (loss) $(0.35)$ 0.26 $ 0.22 $ 0.52
====== ====== ====== ======
Common shares outstanding:
Average common shares
outstanding--basic 152 151 152 152
Average common shares
outstanding--diluted 155 163 156 163
ADDITIONAL COMMENTARY ON MARCH 31, 2001 STATEMENT OF EARNINGS
NOTE: Other income can be broken down as follows:
Three Months Six Months
Ended Mar 31, Ended Mar 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
(in millions) (in millions)
Warrant income and stock
sales gains $ 175 $ 131 $ 336 $ 217
Interest income on notes
receivable 16 12 35 24
Miscellaneous 8 4 25 13
---------- ---------- ---------- ----------
$ 199 $ 147 $ 396 $ 254
========== ========== ========== ==========
The increase in SG&A can be explained as follows:
Three Months Six Months
Ended Mar 31, Ended Mar 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
(in millions) (in millions)
Ventures bad debt expense $ 206 $ 24 $ 244 $ 46
Commissions due on
Ventures earnings 6 20 23 36
Ventures additional SG&A 7 4 15 6
---------- ---------- ---------- ----------
Total Ventures SG&A 219 48 282 88
Leasing SG&A 71 95 140 170
---------- ---------- ---------- ----------
Total SG&A Statement
of Earnings $ 290 $ 143 $ 422 $ 258
========== ========== ========== ==========
Comdisco Ventures
Statements of Earnings
For the Three and Six Months Ended March 31, 2001 and 2000
(dollars in thousands)
Three Months Ended Six Months Ended
Mar 31, % Mar 31, %
2001 2000 +/- 2001 2000 +/-
---------- ---------- ---- ---------- ---------- ----
Revenue
Leasing
Operating $ 77,477 $ 44,955 72%$ 149,033 $ 82,837 80%
Direct financing 67 121 -45% 139 232 -40%
Sales-type 1,142 1,858 -39% 1,142 1,858 -39%
---------- ---------- ---- ---------- ---------- ----
Total
leasing 78,686 46,934 68% 150,314 84,927 77%
Equipment sales 2,420 2,546 -5% 4,271 4,864 -12%
Interest income
on notes 15,528 11,952 30% 35,242 23,711 49%
Warrant income
and capital
gains 174,648 98,499 77% 336,017 187,224 79%
Other 771 489 58% 1,773 897 98%
---------- ---------- ---- ---------- ---------- ----
Total
revenue 272,053 160,420 70% 527,617 301,623 75%
---------- ---------- ---- ---------- ---------- ----
Costs and expenses
Leasing
Operating 62,503 34,081 83% 119,812 62,375 92%
Sales-type - 1,133 -100% - 1,133 -100%
---------- ---------- ---- ---------- ---------- ----
Total
leasing 62,503 35,214 77% 119,812 63,508 89%
Equipment sales 1,189 1,764 -33% 2,204 2,772 20%
Selling,
general and
administrative 7,128 3,367 112% 14,890 6,319 136%
Commission
expense 6,076 20,134 -70% 23,277 35,604 -35%
Interest 19,429 13,128 48% 44,066 23,919 84%
Bad debt expense 205,686 24,001 757% 243,686 45,801 432%
---------- ---------- ---- ---------- ---------- ----
Total costs
and
expenses 302,011 97,608 209% 447,935 177,923 152%
---------- ---------- ---- ---------- ---------- ----
Earnings (loss)
before income
taxes (29,958) 62,812 -148% 79,682 123,700 -36%
Income taxes
(benefit) (11,946) 25,640 -147% 31,773 49,325 -36%
---------- ---------- ---- ---------- ---------- ----
Net earnings
(loss) $ (18,012)$ 37,172 -148%$ 47,909 $ 74,375 -36%
========== ========== ==== ========== ========== ====
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