COMDISCO ANNOUNCES SECOND QUARTER AFTER-TAX CHARGE OF $48 MILLION;
RESTRUCTURES BUSINESS ORGANIZATION AND FOCUS
ROSEMONT, Ill., March 4 /PRNewswire/ -- Comdisco Inc. (NYSE: CDO) announced today that it will take a $48 million after-tax charge to earnings, or approximately $1.18 per share, during the second quarter. On a pre-tax basis the charge amounts to $80 million, broken down as follows: (1) an addition of $25 million to the receivables reserve, (2) the establishment of a litigation expense reserve of $20 million, and (3) an organizational restructuring charge of $35 million.
Commenting on the action taken by the company, Kenneth N. Pontikes, chairman of the board and president, stated, "The facts are that the information technology arena has changed dramatically in the last couple of years, and it's going to change a lot more in the years ahead. Companies that operate under the status quo simply will not be competitive in this new environment. Comdisco is taking action now to anticipate the needs of the market and capitalize on the strengths we already have in place. We're refining our product mix to focus on the most profitable areas, enhancing our services, and restructuring our organization to reflect these realities."
The company anticipates that earnings per share from continuing operations, before the above mentioned charges, may be approximately $.30 for the quarter ended March 31, 1992. However, the company is confident there should be consecutive quarters of improved earnings growth from continuing operations starting in the third quarter of fiscal 1992 and continuing throughout 1993.
"There's no question that the current economic climate has had an impact on our customers," Pontikes said. "During our current quarter, there were some high-profile bankruptcies. We don't see any near-term improvement in these situations so we have chosen to act now by providing for an additional $25 million of receivables reserves. We feel comfortable this amount should adequately meet our future needs."
In addition, Comdisco's litigation with IBM has clouded investor perception as to the anticipated amount of overall legal expenses. The company has established a $20 million reserve for litigation expenses.
The company has also taken a $35 million restructuring charge related to fundamental changes it is making to help improve revenues and profitability. These changes include, but are not limited to, the following areas:
-- "We are changing our marketing approach to focus on those parts of the business where we have real competitive strengths. The company will exit product lines that do not meet established return on investment and asset criteria. We've taken a hard look at our entire portfolio and decided to exit two marginally profitable high technology areas. We believe the remainder of our portfolio is very strong. Remarketing activities continue at high levels, and the quality of the business we've been doing this fiscal year is better than ever."
-- A closer and more efficient alignment between the sales forces of Comdisco and Comdisco Disaster Recovery Services.
-- A refinement of internal procedures and personnel to better and more efficiently meet the needs of today's market. To that end, the company announced it will reduce its current staff levels throughout the organization by approximately 10 percent.
-- A further revision of executive compensation. The new plans link compensation directly to corporate earnings performance. These reductions are in addition to those made earlier this fiscal year, which cut executive compensation by 23 percent.
"We also plan to introduce and explore new services and solutions as well as an improvement to current offerings. In today's economic climate, customers are looking for ways to reduce costs while meeting their performance needs," Pontikes said. "They have a lot of options available to them. Our independence, experience and market knowledge allow us to act as consultants, helping our customers evaluate the technological and financial options available to them. That's the direction we're going to focus on."
"The net result of these measures should reduce selling, general, and administrative costs by approximately $60 million for the remainder of fiscal 1992 and 1993 combined," Pontikes said. "I'm confident that the long-term benefits of these initiatives will far outweigh the near- term impact on earnings. The restructuring charge, although difficult, should enable us to capitalize on our strong core business and provide an acceptable return for our shareholders."
In conclusion, Pontikes said that all areas of the company will continue to be analyzed for ways to improve procedures, reduce costs, and anticipate customer demands. "In short, we're going to be a stronger company ready for the challenges tomorrow holds," he said. "That's the Comdisco tradition, and we're not about to stop now."
Comdisco is primarily engaged in buying, selling and leasing new and used computer, telecommunications, and other high-technology equipment. Through a wholly owned subsidiary, the company also provides disaster recovery services for computer users. Comdisco's common stock is listed on the New York and Midwest Stock Exchanges.
/CONTACT: James J. Hyland of Comdisco, 708-698-3000/
(CDO) CO: Comdisco Inc. ST: Illinois IN: CPR SU: PS-AH -- NY096 -- 5202 03/04/92 19:52 EST