Six-Year Summary
Comdisco, Inc. and Subsidiaries
(in millions except per share data)
<TABLE>
<CAPTION>

                                                                                          YEARS ENDED SEPTEMBER 30,
                                                                     ---------------------------------------------------------------
                                                                         1998       1997       1996       1995       1994      1993
                                                                     ---------  ---------  ---------  ---------  --------- ---------
<S>                                                                  <C>        <C>        <C>        <C>        <C>       <C>
CONSOLIDATED SUMMARY OF EARNINGS
Revenue     
         Leasing ..................................................  $  2,435   $  2,116   $  1,797   $  1,573   $  1,538  $  1,583
         Sales ....................................................       329        269        262        358        271       313
         Technology services ......................................       433        354        318        267        242       216
         Other ....................................................        46         80         54         42         47        41
                                                                     ---------  ---------  ---------  ---------  --------- ---------
                  Total revenue ...................................     3,243      2,819      2,431      2,240      2,098     2,153
                                                                     ---------  ---------  ---------  ---------  --------- ---------
Costs and expenses
         Leasing ..................................................     1,791      1,534      1,246      1,023      1,004     1,040
         Sales ....................................................       275        210        218        304        225       275
         Technology services ......................................       362        296        277        238        224       206
         Selling, general and administrative                              249        244        244        233        213       197
         Litigation settlement ....................................        --         --         --         --         70        --
         Litigation charge ........................................        --         --         --         --         10        --
         Interest .................................................       326        299        262        274        263       291
         Other ....................................................        --         25         --         --         --        --
                                                                     ---------  ---------  ---------  ---------  --------- ---------
                  Total costs and expenses ........................     3,003      2,608      2,247      2,072      2,009     2,009
                                                                     ---------  ---------  ---------  ---------  --------- ---------
Earnings from continuing operations before income taxes and
         cumulative effect of change in accounting principle ......       240        211        184        168         89       144
Income taxes ......................................................        87         80         70         64         36        57
                                                                     ---------  ---------  ---------  ---------  --------- ---------
Earnings from continuing operations before cumulative effect
         of change in accounting principle ........................       153        131        114        104         53        87
Loss from discontinued operations (net of income taxes) ...........        --         --         --         --         --       (20)
                                                                     ---------  ---------  ---------  ---------  --------- ---------
Earnings before cumulative effect of change in accounting principle       153        131        114        104         53        67
Cumulative effect of change in accounting principle ...............        --         --         --         --         --        20
                                                                     ---------  ---------  ---------  ---------  --------- ---------
Net earnings before preferred dividends ...........................       153        131        114        104         53        87
Preferred dividends ...............................................        (2)        (8)        (8)        (8)        (9)       (7)
                                                                     ---------  ---------  ---------  ---------  --------- ---------
         Net earnings to common stockholders ......................  $    151   $    123   $    106   $     96   $     44  $     80
                                                                     =========  =========  =========  =========  ========= =========
COMMON SHARE DATA
Earnings per common share--basic ..................................  $   .99    $    .83   $    .70   $    .60   $    .26  $    .44
Earnings per common share--diluted ................................      .93         .78        .67        .57        .26       .43
Common stockholders' equity (per common share outstanding) ........     6.44        5.24       4.77       4.37       3.89      3.68
Cash dividends paid on common stock ...............................      .10         .10        .09        .08        .07       .06
Average common shares (in thousands)--diluted .....................  162,770     157,590    159,684    165,502    173,274   180,936

FINANCIAL POSITION
Total assets ......................................................  $  7,063   $  6,350   $  5,591   $  5,039   $  4,807  $  4,960
Notes payable .....................................................     1,121      1,024      1,127        661        593       655
Total long-term debt ..............................................     3,318      2,918      2,145      1,796      1,364     1,325
Discounted lease rentals ..........................................       596        742        781      1,124      1,548     1,670
Stockholders' equity ..............................................       979        865        799        776        741       739

OTHER DATA
Total rents of new leases .........................................  $  3,400   $  3,200   $  2,800   $  2,300   $  1,800  $  1,900
Future lease rentals and technology services revenue ..............     6,089      5,440      4,903      4,380      4,185     4,265

</TABLE>

                                 -30- and -31-
<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS
Certain  statements herein constitute  "forward-looking  statements"  within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities   Exchange   Act  of  1934,   and  the  company   intends  that  such
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking  statements  are  subject  to  many  uncertainties  and  factors
relating to the company's  operations and business  environment  which may cause
the actual  results of the company to be  materially  different  from any future
results  expressed or implied by such  forward-looking  statements.  Examples of
such uncertainties include, but are not limited to, those risk factors set forth
generally  throughout  this  Management's  Discussion  and Analysis of Financial
Condition and Results of Operations  and  specifically  under "Risk Factors that
May Affect Future Results" and in the "Note on  Forward-Looking  Information" on
page 60 of this annual report to stockholders.

SUMMARY
Comdisco,  Inc.  achieved record revenues,  earnings,  equipment volume and cash
flows  from  operating   activities  in  fiscal  1998.  The  year's  performance
demonstrates the ability of the company's businesses to deliver strong financial
results.

         Fiscal 1998 net earnings to common stockholders  (hereinafter  referred
to as "net  earnings")  were $151  million,  or $.93 per  common  share-diluted,
compared to $123 million, or $.78 per common share-diluted, and $106 million, or
$ .67 per  common  share-diluted,  in fiscal  1997 and 1996,  respectively.  The
increase in net earnings in fiscal 1998 and 1997  compared to the prior years is
due to increases  in earnings  contributions  from  remarketing  and  technology
services.  Earnings per common share (basic and diluted) in fiscal 1998 and 1997
benefited from the company'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
the  company's  Shared  Investment  Program  (the"SIP")(see  Note 10 of Notes to
Consolidated  Financial  Statements).  Shares  issued under the SIP exceeded the
number of shares repurchased in fiscal 1998.


BUSINESS
The company's  businesses are designed to bring solutions that reduce technology
cost  and risk to the  customer  and in  supporting  the  customerOs  technology
infrastructure.  These businesses are: 1) financial management  services,  which
includes the leasing of distributed  systems (PCs,  servers and routers),  large
systems  (mainframes and related  equipment) and  communications  equipment;  2)
diversified  technology  services-equipment  leasing  and  technology  lifecycle
management   services   for   the   healthcare,    semiconductor   manufacturing
("electronics  group")  and  venture  capital  industries,   and  3)  technology
services,  which  includes  business  continuity  services,  desktop  management
services, managed network services and software tools to support these areas.
         The  industry  in which  the  company  operates  is  evolving,  and the
company's  business is becoming more service oriented,  with the business driven
by  the  company's  service  capabilities,   including  desktop  management  and
continuity services.
         Leasing  volume  increased  in both fiscal 1998 and 1997 as compared to
the prior years. During the last three fiscal years, the company's large systems
portfolio   decreased,   while   its   portfolio   of  other   high   technology
assets-distributed  systems and electronics equipment in particular-increased as
a percentage of the total portfolio. Lease volume in the current fiscal year was
the highest annual volume in the company's history.
         Cost of  equipment  placed on lease was $3.3  billion  in fiscal  1998,
compared to cost of  equipment  placed on lease of $3.1 billion and $2.6 billion
in fiscal 1997 and 1996, respectively. Internationally, cost of equipment of all
types placed on lease increased from $757 million in fiscal 1997 to $905 million
in fiscal  1998.  The  increase in leasing  volume in fiscal 1998 is expected to
have a positive  impact on leasing  revenue in future periods and is expected to
result in future earnings opportunities by providing equipment for remarketing.
         In addition to originating new equipment lease  financing,  the company
remarkets used equipment  from its 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 are comprised
of  earnings  from  follow-on  leases  and  gross  profit  on  equipment  sales.
Remarketing  activity,   an  important  contributor  to  earnings,   was  strong
throughout fiscal 1998 and 1997.
                                      -32-
<PAGE>

         Technology  services  had a record  year with  pretax  earnings  of $71
million in fiscal 1998.  This compares to pretax earnings of $58 million and $41
million  in  fiscal  1997  and  1996,  respectively.   Revenue  from  continuity
contracts,  which is  recognized  monthly  during the  noncancelable  continuity
contract and is therefore  recurring and  predictable,  was  approximately  $298
million,  $280  million and $262  million  during  fiscal  1998,  1997 and 1996,
respectively, representing approximately 69%, 79% and 82% of technology services
revenue.  Revenue from the company's  Millennium  Testing  Services  ("MTS") was
significantly below the company's targets for fiscal 1998. This shortfall in MTS
revenue may indicate that companies are still working on the coding for the Year
2000 and are not yet ready to test their program  changes.  The company has been
successful in containing  costs to maintain and improve  margins in its services
operations during the last three fiscal years.
The  company  continued  to invest  additional  capital to upgrade  our  service
capabilities and enhance future continuity  services  revenues.  In fiscal 1998,
capital expenditures were $87 million. This includes additions in large systems,
mid-range systems,  network products and expansion of work areas. In addition, a
focus  area for  capital  expenditures  in  fiscal  1998 was  Advanced  Recovery
Services  ("ARS").  ARS is designed to reduce data exposures as well as recovery
time  across all  market-leading  platforms.  The company is also  investing  in
additional  personnel to expand its other technology  services  offerings and to
ensure the quality of its services offerings.

FINANCIAL CONDITION
The company's  operating  activities  during the year ended  September 30, 1998,
including capital expenditures for equipment, were funded primarily by cash flow
from  operations  (primarily  lease  receipts),  including  the  realization  of
residual values through remarketing activities, and external financing. See Note
6 of Notes to Consolidated Financial Statements for information on the company's
interest-bearing  liabilities,  including  average daily  borrowings,  effective
interest rates and maturities.
         During the last five years,  equipment  purchased  for leasing  totaled
$11.8 billion.  Expenditures for equipment in fiscal 1998 totaled  approximately
$3.0 billion, the highest annual total in the company's history, and an increase
of 3% compared to the prior  year.  Expenditures  for  equipment  are  currently
estimated at approximately $3.5 billion for fiscal 1999.
         The company  believes that its estimated cash flow from  operations and
current financial resources will be sufficient to fund anticipated future growth
and  operating  requirements.  In addition,  the company  expects to continue to
utilize a variety of  financial  instruments  to fund its  short- and  long-term
needs.

Cash provided by operating activities: Net cash provided by operating activities
was $2.8 billion,  $2.5 billion and $2.2 billion in fiscal 1998,  1997 and 1996,
respectively.  During  the last  five  years,  net cash  provided  by  operating
activities totaled $11.1 billion.
         Net cash  provided  by  operating  activities  has been used to finance
equipment purchases and, accordingly,  has had a positive impact on the level of
borrowing  required to support the  company's  investment  in its growing  lease
portfolio.  As of September 30, 1998, the company  estimates that existing lease
and  technology  services  contracts  and  commitments,   including   continuity
subscription contracts, could generate gross cash receipts of approximately $6.1
billion in the future,  including  $2.9  billion in fiscal 1999.  The  company's
liquidity is augmented by the realization of cash from the future remarketing of
leased  equipment.  Assuming  realization of independent  forecasts of equipment
values at lease termination and management  estimates,  the estimated gross cash
receipts to be provided from remarketing in future years totals $2.0 billion.

Credit Lines:  At September 30, 1998,  the company had $1.6 billion of available
domestic and international borrowing capacity under various lines of credit from
commercial banks and commercial paper facilities,  of which  approximately  $853
million was unused.  The company had  committed  credit lines  established  with
twenty-eight banks at September 30, 1998 of $1.3 billion.

Senior Notes: In June, 1997, the company filed a registration  statement on Form
S-3 with the Securities and Exchange Commission (the "SEC") for a shelf offering
of up to $1.2 billion of senior debt securities with terms to be set at the time
of each sale (the "1997  Shelf").  Pursuant to the 1997 Shelf,  the company,  in
fiscal 1998 issued the following senior notes:
  o $250 million of 6.125% Notes Due January 15, 2003
  o $275 million of 6.13% Notes Due August 1, 2006
  o $230 million of medium-term notes (the company also issued an additional $73
    million  of  medium-term  notes  in  fiscal 1998  pursuant to a registration
    statement filed in November, 1996).
         At  September  30, 1998,  an  aggregate of $370 million of  medium-term
notes remained available for issuance under the 1997 Shelf.
         On October 9, 1998, the company filed a registration  statement on Form
S-3 with the SEC for a shelf  offering  of up to $1.5  billion  of  senior  debt
securities  on terms to be set at the time of each sale (the "1998  Shelf").  No
senior  debt has been sold  pursuant to the 1998  Shelf.  The  company  plans to
continue to be active in issuing  senior debt during  fiscal 1999,  primarily to
support the anticipated growth of the leased assets and, where  appropriate,  to
refinance maturities of interest-bearing liabilities.
                                      -33-
<PAGE>

Secured Debt:  Proceeds from the discounting of lease rentals were $279 million,
$430  million  and $253  million in fiscal  1998,  1997 and 1996,  respectively.
Secured  debt  is  currently  utilized  as a tool  to  manage  credit  risk  and
concentration  risk.  However,  the  company  believes  that in a changing  rate
environment,  secured debt may offer  attractive  financing  rates during fiscal
1999. The company's credit committee establishes  concentration levels by credit
rating and customer.

Maturities:  At  September  30,  1998,  the  company  had  debt of $2.9  billion
scheduled to mature in fiscal 1999,  including $1.1 billion of commercial  paper
and short-term bank borrowings.  At September 30, 1998, the company had expected
future cash to be provided by existing lease and technology  services  contracts
and commitments, including continuity subscription contracts, of $2.9 billion in
fiscal 1999. See Notes 5 and 6 of Notes to Consolidated Financial Statements for
information on the lease base and interest-bearing liabilities, respectively.

Ratios: The ratio of debt to total stockholdersO equity (the "Ratio") was 5.1:1,
5.4:1 and 5.1:1 at  September  30,  1998,  1997 and 1996,  respectively.  During
fiscal 1998, the company redeemed its outstanding preferred stock, which reduced
stockholders'  equity by $89 million.  The 1998 Ratio was positively impacted by
the company's SIP, under which 106 senior managers of the company purchased over
six million shares of the company's common stock for approximately $109 million.

REVENUE
Total revenue of approximately  $3.2 billion and $2.8 billion in fiscal 1998 and
1997  represented  increases  of 15% and 16%  respectively,  over the prior year
periods.  The increase in fiscal 1998  compared to fiscal 1997 was primarily due
to higher total leasing revenue,  principally from operating leases,  and higher
revenue  from  technology  services  and sales.  Total  leasing  revenue of $2.4
billion for the year ended  September  30, 1998  represented  an increase of 15%
compared to the prior year.  Technology services revenue increased 22% in fiscal
1998  compared to fiscal 1997.  See  "Technology  Services"  for a discussion of
technology  services  revenue and margins and "Sales" for a discussion  of sales
revenue and margins.

Leasing:  The increase in New Leases (as defined in the  discussion  under "Risk
Factors  that  May  Affect  Future  Results"),   particularly  during  the  last
thirty-six  months,  coupled with lower  margins on large  systems  transactions
(mainframes  and  related  peripherals,  including  DASD and tape  drives),  has
resulted  in lower  margins  on  leasing,  particularly  for  operating  leases.
Operating lease revenue minus  operating lease costs was $369 million,  or 19.5%
of operating lease revenue (the "Operating Lease Margin"),  and $338 million, or
20.7% of operating  lease revenue,  in fiscal 1998 and 1997,  respectively.  The
company  expects the  Operating  Lease Margin to decline from current  levels in
fiscal 1999 because of continued  pressure from New Leases and the lower margins
on large systems.  The Sales-type Lease Margin increased in fiscal 1998 compared
to the  prior  year  primarily  because  of a  change  in the  mix of  equipment
remarketed, with a higher percentage of distributed and communications equipment
remarketing.  The following  graph  presents the Lease Margin for total leasing,
operating, and sales-type leases for the five years ended September 30, 1998:

                      94       95       96       97       98
                      ---      ---      ---      ---      ---
Total leasing         35%      35%      31%      27%      26%
Operating lease       26%      26%      24%      21%      20%
Sales-type lease      26%      28%      26%      30%      30%

Sales:  Revenue from sales, which includes  remarketing and buy/sell activities,
totaled $329  million in fiscal 1998,  compared to $269 million and $262 million
in fiscal  1997 and 1996,  respectively.  In fiscal 1998 and 1997 sales and sale
revenue per unit on large systems declined.  Margins on sales were 16% in fiscal
1998 compared to 22% and 17% in fiscal 1997 and 1996,  respectively.  Margins in
fiscal 1997 were unusually high,  primarily as a result of significant  sales of
distributed systems equipment.

Technology  services:  Revenue from technology  services was $433 million,  $354
million  and $318  million  in fiscal  1998,  1997 and 1996,  respectively.  The
increases are primarily the result of the growth in products and services.
         Technology services costs of $362 million for fiscal 1998 increased 22%
over technology services costs of $296 million in fiscal 1997. Fiscal 1997 costs
and expenses were 7% higher than fiscal 1996.  Cost  containment  efforts by the
company,  primarily as a result of its capital investment  strategy,  slowed the
growth of continuity  costs in fiscal 1997, and improved  margins  significantly
over the prior year.  Although the company made  significant  investments in its
technology  services  facilities  and  staff  during  fiscal  1998,  margins  on
technology  services remained at approximately  fiscal 1997 levels.  The company
expects margins in fiscal 1999 to be at or above fiscal 1998 levels primarily as
a result of the growth in other technology  services which generally have higher
margins than continuity services.
                                      -34-
<PAGE>

Other  Revenue:  Other  revenue was $46 million,  $80 million and $54 million in
fiscal  1998,  1997 and 1996,  respectively.  Revenue from the sale of ownership
positions   generated  in  conjunction   with  the  company's   lease  financing
transactions  with  early-stage  high  technology  companies  was $21 million in
fiscal  1998  compared  to $18  million and $13 million in fiscal 1997 and 1996,
respectively.  Fiscal  1998 and 1997 other  revenue  includes  $5 million and $4
million, respectively, of gains from the sale of direct financing and sales-type
receivables.  Other  revenue for fiscal 1997 includes a gain of $25 million ($16
million after-tax, or $.10 per common share-diluted)  resulting from the receipt
of amounts in settlement of litigation.  In addition,  fiscal 1997 other revenue
includes  approximately  $11 million of gains from the sale of other investments
owned by the company.  Fiscal 1996 includes $6 million of gains  generated  from
the sale of  securities,  originally  received  by the company in fiscal 1993 in
connection  with the sale of all of the assets of its wholly  owned  subsidiary,
Comdisco Systems, Inc.

COSTS AND EXPENSES
Total costs and  expenses  were $3.0 billion and $2.6 billion in fiscal 1998 and
1997,  respectively.  The increase in fiscal 1998 and 1997 compared to the prior
years is primarily due to the growth in leasing volume including higher interest
expense,  increased  leasing  costs  related to  increased  operating  lease and
sales-type  revenue,  increased costs  associated with the company's  technology
services  and, in fiscal  1997,  a one-time  charge of $25 million  (see "Other"
below).

Selling,  General  and  Administrative:   Selling,  general  and  administrative
expenses  totaled $249 million in fiscal 1998,  $244 million in fiscal 1997, and
$244  million in fiscal  1996.  Despite  the level of growth in fiscal  1998 and
1997,  cost  containment  efforts  begun in fiscal  1996  allowed the company to
control its selling,  general and administrative  costs. Factors contributing to
the increase in fiscal 1998 compared to the prior years include the  development
of the company's technology services,  offset by reduced expenditures  resulting
from improved efficiencies in the company's administrative operations.

Interest: Interest expense for fiscal 1998 totaled $326 million in comparison to
$299 million in fiscal 1997 and $262 million in fiscal 1996,  respectively.  The
increase  in interest  expense in fiscal 1998  compared to fiscal 1997 is due to
higher  average  daily  borrowings  resulting  from the  increase  in  equipment
purchased for lease in fiscal 1998 compared to the prior period, offset by lower
average rates.

Other:  In the second  quarter of fiscal 1997,  the company  recorded a noncash,
non-operating  charge of $25 million ($16 million after-tax,  or $.10 per common
share) as a one-time addition to the equipment valuation allowance.

INCOME TAXES
Note 8 of Notes to Consolidated Financial Statements on page 50 provides details
about the company's income tax provision.

INTERNATIONAL OPERATIONS
The company  operates  principally in four geographic  areas: the United States,
Europe, Canada and the Pacific Rim.
         Revenue  from  international  operations,  including  export  sales and
technology  services,  was $730 million in fiscal 1998  compared to $646 million
and $595 million in fiscal 1997 and 1996,  respectively.  International revenues
represented  23% of the company's  total  revenue in fiscal 1998,  23% in fiscal
1997 and 24% in fiscal 1996.

Europe: The company's European operations had pretax earnings of $39 million and
$27  million in fiscal 1998 and 1997,  respectively,  compared to $10 million in
fiscal 1996.  Total revenue from European  operations was $592 million in fiscal
1998  compared to $537  million in fiscal 1997 and $461  million in fiscal 1996.
Cost of equipment placed on lease in fiscal 1998 and 1997, including diversified
technology  equipment,  was $582  million and $563  million,  respectively.  The
European lease base has been financed primarily by utilizing existing short-term
lines of credit,  including European  commercial paper, parent company loans and
where required,  additional  capital  investment from the parent, and discounted
lease rentals.

Canada: The company's Canadian operations had pretax earnings of $12 million and
$17  million in fiscal  1998 and 1997,  respectively.  Total  leasing  and sales
revenue for fiscal  1998 in Canada was $60  million  compared to $63 million and
$75 million in fiscal 1997 and 1996,  respectively.  Cost of equipment placed on
lease in fiscal 1998 and 1997 was $100  million and $66  million,  respectively.
Net cash provided by operations is the company's primary source of funds for its
Canadian  operations,  although  the company has  short-term  lines of credit in
Canada to support short-term liquidity requirements.
         Geographic  area data is included  in Note 13 of Notes to  Consolidated
Financial Statements on page 55.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
This  Report  contains   forward-looking   statements  that  involve  risks  and
uncertainties.  The company's  actual  revenues and results of operations  could
differ materially from those anticipated in these forward-looking  statements as
a result of certain  factors,  including  those set forth in the following  risk
factors and elsewhere in this Report.
                                      -35-
<PAGE>

Potential Fluctuations in Operating Results: The company's operating results are
subject to quarterly fluctuations resulting from a variety of factors, including
the volume of New Leases,  earnings  contributions from remarketing  activities,
product  announcements by manufacturers,  economic  conditions and variations in
the financial mix of leases  written.  The financial mix of leases  written is a
result of a combination  of factors,  including,  but not limited to, changes in
customer demands and/or requirements, new product announcements,  price changes,
changes in  delivery  dates,  changes in  maintenance  policies  and the pricing
policies of equipment  manufacturers,  and price  competition from other lessors
and finance companies.

Earnings  Contributions  from Leasing:  The growth in leasing  volume during the
last eight fiscal quarters has the effect of increasing the proportion of leases
for new equipment ("New Leases") to total leases. New Leases  traditionally have
lower earnings  contributions than leases with remarketed equipment.  Therefore,
increasing lease volume activities  initially has the impact of putting pressure
on leasing  margins.  The impact of New Leases,  coupled  with lower  margins on
large systems transactions  (mainframes and related peripherals,  including DASD
and tape  drives),  has resulted in lower margins on leasing,  particularly  for
operating leases.  There can be no assurance  regarding the growth of New Leases
in future periods or the company's ability to accurately predict future declines
in the fair market values of large systems equipment.
         To meet earnings goals for fiscal 1999, remarketing  contributions have
to be at approximately  the level achieved in fiscal 1998. While the company has
a larger  lease  portfolio  for  remarketing  and is devoting  resources  to its
remarketing activities,  there can be no assurance that the company will achieve
the  appropriate  level of  activity  necessary  to meet the  company's  desired
operating results.
         The company  continues  to monitor  volatility  in large  systems  fair
market  values  which,  during  the last  eighteen  months in  particular,  have
declined faster and exhibited  greater  volatility than historical  trends would
have otherwise  indicated.  As a result,  there is no assurance that fair market
values on large  systems will  stabilize or that further  rapid  declines in the
value of such  systems  will not  occur in the near  term.  To the  extent  that
declines in fair market  values exceed the company's  current  estimates,  there
could be an adverse effect on the company's operating results.
         The costs to address the Year 2000 issues may have a negative impact on
equipment  volume in fiscal 1999 if customers defer other IT projects due to the
Year 2000 efforts or if Year 2000 remediation  costs increase as a percentage of
the total IT budget, thereby reducing capital expenditures on new technology.

Earnings  Contributions from Services: As a result of the evolving nature of its
services  business,  particularly  the emerging  desktop  management and managed
network services, the company has limited meaningful historical data in which to
base its planned operating expenses.  Accordingly,  a significant portion of the
company's  expense  levels  (investment  in continuity  facilities and hardware,
consultants,  experts  and  back  office  personnel)  are  based  in part on its
expectations as to future services revenues,  including MTS revenue, and are, to
a large extent,  fixed.  Conversely,  the company's revenue base has become more
diverse with the growth of other technology services revenue, and therefore less
recurring  and less  predictable  than in prior  years.  To attain its  services
earnings contribution goals for fiscal 1999, the company will have to expand its
contract   subscription   base  (through  new  contract  signings  and  contract
renewals),  increase its revenues  from other  technology  services,  attain MTS
revenue and contain  costs.  In  addition,  there can be no  assurance  that the
company  will be able to maintain  and/or  increase  its  margins on  technology
services in fiscal 1999.
         One of the  impacts of the  company's  changing  business  model is the
lengthening of the sales cycle-the  length of time between initial sales contact
and final delivery of contracts-as compared to its traditional leasing business.
This   increase  in  sales  cycle  results  in  an  increase  in  ObacklogO  (or
negotiations  in  progress)  which  ultimately  impacts  the timing of  revenue,
earnings and volume  recognition.  In addition,  the company's ability to obtain
new business from customers  depends on its ability to anticipate  technological
changes,  successfully  compete with  organizations  offering similar  services,
develop  services  to meet  customer  requirements  and to achieve  delivery  of
services that meet customer requirements.

Economic Conditions and the Asian Economy:  With respect to economic conditions,
a recession  can cause  customers  to put off new  investments  and increase the
company's bad debt experience.  In addition, the recent economic turmoil in Asia
may have an impact on the region's semiconductor  manufacturing industry,  which
in turn would have an impact on the company's  diversified  technology business.
Continued  pressures on credit in Asia and the Asian  economy in general,  could
also impact the domestic  economy  and/or the company's  multinational  customer
base.

Other Factors: Other uncertainties include continued business conditions,  trend
of movement to client/server  environment,  competition,  including  competition
from other technology  service  providers,  reductions in technology budgets and
related  spending  plans,   price  competition  from  other  technology  service
providers, and the Year 2000 readiness of the company's customers, suppliers and
business partners.
                                      -36-
<PAGE>

         The company  undertakes no obligation to publicly  update or revise any
forward-looking  statements  whether  as a result  of new  information,  further
events or otherwise.

OTHER MATTERS
Qualitative  Information  About Market Risk:  The company's  primary market risk
exposure   is  interest   rate  risk,   primarily   related  to  the   company's
interest-bearing  obligations.  Generally,  a changing interest rate environment
does not  impact  the  company's  margins  since the  effects of higher or lower
borrowing  costs would be  reflected  in the rates on newly  leased  assets.  In
addition,  the company  attempts to match the maturities of its borrowings  with
the cash flows from its leased assets,  thereby reducing the company's  interest
rate exposure.
         The  company  has  an  on-going   program  to  manage  its  assets  and
liabilities.  This program  includes  establishing  levels of fixed and floating
rate debt,  liquidity and duration  analysis,  monitoring  credit quality of the
lease portfolio and related account review  procedures and oversight of interest
rate and foreign  exchange  hedging  policies.  This program includes the use of
derivatives in certain identifiable  situations to manage risk. The company does
not speculate on interest rates,  but rather manages its portfolio of assets and
liabilities  to mitigate the impact of interest rate  fluctuations.  The company
does  not  use  derivatives  for  trading  purposes.  See  Note  6 of  Notes  to
Consolidated Financial Statements for information on the company's average daily
borrowings, the company's derivative financial instruments,  comprising interest
rate swaps and foreign  currency  forward  exchange  contracts,  fair values and
effective interest rates.
         The table below  presents  principal (or notional)  amounts and related
weighted-average  interest  rates by year of maturity  for the  company's  notes
payable, term notes and senior notes (in millions).

<TABLE>
<CAPTION>

                                      99        00        01        02       03+
                                 -------   -------   -------   -------   -------
<S>      <C>                     <C>       <C>       <C>       <C>       <C>

Notes payable
         Fixed rate ...........  $1,121    $   --    $   --    $   --    $   --
         Average interest rate     5.33%
Term notes
         Floating rate ........     550        --        --        --        --
         Average interest rate     5.52%
Senior notes
         Fixed rate ...........     940       619       367       294       548
         Average interest rate     6.50%     6.72%     6.91%     6.54%     6.13%

</TABLE>


         As the above table  incorporates  only the  company's  interest-bearing
obligations and not its lease portfolio,  the information  presented therein has
limited predictive value.

Recently Issued Professional Accounting Standards:  The company does not believe
that SFAS No. 130, Reporting  Comprehensive  Income,  SFAS No. 131,  Disclosures
about  Segments  of an  Enterprise  and Related  Information,  which will become
effective in fiscal 1999, or SFAS 132, EmployersO Disclosures about Pensions and
Other  Postretirement   Benefits,   and  SFAS  133,  Accounting  for  Derivative
Instruments and Hedging  Activity,  which will become  effective in fiscal 2000,
will have a material impact on the company's financial statements.

Year 2000: The company has implemented a program to attempt to assess, remediate
and mitigate the  potential  impact of the OYear 2000O  problem  throughout  the
company.
         A "Year 2000" problem will occur where date-sensitive software uses two
digit  year date  fields,  sorting  the year 2000  ("00")  before  the year 1999
("99").  The Year 2000  problem  may result in data  corruption  and  processing
errors occurring where software, technology equipment, or any other equipment or
process uses date dependent software.
         The  company's  program has been  structured  to address  its  internal
computer  systems  and  applications,   facilities,   equipment  portfolio,  and
continuity and network services operations. This program includes assessment and
mitigation of Year 2000 issues with respect to information  technology and other
equipment that uses embedded software. In addition, the company is attempting to
monitor  the Year 2000  compliance  status of its  vendors,  suppliers,  service
providers and major customers.  Although it is very difficult to assess with any
certainty,  the company  believes that it is taking  reasonable and  appropriate
steps  regarding Year 2000 compliance with respect to matters within its control
to provide  that Year 2000 issues will not  materially  impact the  company.  It
remains uncertain whether or to what extent the company may be affected.
         The SEC issued an interpretive  guidance  regarding  disclosure of Year
2000 issues and consequences,  effective August 4, 1998. On October 9, 1998, the
company  provided  this  disclosure  in a Form  8-K  filing,  a copy of which is
available  for download at the SEC Internet home page  (www.sec.gov).  This Year
2000 Readiness is  incorporated  by reference in the company's  Annual Report on
Form 10-K for the year ended September 30, 1998.
                                      -37-
<PAGE>

Euro  Compliance:  Eleven of the fifteen member  countries of the European Union
are  scheduled  to establish  fixed  conversion  rates  between  their  existing
sovereign  currencies  and the Euro and to adopt the Euro as their  common legal
currency  effective  January 1, 1999.  The  company  expects  that its  internal
systems  that will be affected by the initial  introduction  of the Euro will be
substantially  Euro capable by January 1, 1999, and does not expect the costs of
system modifications to be material. While the company will continue to evaluate
the impact of the Euro  introduction  over time,  based on  currently  available
information,  management  does not  believe  that the  introduction  of the Euro
currency  will  have  a  material  adverse  impact  on the  company's  financial
condition or overall trends in results of operations.

Inflation: The company does not consider the present rate of inflation to have a
significant impact on the businesses in which it operates.



PRICE RANGE OF COMMON STOCK
The  company's  common  stock is listed on the New York Stock  Exchange  and the
Chicago Stock Exchange  under the symbol CDO. At September 30, 1998,  there were
approximately  1,900  holders  of  record of the  company's  common  stock.  The
following table shows the quarterly  price range of the company's  common stock,
as traded on the New York  Stock  Exchange,  and cash  dividends  paid on common
stock for fiscal 1998 and 1997,  adjusted for the three-for-two stock split (See
Note 10 of Notes to Consolidated Financial Statements).

<TABLE>
<CAPTION>

                              98                                  97
               -----------------------------       -----------------------------
Quarter          High       Low    Dividends         High       Low    Dividends
-------        ------    ------        -----       ------   -------        ----- 
<S>            <C>       <C>          <C>          <C>      <C>           <C>

First          $16.88    $14.16        $.025       $10.92   $  9.67        $.025
Second          21.94     14.88         .025        10.71     10.21         .025
Third           22.44     16.50         .025        13.00      9.34         .025
Fourth          20.88     12.44         .025        16.41     13.07         .025

</TABLE>


                                      -38-
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
Comdisco, Inc. and Subsidiaries
(in millions except per share data)

<TABLE>
<CAPTION>




                                                                                 Years ended September 30,
                                                                       1998               1997               1996
                                                                     ------             ------             ------
<S>                                                                  <C>                <C>                <C>
REVENUE
Leasing:
         Operating ......................................            $1,897             $1,635             $1,365
         Direct financing ...............................               162                145                149
         Sales-type .....................................               376                336                283
                                                                     ------             ------             ------
       Total leasing ....................................             2,435              2,116              1,797
Sales ...................................................               329                269                262
Technology services .....................................               433                354                318
Other ...................................................                46                 80                 54
                                                                     ------             ------             ------
         Total revenue ..................................             3,243              2,819              2,431
                                                                     ------             ------             ------
COSTS AND EXPENSES
Leasing:
         Operating ......................................             1,528              1,297              1,037
         Sales-type .....................................               263                237                209
                                                                     ------             ------             ------
         Total leasing ..................................             1,791              1,534              1,246
Sales ...................................................               275                210                218
Technology services .....................................               362                296                277
Selling, general and
  administrative ........................................               249                244                244
Interest ................................................               326                299                262
Other ...................................................                --                 25                 --
                                                                     ------             ------             ------
 Total costs and expenses ...............................             3,003              2,608              2,247
                                                                     ------             ------             ------
Earnings before income taxes ............................               240                211                184
Income taxes ............................................                87                 80                 70
                                                                     ------             ------             ------
Net earnings before preferred dividends .................               153                131                114
Preferred dividends .....................................                (2)                (8)                (8)
                                                                     ------             ------             ------
Net earnings to common stockholders .....................            $  151             $  123             $  106
                                                                     ======             ======             ======
Net earnings per common share:
 Earnings per common share--basic .......................            $  .99             $  .83             $  .70
                                                                     ======             ======             ======
 Earnings per common share--diluted .....................            $  .93             $  .78             $  .67
                                                                     ======             ======             ======
See accompanying notes to consolidated financial statements.
</TABLE>


                                      -39-
<PAGE>

CONSOLIDATED BALANCE SHEETS
Comdisco, Inc. and Subsidiaries

(in millions except number of shares and per share data)
<TABLE>
<CAPTION>


                                                                                                             SEPTEMBER 30,

                                                                                                      1998                     1997
                                                                                                    ------                   ------
<S>                                                                                                 <C>                      <C>
ASSETS
Cash and cash equivalents ........................................................                  $   63                   $   37
Cash--legally restricted .........................................................                      30                       45
Receivables, net .................................................................                     340                      262
Inventory of equipment ...........................................................                     165                      157
Leased assets:
    Direct financing and sales-type ..............................................                   1,779                    1,717
    Operating (net of accumulated depreciation) ..................................                   4,121                    3,571
         Net leased assets .......................................................                   5,900                    5,288
Buildings, furniture and other, net ..............................................                     137                      140
Other assets .....................................................................                     428                      421
                                                                                                    ------                   ------
                                                                                                    $7,063                   $6,350
                                                                                                    ======                   ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable ....................................................................                  $1,121                   $1,024
Term notes .......................................................................                     550                      497
Senior notes .....................................................................                   2,768                    2,421
Accounts payable .................................................................                     308                      170
Income taxes:
         Current .................................................................                      14                       --
         Deferred ................................................................                     319                      306
Other liabilities ................................................................                     408                      325
Discounted lease rentals .........................................................                     596                      742
                                                                                                    ------                   ------
                                                                                                     6,084                    5,485
                                                                                                    ------                   ------
Stockholders' equity:
  Preferred stock $.10 par value
   Authorized 100,000,000 shares:
   8.75% Cumulative Preferred Stock, Series A and Series B
   $25 stated value and liquidation preference, issued 0 shares
     (3,562,600 shares in 1997) ..................................................                      --                       89
  Common stock $.10 par value
   Authorized 750,000,000 shares;
    issued 221,657,318 shares (220,265,372 in 1997) ..............................                      22                       11
  Additional paid-in capital .....................................................                     257                      178
  Deferred compensation (ESOP) ...................................................                      --                       (3)
  Deferred translation adjustment ................................................                     (13)                     (20)
  Retained earnings ..............................................................                   1,101                      965
                                                                                                    ------                   ------
                                                                                                     1,367                    1,220
  Common stock held in treasury, at cost; 69,556,956 shares (72,184,050 in 1997) .                    (388)                    (355)
                                                                                                    ------                   ------
         Total stockholders' equity ..............................................                     979                      865
                                                                                                    ------                   ------
                                                                                                    $7,063                   $6,350
                                                                                                    ======                   ======

See accompanying notes to consolidated financial statements.
</TABLE>


                                      -40-
<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Comdisco, Inc. and Subsidiaries

(in millions except per share data)
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>


                                                                        Additional     Deferred    Deferred                  Common
                                                 Preferred      Common     paid-in     compen-  translation    Retained    stock in
                                                     stock       stock     capital       sation  adjustment    earnings    treasury
                                                      ----        ----        ----         ----        ----       -----       -----
<S>                                                   <C>        <C>          <C>          <C>         <C>        <C>         <C>
BALANCE AT SEPTEMBER 30, 1995 ................        $ 91       $   5        $154         $(8)        $ 13       $ 764       $(243)
Net earnings..................................                                                                      114
Cash dividends--preferred ....................                                                                       (8)
Cash dividends--common ($.09 per share) ......                                                                      (14)
Stock options exercised ......................                                   7
Translation adjustment .......................                                                           (8)
Reduction of guaranteed ESOP debt ............                                               3
Purchase of preferred stock ..................          (2)
Purchase of common stock......................                                                                                  (80)
Issuance of treasury stock....................                                   4                                                5
Stock split ..................................                       2          (2)
Income tax benefits resulting from the
   exercise of non-qualified stock options ...                                   2
                                                      ----        ----        ----         ----        ----       -----       -----
BALANCE AT SEPTEMBER 30, 1996 ................          89           7         165          (5)           5         856        (318)
                                                      ----        ----        ----         ----        ----       -----       ----- 
Net earnings..................................                                                                      131
Cash dividends--preferred ....................                                                                       (8)
Cash dividends--common ($.10 per share) ......                                                                      (14)
Stock options exercised ......................                                  10                                                6
Translation adjustment .......................                                                          (25)
Reduction of guaranteed ESOP debt ............                                                2
Purchase of common stock......................                                                                                  (45)
Retire treasury stock ........................                                  (2)                                               2
Stock split ..................................                       4          (4)
Income tax benefits resulting from the
  exercise of non-qualified stock options.....                                   9
                                                      ----        ----        ----         ----        ----       -----       ----- 
BALANCE AT SEPTEMBER 30, 1997 ................          89          11         178           (3)        (20)        965        (355)
                                                      ----        ----        ----         ----        ----       -----       ----- 
Net earnings .................................                                                                      153
Cash dividends--preferred ....................                                                                       (2)
Cash dividends--common ($.10 per share) ......                                                                      (15)
Shared Investment Program ....................                                  77                                               31
Stock options exercised ......................                                  (4)                                              24
Translation adjustment .......................                                                            7
Reduction of guaranteed ESOP debt ............                                                3
Purchase of preferred stock...................        (89)
Purchase of common stock .....................                                                                                  (88)
Stock split ..................................                      11         (11)
Income tax benefits resulting from the
 exercise of non-qualified stock options......                                  17
                                                      ----        ----        ----         ----        ----      ------       ----- 
BALANCE AT SEPTEMBER 30, 1998                         $ -          $22        $257         $  -        $(13)     $1,101       $(388)
                                                      ====        ====        ====         ====        ====      ======       =====

See accompanying notes to consolidated financial statements.
</TABLE>

                                      -41-
<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
Comdisco, Inc. and Subsidiaries
(in millions)
<TABLE>
<CAPTION>

                                                                                                    Years Ended September 30,
                                                                                             1998             1997             1996
                                                                                          -------          -------          -------
<S>                                                                                       <C>              <C>              <C>

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
         Operating lease and other leasing receipts .............................         $ 1,989          $ 1,727          $ 1,465
         Direct financing and sales-type leasing receipts .......................             905              861              907
         Sale of direct financing and sales-type receivables ....................             125               81             --
         Leasing costs, primarily rentals paid ..................................             (20)             (32)             (34)
         Sales ..................................................................             335              264              246
         Sales costs ............................................................             (69)             (84)            (117)
         Technology services receipts ...........................................             408              343              311
         Technology services costs ..............................................            (278)            (204)            (174)
         Other revenue ..........................................................              44               55               54
         Selling, general and administrative expenses ...........................            (249)            (225)            (222)
         Litigation settlement ..................................................            --                 25             --
         Interest ...............................................................            (326)            (291)            (260)
         Income taxes ...........................................................             (42)             (44)             (23)
                                                                                          -------          -------          -------
                  Net cash provided by operating activities .....................           2,822            2,476            2,153
                                                                                          -------          -------          -------
Cash flows from investing activities:
         Equipment purchased for leasing ........................................          (3,026)          (2,940)          (2,486)
         Investment in continuity and network services facilities ...............             (87)             (61)             (74)
         Other ..................................................................              (2)             (19)             (17)
                                                                                          -------          -------          -------
                  Net cash used in investing activities .........................          (3,115)          (3,020)          (2,577
                                                                                          -------          -------          -------
Cash flows from financing activities:
         Discounted lease proceeds ..............................................             279              430              253
         Net increase (decrease) in notes payable ...............................              97             (103)              466
         Issuance of term notes and senior notes ................................           1,017            1,151              834
         Maturities of term notes and senior notes ..............................            (617)            (378)            (485)
         Principal payments on secured debt .....................................            (425)            (469)            (596)
         Decrease (increase) in legally restricted cash .........................              15              (18)               3
         Preferred stock purchased ..............................................             (89)              --               (2)
         Common stock purchased and placed in treasury ..........................             (88)             (45)             (80)
         Dividends paid on common stock .........................................             (15)             (14)             (14)
         Dividends paid on preferred stock ......................................              (2)              (8)              (8)
         Shared Investment Program ..............................................             109               --               --
         Other ..................................................................              38                6               (3)
                                                                                          -------          -------          -------
                  Net cash provided by financing activities .....................             319              552              368
                                                                                          -------          -------          -------
Net increase (decrease) in cash and cash equivalents ............................              26                8              (56)
Cash and cash equivalents at beginning of year ..................................              37               29               85
                                                                                          -------          -------          -------
Cash and cash equivalents at end of year ........................................         $    63          $    37          $    29
                                                                                          =======          =======          =======

See accompanying notes to consolidated financial statements.
</TABLE>


                                      -42-
<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
Comdisco, Inc. and Subsidiaries
(in millions)
<TABLE>
<CAPTION>


                                                                                                    Years Ended September 30,
                                                                                              1998             1997            1996
                                                                                            ------           ------          ------
<S>                                                                                         <C>              <C>              <C> 
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings .....................................................................          $ 153            $ 131           $  114
Adjustments to reconcile net earnings to net cash
  provided by operating activities:
     Leasing costs, primarily depreciation and amortization ......................           1,771            1,502           1,212
         Leasing revenue, primarily principal portion of direct
           financing and sales-type lease rentals ................................             459              472             575
         Sale of direct financing and sales-type receivables .....................             120               81            --
         Cost of sales ...........................................................             193              126             101
         Technology services costs,
            primarily depreciation and amortization ..............................              84               92             103
         Income taxes ............................................................              45               36              47
         Interest ................................................................              --                8               2
         Other, net ..............................................................              (3)              28              (1)
                                                                                            ------           ------          ------
         Net cash provided by operating activities ...............................          $2,822           $2,476          $2,153
                                                                                            ======           ======          ======
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Issuance of treasury stock for acquisition of NetforceMTI ........................          $   --           $   --          $    9
                                                                                            ======           ======          ======

See accompanying notes to consolidated financial statements.
</TABLE>
                                                                            -43-
<PAGE>

Notes to Consolidated Financial Statements
(In millions, except share and per share data)

NOTE 1
Summary of Significant Accounting Policies

Nature of operations: Comdisco, Inc. is a technology services company, providing
solutions that help  organizations  reduce technology cost and risk. The company
provides technology planning and asset management services,  integrating leasing
and  technology   services  such  as  continuity   services,   customized  asset
acquisition,  asset  management  software  tools and data  center  moves  and/or
consolidations,  disposition and migration strategies. Its principal markets are
the United States, Europe, Canada and the Pacific Rim.

Use of estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Principles of consolidation:  The consolidated  financial statements include the
accounts of the company and its wholly-owned subsidiaries. Intercompany accounts
and transactions have been eliminated.

Translation  adjustments:  All assets  and  liabilities  denominated  in foreign
currencies  are  translated  at the  exchange  rate on the  balance  sheet date.
Revenues,  costs and  expenses  are  translated  at  average  rates of  exchange
prevailing during the period. Translation adjustments are deferred as a separate
component  of  stockholders'  equity.  Gains and losses  resulting  from foreign
currency transactions are included in the consolidated statements of earnings.

Income  taxes:  The company uses the asset and  liability  method to account for
income taxes.  Deferred tax assets and liabilities are recognized for the future
tax  consequences  attributable to differences  between the financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
basis.  The  measurement of deferred tax assets is reduced,  if necessary,  by a
valuation  allowance  for  any tax  benefits  of  which  future  realization  is
uncertain.

Lease accounting:  See "Leasing" section on pages 45 and 46 for a description of
lease accounting policies, lease revenue recognition and related costs.

Technology services:  Revenue from continuity contracts is recognized monthly as
subscription  fees  become  due.  Revenue  from  other  technology  services  is
recognized  over  the  terms  of the  related  contracts  or as the  service  is
provided.

Cash and cash equivalents:  Cash equivalents are comprised of highly liquid debt
instruments with original maturities of 90 days or less.

Cash--legally  restricted:  Legally  restricted  cash  represents  cash and cash
equivalents  that  are  restricted  solely  for  use as  collateral  in  secured
borrowings and are not available to other creditors.

Inventory of equipment: Inventory of equipment is stated at the lower of cost or
market by categories of similar equipment.

Derivatives:  Interest rate differentials on swaps are accrued as interest rates
change over the contract  period.  Amounts  receivable  under cap agreements are
accrued as a  reduction  of  interest  expense.  Unrealized  gains and losses on
forward  contracts are deferred on the balance  sheet until they are  exercised.
See Note 6 of the  Notes to  Consolidated  Financial  Statements  for  financial
information concerning derivatives.

Earnings  per common  share:  Earnings per common  share-Dbasic  are computed by
dividing the net earnings to common  stockholders by the weighted average number
of common  shares  outstanding  for the period.  All shares held in the Employee
Stock  Ownership  Plan  (ESOP)  are  considered  outstanding  for both basic and
diluted  earnings per share  calculations.  Earnings  per common  share-Ddiluted
reflect the maximum dilution that would have resulted from the exercise of stock
options.  Earnings  per common  share-Ddiluted  are computed by dividing the net
earnings to common  stockholders by the weighted average number of common shares
outstanding and all dilutive stock options  (dilutive stock options are based on
the treasury  stock  method).  Anti-dilutive  stock options were  immaterial for
fiscal 1998, 1997 and 1996.

                                      -44-
<PAGE>
Stock-based compensation:  The company utilizes the intrinsic value based method
of accounting for its stock-based compensation arrangements.

Reclassifications: Certain reclassifications have been made in the 1996 and 1997
financial statements to conform to the 1998 presentation.

LEASING

NOTE 2
Lease Accounting Policies

FASB Statement of Financial  Accounting  Standards No. 13 requires that a lessor
account for each lease by either the direct  financing,  sales-type or operating
method.

Leased Assets:
* Direct financing and sales-type  leased assets consist of the present value of
the  future  minimum  lease  payments  plus the  present  value of the  residual
(collectively referred to as the net investment). Residual is the estimated fair
market value at lease  termination.  In estimating the equipment's fair value at
lease termination, the company relies on historical experience by equipment type
and  manufacturer  and, where available,  valuations by independent  appraisers,
adjusted for known trends. The company's estimates are reviewed  continuously to
ensure  realization,  however the amounts the company  will  ultimately  realize
could differ from the estimated amounts.

*  Operating  leased  assets  consist  of the  equipment  cost,  less the amount
depreciated to date.

Revenue, Costs and Expenses:
* Direct  financing  leases - Revenue consists of interest earned on the present
value of the lease  payments and residual.  Revenue is  recognized  periodically
over the lease term as a constant percentage return on the net investment. There
are no costs and  expenses  related to direct  financing  leases  since  leasing
revenue is recorded on a net basis.

*  Sales-type  leases -  Revenue  consists  of the  present  value of the  total
contractual  lease  payments which is recognized at lease  inception.  Costs and
expenses consist of the equipment's net book value at lease inception,  less the
present value of the residual. Interest earned on the present value of the lease
payments and residual, which is recognized periodically over the lease term as a
constant  percentage  return  on the  net  investment,  is  included  in  direct
financing lease revenue in the statement of earnings.

* Operating leases - Revenue  consists of the contractual  lease payments and is
recognized on a straight-line  basis over the lease term. Costs and expenses are
principally  depreciation  of the  equipment.  Depreciation  is  recognized on a
straight-line  basis  over  the  lease  term to the  company's  estimate  of the
equipmentOs fair market value at lease termination, also commonly referred to as
"residual" value. In estimating the equipmentOs fair value at lease termination,
the company relies on historical  experience by equipment type and  manufacturer
and, where available,  valuations by independent appraisers,  adjusted for known
trends. The companyOs estimates are reviewed continuously to ensure realization,
however the amounts the company will  ultimately  realize  could differ from the
amounts  assumed in determining  depreciation  on the equipment in the operating
lease portfolio at September 30, 1998.

* Initial  direct  costs  related  to  operating  and direct  financing  leases,
including  salespersonOs  commissions,  are  capitalized  and amortized over the
lease term.

NOTE 3
Leased Assets

The components of the net investment in direct  financing and sales-type  leases
as of September 30 are as follows:

(in millions)
                                            98                97
                                        ------            ------
Minimum lease payments receivable..     $1,790            $1,759
Estimated residual values..........        203               180
Less: unearned revenue ............       (214)             (222)
                                        ------            ------
Net investment in direct financing
  and sales-type leases ...........     $1,779            $1,717
                                        ======            ======

     Unearned revenue is recorded as leasing revenue over the lease terms.

     Operating leased assets include the following as of September 30:

(in millions)
                                            98               97
                                       -------          -------
Operating leased assets ...........    $ 6,803          $ 5,763
Less: accumulated depreciation
  and amortization ................     (2,682)          (2,192)
                                       -------          -------
Net ...............................    $ 4,121          $ 3,571
                                       =======          =======

                                      -45-
<PAGE>
NOTE 4
Lease Portfolio Information

The size of the company's  lease portfolio can be measured by the cost of leased
assets at the date of lease inception. Cost at lease inception represents either
the  equipment's  original cost or its net book value at  termination of a prior
lease. The following table summarizes, by year of lease commencement and by year
of  projected  lease  termination,  the cost at lease  inception  for all leased
assets recorded at September 30, 1998 (in millions):

                              PROJECTED YEAR OF LEASE TERMINATION
                              -------------------------------------------
                  Cost at
Year lease        lease
commenced         inception        99       00       01       02       03+
-----------       ---------    ------   ------   ------   ------   -------
1994
  and prior          $  937    $  586   $  151   $  127   $   62   $   11
1995                    711       420      191       66       29        5
1996                  1,838       993      368      359      109        9
1997                  2,889       752    1,206      506      378       47
1998                  3,417       150      805    1,578      547      337
                  ---------    ------   ------   ------   ------   ------
                     $9,792    $2,901   $2,721   $2,636   $1,125   $  409
                  =========    ======   ======   ======   ======   ======

         The following  table  summarizes  the estimated net book value at lease
termination  for all leased assets  recorded at September 30, 1998. The table is
presented  by  year  of  lease  commencement  and by  year  of  projected  lease
termination (in millions):

                                   PROJECTED YEAR OF LEASE TERMINATION
                               -------------------------------------------
                  Net book
                  value a
Year lease        lease
commenced         termination      99        00       01       02       03+
---------         -----------  ------    ------   ------   ------  --------
1994
  and prior         $   30     $   21    $    4   $   -    $    5   $    -
1995                    62         38        23       1         -        -
1996                   257        157        46      50         4        -
1997                   474        127       230      65        50        2
1998                   661         42       144     337        90       48
                  --------     ------    ------   ------   ------   -------  
                    $1,484     $  385    $  447   $ 453    $  149   $   50
                  ========     ======    ======   ======   ======   =======
                  

NOTE 5
Future Noncancelable Lease Rentals and Technology Services Revenue

Presented  below is a summary  of future  noncancelable  lease  rentals on owned
equipment  and  future  technology  services  revenue  including   noncancelable
continuity contracts (collectively, "cash in-flows").
         The summary presents  expected cash in-flows due in accordance with the
contractual terms in existence as of September 30, 1998.
<TABLE>
<CAPTION>

(IN MILLIONS)
                                                       YEARS ENDING SEPTEMBER 30,
                                           -----------------------------------------------
                                               99      00      01      02     03+    Total
                                           ------  ------  ------  ------  ------   ------
<S>                                        <C>     <C>     <C>     <C>     <C>     <C>
Expected future cash in-flows:
   Operating leases                        $1,670  $1,058  $  498  $  128  $   28   $3,382
   Direct financing and sales-type leases     877     551     268      78      16    1,790
   Technology services                        374     251     174      78      40      917
                                           ------  ------  ------  ------  ------   ------
     Total                                 $2,921  $1,860  $  940  $  284  $   84   $6,089
                                           ======  ======  ======  ======  ======   ======  



</TABLE>

                                      -46-
<PAGE>
NOTE 6
Interest-Bearing Liabilities

Interest-bearing liabilities include the following:
(in millions)
<TABLE>
<CAPTION>
                                                                   98                                     97
                                                --------------------------------------     --------------------------------------
                                                  At September 30          Average           At September 30         Average
                                                ------------------   -----------------     ------------------- -----------------
                                                Balance       Rate   Balance      Rate     Balance     Rate    Balance      Rate
                                                -------      -----   -------      ----     -------     -----   -------      ----
<S>                                              <C>         <C>      <C>         <C>      <C>         <C>     <C>         <C>
Notes payable:
   Credit lines and loan
     participation contracts ...............     $  774      5.39%    $  541      6.20%    $  505      5.67%   $  603      6.40%
   Commercial paper ........................        347      5.21%       606      5.72%       519      5.82%      552      5.77%
Term notes .................................        550      5.52%       526      6.41%       497      5.98%      430      6.16%
Senior notes ...............................      2,768      6.47%     2,576      6.76%     2,421      6.62%    2,125      6.93%
Discounted lease rentals ...................        596      7.29%       676      7.32%       742      7.19%      773      7.13%
                                                 ------      -----    ------      ----     ------      ----    ------      ----
                                                 $5,035      6.21%    $4,925      6.62%    $4,684      6.45%   $4,483      6.68%
                                                 ======      ====     ======      ====     ======      ====    ======      ====  
</TABLE>
 
The changes in  financing  activities  for the years ended  September 30 were as
follows (notes payable changes are shown net):

(in millions)
<TABLE>
<CAPTION>
                                                     98                                                 97
                   -------------------------------------------------------  -------------------------------------------------------
                   Outstanding             Maturities                       Outstanding             Maturities
                     beginning                  and    Outstanding    Fair    beginning                  and    Outstanding    Fair
                       of year  Issuances repurchases  end of year   value      of year  Issuances repurchases  end of year   value
                        ------    ------    -------     ------      ------     ------      ------      -------     ------    ------ 
<S>                      <C>      <C>       <C>         <C>         <C>        <C>        <C>          <C>        <C>       <C> 
Notes payable:
  Credit lines and loan
    participation
    contracts ......    $  505    $  269    $    --     $  774      $  774     $  664      $   --       $ (159)    $  505    $  505
  Commercial paper .       519        --       (172)       347         347        463          56           --        519       519
Term notes .........       497       100        (47)       550         550        374         125           (2)       497       499
Senior notes .......     2,421       917       (570)     2,768       2,585      1,771       1,026         (376)     2,421     2,440
Discounted lease
  rentals ..........       742       279       (425)       596         594        781         430         (469)       742       743
                        ------    ------    -------     ------      ------     ------      ------      -------     ------    ------
                        $4,684    $1,565    $(1,214)    $5,035      $4,850     $4,053      $1,637      $(1,006)    $4,684    $4,706
                        ======    ======    =======     ======      ======     ======      ======      =======     ======    ======
</TABLE>

The fair value of the company's interest-bearing liabilities was estimated based
generally  on quoted  market  prices for the same or similar  instruments  or on
current  rates  offered the company for similar debt of the same  maturity.  The
annual maturities of all interest-bearing  liabilities at September 30, 1998 are
shown in the table at right:

<TABLE>
<CAPTION>

(in millions)
                                             Years Ending September 30,
                                  99       00       01       02       03+     Total
                              ------    -----     ----     ----     ----     ------
<S>                           <C>       <C>       <C>      <C>     <C>       <C>
Notes payable:
  Credit lines and loan
    participation contracts   $  774    $  --     $ --     $ --     $ --     $  774
Commercial paper ..........      347       --       --       --       --        347
Term notes ................      550       --       --       --       --        550
Senior notes ..............      940      619      367      294      548      2,768
Discounted lease rentals ..      310      189       82       14        1        596
                              ------    -----     ----     ----     ----     ------  
                              $2,921     $808     $449     $308     $549     $5,035
                              ======    =====     ====     ====     ====     ======
</TABLE>
                                      -47-
<PAGE>

Notes payable:  The company had the following  unsecured bank lines available in
the United States and foreign countries at September 30:

(in millions)

                                       98       97
                                   ------   ------
Total credit lines:
   Committed                       $1,253   $1,139
   Uncommitted                        393      451
                                   ------   ------
                                   $1,646   $1,590
                                   ======   ======
Utilized at September 30:
   Committed                       $  644   $  760
   Uncommitted                        149      101
    Total credit lines                793      861
   Loan participation contracts       328      163
                                   ------   ------
         Total notes payable       $1,121   $1,024
                                   ======   ======

Credit lines available at
         September 30              $  853   $  729
                                   ======   ======
Maximum amount outstanding
         at any month end          $1,304   $1,302
                                   ======   ======


Committed  lines:  The  company's  committed  lines have been  established  with
twenty-eight  banks,  six of which are U.S.  banks.  A majority of the banks are
rated AA or better by rating  agencies.  At September 30, 1998,  the company had
committed domestic and foreign unsecured lines of credit as follows:

                           Number   Expiration
                           of banks         date

Facility
Multi-Option Facilities    12
         $275 million facility              December, 2002
         $275 million facility              December, 1998
Global Facilities 14
         $275 million facility              December, 2002
         $275 million facility              December, 1998
Other credit agreements:
         $ 75 million - domestic
                  and foreign       1       April, 1999
         $ 78 million - foreign     5       Various


         There are no compensating  balance requirements on any of the committed
lines. At September 30, 1998, the company had $644 million outstanding under its
committed  lines,  including $347 million  supporting  the company's  commercial
paper program.
         The multi-option  revolving credit  agreements and the global revolving
credit agreements (collectively,  the "Facilities") permit the company to borrow
in U.S. dollars or in other  currencies,  on a revolving credit basis.  Interest
rates on debt outstanding under the Facilities are negotiated at the time of the
borrowings based either on "bid rates" from the participating  banks, LIBOR plus
twenty basis points or, for the two $275 million  facilities  expiring December,
1998,  twenty-two  basis points,  or at the banks' then current base rates.  The
Facilities  call for the  company to pay a weighted  average  annual fee of nine
basis  points  per annum on the total  committed  amount.  The two $275  million
facilities  are  renewable  annually  and should the banks  decide not to renew,
include  provisions to convert any amounts then outstanding to term loans with a
final maturity of December, 1999.

Uncommitted lines and loan participation contracts: In addition to the committed
lines, the company maintains various domestic and international  lines of credit
for  short-term  debt  with  banks,  including  approximately  $393  million  of
uncommitted lines of credit,  under which the company can borrow on an unsecured
basis on such terms as the company and banks may mutually agree. The majority of
these  arrangements  do not have  maturity  dates,  and can be  withdrawn at the
banks' option. There are no fees or compensating balances associated with either
the uncommitted lines or the loan participation contracts.

Commercial  paper:  At  September  30,  1998,  the company  had $900  million of
commercial  paper facilities (of which $347 million was outstanding at September
30,  1998) all of which are  supported  by its  committed  lines of credit.  The
facilities were rated D-2 by Duff & Phelps,  P-2 by Moodys and A-2 by Standard &
Poors.

Term notes: Term notes payable include the following at September 30:

(in millions)

                                          98      97
                                        ----    ----
Receivable backed commercial
   paper (floating rate; due 1999)      $550    $450
Building mortgage
   (9.70%; due 1998)                      --      44
Guaranteed senior ESOP
    notes (8.12%; due 1998)               --       3
                                        ----    ----
                                        $550    $497
                                        ====    ====


         See Note 11 of Notes to Consolidated Financial Statements regarding the
senior ESOP notes.

                                      -48-
<PAGE>

Senior notes: Senior notes include the following at September 30:

(in millions)
                                          98      97
                                     ------   ------
Medium term notes (5.54% to 9.95%)   $1,200   $1,184
7.250% Senior Notes due 1998 .....     --        200
7.750% Senior Notes due 1999 .....       89       89
6.500% Senior Notes due 1999 .....      250      250
6.500% Senior Notes due 2000 .....      200      199
5.750% Senior Notes due 2001 .....      250      249
6.375% Senior Notes due 2002 .....      250      250
6.125% Senior Notes due 2003 .....      250       --
6.130% Senior Notes due 2006 .....      279       --
                                     ------   ------
       Total senior notes ........   $2,768   $2,421
                                     ======   ======

         On June 23, 1997,  the company filed a  registration  statement on Form
S-3 with the SEC for a shelf  offering  of up to $1.2  billion  of  senior  debt
securities  on terms to be set at the time of each sale (the "1997  Shelf").  On
November 6, 1997,  the company filed a Prospectus  Supplement  designating  $600
million of the senior  debt  securities  as  "Medium-Term  Notes,  Series G." An
aggregate of $370 million of medium-term notes remain available for resale under
the 1997  Shelf as of  September  30,  1998.  Pursuant  to the 1997  Shelf,  the
company, on January 8, 1998, issued $250 million of 6.125% Notes Due January 15,
2003,  and, on July 27,  1998,  issued $275 million of 6.13% Notes Due August 1,
2006.
         There  are no  sinking  fund  requirements  associated  with any of the
company's senior notes.

Discounted lease rentals:  The company utilizes its lease rentals receivable and
underlying  equipment  in leasing  transactions  as  collateral  to borrow  from
financial institutions at fixed rates on a nonrecourse basis. In return for this
secured interest,  the company receives a discounted cash payment.  In the event
of a default  by a lessee,  the  financial  institution  has a first lien on the
underlying  leased  equipment,  with no further  recourse  against the  company.
Proceeds from  discounting are recorded on the balance sheet as discounted lease
rentals;  as lessees make  payments to  financial  institutions,  lease  revenue
(i.e.,  interest  income on direct  financing and  sales-type  leases and rental
revenue on operating leases) and interest expense are recorded. Discounted lease
rentals are reduced by the interest method.
         Future minimum lease payments and interest  expense on leases that have
been discounted as of September 30, 1998 are as follows (in millions):
Years Ending September 30,

                                    Rentals to be
                                    received by      Discounted
                                    financial        lease    Interest
Years Ending September 30,          institutions     rentals  expense
                                            ----        ----     ----

1999 .....................                  $344        $310     $ 34
2000 .....................                   205         189       16
2001 .....................                    86          82        4
2002 .....................                    14          14       --
2003 .....................                     1           1       --
                                            ----        ----     ----
                                            $650        $596     $ 54
                                            ====        ====     ====

         Interest  expense on  discounted  lease  rentals was $49  million,  $55
million, and $68 million in fiscal 1998, 1997 and 1996, respectively.

Interest rate swap agreements and other derivative  financial  instruments:  The
company is a party to a variety of  interest  rate and  cross-currency  interest
rate swap  agreements  and  other  financial  instruments  in order to limit its
exposure to a loss  resulting  from  adverse  fluctuations  in foreign  currency
exchange and interest rates.  Interest rate swap contracts  generally  represent
the  contractual  exchange  of fixed  and  floating  rate  payments  of a single
currency.  Cross-currency  interest rate swap  contracts  generally  involve the
exchange of payments which are based on the interest  reference  rates available
at the inception of the contract on two  different  currency  notional  balances
that are exchanged.  The principal  balances are  re-exchanged at an agreed upon
rate at a specified  future  date.  Credit and market risk exist with respect to
these instruments.

                                      -49-
<PAGE>

         The following  table  presents the contract or notional  (face) amounts
outstanding  and the  fair  value  of the  contracts  based  generally  on their
termination values at September 30:

                               98             97
                       Notional  Fair   Notional  Fair
                         amount  value  amount   value
                        -------  -----    ----   -----
 
Interest rate swap
    greements ..........   $460   $  2    $ 95   $ (1)
Cross-currency interest
    rate swap agreements     33      4      85      9
Interest rate caps .....     --     --       44    --
Forwards and futures ...     65     (3)      3     --


         The impact of these  contracts  on interest  expense  for fiscal  years
1998, 1997 and 1996 was immaterial.  The average notional amount  outstanding of
the floating rate to fixed rate contracts in fiscal 1998,  including those noted
in the discussions  above,  was $321 million,  with an average pay rate of 5.24%
and an average receive rate of 5.04%. The average notional amount outstanding of
the fixed rate to floating rate  contracts in fiscal 1998 was $60 million,  with
an average pay rate of 3.86% and an average  receive rate of 5.48%.  The company
is exposed to credit loss in the event of  non-performance  by the other parties
to the interest  rate swap  agreements.  Although  contract or notional  amounts
provide one measure of the volume of these  transactions,  they do not represent
the amount of the  company's  exposure to credit  risk.  The amounts  subject to
credit risk (arising from the possible  inability of the  counterparties to meet
the terms of their contracts) are generally  limited to the amounts,  if any, by
which the counterparties  obligation(s) exceed the obligation(s) of the company.
The company controls credit risk through credit approvals, limits and monitoring
procedures.

 
NOTE 7
Receivables

Receivables  (net of allowance for doubtful  accounts of $24 million in 1998 and
$22 million in 1997) include the following as of September 30:


(IN MILLIONS)

          
                                     98       97
                                   ----     ----
Accounts, net                      $191     $160
Income taxes                          6        6
Notes                                75       41
Other                                68       55
                                   ----     ----
                                   $340     $262
                                   ====     ====

         The allowance for doubtful accounts includes  managementOs  estimate of
the amounts expected to be lost on specific  accounts and for losses on other as
of yet  unidentified  accounts  included in  receivables  at September 30, 1998,
including   estimated   losses  on  future   noncancelable   lease  rentals  and
subscription  fees,  net of estimated  recoveries  from  remarketing  of related
leased equipment.  In estimating the reserve  component for unidentified  losses
within the  receivables  and lease  portfolio,  management  relies on historical
experience,  adjusted for any known trends,  including  industry trends,  in the
portfolio.

NOTE 8
Income Taxes

The geographical sources of earnings before income taxes were as follows:


(IN MILLIONS)

                                     98       97       96
                                   ----     ----     ----
United States                      $183     $163     $155
Outside United States                57       48       29
                                   ----     ----     ----
                                   $240     $211     $184
                                   ====     ====     ====


         Cumulative  unremitted earnings of foreign operations amounting to $143
million after  foreign taxes at September 30, 1998,  were expected by management
to be reinvested.  Accordingly,  no provision has been made for additional  U.S.
taxes which would be payable if such  earnings were to be remitted to the parent
company as dividends.  The amount of U.S.  taxes, if any, are  impracticable  to
determine.
         The components of the income tax provision (benefit) charged (credited)
to operations were as follows:

(IN MILLIONS)


                                             98       97      96
                                           ----     ----    ----
Current:
         U.S. Federal                      $ 28     $ 24    $ 20
         U.S. state and local                 2        7       6
         Outside United States               36        8      14
                                           ----     ----    ----
                                             66       39      40
                                           ----     ----    ----
Deferred:
         U.S. Federal                        33       35      32
         U.S. state and local                 9        2       3
         Outside United States              (21)       4      (5)
                                             21       41      30
                                           ----     ----    ----
                  Total tax provision      $ 87     $ 80    $ 70
                                           ====     ====    ====

                                      -50-
<PAGE>

         The reasons for the difference between the U.S. Federal income tax rate
and the effective income tax rate for earnings were as follows:


                                        PERCENTAGE OF PRETAX EARNINGS
                                        -----------------------------
                                            98       97       96
                                          -----    -----    -----
U.S. Federal income
  tax rate                                35.0%    35.0%    35.0%
Increase (reduction)
  resulting from:
   State income taxes, net
     of U.S. Federal tax
     benefit                               3.0      3.0      3.3
   Foreign income tax rate
     differential                          2.0       .8      1.3
   Tax effect of foreign
     losses utilized                      (4.0)    (2.9)    (1.9)
   Other, net                                -      2.1       .3
                                          -----    -----    -----
                                          36.0%    38.0%    38.0%
                                          =====    =====    =====




         Deferred tax assets and liabilities at September 30, 1998 and 1997 were
as follows:

PERCENTAGE OF PRETAX EARNINGS


                                            98               97
                                          ----             ----
Deferred tax assets:
  Equity transactions                     $264             $266
  Foreign loss carryforwards                12               24
  U.S. net operating loss
    carryforwards                           61               44
  AMT credit carryforwards                 123              111
  Deferred income                           35               34
  Deferred expenses                          5                -
  Other, net                                82               58
                                          ----             ----
    Gross deferred tax assets              582              537
    Less: valuation allowance              (12)             (24)
                                          ----             ----          
    Total deferred tax assets              570              513
                                          ----             ----
Deferred tax liabilities:
  Lease accounting                         873              782
  Foreign                                   16               37
                                          ----             ----  
    Total deferred tax liabilities         889              819
                                          ----             ----    
    Net deferred tax liabilities          $319             $306
                                          ====             ====



         For financial  reporting  purposes,  the company has  approximately $26
million of  foreign  net  operating  loss  carryforwards,  most of which have no
expiration date. The company has recognized a valuation allowance of $12 million
to offset this deferred tax asset.  During fiscal 1998, changes in the valuation
allowance included decreases of $10 million from utilizing foreign net operating
loss  carryforwards  and $2  million  from  foreign  exchange  rate and tax rate
changes.
         At  September  30, 1998,  the company has  available  for U.S.  Federal
income tax purposes, the following carryforwards (in millions):

                                        Net operating
Year scheduled to expire                 loss
------------------------                -------------
          2004                             $  2
          2005                                5
          2006                                5
          2007                              122
          2009                                3
          2012                               27
                                           ----  
                                           $164
                                           ====



         For U.S.  Federal  income tax purposes,  the company has  approximately
$123 million of alternative minimum tax (OAMTO) credit  carryforwards  available
to reduce regular taxes in future years. AMT credit carryforwards do not have an
expiration date.
         All years prior to fiscal year 1989 are closed to further assessment by
the  Internal  Revenue  Service (the  OServiceO)  due to the  expiration  of the
Statute of Limitations.
         The company has received  30-Day  Letters for fiscal years 1989,  1990,
1991, 1992 and 1993 proposing tax deficiencies in the amounts of $10 million, $3
million,  $14 million,  $28 million and $30 million,  respectively.  In December
1997, the company  received a favorable  response to a Technical  Advice Request
submitted to the Internal  Revenue Service  National Office which related to the
treatment  of leased  assets  for  inventory  and  depreciation  purposes.  This
response will substantially reduce the aforementioned proposed tax deficiencies.
In 1996, the company made tax payments  totaling $4 million in  anticipation  of
expected tax and interest  liabilities for fiscal years 1992 and 1993.  Protests
to the 30-Day Letters have been filed and the company is currently  working with
the  Service and the  Appeals  Division of the Service to resolve all  remaining
issues.  Management  believes that all remaining  issues can be resolved with no
material impact on the companyOs financial condition or results of operations.

                                      -51-
<PAGE>

         In July,  1996,  the Service  commenced  an income tax audit for fiscal
years  1994 and 1995.  Field  work is  expected  to be  completed  by the end of
calendar  year  1998 and the  company  expects  to  receive  a 30-Day  Letter in
calendar 1999.
         The  company  also  undergoes  audits by  foreign,  state and local tax
jurisdictions.  As of September 30, 1998, no material assessments have been made
by these tax authorities.





NOTE 9
Preferred Stock

There are 100,000,000  authorized shares of preferred stock - $.10 par value, of
which none were  outstanding  at  September  30,  1998.  The board of  directors
establishes  and  designates  the  series and fixes the number of shares and the
relative rights, preferences and limitations of the respective series. Dividends
paid on preferred stock were $2 million, $8 million and $8 million, respectively
in fiscal 1998, 1997 and 1996.
         On November 4, 1997,  the board of directors  of the company  adopted a
new  shareholder  rights plan (the "New Rights  Plan") to replace the  company's
existing  plan,  which expired on November 17, 1997.  Under the New Rights Plan,
shareholders of record on November 17, 1997 received a dividend  distribution of
one preferred stock purchase right for each share of the company's  common stock
then held.  Like the  shareholder  rights plan it replaced,  the New Rights Plan
continues the company's policy of ensuring fair value to all shareholders in the
event of an unsolicited takeover offer for the company. The New Rights Plan will
expire on November 17, 2007. The New Rights Plan is incorporated by reference in
the company's Form 10-K for fiscal 1998.

8.75% Cumulative  Preferred Stock: On September 19, 1997, the company  announced
the  redemption,  effective  October  20,  1997,  of all  shares of the Series A
Preferred  Stock  (2,738,200  shares) at the redemption  price per share of $25,
plus accrued and unpaid  dividends.  On July 13, 1998, the company announced the
redemption,  effective  July 13,  1998,  of all shares of the Series B Preferred
Stock (824,000  shares) at the redemption  price of $25, plus accrued and unpaid
dividends.


NOTE 10
Common Stock

All  references in the financial  statements and notes to common share data have
been adjusted to reflect the two-for-one stock split distributed in June, 1998.
         On February 2, 1998, the company  announced that 106 senior managers of
the company  purchased over six million shares of the company's common stock for
approximately $109 million (the "Proceeds").  Under the voluntary  program,  the
senior  managers took out full recourse,  personal loans to purchase the shares.
The company has guaranteed  repayment of the loans in the event of default.  The
purchased  shares   represented  over  4%  of  the  then  current  total  shares
outstanding.
         The share amounts for basic diluted earnings per share calculations was
as follows (in thousands):

YEARS ENDED SEPTMBER 30,

                                              98        97        96
                                           --------  --------  --------
Average shares issued                      220,910   218,907   216,702
Average shares held in treasury            (69,663)  (71,859)  (65,077)
  Basic shares outstanding                 151,247   147,048   151,625
Stock options                               11,523    10,541     8,060
Diluted shares outstanding                 162,770   157,589   159,685



         There are no  adjustments  to net earnings to common  stockholders  for
basic and diluted  earnings  per share  calculations  for any of the years ended
September 30, 1998, 1997 and 1996.

                                      -52-
<PAGE>


NOTE 11
Employee Benefits Plans

In fiscal 1988,  the company  established  the  Comdisco,  Inc.  Employee  Stock
Ownership Trust (the "Trust").  The Trust borrowed $20 million (the "ESOP Debt")
to purchase  4.6 million  shares of common stock held in treasury by the company
at a market  price at the date of purchase of $4.42 per share.  The  outstanding
balance of the ESOP Debt was recorded in term notes payable in the  consolidated
balance  sheet and a like  amount of  deferred  compensation  was  recorded as a
reduction of stockholders' equity.
         The company has a profit sharing plan which, together with the Employee
Stock Ownership Plan (the "Plans"), covers substantially all domestic employees.
Company  contributions  to the  Plans are based on a  percentage  of  employees'
compensation,  as defined.  Benefits are  accumulated on an individual  employee
basis.
         The company's  stock option plans provide for the granting of incentive
stock options  and/or  nonqualified  options to employees and agents to purchase
shares of common stock.
         Additionally, under the 1989 Non-Employee Directors' Stock Option Plan,
each October 1, each individual who is a Non-Employee Director during the fiscal
year shall automatically be granted an option for 9,000 shares of
the company's common stock at the then fair market value.
         The company applies APB Opinion No. 25 and related  Interpretations  in
accounting for its plans. Accordingly,  no compensation cost has been recognized
for its fixed stock option plans. Had compensation  cost for the company"s stock
option  plans  been  determined  consistent  with FASB  Statement  of  Financial
Accounting  Standards No. 123 ("FAS 123"), the company's net earnings  available
to common stockholders and earnings per common and common equivalent share would
have been reduced to the pro forma amounts indicated below:

(in millions except per share data)

                                       98     97
                                     ----   ----
Net earnings
         to common stockholders
         As reported ..........      $151   $123
         Pro forma ............       147    120
Earnings per common share:
         As reported--basic ...      $.99   $.83
         Pro forma--basic .....       .97    .82
         As reported--diluted .       .93    .78
         Pro forma--diluted ...       .90    .76



         Under the stock option plans,  the exercise price of each option equals
the  market  price of the  company's  common  stock on the  date of  grant.  For
purposes of calculating the compensation  cost consistent with FAS 123, the fair
value  of each  option  grant  is  estimated  on the  date of  grant  using  the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions  used for  grants in fiscal  1998 and 1997,  respectively:  dividend
yield of 1.0% for all years;  expected  volatility of 32 percent and 26 percent;
risk free interest rates of 6.07% and 6.19%; and expected lives of five years.

                                      -53-
<PAGE>

Additional information on shares subject to options is as follows:

(in thousands except weighted-average exercise price)
<TABLE>
<CAPTION>

                                                                   98                        97                        96
                                                         -------------------     ---------------------      ----------------------
                                                                    Weighted-                  Weighted-                  Weighted-
                                                                      average                    average                    average
                                                          Number     exercise       Number      exercise      Number       exercise
                                                       of shares        price    of shares         price   of shares         price
                                                         -------         ----       ------          ----       -----         -----
<S>                                                      <C>             <C>       <C>               <C>      <C>                <C>

Outstanding at beginning of year ..................       19,185          $ 6       19,096            $5       16,434            $4
Granted ...........................................        3,274           13        5,282             9        4,896             7
Exercised .........................................       (3,953)           5       (4,288)            4       (1,824)            4
Forfeited .........................................         (523)           7         (905)            6         (410)            5
                                                          ------          ---       ------            --       ------            --
Outstanding at the end of year ....................       17,983          $ 7       19,185            $6       19,096            $5
                                                          ======          ===       ======            ==       ======            ==
Options exercisable at year-end ...................       12,858          $ 6       12,578            $5       11,110            $5
                                                          ======          ===       ======            ==       ======            ==
Weighted-average fair value of options
         granted during the year                          $ 4.72                    $ 2.89                     $ 2.25
                                                          ======                    ======                     ======
</TABLE>

<TABLE>
<CAPTION>


         The  following  table  summarizes   information   about  stock  options
outstanding at September 30, 1998 (number of shares in thousands):

                                       Options outstanding       Options exercisable
                           ------------------------------------  -------------------
                                      Weighted-       Weighted-             Weighted-
                                        average         average               average
                              Number   remaining       exercise      Number  exercise
                           of shares contractual life     price    of shares    price
                           --------- ----------------  --------    ---------  -------
<S>                            <C>          <C>             <C>        <C>       <C>

Range of exercise prices
$0 to 4                        3,321        4.5 years       $ 4        3,014      $ 3
$4 to 6                        4,195        5.0 years         5        3,309        5
$6 to 8                        4,038        7.0 years         7        3,712        7
$8 to 16                       6,429        8.0 years        12        2,823       10
                              ------        ---------       ---       ------      ---
                              17,983        6.5 years       $ 7       12,858      $ 6
                              ======        =========       ===       ======      ===
</TABLE>



NOTE 12
Quarterly Financial Data (Unaudited)

Summarized  quarterly  financial  data for the fiscal years ended  September 30,
1998 and 1997, is as follows (in millions except for per share amounts):
<TABLE>
<CAPTION>

                                                                      QUARTER ENDED
                                         ------------------------------------------------------------------
                                         December 31,       March 31,        June 30,         September 30,
                                         -----------      -----------      ------------      -------------
                                          97      96        98     97        98      97        98      97
                                        ----    ----      ----   ----      ----    ----      ----    ----
<S>                                     <C>     <C>       <C>    <C>       <C>     <C>       <C>     <C>

Total revenue                           $744    $633      $777   $690      $817    $712      $904    $784
Net earnings to common stockholders     $ 34    $  28     $ 37   $ 31      $ 40    $ 32      $ 40    $ 32
Net earnings per common share--diluted  $.21    $ .18     $ .23  $.19      $.24    $.20      $.25    $.21
</TABLE>

                                      -54-
<PAGE>


NOTE 13
Segment Information

The company operates predominantly in the leasing industry. The company operated
in four  principal  geographic  locations  during fiscal 1998.  The company also
operates in South America.
         Transfers between  geographic areas include a reasonable profit that is
         eliminated in consolidation.  Presented below is financial  information
         reflecting the company's leasing and continuity and network services
operations by geographic  area for the years ended  September 30, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
(IN MILLIONS)
                                             United                        Pacific    Export    Elimi-     Consoli-
                                             States    Europe    Canada    Rim        sales     nations    dated 
                                             ------    ------    ------    -------    ------    -------    --------
<S>                                          <C>       <C>       <C>       <C>        <C>       <C>        <C>
1998
Revenue from unaffiliated customers
    Leasing                                  $2,150    $  534    $   60    $   67     $    -    $    -     $2,811
    Technology services                         363        58        11         -          -         -        432
                                             ------    ------    ------    ------     ------    ------     ------
Total revenue from unaffiliated customers     2,513       592        71        67          -         -      3,243
Transfers between geographic areas                8        16         -         6          -       (30)         -
                                             ------    ------    ------    ------     ------    ------     ------
       Total revenue                         $2,521    $  608    $   71    $   73     $    -    $  (30)    $3,243
                                             ======    ======    ======    ======     ======    ======     ======
Earnings before income taxes
    Leasing                                  $  125    $   32    $   12    $    2     $    -    $   (2)    $  169
    Technology services                          64         7         -         -          -         -         71
                                             ------    ------    ------    ------     ------    ------     ------
Total earnings before income taxes           $  189    $   39    $   12    $    2     $    -    $   (2)    $  240
                                             ======    ======    ======    ======     ======    ======     ======
Total assets (end of year)
    Leasing                                  $5,179    $1,109    $  161    $  326     $   23    $ (114)    $6,684
    Technology services                         343        72         5         -          -       (41)       379
                                             ------    ------    ------    ------     ------    ------     ------
       Total assets                          $5,522    $1,181    $  166    $  326     $   23    $ (155)    $7,063
                                             ======    ======    ======    ======     ======    ======     ======
1997
Revenue from unaffiliated customers
    Leasing                                  $1,880    $  489    $   63    $   33     $   --    $   --     $2,465
    Technology services                         293        48        13        --         --        --        354
                                             ------    ------    ------    ------     ------    ------     ------
Total revenue from unaffiliated customers     2,173       537        76        33         --        --      2,819
Transfers between geographic areas               12        14         3         5          4       (38)        --
                                             ------    ------    ------    ------     ------    ------     ------
                  Total revenue              $2,185    $  551    $   79    $   38     $    4    $  (38)    $2,819
                                             ======    ======    ======    ======     ======    ======     ======
Earnings (loss) before income taxes
    Leasing                                  $  119    $   21    $   16    $   (1)    $   --    $   (2)    $  153
    Technology services                          51         6         1        --         --        --         58
                                             ------    ------    ------    ------     ------    ------     ------
Total earnings (loss) before income taxes    $  170    $   27    $   17    $   (1)    $   --    $   (2)    $  211
                                             ======    ======    ======    ======     ======    ======     ======
Total assets (end of year)
    Leasing                                  $5,058    $  790    $  162    $  164     $   23   $  (159)    $6,038
    Technology services                         270        62        20        --         --       (40)       312
                                             ------    ------    ------    ------     ------    ------     ------
       Total assets                          $5,328    $  852    $  182    $  164     $   23    $ (199)    $6,350
                                             ======    ======    ======    ======     ======    ======     ======
1996
Revenue from unaffiliated customers
    Leasing                                  $1,573    $  420    $   75    $   45     $   --    $   --     $2,113
    Technology services                         263        41        14        --         --        --        318
                                             ------    ------    ------    ------     ------    ------     ------
Total revenue from unaffiliated customers     1,836       461        89        45         --        --      2,431
Transfers between geographic areas                8         4         4         3          5       (24)        --
                                             ------    ------    ------    ------     ------    ------     ------
       Total revenue                         $1,844    $  465    $   93    $   48     $    5    $  (24)    $2,431
                                             ======    ======    ======    ======     ======    ======     ======
Earnings before income taxes
    Leasing                                  $  113    $   10    $   19    $    1     $    1    $   (1)    $  143
    Technology services                          40        --         1        --         --        --         41
                                             ------    ------    ------    ------     ------    ------     ------
Total earnings before income taxes           $  153    $   10    $   20    $    1     $    1    $   (1)    $  184
                                             ======    ======    ======    ======     ======    ======     ======
Total assets (end of year)
    Leasing                                  $4,397    $  723    $  151    $   83     $   23    $  (89)    $5,288
    Technology services                         264        60        19        --         --       (40)       303
                                             ------    ------    ------    ------     ------    ------     ------     
       Total assets                          $4,661    $  783    $  170    $   83     $   23    $ (129)    $5,591
                                             ======    ======    ======    ======     ======    ======     ======

</TABLE>

                                      -55-