<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 0-9134
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TANDEM COMPUTERS INCORPORATED
<TABLE>
<S> <C>
Delaware 94-2266618
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(State of incorporation) (IRS Employer Id. No.)
</TABLE>
19333 Vallco Parkway, Cupertino, California
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95014-2599
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(408)285-6000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __x__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class: Common Stock, Outstanding at February 8, 1995
$.025 par value 115,784,839 shares
</TABLE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
The following consolidated financial statements have been prepared by
the Company without audit by independent public accountants, but in accordance
with the rules and regulations of the Securities and Exchange Commission.
Although certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Securities and Exchange
Commission rules and regulations, the Company believes the financial
disclosures made are sufficient to make the information presented not
misleading. In addition, the consolidated financial statements reflect, in the
opinion of management, all adjustments (limited to normal, recurring
adjustments) necessary to present fairly the consolidated financial position,
results of operations, and cash flows for the periods indicated.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and related notes
included in the Company's 1994 Annual Report to Stockholders and Annual Report
on Form 10-K for the year ended September 30, 1994. Such consolidated
financial statements and related notes are filed with the Securities and
Exchange Commission.
The results of operations for the three-month period ended December 31,
1994, are not necessarily indicative of results to be expected in the future.
[STATEMENTS ON FOLLOWING PAGES]
<PAGE> 3
TANDEM COMPUTERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the three months ended
-------------------------------
December 31, December 31,
(In thousands except per share amounts) 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Product revenues $436,987 $386,196
Service and other revenues 97,613 89,357
- --------------------------------------------------------------------------------
Total revenues 534,600 475,553
- --------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of product revenues 186,529 156,567
Cost of service and other revenues 65,411 64,324
Research and development 74,986 65,702
Marketing, general, and administrative 168,494 184,889
- --------------------------------------------------------------------------------
Total costs and expenses 495,420 471,482
- --------------------------------------------------------------------------------
OPERATING INCOME 39,180 4,071
Gain on sale of subsidiaries - 23,000
Net interest income 1,045 433
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 40,225 27,504
Provision for income taxes 5,000 2,600
- --------------------------------------------------------------------------------
NET INCOME $ 35,225 $ 24,904
================================================================================
EARNINGS PER SHARE $ .30 $ .22
================================================================================
Weighted average shares outstanding 117,986 111,798
================================================================================
</TABLE>
See accompanying notes.
<PAGE> 4
TANDEM COMPUTERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, September 30,
(In thousands except per share amount) 1994 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 157,204 $ 124,042
Accounts receivable, net 469,590 512,334
Current portion of lease receivables 64,551 61,516
Inventories 155,961 159,609
Prepaid expenses and other 70,043 70,529
- --------------------------------------------------------------------------------
Total current assets 917,349 928,030
- --------------------------------------------------------------------------------
PROPERTY, PLANT, AND EQUIPMENT, at cost 1,214,027 1,178,888
Accumulated depreciation and amortization (661,757) (630,652)
- --------------------------------------------------------------------------------
Net property, plant, and equipment 552,270 548,236
- --------------------------------------------------------------------------------
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 6,103 6,560
- --------------------------------------------------------------------------------
LEASE RECEIVABLES 77,621 76,765
- --------------------------------------------------------------------------------
OTHER ASSETS 212,398 202,294
- --------------------------------------------------------------------------------
TOTAL ASSETS $1,765,741 $1,761,885
================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term borrowings $ 463 $ -
Accounts payable 157,677 150,933
Accrued liabilities 461,005 527,510
Current maturities of long-term obligations 64,744 58,120
- --------------------------------------------------------------------------------
Total current liabilities 683,889 736,563
- --------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS 79,431 86,481
- --------------------------------------------------------------------------------
STOCKHOLDERS' INVESTMENT
Common stock $.025 par value, authorized
400,000 shares, outstanding 118,155 shares at
December 31 and 116,237 shares at September 30 2,953 2,905
Additional paid-in capital 670,220 646,256
Retained earnings 372,185 332,460
Accumulated translation adjustments 9,035 9,192
Treasury stock, at cost (9,062) (9,062)
Deferred ESOP compensation (42,910) (42,910)
- --------------------------------------------------------------------------------
Total stockholders' investment 1,002,421 938,841
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $1,765,741 $1,761,885
================================================================================
</TABLE>
See accompanying notes.
<PAGE> 5
TANDEM COMPUTERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the three months ended
---------------------------
December 31, December 31,
(In thousands) 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 35,225 $ 24,904
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 38,782 43,317
Gain on sale of subsidiaries - (23,000)
Loss (gain) on dispositions of property,
plant, and equipment 370 (1,483)
Changes in (net of dispositions):
Accounts receivable 41,598 22,763
Inventories 3,251 (17,977)
Lease receivables (6,402) 11,588
Non-debt current liabilities and other (55,266) (65,532)
- --------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 57,558 (5,420)
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property, plant, and equipment (37,771) (21,160)
Proceeds from dispositions of property, plant,
and equipment 2,497 19,318
Sale of subsidiaries, net of cash disposed - 53,600
Increase in other assets (11,818) (22,864)
- --------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (47,092) 28,894
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 16,578 24,369
Repayments (16,420) (33,717)
Issuance of Common Stock under
stock plans, including tax benefits 22,398 3,825
- --------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 22,556 (5,523)
- --------------------------------------------------------------------------------
Effect of exchange rate fluctuations on cash
and equivalents 140 (1,385)
- --------------------------------------------------------------------------------
NET INCREASE IN CASH AND EQUIVALENTS 33,162 16,566
Cash and equivalents at beginning of period 124,042 106,179
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $157,204 $122,745
================================================================================
</TABLE>
See accompanying notes.
<PAGE> 6
TANDEM COMPUTERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. EARNINGS PER SHARE
- ----------------------
Earnings per share are based on the weighted average number of common and
common equivalent shares outstanding. Common equivalent shares result from the
assumed exercise of outstanding stock options, which have a dilutive effect
when applying the treasury stock method. As a result of terminating the
Employee Stock Ownership Plan (ESOP), the approximately 2.4 million unallocated
common shares held by the ESOP trust, which were returned to Tandem's treasury
in January, 1995, have been excluded from the weighted average shares
outstanding calculations.
2. INVENTORIES
- ---------------
Inventories are stated at the lower of cost (first-in, first-out) or market.
The components of inventories were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, September 30,
(In thousands) 1994 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Purchased parts and subassemblies $ 59,857 $ 52,370
Work in process 20,164 29,234
Finished goods 75,940 78,005
- --------------------------------------------------------------------------------
Total $155,961 $159,609
================================================================================
</TABLE>
3. INVESTMENTS
- ---------------
Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities". Previously, the Company's equity
securities were recorded at lower of cost or market. Under SFAS No. 115, the
Company's equity securities are classified as available-for-sale.
Available-for-sale securities are stated at fair value, with the unrealized
gains and losses, net of taxes, reported in stockholders' investment. Realized
gains and losses, and declines in value judged to be other than temporary on
available-for-sale securities are included in other income. The cost of
securities sold is based on the average cost method. Dividends on securities
classified as available-for-sale are included in other income.
In accordance with SFAS No. 115, prior period financial statements have not
been restated to reflect the change in accounting principle. The cumulative
effect of adopting SFAS No. 115, as of October 1, 1994, increased the beginning
balance of stockholders' investment by $4.1 million to reflect the net
unrealized holding gains on securities classified as available-for-sale.
There were no realized gains or losses on available-for-sale securities during
the quarter ended December 31, 1994. The net adjustment to unrealized holding
gains (losses) on available-for-sale securities for the quarter was not
material.
<PAGE> 7
TANDEM COMPUTERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RESTRUCTURING
- -----------------
Information related to restructuring activity for the quarter ended
December 31, 1994 is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Reduction of Internal Discontinued
(In thousands) Work Force Facilities Systems Activities Other Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1994 $52,066 $54,742 $23,822 $10,711 $31,837 $173,178
Utilized, three months ended
December 31, 1994 21,273 6,058 4,433 92 4,435 36,291
- -----------------------------------------------------------------------------------------------------------------
Balances, December 31, 1994 $30,793 $48,684 $19,389 $10,619 $27,402 $136,887
=================================================================================================================
Cash used, three months ended
December 31, 1994 $21,273 $ 5,522 $ 4,433 $ 92 $ 4,435 $ 35,755
=================================================================================================================
</TABLE>
5. BUSINESS COMBINATIONS
- -------------------------
The consolidated results of operations for the quarter ended December 31, 1993
include the operating results of two wholly-owned subsidiaries, Applied
Communications Inc. (ACI) and Applied Communications, Inc. Limited (ACI Ltd.),
both of which were sold effective December 31, 1993 for approximately $53.6
million net cash. The sales of these subsidiaries resulted in a gain for
financial accounting purposes of $23 million.
In October 1994, NetWorth, Inc. (NetWorth) completed a second public offering
of its common stock in which it received net proceeds of $20.7 million. In
conjunction with NetWorth's second offering, the Company sold 315,000 shares of
its NetWorth stock for cash of $3.4 million, realizing a $1.8 million gain for
financial accounting purposes. Further, as the net offering price was in
excess of the Company's average per share carrying value of the investment, the
Company also recorded a $1.6 million increase in the investment value. This
change of interest gain was recorded directly to additional paid-in capital.
6. INCOME TAXES
- ----------------
The provision for income taxes for the three months ended December 31, 1994 and
1993 arose principally from taxes currently payable in foreign jurisdictions.
7. CASH DIVIDENDS
- ------------------
The Company has not declared or paid any cash dividends and has no plans to do
so in the foreseeable future.
8. SUBSEQUENT EVENTS
- ---------------------
During January 1995, one of the Company's equity investees entered into an
agreement to sell its assets for $120 million. The Company will receive
approximately $13.6 million in proceeds from the transaction, for an estimated
gain on the transaction of $10.6 million, $1.9 million of which is subject to
certain contingencies. Accordingly, the Company expects to record $8.7 million
of the gain in the second quarter of 1995. The remaining gain will not be
recognized until the related contingencies are satisified.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SELECTED OPERATING STATISTICS
The following table summarizes operating statistics for the first
quarter of 1995 and 1994. The percentages in the left two columns show the
relationship of revenue and expense items to total revenues, except cost of
product and services which are shown in relation to product revenues and
service revenues, respectively. The percentages in the right columns show the
percentage change in 1995 and 1994 from the comparable prior year period.
Operating results of business units sold are included in revenues, costs and
expenses through their respective disposition dates as follows: Applied
Communications, Inc. (ACI) and Applied Communications, Inc. Limited (ACI
Ltd.)--December 31, 1993; Array Technology Corporation--March 15, 1994 and
NetWorth, Inc.--March 31, 1994. Throughout this section, certain fluctuations
in financial statement line items are provided on a basis which excludes the
financial information of the above-mentioned businesses for the period prior to
disposition. This basis is described in the text, for example, as "excluding
the effect of business units sold" and reflects the fluctuations of the ongoing
operations of the Company.
The Company's fiscal year ends on September 30. References to 1995, 1994, and
1993 in this section represent the Company's fiscal years.
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES
(Except cost of product and service) PERCENT INCREASE (DECREASE)
THREE MONTHS THREE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------------------ ------------------------------
1994 1993 1994 1993
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
82 81 Product revenues 13 (1)
18 19 Service and other revenues 9 (6)
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100 100 TOTAL REVENUES 12 (2)
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43 41 Cost of product revenues 19 19
67 72 Cost of service and other revenues 2 8
-------------------------------------------------------------------------------------------------------
47 46 Total cost of revenues 14 15
14 14 Research and development 14 (10)
Marketing, general and
32 39 administrative (9) (13)
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7 1 OPERATING INCOME 862 (45)
-------------------------------------------------------------------------------------------------------
N/A 5 Gain on sale of subsidiaries N/M N/M
1 - Net interest income 141 (38)
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8 6 INCOME BEFORE INCOME TAXES 46 238
1 1 Provision for income taxes 92 (13)
-------------------------------------------------------------------------------------------------------
7 5 NET INCOME 41 42
-------------------------------------------------------------------------------------------------------
N/A N/A EARNINGS PER SHARE 36 37
=======================================================================================================
</TABLE>
N/A - Not applicable N/M - Not meaningful
<PAGE> 9
OPERATING RESULTS
REVENUES
Total revenues of $534.6 million during the first quarter of 1995
increased $59 million or 12 percent compared to the first quarter of 1994.
Excluding business units sold from prior periods, total revenues increased
approximately 18 percent. Product revenues of $437.0 million for the first
quarter of 1995 increased $51 million or 13 percent over the same quarter of
1994; excluding business units sold, product revenues increased 19 percent for
the same quarter comparison. Service and other revenues for the first quarter
of 1995 of $97.6 million, with and without business units sold, increased 9
percent and 12 percent, respectively, over the first quarter of 1994.
The first quarter increase in product revenues, in comparison to the first
quarter of 1994, is attributable to broad-based growth in computer system sales
across geographies, channels, industries, and product families. Unit sales of
the Company's computer system products in the first quarter of 1995
significantly exceeded those of the 1994 first quarter. The Company
experienced growth in the communications, finance and manufacturing industries.
In addition to the Company's direct channels, the Company also achieved growth
in its distributor, OEM, and value- added reseller channels.
The increase in service and other revenues is due mainly to increased service
revenue in the Networking division and increased consulting revenue over the
first quarter of 1994. Hardware service revenues remained relatively flat.
Total revenues in the first quarter of 1994 decreased slightly compared to the
first quarter of 1993, $8 million or 2 percent, mostly due to a $5 million
decrease in service and other revenues. The decrease in service and other
revenues resulted primarily from continuing improvement in hardware reliability
which reduced the demand for services as well as the prices received for
services.
Historically, the second half of the Company's fiscal year is stronger than the
first. Management believes that this pattern will continue in fiscal 1995 for
computer system sales. Services and other revenues are expected to remain
relatively flat.
Product Lines--The table below summarizes total revenue by product lines (which
includes both product revenues and service and other revenues) and the
percentage of total revenues each product line contributed for the indicated
periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
(Dollars in millions) 1994 1993
------------- -------------
$ % $ %
------------- -------------
<S> <C> <C> <C> <C>
Computer systems 444.6 83 383.3 81
Networking 90.0 17 92.3 19
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Total revenues 534.6 100 475.6 100
============= =============
</TABLE>
<PAGE> 10
Computer systems revenues increased $61 million or 16 percent in the
first quarter of 1995 compared to the 1994 period. Excluding the effect of
business units sold, computer systems revenues increased 18 percent. The
increase is primarily a result of increased unit shipments of the Himalaya and
Integrity product families. Unit shipments of all computer system product
lines increased 51 percent in the first quarter of 1995, compared to the first
quarter of 1994, based on the number of processors shipped excluding
workstations and personal computers. High- end NonStop computer unit shipments
increased 61 percent, contributing approximately 37 percent of the overall
increase in computer systems revenues. Mid-range NonStop computer unit
shipments increased 35 percent, contributing approximately 12 percent of the
increased revenue. Integrity shipments increased, contributing approximately
39 percent of the increase in computer system revenues.
Networking revenues increased $4 million or 5 percent in the first quarter of
1995 in comparison to the first quarter of 1994, excluding the effects of
business units sold, primarily as a result of increased service revenues.
Geographic--The table below summarizes revenues derived from Tandem's domestic
and international operations and the percentage of revenues contributed by
geographic location for the indicated periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
(Dollars in millions) 1994 1993
---------------- -----------------
$ % $ %
---------------- -----------------
<S> <C> <C> <C> <C>
United States 280.3 52 251.0 52
Europe
United Kingdom 41.6 8 34.4 7
Germany 23.2 4 22.3 5
Other Europe 71.9 14 64.9 14
---------------- -----------------
Total Europe 136.7 26 121.6 26
Japan 68.9 13 57.9 12
Asia/Pacific 27.5 5 26.7 6
Americas Division
(excluding the U.S.) 21.2 4 18.4 4
---------------- -----------------
Total revenues 534.6 100 475.6 100
================ =================
</TABLE>
Revenues in the United States increased 12 percent during the first
quarter of 1995 compared to the same 1994 period, and increased 15 percent
excluding the effect of business units sold. The trends in the U.S. and the
underlying reasons are consistent with the Company's performance on a
consolidated basis, as discussed previously. Excluding the effect of business
units sold, revenues in Europe increased 16 percent in the first quarter of
1995, compared to the first quarter of 1994. The increase is attributable to
increased unit shipments of approximately 21 percent, mainly in mid-range
systems, and the impact of foreign currency fluctuations between the quarters,
estimated to be 9 percent. In Japan, revenues increased 19 percent in the
first quarter of 1995 compared to
<PAGE> 11
the same 1994 period, primarily due to increased unit shipments of high-end
computer systems, increased consulting revenues, and the impact of foreign
currency fluctuations. Asia/Pacific revenues increased 9 percent in the first
quarter of 1995 compared to the first quarter of 1994, excluding the effect of
business units sold, primarily a result of foreign currency fluctuations.
COST OF REVENUES
During the first quarter of 1995, product margin percentages declined
approximately 2 points to 57 percent, from those earned in the first quarter of
1994. The decline in product margin percentage is predominately a result of
increased business generated during the quarter through alternative channels
and the increased contribution to sales of the Integrity product family.
Margins on service and other revenues increased to 33 percent in the first
quarter of 1995 from 28 percent in the 1994 quarter. The margin improvement is
attributable to improved results on systems integration consulting projects,
which had experienced project cost overruns in the first quarter of 1994.
These improvements were offset somewhat by costs associated with consulting
services which were previously reported as general and administrative expenses.
The Company implemented an organizational change in the first quarter of 1995,
reflecting the continued transition to open systems business practices, to
formally price, market, and sell consulting services, resulting in the change
of the classification of these costs.
In the first quarter of 1994 product margin percentages declined 7 points to 59
percent compared with the same quarter of 1993 due to the introduction of
Himalaya systems during the first quarter of 1994 which have lower prices and
lower margins than previous generations of Tandem systems, lower margins in the
networking products, and an increased proportion of revenues from OEM sales of
the Integrity product line, also at lower margins. Margins on service and
other revenues decreased 9 points to 28 percent during the first quarter of
1994 compared to the same quarter of 1993 due mostly to higher than anticipated
costs associated with certain projects in the integration services business.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the first quarter of 1995
increased $9 million, or 14 percent, compared to 1994 first quarter spending.
Excluding the effect of business units sold, research and development expenses
increased 18 percent. The increase is attributable primarily to purchases of
development material associated with new products which were recently
announced and which will begin shipping later in the year. This spending is
expected to continue to increase during the second quarter of 1995, but then
decline slightly in the second half of the year. Research and development
expenses during both quarters were approximately 14 percent of total revenues.
Compared with the first quarter of 1993, research and development expenses in
the first quarter of 1994 decreased $7 million, mostly as a result of
restructuring actions taken in the third quarter of 1993 and higher levels of
software capitalization.
<PAGE> 12
MARKETING, GENERAL, AND ADMINISTRATIVE EXPENSES
Marketing, general and administrative expenses in the first quarter of
1995 declined $16 million or 9 percent compared to the first quarter of 1994.
The impact of business units sold contributed to 65 percent of the decline.
The remaining decline is due to reductions in headcount occuring since the
first quarter of 1994 and to the change in reporting of certain consulting
services costs as discussed previously. Marketing, general and administrative
expenses should increase in the following quarters, but generally not as a
percentage of revenues.
Marketing, general and administrative expenses were also down sharply in the
1994 first quarter compared to the 1993 first quarter, $27 million or 13
percent, primarily as a result of the restructuring actions initiated in third
quarter of 1993.
Aggressive cost containment and restructuring actions have progressively
reduced the on-going level of fixed expenses. However, certain expenses such
as commissions and incentive compensation for sales and marketing staff will
vary as revenues fluctuate.
IMPACT OF CURRENCY AND INFLATION
During the first quarter of 1995, in comparison to the first quarter
of 1994, the currencies in most foreign countries where Tandem has significant
operations strengthened against the U.S. dollar. Consequently, the translation
of foreign revenues and operating results had a positive impact on the
consolidated results of the Company, as stated in U.S. dollars, for the three
months ended December 31, 1994. However, this impact is difficult to quantify
precisely because the Company responds to movements in currency exchange rates
through pricing and other management actions. Without taking into
consideration price reductions attributable to strenthening overseas
currencies, foreign exchange rate movements contributed approximately one-third
of the increase in operating income between the first quarters of 1995 and
1994.
Comparing the 1994 quarter to the 1993 quarter, European currencies generally
weakened against the U.S. dollar, offset by stengthening of the Japanese yen.
Overall, foreign currency fluctuations negatively affected the translation of
international revenues and operating results.
NET INCOME AND EARNINGS PER SHARE
Net income for the first quarter of 1995 was $35 million or $0.30 per
share, compared to $25 million or $0.22 per share for the first quarter of
1994. Net income in the first three months of 1994 included a $23 million or
approximately $0.20 per share non-operating gain from the sales of ACI and ACI
Ltd. Net income for the first quarter of 1993 was $18 million or $0.16 per
share, which included a $12 million positive adjustment for the cumulative
effect of adopting Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS No. 109) as of October 1, 1992.
<PAGE> 13
The effective tax rates for the first quarter of 1995 and 1994 were 12 percent
and 9 percent, respectively, arising principally from taxes currently payable
in foreign jurisdictions. The increased effective tax rate for the first
quarter of 1995 is due to the geographic distribution of income. Tandem
expects to continue to report income for the remainder of 1995 in certain
foreign jurisdictions, which will result in tax provisions despite loss
carryforwards which are available primarily to offset U.S. and certain foreign
income.
Weighted average shares outstanding increased from 1994 due to sales of stock
to employees under stock plans and to increased dilutive stock options.
During January 1995, one of the Company's equity investees entered into an
agreement to sell its assets for $120 million. The Company will receive
approximately $13.6 million in proceeds from the transaction, for an estimated
non-operating gain on the transaction of $10.6 million, $1.9 million of which
is subject to certain contingencies. Accordingly, the Company expects to
record $8.7 million of the gain in the second quarter of 1995. The remaining
non-operating gain will not be recognized until the related contingencies are
satisfied.
FINANCIAL CONDITION
During the first quarter of 1995, cash and cash equivalents increased
by $33 million to $157 million. The Company generated $58 million positive
cash flow from operations during the quarter. Investing activities in the
first quarter consumed approximately $47 million, principally through the
investment in capital equipment and software. Financing activities provided
approximately $23 million, primarily from the sales of common stock.
Accounts receivable days increased to 80 days at December 31, 1994, compared to
77 days at September 30, 1994. Inventory days increased to 56 days at December
31, 1994, compared to 54 days at September 30, 1994.
At December 31, 1994, total debt of $145 million, including $122 million of
nonrecourse borrowings against lease receivables, remains relatively unchanged
from September 30, 1994. Total debt as a percentage of total capital remains
at approximately 13 percent.
Cash used for restructuring actions during the first quarter of 1994 aggregated
approximately $36 million and was funded by cash generated from operations.
The Company's sources of working capital include cash generated from
operations, a $150 million financing facility, and other financing
arrangements. Management believes that the financing sources available at
December 31, 1994 can adequately meet Tandem's financing needs, both in the
short and the long term.
As of December 31, 1994, the Company had approximately 8,300 full-time
equivalent employees. Headcount decreased approximately 200 during the
quarter. Headcount is expected to increase during the remainder of the year.
<PAGE> 14
Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities". Previously, the Company's equity
securities were recorded at lower of cost or market. Under SFAS No. 115, the
Company's equity securities are classified as available-for-sale. In
accordance with SFAS No. 115, prior period financial statements have not been
restated to reflect the change in accounting principle. The cumulative effect
of adopting SFAS No. 115 as of October 1, 1994 increased the beginning balance
of stockholders' investment by $4.1 million to reflect the net unrealized
holding gain on available- for-sale securities. There were no realized gains
or losses on available-for-sale securities during the quarter ended December
31, 1994. The net adjustment to unrealized holding gains (losses) on
available-for-sale securities for the quarter was not material.
OUTLOOK AND RISKS
The second quarter of 1995 will be a transition quarter for the
Company. In January 1995 the Company announced its second generation of
RISC-based servers. However, shipment of the new products is not scheduled to
begin until the end of the quarter or later. Accordingly, these new products
are not expected to contribute significantly to the second quarter's results.
Inherent in this transition process is the risk that customers will delay
purchases of existing products. In an effort to manage the transition process
effectively, the Company is considering various programs for customers to
purchase existing products until the new products are available. The Company
believes these programs will mitigate pressure on revenues in the interim.
However, there can be no guarantee that the incentive programs will be
effective.
Management expects product margins to decline slightly over the next few
quarters as lower margin UNIX products contribute increasingly to total product
revenue and as the next generation of Himalaya products are introduced. A key
challenge in meeting the Company's 1995 operating plan includes shipping
sufficiently increased unit volumes of both the Himalaya and the Integrity
products to achieve increased revenues, concurrently controlling the cost
structure of the Company. Management is encouraged by the increasingly
favorable cost containment results since the July 1993 restructure, but key
challenges remain to meet the Company's revenue and operating goals.
Tandem, Himalaya, Integrity, and NonStop are trademarks of the Tandem Computers
Incorporated. UNIX is a registered trademark in the United States and other
countries, licensed exclusively through X/Open Company Limited.
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on January
24, 1995, in Cupertino, California. Five matters were voted upon:
(a) Proposal 1. To elect four Class III Directors to hold office
until 1998.
(b) Proposal 2. To consider and vote upon a proposal to amend the
Tandem Computers Incorporated 1989 Stock Plan to increase the
number of shares of Common Stock available for issuance under
the 1989 Plan.
(c) Proposal 3. To consider and vote upon a proposal to conform
the Tandem Computers Incorporated 1989 Stock Plan to the
deductibility requirements of Section 162(m) of the Internal
Revenue Code.
(d) To consider and vote upon a proposal to approve the Tandem
Computers Incorporated Senior Executive Incentive Plan.
(e) To ratify the appointment of Ernst & Young as the Company's
independent auditors.
All matters were passed, as follows:
PROPOSAL 1 - ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
For Instructed Authority Withheld from all Nominees
- --- ---------- ------------------------------------
<S> <C> <C>
96,239,736 4,023,844 703,924
</TABLE>
Schedule of Votes Cast For Each Director
----------------------------------------
<TABLE>
<CAPTION>
Total Vote For Total Vote Withheld
Each Director From Each Director
------------- ------------------
<S> <C> <C>
Vera Stephanie Shirley 100,236,860 730,644
Robert G. Stone, Jr. 96,239,736 4,727,768
James G. Treybig 99,710,795 1,256,709
Walter B. Wriston 100,263,580 703,924
</TABLE>
<PAGE> 16
PROPOSAL 2 - AMENDMENT TO THE 1989 STOCK PLAN
<TABLE>
<CAPTION>
For Against Abstain No Vote
- --- ------- ------- ----------
<S> <C> <C> <C>
51,504,096 30,062,904 821,821 18,578,683
</TABLE>
PROPOSAL 3 - APPROVAL OF TECHNICAL CHANGES TO THE 1989 STOCK PLAN
<TABLE>
<CAPTION>
For Against Abstain
- --- ------- -------
<S> <C> <C>
90,619,859 9,427,164 920,481
</TABLE>
PROPOSAL 4 - APPROVAL OF THE COMPANY'S SENIOR EXECUTIVE INCENTIVE PLAN
<TABLE>
<CAPTION>
For Against Abstain
- --- ------- -------
<S> <C> <C>
92,493,421 7,351,043 1,123,040
</TABLE>
PROPOSAL 5 - APPOINTMENT OF ERNST & YOUNG AS INDEPENDENT AUDITORS
<TABLE>
<CAPTION>
For Against Abstain
- --- ------- -------
<S> <C> <C>
100,336,374 280,406 350,724
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-K
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
10.1+ Amended and Restated Tandem Computers Incorporated 1989
Stock Plan.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
first fiscal quarter.
+ Director or officer compensatory plan.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Cupertino, State of
California.
TANDEM COMPUTERS INCORPORATED
(Registrant)
Date: February 14, 1995 By: DAVID J. RYNNE
----------------------------------
David J. Rynne
Senior Vice President and
Chief Financial Officer
Date: February 14, 1995 By: ANTHONY H. LEWIS, JR.
----------------------------------
Anthony H. Lewis, Jr.
Vice President and
Corporate Controller
<PAGE> 18
TANDEM COMPUTERS INCORPORATED
1989 STOCK PLAN
(as Restated Effective November 15, 1994)
1. Establishment, Purpose, and Definitions.
(a) There is hereby adopted the 1989 Stock Plan (the
"Plan") of TANDEM COMPUTERS INCORPORATED (the
"Company").
(b) The purpose of the Plan is to provide a means whereby
eligible individuals (as defined in paragraph 4,
below) can acquire common stock of the Company (the
"Stock"). The Plan provides employees (including
officers and directors who are employees) of the
Company and of Subsidiaries an opportunity to
purchase shares of Stock pursuant to options which
may qualify as incentive stock options under Section
422 of the Internal Revenue Code, as amended
(referred to as "incentive stock options"), and
employees (including officers and directors who are
employees), independent contractors, and consultants
of the Company and of Affiliates an opportunity to
purchase shares of Stock pursuant to options which
are not described in Section 422 or 423 of the
Internal Revenue Code (referred to as "nonqualified
stock options"). The Plan also provides for the
transfer or sale of Stock to eligible individuals in
connection with the performance of services for the
Company or Affiliates.
(c) The term "Subsidiary" as used in the Plan means any
corporation at least 50 percent of the voting stock
of which is owned, directly or indirectly, by the
Company. The term "Affiliates" refers to
Subsidiaries and any entity which has a business
relationship with the Company. The terms
"Subsidiaries" and "Affiliates" include entities
which become Subsidiaries or Affiliates after the
adoption of the Plan.
2. Administration of the Plan.
(a) Except for certain specific administrative functions
reserved by the Company's Board of Directors (the
"Board") pursuant to the express
-1-
<PAGE> 19
provisions of the Plan, the Plan shall be
administered by the Compensation/Option Committee
(the "Committee") of the Board. The Board may remove
members from or add members to the Committee.
Vacancies on the Committee shall be filled by the
Board. In the performance of its administrative
functions under the Plan, the Committee shall be
entitled to exercise any and all rights and authority
provided it under the Company's By-laws, as in effect
from time to time.
(b) The Committee shall determine which eligible
individuals (as defined in paragraph 4, below) shall
be granted options under the Plan, the timing of such
grants, the terms thereof (including any restrictions
on the Stock), and the number of shares for which an
option or options shall be granted to an optionee.
The Committee may establish a standard schedule of
options to be granted automatically on an eligible
individual's date of hire and date of promotion. The
Committee may designate one or more of its members,
the Non-Insider Option Committee, to grant options to
such individuals which vary from, or are not covered
by, the standard schedule. With respect to options
granted by the Non-Insider Option Committee,
references in the Plan to the Committee shall, where
appropriate, refer to the Non- Insider Option
Committee.
(c) The Committee may amend the terms of any outstanding
option granted under this Plan, but any amendment
which would adversely affect the optionee's rights
under an outstanding option shall not be made without
the optionee's written consent. The Committee may
cancel any outstanding stock option or accept any
outstanding stock option in exchange for a new
option.
(d) The Committee shall also determine which eligible
individuals (as defined in paragraph 4, below) shall
be issued Stock under the Plan, the timing of such
grants, the terms thereof (including any
restrictions), and the number of shares to be
granted. The Stock shall be issued for such
consideration as the Committee deems appropriate,
including past services; provided, however, that such
consideration shall have a fair market value at least
equal to fifty percent (50%) of the fair market value
of the Stock on the date of issuance. Stock issued
subject to restrictions shall be evidenced by a
written agreement (the "Restricted Stock Agreement").
The Committee may amend any Restricted Stock
Agreement, but any amendment
-2-
<PAGE> 20
which would adversely affect the individual's rights
to the Stock shall not be made without his or her
written consent.
(e) The Committee shall have the sole authority, in its
absolute discretion to adopt, amend, and rescind such
rules and regulations as, in its opinion, may be
advisable in the administration of the Plan, to
construe and interpret the Plan, the rules and the
regulations, and the instruments evidencing options
or Stock granted under the Plan and to make all other
determinations deemed necessary or advisable for the
administration of the Plan. All decisions,
determinations, and interpretations of the Committee
shall be binding on all optionees.
3. Stock Subject to the Plan.
(a) An aggregate of not more than 24,000,000 shares of
Stock shall be available for the grant of options or
the issuance of Stock under the Plan to eligible
individuals. If an option for any reason ceases to
be exercisable in whole or in part (including options
cancelled in exchange for new grants), the shares
which were subject to such option but as to which the
option had not been exercised shall continue to be
available under the Plan. Shares of Stock
repurchased by the Company pursuant to repurchase
rights retained under the Plan and shares of Stock
withheld by the Company under paragraph 11 to satisfy
applicable tax obligations shall not be available for
subsequent option grants or Stock issuances under the
Plan.
(b) If there is any change in the Stock subject to the
Plan, the Stock subject to a Restricted Stock
Agreement or the Stock subject to any option granted
under the Plan, through merger, consolidation,
reorganization, recapitalization, reincorporation,
stock split, stock dividend (in excess of two
percent), or other change in the corporate structure
of the Company, appropriate adjustments shall be made
by the Committee in order to preserve but not to
increase the benefits to the individual, including
adjustments to the aggregate number and kind of
shares subject to the Plan or to a Restricted Stock
Agreement and the number and kind of shares and the
price per share subject to outstanding options.
-3-
<PAGE> 21
4. Eligible Individuals.
Individuals who shall be eligible to have granted to them the
options or Stock provided for by the Plan shall be such
employees (including officers and directors who are bona fide
employees), independent contractors, and consultants of the
Company or an Affiliate as the Committee, in its discretion,
shall designate from time to time. Only employees of the
Company or a Subsidiary shall be eligible to receive incentive
stock options. Non-employee members of the Board shall not be
eligible to receive option grants or Stock issuances under the
Plan.
5. The Option Price.
(a) The exercise price of the Stock covered by each
incentive stock option shall be not less than the per
share fair market value of such Stock on the date the
option is granted. The exercise price of the Stock
covered by each nonqualified stock option shall be as
determined by the Committee, but in no event shall
such price be less than fifty percent (50%) of the
per share fair market value of the Stock on the date
the option is granted. Notwithstanding the
foregoing, in the case of an incentive stock option
granted to a person possessing more than ten percent
of the combined voting power of the Company or a
Subsidiary, the exercise price shall be not less than
110 percent of the fair market value of the Stock on
the date the option is granted. The exercise price
of an option shall be subject to adjustment to the
extent provided in paragraph 3(b), above.
(b) For purposes of paragraph 5(a) above and for all
other valuation purposes under the Plan, the fair
market value per share of Stock on any relevant date
shall be the closing selling price per share of Stock
on the New York Stock Exchange on the date in
question, as such price is quoted on the composite
tape of transactions on such exchange. If there is
no reported sale of the Stock on the New York Stock
Exchange on the date in question, then the fair
market value shall be the closing selling price on
such exchange on the last preceding date for which
such quotation exists.
6. Terms and Conditions of Options.
(a) Each option granted pursuant to the Plan will be
evidenced by a written Stock Option Agreement
executed by the Company and the person to whom such
option is granted.
-4-
<PAGE> 22
(b) The Committee shall determine the term of each option
granted under the Plan which shall not be for more
than ten years; provided, however, that in the case
of an option granted to a person possessing more than
ten percent of the combined voting power of the
Company or a Subsidiary the term of each incentive
stock option shall be for no more than five years.
(c) The Stock Option Agreement may contain such other
terms, provisions, and conditions as may be
determined by the Committee (not inconsistent with
this Plan). If an option, or any part thereof is
intended to qualify as an incentive stock option, the
Stock Option Agreement shall contain those terms and
conditions which are necessary to so qualify it.
(d) Notwithstanding any provision of the Plan to the
contrary, the Stock Option Agreement evidencing
options granted to an employee who is a "French
Employee" (as that term is defined in Appendix A to
the Plan) or a "Dutch Employee" (as that term is
defined in Appendix B to the Plan) shall include the
provisions set forth in Appendix A or B,
respectively.
(e) Options granted to any employee in a single fiscal
year shall in no event cover more than 500,000 shares
of stock, subject to adjustment in accordance with
paragraph 3(b), above.
7. Use of Proceeds.
Any cash proceeds realized from the sale of Stock pursuant to
options granted or Stock issued under the Plan shall
constitute general funds of the Company.
8. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate
the Plan as it deems advisable; provided, however,
except as provided in paragraph 3(b), above, the
Board shall not amend the Plan in the following
respects without the consent of stockholders then
sufficient to approve the Plan in the first instance;
(1) To increase the maximum number of shares
subject to the Plan; or
(2) To change the designation or class of persons
eligible to receive options under the Plan.
-5-
<PAGE> 23
(3) To change the maximum number of options that
may be granted to any employee in a single
fiscal year.
(b) No option may be granted nor any Stock issued under
the Plan during any suspension or after the
termination of the Plan, and no amendment, suspension
or termination of the Plan shall, without the
affected individual's consent, alter or impair any
rights or obligations under any option previously
granted under the Plan. The Plan shall terminate on
November 23, 1998, unless previously terminated by
the Board pursuant to this paragraph 8.
9. Assignability.
Each option granted pursuant to this Plan shall, during an
optionee's lifetime, be exercisable only by him, and neither the
option nor any right hereunder shall be transferable by optionee by
operation of law or otherwise other than by will or the laws of
descent and distribution. Stock subject to a Restricted Stock
Agreement shall be transferable only as provided in such Agreement.
10. Payment Upon Exercise.
Payment of the purchase price upon exercise of any option
granted under this Plan shall be made (i) in cash, (ii) with shares of
Stock owned by the Optionee, (iii) by delivery of an irrevocable
direction to a securities broker approved by the Committee to sell
shares and deliver all or a portion of the proceeds to the Company in
payment for the Stock, (iv) by delivery of the optionee's promissory
note with such recourse, interest, security and redemption provisions
as the Committee in its discretion determines appropriate, or (v) in
any combination of the foregoing. Any Stock used to exercise options
shall be valued at its fair market value on the date of the exercise
of the option.
11. Withholding of Shares.
Subject to the approval of the Board and in accordance with
procedures established by the Board, optionees who are subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act
of 1934 may satisfy federal, state and local tax obligations incident
to the exercise of nonqualified stock options under the Plan or other
purchase or receipt of Stock under the Plan, with shares of the
Company's Common Stock (whether acquired through exercise of a stock
option or otherwise).
-6-
<PAGE> 24
12. Restrictions on Transfer of Shares.
The Stock acquired pursuant to the Plan shall be subject to
such restrictions and agreements regarding sale, assignment,
encumbrances, or other transfer as are in effect among the
stockholders of the Company at the time such Stock is acquired, as
well as to such other restrictions as the Committee shall deem
advisable.
13. Stockholder Approval.
This Plan shall become effective upon its approval by a
majority of the stockholders voting (in person or by proxy) at a
stockholders' meeting held within 12 months of the Board's adoption of
the Plan. The Committee may grant options under the Plan prior to the
stockholders' meeting, but until stockholder approval of the Plan is
obtained, Stock shall not be issued pursuant to the Plan (whether or
not for consideration) and no option shall be exercisable.
14. Change in Control.
Upon the actual consummation of a Change in Control, all
outstanding repurchase rights of the Company shall automatically
expire and cease to have effect with respect to any and all shares of
Stock purchased under the Plan. The right of repurchase shall
continue in effect with respect to all other shares of Stock purchased
or purchasable under the Plan, except to the extent the Board may
otherwise provide in connection with such Change in Control or any
attempt to effect such Change in Control.
For purposes of applying the vesting acceleration provisions
of this paragraph 14, the following provisions shall be controlling:
A "Change in Control" shall be deemed to be effected upon:
(i) the acquisition by any Person, other than the Company
or one or more persons controlling, controlled by or
under common control with the Company, of beneficial
ownership (as determined pursuant to Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of
eighty-five percent (85%) or more of the Company's
outstanding voting securities pursuant to a
transaction which the majority of the Continuing
Directors does not at any time recommend the
Company's stockholders to accept or approve, or
-7-
<PAGE> 25
(ii) a change in the composition of the Board over any
period of thirty-six (36) consecutive months or less
such that a majority of the Board members (determined
by rounding up the next whole number) cease to be
comprised of individuals who either (A) were
Continuing Directors at the start of such period or
(B) were elected or nominated for election as Board
members during such period by at least a majority of
the Continuing Directors in office at the time such
election or nomination was approved by the Board.
Continuing Director shall mean any member of the Board who has
served continuously as such Board member from and before the
commencement of the transaction resulting in the Change in Control.
Person shall mean any individual, firm, partnership,
corporation or other entity and shall include any successor of such
entity and all Affiliates, Associates and Subsidiaries (as such terms
are defined in Rule 12b-2 of the Securities Exchange Act of 1934, as
amended) of such entity.
The 85% test in subparagraph (i) of the Change in Control
definition shall be measured at the time the transaction resulting in
the Change in Control first commences, and there shall be excluded
from such calculation, to the extent provided pursuant to Section 203
(or any successor provision) of the Delaware General Corporation Law,
shares owned by (i) persons who are both officers and directors of the
Company and (ii) employee stock plans in which employee-participants
do not have the right to determine confidentially whether shares held
subject to the plan are to be tendered in a tender or exchange offer.
-8-
<PAGE> 26
APPENDIX A
OPTION GRANTS TO FRENCH EMPLOYEES
This Appendix A to the Tandem Computers Incorporated 1989 Stock Plan
(the "Plan") sets forth special rules under which options shall be granted to
individuals who are employees of Tandem Computers Europe Incorporated or of a
Tandem Subsidiary in France (collectively referred to as the "French
Companies") and whose salary is paid in French currency on the date of the
grant. To the extent the rules in this Appendix A are not consistent with the
provisions of the Plan, this Appendix A shall govern. To the extent that there
is no inconsistency between the provisions of the Plan and this Appendix A, the
provisions of the Plan shall govern.
1. VESTING. Options granted will vest daily over a four-year
period that begins on the Effective Date of the option and
ends on the earlier of (i) the fourth anniversary of the
Effective Date, or (ii) the date the French Employee
terminates employment with the French Companies.
2. OPTION PRICE. The purchase price of the shares of stock
covered by an option shall not be less than eighty percent
(80%) of the closing stock price on the NYSE averaged over a
period of twenty (20) consecutive trading days, ending on the
date of grant.
3. EXERCISE OF OPTIONS.
(a) When Exercisable. An option cannot be exercised by a
French Employee unless it is vested pursuant to
paragraph l above.
(b) Method of Exercise. An option is exercisable by a
French Employee upon written notice to Tandem. This
written notice must state the number of shares being
exercised and must be accompanied by full payment for
the stock being purchased. Payment may be in the
form of cash, check or money order.
4. DEFINITIONS.
(a) "French Employee" shall mean an individual who is an
employee of Tandem Computers Europe Incorporated or
of a Tandem Subsidiary or Affiliate, in France, and
whose salary is paid in French currency on the date
the option is granted.
(b) "Tandem Subsidiary" shall mean a company in which
Tandem has a 50 percent equity interest, directly
-9-
<PAGE> 27
or indirectly, or a corporation of which Tandem owns
50 percent or more of the voting shares, either
directly or indirectly.
(c) "Tandem Affiliate" shall mean a company with which
Tandem has a business relationship.
-10-
<PAGE> 28
APPENDIX B
OPTION GRANTS TO DUTCH EMPLOYEES
This Appendix B to the Tandem Computers Incorporated 1989 Stock Plan
(the "Plan") sets forth special rules under which options shall be granted to
individuals who are employees of Tandem Computers Europe Incorporated or a
Tandem Subsidiary in the Netherlands (collectively referred to as the "Dutch
Companies") whose salary is paid in Dutch currency on the date of grant. To
the extent the rules in this Appendix B are not consistent with the provisions
of the Plan, this Appendix B shall govern. To the extent that there is no
inconsistency between the provisions of the Plan and this Appendix B, the
provisions of the Plan shall govern.
1. VESTING. Options granted to a Dutch Employee will vest
immediately upon grant.
2. RIGHT OF REPURCHASE. If a Dutch Employee ceases to be
employed by the Dutch Companies before the fourth anniversary
of the Effective Date, Tandem shall have the right to
repurchase a limited number of shares from the Dutch Employee.
The repurchase price shall be the option price. The number of
shares to which this right of repurchase applies shall be
determined according to the following formula:
(Total Number of Shares Purchased) minus [(Total Number of Shares
Under Option) x (Number of Days of Continuous Employment Following the
Effective Date) x (0.000685)]
3. EXERCISE OF OPTIONS. An option granted to a Dutch Employee
cannot be exercised after the fifth anniversary of the date of
grant.
4. DEFINITIONS.
(a) "Dutch Employee" shall mean an individual who is an
employee of Tandem Computers Europe Incorporated or
of a Tandem Subsidiary or Affiliate, in the
Netherlands, and whose salary is paid in Dutch
currency on the date the option is granted.
(b) "Tandem Subsidiary" shall mean a company in which
Tandem has a 50 percent equity interest, directly or
indirectly or a corporation of which Tandem owns 50
percent or more of the voting shares, either directly
or indirectly.
(c) "Tandem Affiliate" shall mean a company with which
Tandem has a business relationship.
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE PERIOD ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 157,204
<SECURITIES> 0
<RECEIVABLES> 486,747
<ALLOWANCES> 17,157
<INVENTORY> 155,961
<CURRENT-ASSETS> 917,349
<PP&E> 1,214,024
<DEPRECIATION> 661,754
<TOTAL-ASSETS> 1,765,741
<CURRENT-LIABILITIES> 683,889
<BONDS> 79,431
<COMMON> 0
0
2,953
<OTHER-SE> 999,468
<TOTAL-LIABILITY-AND-EQUITY> 1,765,741
<SALES> 436,987
<TOTAL-REVENUES> 534,600
<CGS> 186,529
<TOTAL-COSTS> 251,940
<OTHER-EXPENSES> 74,986
<LOSS-PROVISION> 2,001
<INTEREST-EXPENSE> 3,214
<INCOME-PRETAX> 40,225
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 35,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,225
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
