<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, 1995
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
TANDEM COMPUTERS INCORPORATED
Delaware 94-2266618
(State of incorporation) (IRS Employer Id. No.)
19333 Vallco Parkway, Cupertino, California
95014-2599
(408)285-6000
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.
Class: Common Stock, Outstanding at February 9, 1996
$0.25 par value 117,462,663 shares
<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) neccessary 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 1995 Annual Report to Stockholders and Annual Report
on Form 10-K for the year ended September 30, 1995. 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,
1995, 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) 1995 1994
================================================================================
<S> <C> <C>
REVENUES
Product revenues $ 400,770 $436,987
Service and other revenues 111,672 97,613
- --------------------------------------------------------------------------------
Total revenues 512,442 534,600
- --------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of product revenues 183,134 186,529
Cost of service and other revenues 83,029 65,411
Research and development 82,576 74,986
Marketing, general, and administrative 185,793 168,494
- --------------------------------------------------------------------------------
Total costs and expenses 534,532 495,420
- --------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (22,090) 39,180
Gain on sale of investments 30,628 -
Net interest income 428 1,045
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 8,966 40,225
Provision for income taxes 7,000 5,000
- --------------------------------------------------------------------------------
NET INCOME $ 1,966 $ 35,225
================================================================================
EARNINGS PER SHARE $ .02 $ .30
================================================================================
Weighted average shares outstanding 117,452 117,986
================================================================================
</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) 1995 1995
=======================================================================================
<S> <C> <C>
ASSETS
- ---------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and equivalents $ 103,918 $ 121,230
Accounts receivable, net 449,252 539,993
Current portion of lease receivables 67,056 73,555
Inventories 199,733 169,948
Prepaid expenses and other 71,479 65,759
- ---------------------------------------------------------------------------------------
Total current assets 891,438 970,485
- ---------------------------------------------------------------------------------------
PROPERTY, PLANT, AND EQUIPMENT, at cost 1,308,631 1,297,481
Accumulated depreciation and amortization (705,729) (700,813)
- ---------------------------------------------------------------------------------------
Net property, plant, and equipment 602,902 596,668
- ---------------------------------------------------------------------------------------
LEASE RECEIVABLES 92,134 86,173
- ---------------------------------------------------------------------------------------
OTHER ASSETS 214,181 203,368
- ---------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,800,655 $ 1,856,694
=======================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ---------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 149,625 $ 195,793
Accrued liabilities 405,384 409,520
Current maturities of long-term obligations 59,911 65,123
- ---------------------------------------------------------------------------------------
Total current liabilities 614,920 670,436
- ---------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS 81,356 75,923
- ---------------------------------------------------------------------------------------
STOCKHOLDERS' INVESTMENT
Common stock $.025 par value, authorized
400,000 shares, outstanding 120,096 shares at
December 31 and 119,808 shares at September 30 3,002 2,995
Additional paid-in capital 694,157 691,097
Retained earnings 445,270 450,086
Accumulated translation adjustments 12,822 17,064
Treasury stock, at cost (50,872) (50,907)
- ---------------------------------------------------------------------------------------
Total stockholders' investment 1,104,379 1,110,335
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 1,800,655 $ 1,856,694
=======================================================================================
</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) 1995 1994
=====================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,966 $ 35,225
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 48,190 38,782
Gain on sale of investments (30,628) -
Loss on dispositions of property, plant,
and equipment 1,391 370
Changes in:
Accounts receivable 87,598 41,598
Inventories (30,273) 3,251
Lease receivables 387 (6,402)
Non-debt current liabilities and other (81,333) (55,266)
- -------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (2,702) 57,558
- -------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property, plant, and equipment (44,392) (37,771)
Proceeds from dispositions of property, plant,
and equipment 5,215 2,497
Proceeds from sale of investments 34,802 -
Increase in other assets (17,908) (11,818)
- -------------------------------------------------------------------------------------
Net cash used in investing activities (22,283) (47,092)
- -------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 30,748 16,578
Repayments (25,314) (16,420)
Issuance of Common Stock under
stock plans, including tax benefits 3,102 22,398
- -------------------------------------------------------------------------------------
Net cash provided by financing activities 8,536 22,556
- -------------------------------------------------------------------------------------
Effect of exchange rate fluctuations on cash
and equivalents (863) 140
- -------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (17,312) 33,162
Cash and equivalents at beginning of period 121,230 124,042
=====================================================================================
CASH AND EQUIVALENTS AT END OF PERIOD $ 103,918 $ 157,204
=====================================================================================
</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.
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) 1995 1995
=======================================================================
<S> <C> <C>
Purchased parts and subassemblies $ 98,363 $ 71,455
Work in process 25,575 29,097
Finished goods 75,795 69,396
- -----------------------------------------------------------------------
Total $199,733 $169,948
=======================================================================
</TABLE>
3. INVESTMENTS
During the first quarter of 1996, Compaq Computer Corporation acquired, for
cash, all of the outstanding shares of NetWorth Inc., an investment of the
Company. The Company received $34.8 million in proceeds from the transaction for
a realized gain of $30.6 million.
Except for the NetWorth Inc. transaction described above, there were no realized
gains or losses on available-for-sale securities during the quarters ended
December 31, 1995 and 1994. The net adjustment to unrealized holding gains
(losses) on available-for-sale securities for these quarters was not
significant.
4. ACCOUNTS RECEIVABLE
At December 31, 1995, $71 million of financing was available to the Company
under its accounts receivable purchase agreement, including the balance
outstanding at the end of the quarter of $25 million. The maximum amount
outstanding under this agreement during the first quarter of 1996 was $65
million. There were no amounts outstanding as of September 30, 1995.
<PAGE> 7
TANDEM COMPUTERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RESTRUCTURING
Information related to restructuring activity for the quarter ended December 31,
1995 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, 1995 $17,677 $28,661 $7,414 $9,820 $7,033 $70,605
Utilized, three months ended
December 31, 1995 6,879 4,764 2,487 -- 1,845 15,975
- --------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 $10,798 $23,897 $4,927 $9,820 $5,188 $54,630
====================================================================================================================
Cash used, three months ended
December 31, 1995 $ 6,879 $ 2,427 $2,487 -- $1,564 $13,357
====================================================================================================================
</TABLE>
6. INCOME TAXES
The provision for income taxes for the three months ended December 31, 1995 and
1994 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. COMMITMENTS AND CONTINGENCIES
The Company and three principal officers were named as defendants in a class
action complaint for damages filed in the United States District Court for the
Northern District of California on July 19, 1995. The complaint alleges
violations of Section 10(b) of the Securities Exchange Act and Securities and
Exchange Commission Rule 10b-5. The Company's motion for dismissal, filed on
October 13, 1995, was denied. Management believes that this complaint is without
merit and that the outcome of the complaint will not have a material adverse
effect on the financial position or overall trends in the results of operations
of the Company.
Two other class action complaints were filed on November 2, 1995 and December
19, 1995, respectively. The plaintiffs in both of these cases have subsequently
dismissed their complaints.
<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 1996 and 1995. 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 1996 and 1995 from the comparable prior year period.
The Company's fiscal year ends on September 30. References to 1996 and 1995 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,
- --------------------------------------------------------------------------------------------
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
78 82 Product revenues (8) 13
22 18 Service and other revenues 14 9
- --------------------------------------------------------------------------------------------
100 100 TOTAL REVENUES (4) 12
- --------------------------------------------------------------------------------------------
46 43 Cost of product revenues (2) 19
74 67 Cost of service and other revenues 27 2
- --------------------------------------------------------------------------------------------
52 47 Total cost of revenues 6 14
16 14 Research and development 10 14
Marketing, general and
36 32 administrative 10 (9)
- --------------------------------------------------------------------------------------------
(4) 7 OPERATING INCOME (LOSS) N/M 862
- --------------------------------------------------------------------------------------------
6 N/A Gain on sale of subsidiaries and investments N/M N/M
- 1 Net interest income (59) 141
- --------------------------------------------------------------------------------------------
2 8 INCOME BEFORE INCOME TAXES (78) 46
2 1 Provision for income taxes 40 92
- --------------------------------------------------------------------------------------------
- 7 NET INCOME (94) 41
- --------------------------------------------------------------------------------------------
N/A N/A EARNINGS PER SHARE (93) 36
============================================================================================
</TABLE>
N/A - Not applicable N/M - Not meaningful
<PAGE> 9
OPERATING RESULTS
REVENUES
Total revenues of $512.4 million during the first quarter of 1996
decreased $22 million or 4 percent compared to the first quarter of 1995.
Product revenues of $400.8 million for the first quarter of 1996 decreased $36
million or 8 percent over the same quarter of 1995. Service and other revenues
for the first quarter of 1996 of $111.7 million increased $14 million or 14
percent over the first quarter of 1995. The decrease in product revenues is
attributable primarily to reduced computer system sales across all major product
families, particularly in the U.S. The increase in service and other revenues is
primarily the result of increased consulting revenues. Hardware service revenues
remained 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) 1995 1994
-------------------- ------------------
$ % $ %
-------------------- ------------------
<S> <C> <C> <C> <C>
Computer systems 418.4 82 444.6 83
Networking 94.0 18 90.0 17
-------------------- ------------------
Total revenues 512.4 100 534.6 100
==================== ==================
</TABLE>
Computer systems revenues decreased $26 million or 6 percent in the
first quarter of 1996 compared to the 1995 period. The decrease is primarily a
result of decreased unit shipments of the Himalaya and Integrity product
families, the effects of which were partially offset by increased consulting
revenues and increased recurring software license and support revenues.
Overall, unit shipments of computer system product lines decreased 32 percent in
the first quarter of 1996, compared to the first quarter of 1995 (based on the
number of processors shipped excluding workstations and personal computers),
resulting in a reduction of computer system revenue of approximately $43
million. Within the computer system products, NonStop computer unit shipments
decreased 16 percent to approximately 1350 units, contributing approximately 63
percent of the reduction in computer system product revenues. Unit shipments of
UNIX(R) system-based servers decreased over 50 percent, contributing
approximately 37 percent of the decrease in computer system product revenues.
The performance in the Company's UNIX system-based product family has been
negatively impacted by the delayed introduction of new UNIX system-based
products, particularly the ServerNet technology-based UNIX system.
Networking revenues increased $4 million or 4 percent in the first quarter of
1996 in comparison to the first quarter of 1995 primarily as a result of
increased service and consulting revenues and increased third party product
sales.
<PAGE> 10
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) 1995 1994
---------------- ----------------
$ % $ %
---------------- ----------------
<S> <C> <C> <C> <C>
United States 238.4 46 280.3 52
Europe
United Kingdom 42.5 8 41.6 8
Germany 23.9 5 23.2 4
Other Europe 64.7 13 71.9 14
---------------- ----------------
Total Europe 131.1 26 136.7 26
Japan 78.4 15 68.9 13
Asia-Pacific 40.8 8 27.5 5
Americas Division
(excluding the U.S.) 23.7 5 21.2 4
---------------- ----------------
Total revenues 512.4 100 534.6 100
================ ================
</TABLE>
Revenues in the United States decreased 15 percent during the first
quarter of 1996 compared to the same 1995 period. The decrease is a result of
decreased unit shipments of the Himalaya and Integrity products. Revenues in
Europe decreased 4 percent in the first quarter of 1996, compared to the first
quarter of 1995. The decrease is attributable primarily to decreased unit
shipments of high-end Himalaya systems and decreased networking revenues. In
Japan, revenues increased 14 percent in the first quarter of 1996 compared to
the same 1995 period, as a result of increased networking revenues, increased
consulting revenues, and increased unit shipments of mid-range computer systems.
The Asia-Pacific region had a particularly strong quarter with revenues
increasing 48 percent compared to the first quarter of 1995. This strong
performance was a result of a high volume of shipments of high-end Himalaya
systems. Current quarter growth rates in the various geographic regions where
the Company does business are not necessarily representative of trends which may
occur during the remainder of 1996.
COST OF REVENUES
During the first quarter of 1996, product margin percentages declined
approximately 3 percent, to 54 percent, from those in the first quarter of 1995.
Computer system margins declined 1 percent to 58 percent, while networking
margins declined 10 percent to 38 percent. Networking margins were negatively
affected by an increased contribution to revenues from the sale of third party
products, a shift to more indirect sales channels, and higher material and
overhead costs.
<PAGE> 11
Management expects product margins to continue to decline during the remainder
of 1996. However, product margins are difficult to predict, as they are affected
by future competitive pricing actions, geographic revenue mix, product mix, and
foreign currency fluctuations. For additional discussion on forward looking
statements and associated risks, refer to the Outlook and Risks section below.
Margins on service and other revenues decreased to 26 percent in the first
quarter of 1996 from 33 percent in the 1995 quarter. Service and other revenues
margins have been declining gradually over the past few quarters due to
increased salaries and benefits, increased consulting costs, and general mix of
business.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development (R&D) expenses for the first quarter of 1996
increased $8 million, or 10 percent, compared to 1995 first quarter spending.
The increase is attributable primarily to increased salaries and benefits and
increased headcount. Management expects R&D spending to continue to increase
during the second quarter of 1996, but then decline in the second half of the
year. However, the expected R&D spending pattern could be affected by delays or
changes in product development schedules. For additional discussion on forward
looking statements and associated risks, refer to the Outlook and Risks section
below. R&D expenses were approximately 16 and 14 percent of total revenues, for
the first quarters of 1996 and 1995, respectively.
MARKETING, GENERAL, AND ADMINISTRATIVE EXPENSES
Marketing, general and administrative (MG&A) expenses in the first
quarter of 1996 increased $17 million or 10 percent compared to the first
quarter of 1995. The increase is attributable primarily to increased salaries
and benefits and increased headcount in the marketing organization, and a lower
than normal level of software partner commissions in the 1995 quarter. Due in
part to the decrease in revenues referred to above, management intends to
critically review and implement actions to reduce fixed and discretionary
elements of MG&A spending and expects expenses to decline as actions are
implemented. However, certain expenses, such as commissions and incentive
compensation for sales and marketing staff, vary as revenues fluctuate. For
additional discussion on forward looking statements and associated risks, refer
to the Outlook and Risks section below.
IMPACT OF CURRENCY AND INFLATION
During the first quarter of 1996, in comparison to the first quarter of
1995, most currencies in Europe and Asia-Pacific strengthened against the U.S.
The positive impact of translating revenues and operating results for these
countries was mostly offset by the unfavorable impact resulting from the U.S.
dollar strengthening against the Japanese yen. Accordingly, the overall effect
of currency movements in the first quarter of 1996 had no material impact on
operating results for the quarter.
<PAGE> 12
NET INCOME AND EARNINGS PER SHARE
Net income for the first quarter of 1996 was $2 million or $0.02 per
share, compared to $35 million or $0.30 per share for the first quarter of 1995.
Net income in the first three months of 1996 included a $31 million, or
approximately $0.26 per share, non-operating gain from the sale of an investment
in NetWorth, Inc.
The income tax provisions for the first quarter of 1996 and 1995 were $7 million
and $5 million, respectively, arising principally from taxes currently payable
in foreign jurisdictions. Tandem expects to continue to report income for the
remainder of 1996 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.
FINANCIAL CONDITION
During the first quarter of 1996, cash and cash equivalents decreased
by $17 million to $104 million. The Company used $3 million net cash in
operations during the quarter. Investing activities in the first quarter
consumed approximately $22 million, principally through the investment in
capital equipment and software, offset by proceeds from the sale of an
investment in NetWorth, Inc. Financing activities provided approximately $8
million.
At December 31, 1995, $71 million of financing was available to the Company
under its accounts receivable purchase agreement, including the balance
outstanding at the end of the quarter of $25 million. The maximum amount
outstanding under this agreement during the first quarter of 1996 was $65
million. There were no amounts outstanding as of September 30, 1995.
Including the amounts sold under the receivables purchase agreement, accounts
receivable days increased to 84 days at December 31, 1995, compared to 77 days
at September 30, 1995. Inventory days increased to 69 days at December 31, 1995,
compared to 46 days at September 30, 1995.
At December 31, 1995, total debt of $147 million, including $119 million of
nonrecourse borrowings against lease receivables, increased $5 million from
September 30, 1995. Total debt as a percentage of total capital was
approximately 12 percent as of December 31, 1995, compared to 11 percent as of
September 30, 1995.
Cash used for restructuring actions during the first quarter of 1996 aggregated
approximately $13 million and was funded by cash from operations.
The Company's sources of working capital include cash generated from operations,
amounts available under the accounts receivable purchase agreement, and other
financing arrangements. Management believes that the financing sources available
at December 31, 1995 can adequately meet Tandem's financing needs, both in the
short and the long term.
As of December 31, 1995, the Company had approximately 8,400 full-time
equivalent employees.
<PAGE> 13
OUTLOOK AND RISKS
OVERVIEW
During the first quarter of 1996, the Company experienced significant
changes in top management, including the appointment of a new CEO in early
January. The new CEO, together with the management team, will be reviewing
Tandem's business, strategic direction, and cost structure during the second
quarter of 1996. The impact on the Company's operations of any changes which may
result from this review cannot be predicted at this time.
OPERATING RESULTS
The Company's future operating results and many of the forward looking
statements contained herein are dependent upon a number of factors, including
the Company's ability to increase market share, to expand successfully into new
markets, to improve upon cost control efforts, and to continue the Company's
product migration to open platforms.
A key challenge to the Company's continued growth is selling increased unit
volumes of computer systems and networking products at competitive prices, while
concurrently controlling the cost structure of the Company. Increased volume
shipments are dependent upon continued demand for the Himalaya K2(x) series of
servers, timeliness to market with new products, acceptance of new product
introductions by the Company's existing customer base--including the new UNIX
system server incorporating the ServerNet technology--as well as successful
expansion into new markets, such as decision support, data warehousing, and
commercial uses of the Internet.
Tandem also plans to sell ServerNet products and manufacturing rights to other
companies on an original equipment manufacturer (OEM) basis, a new type of
business for Tandem. Accordingly, future operating results may be affected by
the Company's ability to implement this strategy and to manage the underlying
alliance agreements and associated competitive risks.
Historically, Tandem recognizes a large percentage of its revenues in the latter
part of each quarter. This trend makes it difficult to forecast revenues and
could subject the Company to fluctuations in revenues and earnings.
UB NETWORKS, INC.
At the end of 1995, UB Networks introduced and began shipping three new
products--GeoLAN 500, GeoSwitch, and GeoRim. Accordingly, UB Networks' 1996
operating results are dependent upon market acceptance of these new products by
UB Networks' existing customer base, as well as successful expansion into new
accounts.
UB Networks' operating results have been, and in the future may be, affected by
competitive pricing pressures, changes in mix of products sold, delays in
shipping new products, and inventory management. Accordingly, UB Networks'
future success is dependent on its ability to enhance existing products; to
develop and introduce, on a
<PAGE> 14
timely and cost-effective basis, new products that keep pace with technological
developments and emerging industry standards; to address increasingly
sophisticated customer requirements; and to manage the product transition
process.
FOREIGN OPERATIONS
Although the Company's operating and pricing strategies and currency
hedging practices take into account changes in foreign currency exchange rates
over time, the Company's operating results can be affected by fluctuations in
foreign currency exchange rates.
Tandem, Himalaya, Integrity, NonStop, and ServerNet are trademarks of the Tandem
Computers Incorporated. UB Networks, GeoLAN, GeoRim/E, and GeoSwitch are
trademarks of Ungermann-Bass Networks, Inc. UNIX is a registered trademark in
the United States and other countries, licensed exclusively through X/Open
Company Limited. All other brand and product names are trademarks or registered
trademarks of their respective companies.
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company and three principal officers, James G. Treybig, David J. Rynne
and Robert C. Marshall, were named as defendants in a class action complaint for
damages filed in the United States District Court for the Northern District of
California on July 19, 1995. The class action is purported to be on behalf of
purchasers of the Company's Common Stock between March 8 and July 12, 1995. The
complaint alleges violations of Section 10(b) of the Securites Exchange Act and
Securities and Exchange Commission Rule 10b-5 in connection with public
statements about the Company's expected revenues for the second and third
quarters of 1995. Two similar class action complaints were filed against the
Company in the United States District Court for the Northern District of
California. One of these complaints was filed on November 2, 1995 and the other
was filed on December 19, 1995. These two complaints were voluntarily dismissed
by plaintiffs in January 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on January 30,
1996, in Cupertino, California. Four matters were voted upon:
(a) Proposal 1. To elect one Class I Director to hold office until 1999.
(b) Proposal 2. To consider and vote upon a proposal to amend the Tandem
Computers Incorporated Employee Stock Purchase Plan to increase the
number of shares of Common Stock available for issuance under the Plan.
(c) Proposal 3. To consider and vote upon a stockholder proposal that
recommends the Board of Directors redeem the Commons Stock Purchase
Rights held by the stockholders under the Company's First Amended and
Restated Rights Agreement.
(d) Proposal 4. To ratify the appointment of Ernst & Young as the Company's
independent auditors.
All matter were voted on, as follows:
PROPOSAL 1 - ELECTION OF CLASS I DIRECTOR - MORTON COLLINS
<TABLE>
<CAPTION>
For Authority Withheld
- --- ------------------
<S> <C>
102,615,008 1,965,202
</TABLE>
PROPOSAL 2 - AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
For Against Abstain No Vote
- --- ------- ------- -------
<S> <C> <C> <C>
93,884,212 9,286,343 1,409,655 0
</TABLE>
PROPOSAL 3 - STOCKHOLDER PROPOSAL TO REDEEM THE COMMON STOCK PURCHASE RIGHTS
<TABLE>
<CAPTION>
For Against Abstain No Vote
- --- ------- ------- -------
<S> <C> <C> <C>
39,049,744 39,772,729 3,887,230 21,870,507
</TABLE>
<PAGE> 16
PROPOSAL 4 - APPOINTMENT OF ERNST & YOUNG AS INDEPENDENT AUDITORS
<TABLE>
<CAPTION>
For Against Abstain
- --- ------- -------
<S> <C> <C>
103,561,529 604,402 414,279
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit
Number Exhibit
------- -------
27 Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the first
fiscal quarter.
<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 13, 1996 By: /s/ DAVID J. RYNNE
--------------------------
David J. Rynne
Senior Vice President and
Chief Financial Officer
Date: February 13, 1996 By: /s/ JOHN T. REECE
--------------------------
John T. Reece
Vice President and
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 1995 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-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 103,918
<SECURITIES> 0
<RECEIVABLES> 467,950
<ALLOWANCES> 18,698
<INVENTORY> 199,733
<CURRENT-ASSETS> 891,438
<PP&E> 1,308,631
<DEPRECIATION> 705,729
<TOTAL-ASSETS> 1,800,655
<CURRENT-LIABILITIES> 614,920
<BONDS> 81,356
0
0
<COMMON> 3,002
<OTHER-SE> 1,101,377
<TOTAL-LIABILITY-AND-EQUITY> 1,800,655
<SALES> 400,770
<TOTAL-REVENUES> 512,442
<CGS> 183,134
<TOTAL-COSTS> 266,163
<OTHER-EXPENSES> 82,576
<LOSS-PROVISION> 2,178
<INTEREST-EXPENSE> 3,971
<INCOME-PRETAX> 8,966
<INCOME-TAX> 7,000
<INCOME-CONTINUING> 1,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,966
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
