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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1993 Commission File Number 1-9026
COMPAQ COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0011617
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20555 SH 249, Houston, Texas 77070
(713) 370-0670
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.01 par value New York Stock Exchange
Series A Participating Cumulative Preferred New York Stock Exchange
Stock Purchase Rights
Debt Securities None
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
The aggregate market value of the voting stock held by non-affiliates of
the registrant on January 31, 1994 (based on the last sale price on the New
York Stock Exchange as of such date) was $7.3 billion.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of January 31, 1994 was 84,836,387.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in Part III of this Annual Report on
Form 10-K the information contained in the registrant's proxy statement for its
annual meeting of stockholders to be held April 21, 1994.
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<PAGE>
PAGE 1
PART I
Item 1. Business
General
Compaq Computer Corporation, founded in 1982, designs, develops,
manufactures, and markets personal computers, PC systems, and related products
for sale primarily to business, home, government, and education customers. The
Company operates in one principal industry segment across geographically
diverse markets. As used herein, the term "Company" means Compaq Computer
Corporation and its consolidated subsidiaries, unless the context indicates
otherwise.
In 1993 the Company focused its business activities on increasing the
Company's market share by expanding sales to new customers while augmenting
sales to its existing customer base. The Company plans to capitalize on its
leadership position in integrating hardware and software to furnish the
building blocks of personal and corporate computing while participating in
software and communications markets either directly or through business
alliances. Through this strategy, the Company expects to become the leading
computer platform provider in the information technology industry by offering
the products and services that customers need to easily access and manage
information. The Company believes its key to success is leveraging the
Company's engineering talent, purchasing power, manufacturing capabilities,
distribution strengths, and brand name to bring to market high-quality cost-
competitive products with different features in different price ranges.
Compaq Products
The Company offers a wide range of personal computing products, including
desktop personal computers, battery-powered notebook computers, AC-powered
portable computers, and tower PC systems that store and manage data in network
environments. The Company's products are available with a broad variety of
functions and features designed to accommodate a wide range of user needs.
Each of the Company's PC products is backed by a three-year worldwide warranty,
the most comprehensive in the industry.
In 1993 sales of desktop personal computers accounted for 56% of the
Company's CPU sales, which exclude option sales. The Deskpro product line is
the Company's vehicle for delivering high-performance and advanced features to
the business user. The ProLinea value line products, the Company's leading
unit sellers in 1993, include the "all-in-one" Compaq ProLinea Net 1/25s
featuring an integrated monitor, a network interface card, and Energy Star
compliant low power mode. The easy-to-use Presario family of personal
computers for the home and small business market includes new multi-media PCs
introduced in November offering a double-speed CD-ROM drive, stereo sound,
external stereo speakers, a microphone, and a choice between family or small
office pre-installed software and CD-ROM programs.
Sales of portable personal computers accounted for 32% of the Company's
CPU sales in 1993. In October the Company continued its strong leadership in
portable computing by announcing the Compaq Concerto, the first fully-featured
notebook personal computer to offer interactive use of keyboard and pen. The
Company's most popular notebook product line in 1993 was the COMPAQ Contura
family, which was expanded in March to include models featuring the battery
efficiency and high performance of the 486SL microprocessor and advanced
displays.
In September 1993 the Company introduced the Compaq Proliant family of
tower computers, a line of advanced server products coupled with new service,
support, and management capabilities. The ProLiant family includes one, two,
or four processor models and features SmartStart, a set of CD-ROM-based
utilities for intelligent hardware configuration and operating system
installation. The Company's leading unit seller in 1993 in its PC systems
products was the COMPAQ Prosignia line, which received a Product of the Year
award from InfoWorld in the network hardware category. Sales of PC system
products accounted for 10% of the Company's CPU sales in 1993.
In December 1993 the Company announced its plans to withdraw from the
printer market to devote its resources to other opportunities that provide a
more effective leverage of the Company's market leadership and technological
strengths. The Company will continue to offer the existing PageMarq product
line during the first half of 1994. Customers purchasing a PageMarq product
will receive a full range of support offerings, including consumables, 7x24
hotline support, technical assistance, and service for its printer products.
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PAGE 2
The Company offers a number of options products for its desktop, portable,
and systems products, including add-on video display monitors and
communications products. Its products for its systems customers include the
Dual Port Ethernet Controller, a high performance controller that combines two
bus-master Ethernet controllers on one board in a single slot, and Compaq UPS,
a new integrated power supply with battery backup that along with Insight
Manager can initiate a controlled shutdown if power fails. In October 1993 the
Company announced TabWorks, an easy-to-use icon-based software that is designed
to look and function like a three-ring binder and offers an alternative to the
Windows Program Manager for organizing and accessing documents.
Product Development
The Company is actively engaged in the design and development of
additional products and enhancements to its existing products. During 1993,
1992, and 1991, the Company expended $169 million, $173 million, and $197
million, respectively, on research and development. Since personal computer
technology develops rapidly, the Company's continued success is dependent on
the timely introduction of new products with the right price and features. Its
engineering effort focuses on new and emerging technologies as well as design
features that will increase efficiency and lower production costs. In 1993 the
Company focused on technological developments for PC products related to color
and monochrome active and passive matrix flat panels, power conservation,
communication devices, full-motion video and stereo sound, pen-based PCs, and
component densification, as well as new technologies applicable to future
products such as small form-factor devices.
Many of the Company's products utilize technology developed in alliances
with third parties. Technological and development alliances have become
increasingly important in the information management sector and the Company
believes that its size and technological skills give it an advantage forming
such relationships. In September 1993 the Company announced two strategic
alliances. The Company and Novell, Inc. signed a formal agreement to define a
broad set of coordinated activities, including the design of integrated
hardware and software platforms and the development of industry-wide network
testing standards and procedures. The Company also announced a joint effort
with VLSI, Intel, and Microsoft to develop a hand-held mobile companion device.
Manufacturing and Materials
The Company's manufacturing operations consist of manufacturing finished
products and various circuit boards from components and subassemblies that the
Company acquires from a wide range of vendors. The Company's principal
manufacturing operations are located in Houston, Texas; Erskine, Scotland; and
Singapore. Products sold in Europe are manufactured primarily in the Company's
facilities in Erskine, Scotland and Singapore. Products sold in the U.S. are
primarily manufactured in the Company's facilities in Houston, Texas, and
Singapore. Products sold in the Pacific Rim are primarily manufactured in
Singapore while products sold in Latin America are primarily manufactured in
Houston.
The Company believes that there is a sufficient number of competent
vendors for most components, parts, and subassemblies. A significant number of
components, however, are purchased from single sources due to technology,
availability, price, quality, or other considerations. Key components and
processes currently obtained from single sources include certain of the
Company's displays, microprocessors, application specific integrated circuits
and other custom chips, and certain processes relating to construction of the
plastic housing for the Company's computers. In addition, new products
introduced by the Company often initially utilize custom components obtained
from only one source until the Company has evaluated whether there is a need
for an additional supplier. In the event that a supply of a key single-sourced
material, process, or component were delayed or curtailed, the Company's
ability to ship the related product in desired quantities and in a timely
manner could be adversely affected. The Company attempts to mitigate these
risks by working closely with key suppliers on product plans, strategic
inventories, and coordinated product introductions.
Like other participants in the personal computer industry, Compaq
ordinarily acquires materials and components through purchase orders typically
covering the Company's requirements for periods averaging 90 to 120 days. From
time to time the Company has experienced significant price increases and
limited availability of certain components that are available from multiple
sources, such as dynamic random-access memory devices. In 1993 the Company was
constrained by parts availability in meeting product orders. Any similar
occurrences in the future could have an adverse effect on the Company's
operating results.
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PAGE 3
Marketing and Distribution
The Company distributes its products principally through third-party
computer resellers. In response to changing industry practices and customer
preferences, the Company is continuing its expansion into new distribution
channels, such as mass merchandise stores, consumer electronics outlets, and
computer superstores. The Company's products are sold to large and medium-
sized business and government customers through dealers, value-added resellers,
and systems integrators and to small business and home customers through
dealers, consumer channels, and beginning in March 1993 directly through the
Company's DirectPlus mail order business that features a variety of personal
computers, printers, and software products. Business customers account for the
largest portion of the Company's revenues. Business customers are attracted to
the Company's products for a variety of reasons, including the Company's
reputation for reliability, price, product performance, and technological
excellence, the availability of a wide variety of application software, ease of
use, and connectivity solutions.
In 1993 North American sales constituted 51% of the Company's total
revenues and European sales constituted 38%. The Company's North America
Division markets its products in the United States and Canada, while the
Company's Europe Division, based in Munich, Germany, focuses on opportunities
in Europe as well as in parts of Africa and the Middle East. The Company has
Asia/Pacific, Japan and Latin America Divisions to focus on opportunities in
these high growth areas. For further geographic information for 1993, 1992,
and 1991, see the Management's Discussion and Analysis of Financial Results and
Note 10 of Notes to Consolidated Financial Statements.
Service and Support
The Company provides support and warranty repair to its customers through
full-service computer dealers and independent third-party service companies.
Compaq offers its customers CompaqCare, which includes a number of customer
service and support programs, most notably a three-year warranty on PC products
(excluding monitors and batteries) and round-the-clock lifetime telephone
technical support at no additional charge to the customer.
Patents, Trademarks, and Licenses
The Company held 203 patents (including 28 design patents) and had 262
patent applications (including 28 design patent applications) pending with the
United States Patent and Trademark Office at the close of 1993. In addition,
the Company has registered certain trademarks in the United States and in a
number of foreign countries. While the Company believes that patent and
trademark protection plays an important part in its business, the Company
relies primarily upon the technological expertise, innovative talent, and
marketing abilities of its employees.
The Company has from time to time entered into cross-licensing agreements
with other companies holding patents to technology used in the Company's
products. The Company holds a license from IBM for all patents issued on
applications filed prior to July 1, 1993. In the third quarter of 1993 the
Company entered into a patent cross-license agreement with Texas Instruments,
Inc. The Company agreed to pay Texas Instruments royalties for products sold
from January 1, 1990 to January 31, 1993, and to make additional payments
through December 31, 1997. Because of technological changes in the computer
industry, extensive patent coverage, and the rapid rate of issuance of new
patents, certain components of the Company's products may unknowingly infringe
patents of others. The Company believes, based in part on industry practices,
that if any infringements do exist, the Company will be able to modify its
products to avoid infringement or obtain licenses or rights under such
infringed patents on terms not having a material adverse effect on the Company.
Seasonal Business
Although the Company does not consider its business to be highly seasonal,
the Company in general experiences seasonally higher sales and earnings in the
first and fourth quarters of the year. The Company experienced an increase in
the seasonality of its North American sales in the fourth quarter of 1993 as it
expanded the consumer retail portion of its business and anticipates that this
trend will continue.
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PAGE 4
Working Capital
Information regarding the Company's working capital position and practices
is set forth in Item 7 of this Form 10-K under the caption "Liquidity and
Capital Resources."
Customers
No customer of the Company accounted for 10% or more of sales for 1993.
Intelligent Electronics, Inc. and Computerland, Inc. accounted for 9% and 7% of
1993 sales, respectively.
Backlog
The Company's resellers typically purchase products on an as-needed basis
and resellers frequently change delivery schedules and order rates depending on
market conditions. Unfilled orders can be, and often are, canceled at will and
without penalties. In 1993 the Company was unable to produce certain products
on a timely basis due to supply constraints on certain components. Should the
Company continue to be unable to meet demand for its products on a timely
basis, customer satisfaction and sales could be adversely affected. In the
Company's experience the actual amount of unfilled orders at any particular
time is not a meaningful indication of its future business prospects since
orders rapidly become balanced as soon as supply begins meeting demand.
Competition
The computer industry is intensely competitive with many U.S., Japanese,
and other international companies vying for market share. The market continues
to be characterized by rapid technological advances in both hardware and
software development that have substantially increased the capabilities and
applications of information management products and have resulted in the
frequent introduction of new products. The principal elements of competition
are price, product performance, product quality and reliability, service and
support, marketing and distribution capability, and corporate reputation.
While the Company believes that its products compete favorably based on each of
these elements, the Company could be adversely affected if its competitors
introduce innovative or technologically superior products or offer their
products at significantly lower prices than the Company. No assurance can be
given that the Company will have the financial resources, marketing and service
capability, or technological knowledge to continue to compete successfully.
The Company results could also be adversely affected should it be unable to
implement effectively its technological and marketing alliances with other
companies, such as Microsoft, Intel, Sharp, Novell, and VLSI and manage the
competitive risks associated with these relationships.
Environmental Laws and Regulations
The Company has eliminated chlorofluorocarbons (CFCs) from its worldwide
manufacturing operations and undertakes ongoing environmental programs,
including energy efficiency, recycling, design for environment, waste
reduction, and environmental auditing. Compliance with laws enacted for
protection of the environment to date has had no material effect upon the
Company's capital expenditures, earnings, or competitive position. Although
the Company does not anticipate any material adverse effects in the future
based on the nature of its operations and the purpose of environmental laws and
regulations, there can be no assurance that such laws or future laws will not
have a material adverse effect on the Company.
Employees
At December 31, 1993, the Company had 10,541 full-time regular employees
and 2,500 temporary and contract workers.
Item 2. Properties
The Company's principal administrative facilities and a manufacturing
facility are located in Houston, Texas. They include 860,000 square feet of
manufacturing space on the Company's 1,000-acre Compaq Center in Houston and an
additional 70,000 square feet of manufacturing space under leases. The Company
owns 13 administrative buildings with a total of 2,600,000 square feet of space
at Compaq Center.
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PAGE 5
The Company also owns or leases certain facilities abroad. In Erskine,
Scotland the Company owns a 43-acre tract where it has 540,000 square feet of
manufacturing space. In Singapore the Company owns 360,000 square feet of
manufacturing space and leases an additional 128,000 square feet. In 1993 the
Company began operations in its 372,000 square-foot distribution facility in
Gorinchem, The Netherlands. The Company moved into its 80,000 square-foot
marketing facility in Madrid, Spain in February 1993. In 1993 the Company
entered into an agreement to lease a 200,000 square foot administrative
building to be constructed to house its European headquarters. The facility
will be built on a twelve-acre tract that the Company previously planned to
acquire.
Item 3. Legal Proceedings
In May 1991 a number of class action lawsuits were filed in the United
States District Court for the Southern District of Texas, Houston Division.
These suits were consolidated into a single class action suit in June 1991.
The action is brought on behalf of all persons who purchased Compaq common
stock or options from December 18, 1990, through May 14, 1991, and the named
defendants include the Company and certain of its current and former officers
and directors. The second amended consolidated complaint alleges, among other
things, that through certain public statements the defendants misled investors
regarding a deterioration in the Company's markets and the demand for its
products, marketing problems such as pricing pressure from competitors and
reduced dealer loyalty, and other industry and Company conditions. The actions
are brought under provisions of the federal securities laws, including Section
10(b) and Rule 10b-5 under the Securities Exchange Act of 1934, provisions of
Texas law, and common law principles of fraud and negligence. The complaint
seeks damages in an unspecified amount. On October 2, 1993, the defendants
filed a motion to dismiss, which the court on October 28, 1993, converted to a
motion for summary judgment. On December 28, 1993, the Court granted in part
and denied in part the defendants' motion. Allegations similar to those
contained in the federal action have been made in individual suits brought by
certain stockholders in Texas State Court in Houston.
In May 1991 Michael Ashkenazi and Herbert Kestenbaum brought a derivative
action against the Company and certain of its current and former officers and
directors. The complaint was brought in the District Court of Harris County,
Texas, 61st Judicial District. The complaint alleges that the individual
defendants breached their fiduciary duty to the Company under principles of
common law by misleading investors through certain public statements. The
allegations of misleading statements and/or omissions are similar to the
allegations made in the class action complaints. The complaint also alleges
that sales of Company stock made by eight of the defendants were made while
those defendants were in possession of material adverse information and were
therefore in violation of their fiduciary duties. The plaintiffs ask that the
individual defendants pay to the Company any profits that they may have made as
a result of such stock sales and all other damages that may be incurred by the
Company as a result of the individual defendants' alleged actions.
The Company has been named as a defendant in a number of repetitive stress
injury lawsuits, primarily in New York state courts or federal district courts
for the New York City area. In each of these lawsuits the plaintiff alleges
that he or she suffers from symptoms generally known as repetitive stress
injury, which allegedly were caused by the design of the keyboard supplied with
the computer the plaintiff used. The suits naming the Company are similar to
those filed against other major suppliers of personal computers. Ultimate
resolution of the litigation against the Company may depend on progress on
resolving this type of litigation overall. The Company is unable to determine
at this time the outcome of these suits or the likelihood of the Company's
being named in additional suits by plaintiffs' alleging similar injuries.
The Company has denied the claims described in this Item 3 and intends to
defend vigorously the suits. The Company believes that the claims will not
have a material adverse effect on the Company's financial results of operations
or its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of 1993.
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PAGE 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market for Common Stock
The Company's Common Stock is listed on the New York Stock Exchange and
trades under the symbol CPQ. The following table presents the high and low
sale prices for the Company's Common Stock for each quarter of 1993 and 1992,
as reported by Dow Jones Historical Stock Quote Reporter Service.
High Low
1993:
1st quarter $ 58 1/2 $ 41 3/4
2nd quarter 61 3/4 46 1/8
3rd quarter 59 5/8 43 1/8
4th quarter 75 3/4 57
1992:
1st quarter $ 35 1/2 $ 25 5/8
2nd quarter 29 1/2 22 1/4
3rd quarter 35 1/8 24 1/4
4th quarter 49 7/8 31
Holders of Record
At January 31, 1994, there were 6,065 holders of record of the Company's
common stock.
Dividends
The Company has never paid cash dividends on its common stock. It is the
present policy of the Board of Directors to retain all earnings for use in the
Company's business.
Registration Statements on Form S-8
For the purposes of complying with the amendments to the rules governing
Form S-8 under the Securities Act of 1933, the undersigned registrant hereby
undertakes as follows, which undertaking shall be incorporated by reference
into registrant's Registration Statements on Form S-8 Nos. 33-44115, 33-31819,
33-23504, 33-7499, 2-89925, 33-10106, 33-38044, and 33-16987.
That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to any provision or arrangement whereby the
Registrant may indemnify a director, officer, or controlling person of the
Registrant against liabilities arising under the Securities Act, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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PAGE 7
Item 6. Selected Consolidated Financial Data
The following data have been derived from consolidated financial
statements that have been audited by Price Waterhouse, independent accountants.
The information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Annual
Report on Form 10-K.
Year ended December 31,
In millions, except per
share amounts 1993 1992 1991 1990 1989
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Consolidated Statement
of Income Data:
Sales $ 7,191 $ 4,100 $ 3,271 $ 3,599 $ 2,876
Cost of sales 5,493 2,905 2,053 2,058 1,715
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1,698 1,195 1,218 1,541 1,161
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Research and
development costs 169 173 197 186 132
Selling, general, and
administrative expense 837 699 722 706 539
Unrealized gain on
investment in
affiliated company (34) (13)
Other income and
expenses, net 76 28 145 42 19
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1,082 900 1,064 900 677
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Income from
consolidated companies
before provision for
income taxes 616 295 154 641 484
Provision for income
taxes 154 97 43 216 165
-------------------------------------------------
Income from
consolidated companies 462 198 111 425 319
Equity in net income of
affiliated company 15 20 30 14
-------------------------------------------------
Net income $ 462 $ 213 $ 131 $ 455 $ 333
=================================================
Earnings per common and
common equivalent share:
Primary $ 5.45 $ 2.58 $ 1.49 $ 5.14 $ 3.89
=================================================
Assuming full dilution $ 5.35 $ 2.52 $ 1.49 $ 5.12 $ 3.88
=================================================
December 31,
In millions 1993 1992 1991 1990 1989
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Consolidated Balance
Sheet Data:
Total assets $ 4,084 $ 3,142 $ 2,826 $ 2,718 $ 2,090
Long-term debt 73 74 274
Stockholders' equity 2,654 2,006 1,931 1,859 1,172
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PAGE 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements.
Results of Operations
The following table presents, as a percentage of sales, certain selected
consolidated financial data for each of the three years in the period ended
December 31, 1993.
Year ended December 31, 1993 1992 1991
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Sales 100.0 % 100.0 % 100.0 %
Cost of sales 76.4 70.9 62.8
-----------------------------
Gross margin 23.6 29.1 37.2
-----------------------------
Research and development costs 2.3 4.2 6.0
Selling, general, and administrative expense 11.6 17.0 22.1
Other income and expense, net 1.1 0.7 4.4
-----------------------------
15.0 21.9 32.5
-----------------------------
Income from consolidated companies before
provision for income taxes 8.6 % 7.2 % 4.7 %
=============================
Sales
Sales for 1993 increased approximately 75% over the prior year as compared
with an increase of 25% in 1992 from 1991. In 1993 the geographic mix of sales
shifted as sales in the United States and Canada and Asia Pacific increased at
a faster pace than in Europe. North American sales, which include Canada,
increased 100% during 1993, compared with an increase of 32% in 1992 from 1991.
International sales, excluding Canada, represented 49% of total sales in 1993
as compared with 55% in 1992 and 58% in 1991. European sales increased 44%
during 1993 compared to an increase of 9% in 1992 from 1991. Other
international sales, excluding Canada, increased 111% during 1993, compared
with an increase of 139% in 1992 from 1991. The Company believes that the
lower comparable rate of growth in Europe in 1993 was related to the weak
European economy, the rapid expansion of the personal computer market in Asia
and Latin America, and the increase in the consumer computer market in North
America.
The personal computer industry is highly competitive and marked by
frequent product introductions, continual improvement in product
price/performance characteristics, and a large number of competitors. The
Company significantly altered its product line in 1993 by introducing 35 new
notebook, desktop, and server computer models. Approximately 36% of the
Company's CPU sales and 30% of the Company's sales in 1993 were derived from
products introduced in 1993. These new products have been designed to allow
the Company to achieve low product costs while maintaining the quality and
reliability for which the Company's products have been known, thereby
increasing the Company's ability to compete on price and value.
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PAGE 9
The Company's significant increase in consolidated sales in 1993 stemmed
primarily from an increase in the number of units sold. In 1993 the Company's
worldwide unit shipments increased 98%, while they increased 78% in 1992. The
1993 increase included a 196% expansion in unit shipments of the Company's
tower server CPU products. Unit growth primarily resulted from the Company's
aggressively priced Compaq ProLinea line in its desktop products, the Compaq
Contura portable lines, and the Compaq Prosignia products in its tower systems.
The Company believes that the personal computer industry as a whole experienced
significant increases in unit shipments in 1993, especially in North America,
with industry unit growth worldwide according to third party estimates
increasing approximately 20% in contrast to a 19% increase in 1992. Industry
unit growth did not translate directly into sales growth because of
significantly lower unit prices. Third-party estimates indicate that industry
sales increased by approximately 16% worldwide in 1993, compared to an 11%
increase in 1992.
The Company's average sales price per unit decreased slightly in 1993 from
1992, primarily as a result of the lower prices of the Company's products aimed
at the small business and consumer markets, pricing actions undertaken by the
Company on existing products, and currency fluctuations. The relative
stability in the Company's average sales price per unit resulted from a more
stabilized pricing environment and a higher sales mix of units using 486
microprocessors. Price competition continues to have a significant impact on
prices of the Company's products, especially those aimed at the consumer
market, and additional pricing actions may occur as the Company attempts to
maintain its competitive mix of price and performance characteristics. The
Company attempts to mitigate the effect of any pricing actions through
implementation of effective design-to-cost goals, the aggressive pursuit of
reduced component costs, manufacturing efficiencies, and control of operating
expenses.
Gross Margin
Gross margin as a percentage of sales declined to 23.6% in 1993, from
29.1% in 1992 and 37.2% in 1991, primarily as a result of industrywide
competitive pressures and associated pricing and promotional actions. Although
it appears that gross margin has stabilized in recent quarters, and the gross
margin percentage during the fourth quarter of 1993 was 23.7% compared to 23.6%
in the first nine months of 1993, there can be no assurance that currency
fluctuations, competitive actions affecting pricing, or increases in product
costs will not place additional pressure on gross margins. Although the
Company continues to aggressively pursue the reduction of product costs both at
the supplier and manufacturing levels, the Company anticipates that gross
margins for its personal computers will remain under pressure and pricing
actions in 1994 could result in further reductions of gross margin.
The Company's operating strategy and pricing take into account changes in
foreign currency exchange rates over time; however, the Company's results of
operations may be significantly affected in the short-term by fluctuations in
foreign currency exchange rates. When the value of the dollar strengthens
against other currencies, sales made in those currencies translate into fewer
dollars. The opposite effect occurs when the dollar weakens.
The Company attempts to reduce the impact of currency movements on net
income primarily through the use of forward exchange contracts that are used to
hedge a portion of the net monetary assets of its international subsidiaries.
The Company also utilizes forward exchange contracts and foreign currency
options to hedge certain capital expenditures and inventory purchases. In 1992
the Company began to hedge a portion of the probable anticipated sales of its
international marketing subsidiaries through the use of purchased currency
options. The gains associated with the hedging of anticipated sales of the
Company's international marketing subsidiaries, net of premium costs associated
with the related purchased currency options, are included in sales and were $13
million in 1993 compared to $3 million in 1992. See "Other Items" below for
the impact of translation gains and losses.
Operating Expenses
Research and development costs decreased in absolute dollars (to $169
million from $173 million) and as a percentage of sales in 1993 as compared to
1992. Because the personal computer industry is characterized by rapid product
cycles and price cuts on older products, the Company believes that its long-
term success is directly related to its ability to bring new products to market
on a timely basis and to reduce the costs of new and existing products.
Accordingly, it is committed to continuing a significant research and
development program and research and development costs are likely to increase
in absolute dollars in 1994.
Selling, general, and administrative expense increased in amount in 1993
while declining as a percentage of sales. The decrease as a percentage of
sales reflects the Company's ongoing efforts to manage operating expense growth
relative to gross margin levels. The increase in absolute dollars was the
result of higher domestic and international selling expense related to the
entry into new markets (both domestically and internationally), the expansion
of distribution channels, and a greater emphasis on advertising, sales and
marketing programs, customer service, technical support, and general
infrastructure. Advertising expense increased to $114 million in 1993 from $82
million in 1992. The Company continues to expand geographically, especially in
Asia and Eastern Europe, and the ongoing costs necessary to penetrate
successfully new international markets will cause additional selling, general,
and administrative expense.
The Company continues to face the challenge of managing growth in selling,
general, and administrative expense relative to gross margin levels. The
Company believes its ability to control operating expenses is an important
factor in its ability to be price competitive and accordingly continues to
pursue cost reduction alternatives throughout the Company. In an environment
of increased efforts to penetrate new markets, greater diversity of
distribution channels, and increased customer support, the Company may not be
successful in identifying areas to cut additional costs.
<PAGE>
PAGE 10
Other Items
Interest expense, net of interest and dividend income from investment of
excess funds, was $43 million, $12 million, and $6 million in 1993, 1992, and
1991, respectively. Net interest expense was higher in 1993 when compared to
1992 primarily due to increased interest expense associated with financing
resellers' inventories, increased interest expense in connection with the
Company's hedging program, and lower interest income due to lower levels of
invested cash at lower rates of interest. Net interest expense was higher for
1992 than 1991 for similar reasons.
The translation gains and losses relating to the financial statements of
the Company's international subsidiaries, net of offsetting gains and losses
associated with hedging activities related to the net monetary assets of these
subsidiaries, are included in other income and expense and resulted in a net
loss of $15 million in 1993, a net loss of $11 million in 1992, and a net gain
of $4 million in 1991.
In 1993 the Company recorded charges associated with its plans to withdraw
from the printer business, including costs related to certain contractual
liabilities and the write-downs of the carrying value of certain assets. The
charge, net of the reversal of previously recorded restructuring reserves,
totaled $10 million. In 1992 and 1991 the Company recorded restructuring
charges associated principally with reducing the number of employees and
consolidating and streamlining operations. The charges totaled $73 million in
1992 and $135 million in 1991. In addition, in 1992 and 1991 the Company had
charges related to the disposition or write-downs of the carrying value of
certain fixed assets.
In the third quarter of 1992 the Company sold its equity interest in
Conner Peripherals, Inc. ("Conner") realizing a gain of $86 million. The
Company's ownership in Conner created an after-tax contribution to the
Company's net income of $10 million in 1992 and $13 million in 1991.
The Company's effective tax rate was 25% in 1993, 33% in 1992, and 28% in
1991. The decline in 1993 from 1992 is attributable to the Company's decision
to invest indefinitely a portion of the undistributed earnings of the Company's
Singaporean subsidiaries in operations outside the United States. The Company
anticipates that it will continue this international investment strategy for
several years. The Company has adopted the provisions of the Financial
Accounting Standards Board's Statement No. 109 (FAS 109), Accounting for Income
Taxes, changing the method of determining reported income tax expense.
Adoption of the provisions of FAS 109 had an immaterial impact on the Company's
financial statements.
Liquidity and Capital Resources
During 1993 the Company's working capital increased to $2.0 billion
compared to $1.4 billion at December 31, 1992. The Company's cash and cash
equivalents increased to $627 million at December 31, 1993, from $357 million
at December 31, 1992, primarily because of positive cash flow from operating
activities and cash received in connection with the exercise of employee stock
options, partially offset by capital expenditures. Accounts receivable
increased to $1.4 billion at December 31, 1993, from $1.0 billion at December
31, 1992. Accounts receivable days stood at 59 days at the end of 1993
compared to 62 days at the end of 1992. Inventory increased to $1.1 billion at
December 31, 1993, from $834 million at December 31, 1992. The Company's
higher levels of inventory, associated with higher sales levels, could
adversely affect the Company in the event of a drop in worldwide demand for PC
products.
During 1993 the Company funded its capital expenditures and other
investing activities with cash generated from operations and previously
accumulated cash balances. The Company estimates that capital expenditures for
land, buildings, and equipment during 1994 will be approximately $250 million.
Such expenditures are currently expected to be funded from a combination of
available cash balances, internally generated funds, and, if necessary,
external financing. Although the Company fully expects that such expenditures
will be made, it has commitments for only a small portion of such amounts.
The Company's ability to fund its activities from operations is directly
dependent on its rate of growth, inventory management, the terms and financing
arrangements under which it extends credit to its customers, and the manner in
which it finances any capital expansion. The Company currently expects to fund
expenditures for capital requirements as well as liquidity needs created by
changes in working capital from a combination of available cash balances,
internally generated funds, and borrowings as appropriate. The Company from
time to time may borrow funds for actual or anticipated funding needs or
because it is economically beneficial to borrow funds for the Company's needs
instead of repatriating funds in the form of dividends from its foreign
subsidiaries. The Company has in place committed lines of credit totaling $300
million and a shelf registration of $300 million of debt securities, all of
which were unused and
<PAGE>
PAGE 11
available at December 31, 1993. The Company believes that these lines of
credit and shelf registration provide financial flexibility to meet future
funding requirements and to take advantage of attractive market conditions.
Factors That May Affect Future Results
The Company participates in a highly volatile industry that is
characterized by dynamic customer demand patterns, rapid technological
advances, and industry-wide competition resulting in aggressive pricing
practices. The Company's operating results could be adversely affected should
the Company be unable to accurately anticipate customer demand, to introduce
new products on a timely basis, to manage lead times required to obtain
components in order to be responsive to short-term shifts in customer demand
patterns, to offer customers the latest competitive technologies while
effectively managing the impact on inventory levels and the potential for
customer confusion created by product proliferation, or to effectively manage
the impact on the Company of industry-wide pricing pressures. The Company's
results of operations also could be adversely affected, and inventory valuation
reserves could result, if anticipated unit growth projections for new and
current product offerings are not realized.
In order to maintain or increase its market share, the Company must
continue to price its products competitively, which lowers the average sales
price per unit and may cause declines in gross margin. To compensate for the
impact on its sales and profitability, the Company must increase unit
shipments, aggressively reduce costs, and maintain tight control over operating
expenses. The Company believes its pricing and product strategies are
competitive and have created demand for its products and the Company is
actively engaged in cost reduction programs. If the Company takes pricing
actions and does not achieve significant unit shipment increases and cost
reductions, however, there could be an adverse impact on sales and
profitability.
Because of the pace of technological advances in the personal computer
industry, the Company must design and develop new and more sophisticated
products in its core business while expanding its product offering into other
markets. The Company's product strategy focuses in part on marketing products
with distinctive features and at prices that appeal to a variety of purchasers.
The Company designs many of its own components for its products. Across the
Company's product range, however, certain elements of product strategy are
dependent on technological developments by other manufacturers. There can be
no assurance that the Company will obtain the delivery of the technology needed
to introduce new products in a timely manner, will be able to obtain a
sufficient supply of components utilizing such technology, or will be able to
obtain any competitive advantage in access to such technology. If the Company
were unable to develop and launch new products in a timely fashion, this
failure could have a material adverse effect on the Company's business.
During 1993 the Company continued to broaden its product distribution into
new geographic locations and new sales channels. Certain of the Company's
sales were to newly appointed resellers and new locations for sale of the
Company's products as well as direct sales through the Company's mail order
program. Offering its products in an increasing number of geographic locations
and through a variety of distribution channels, including distributors,
electronics superstores, and mail order, requires the Company to increase its
geographic presence and to provide direct sales and support interface with
customers. There can be no assurance, however, that this direction will be
effective, or that the requisite service and support to ensure the success of
the Company's operations in new locations or through new channels can be
achieved without significantly increasing overall expenses. While the Company
anticipates that its geographic expansion will continue and the number of
outlets for its products will increase in 1994, a reduction in this growth
could affect sales.
The Company's primary means of distribution remains third-party resellers.
While the Company continuously monitors and manages the credit it extends to
resellers to limit its credit risk, the Company's business could be adversely
affected in the event that the generally weak financial condition of third-
party computer resellers worsens. In the event of the financial failure of a
major reseller, the Company could experience disruptions in its distribution as
well as the loss of the unsecured portion of any outstanding accounts
receivable. The Company believes that the continued expansion of its
distribution outlets and geographic growth will help mitigate any potential
impact on its sales.
The value of the U.S. dollar continues to affect the Company's financial
results. The functional currency for the Company's international marketing
subsidiaries is the U.S. dollar. When the U.S. dollar strengthens against
other currencies, sales made in those currencies translate into fewer sales in
U.S. dollars; and when the U.S. dollar weakens, sales made in local currencies
translate into higher sales in U.S. dollars. Correspondingly, costs and
expenses incurred in non-U.S. dollar currencies increase when the U.S. dollar
weakens and decline when the U.S. dollar strengthens. Accordingly, changes in
exchange rates may negatively affect the Company's consolidated sales (as
expressed in U.S. dollars) and gross margins and the Company's results of
operations can be significantly affected in the short term by fluctuations in
<PAGE>
PAGE 12
foreign currency exchange rates. The Company engages in a program to hedge a
portion of anticipated sales of its international marketing subsidiaries using
purchased foreign currency options. In addition, the Company hedges its
Japanese yen denominated purchase commitments through the use of forward
exchange contracts and option contracts. Although these programs may reduce
the impact of changes in currency exchange rates, when the U.S. dollar sustains
a strengthening position against currencies in which the Company sells its
products or a weakening exchange rate against currencies in which the Company
incurs costs, particularly the Japanese yen, the Company's sales or its costs
are adversely affected.
The majority of the Company's research and development activities, its
corporate headquarters, its U.S. manufacturing operations, and other critical
business operations are approximately 75 miles from the Texas Gulf Coast. The
Company's business and operating results could be adversely affected in the
event of a major hurricane.
General economic conditions have an impact on the Company's business and
financial results. Many of the markets in which the Company sells its products
are currently experiencing economic recession and the Company cannot predict
when these conditions will improve or if conditions in these and other markets
will decline. Although the Company does not consider its business to be highly
seasonal, it generally experiences seasonally higher sales and earnings in the
first and fourth quarters of the year. In the fourth quarter of 1993 the
Company experienced a higher degree of seasonality as its sales increased,
especially in North America, in connection with the expansion of the consumer
retail portion of its business. The continued expansion of its retail business
is likely to result in the increased seasonality of the Company's business and
its results being more dependent on retail business fluctuations.
Because of the foregoing factors, as well as other variables affecting the
Company's operating results, past financial performance should not be
considered a reliable indicator of future performance, and investors should not
use historical trends to anticipate results or trends in future periods. In
addition, the Company's participation in a highly dynamic industry often
results in significant volatility of the Company's common stock price.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
Financial Statements:
Report of Independent Accountants 13
Consolidated Balance Sheet at December 31, 1993 and 1992 14
Consolidated Statement of Income for the three years ended
December 31, 1993 15
Consolidated Statement of Cash Flows for the three years
ended December 31, 1993 16
Consolidated Statement of Stockholders' Equity for the
three years ended December 31, 1993 17
Notes to Consolidated Financial Statements 18
Financial Statement Schedules:-
For the three years ended December 31, 1993:
Schedule V - Property, Plant, and Equipment S-1
Schedule VI - Accumulated Depreciation and Amortization of
Property, Plant, and Equipment S-2
Schedule VIII - Valuation and Qualifying Accounts S-3
Schedule X - Supplementary Income Statement Information S-4
All other schedules and financial statements are omitted because they are
not applicable or the required information is shown in the financial statements
or notes thereto.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
<PAGE>
PAGE 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Compaq Computer Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Compaq Computer Corporation and its subsidiaries at December 31,
1993 and 1992, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Houston, Texas
January 25, 1994
<PAGE>
PAGE 14
COMPAQ COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEET
December 31,
In millions, except par value and number of shares 1993 1992
- ------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 627 $ 357
Accounts receivable, less allowance of $49 and $25 1,377 987
Inventories 1,123 834
Prepaid expenses and other current assets 164 140
----------------------
Total current assets 3,291 2,318
----------------------
Property, plant, and equipment, less accumulated
depreciation 779 808
Other assets 14 16
----------------------
$ 4,084 $ 3,142
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 637 $ 516
Income taxes payable 69 36
Other current liabilities 538 408
----------------------
Total current liabilities 1,244 960
----------------------
Deferred income taxes 186 176
----------------------
Commitments and contingencies
Stockholders' equity:-
Preferred stock: $.01 par value; 10,000,000 shares
authorized; none outstanding
Common stock and capital in excess of $.01 par
value: 400,000,000 shares authorized; 84,348,000
shares and 79,830,000 shares issued and outstanding 586 400
Retained earnings 2,068 1,606
----------------------
Total stockholders' equity 2,654 2,006
----------------------
$ 4,084 $ 3,142
======================
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAGE 15
COMPAQ COMPUER CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31,
In millions, except per share amounts 1993 1992 1991
- ---------------------------------------------------------------------------
Sales $ 7,191 $ 4,100 $ 3,271
Cost of sales 5,493 2,905 2,053
-----------------------------------
1,698 1,195 1,218
-----------------------------------
Research and development costs 169 173 197
Selling, general, and
administrative expense 837 699 722
Other income and expense, net 76 28 145
-----------------------------------
1,082 900 1,064
-----------------------------------
Income from consolidated companies
before provision for income taxes 616 295 154
Provision for income taxes 154 97 43
-----------------------------------
Income from consolidated companies 462 198 111
Equity in net income of affiliated
company 15 20
-----------------------------------
Net income $ 462 $ 213 $ 131
===================================
Earnings per common and common
equivalent share:
Primary $ 5.45 $ 2.58 $ 1.49
===================================
Assuming full dilution $ 5.35 $ 2.52 $ 1.49
===================================
Shares used in computing earnings per
common and common equivalent share:
Primary 84.7 82.6 88.1
===================================
Assuming full dilution 86.3 84.7 88.1
===================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAGE 16
COMPAQ COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31,
In millions 1993 1992 1991
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Cash received from customers $ 6,731 $ 3,595 $ 3,325
Cash paid to suppliers and employees (6,331) (3,642) (2,823)
Interest and dividends received 20 32 32
Interest paid (64) (41) (36)
Income taxes paid (116) (3) (104)
--------------------------------
Net cash provided by (used in)
operating activities 240 (59) 394
--------------------------------
Cash flows from investing activities:
Purchases of property, plant,
and equipment, net (145) (159) (189)
Proceeds from sale of investment
in Conner Peripherals, Inc. 241
Investment in Silicon Graphics, Inc. 135 (135)
Other, net 13 (17)
--------------------------------
Net cash provided by (used in)
investing activities (145) 230 (341)
--------------------------------
Cash flows from financing activities:
Purchases of treasury shares (216) (82)
Proceeds from sale of equity securities 142 57 23
Repayment of borrowings (73) (1)
--------------------------------
Net cash provided by (used in)
financing activities 142 (232) (60)
--------------------------------
Effect of exchange rate changes on cash 33 (34) 24
--------------------------------
Net increase (decrease) in cash and
cash equivalents 270 (95) 17
Cash and cash equivalents at beginning of year 357 452 435
--------------------------------
Cash and cash equivalents at end of year $ 627 $ 357 $ 452
================================
Reconciliation of net income to net cash
provided by (used in) operating activities:
Net income $ 462 $ 213 $ 131
Depreciation and amortization 156 160 166
Provision for bad debts 33 14 9
Equity in net income of affiliated company (15) (20)
Gain on sale of investment in
affiliated company (86)
Deferred income taxes (38) 34 (9)
Loss on disposal of assets 2 14 4
Exchange rate effect 15 11 (4)
Income tax refund 51
Decrease (increase) in accounts receivable (484) (412) 138
Decrease (increase) in inventories (289) (396) 108
Decrease (increase) in prepaid expenses and
other current assets 24 (53) (132)
Increase (decrease) in accounts payable 125 325 (96)
Increase (decrease) in income taxes payable 78 38 (3)
Increase in other current liabilities 156 43 102
--------------------------------
Net cash provided by (used in)
operating activities $ 240 $ (59) $ 394
================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAGE 17
COMPAQ COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common stock
Par value
Number and capital
In millions, of in excess Retained
except number of shares in thousands shares of par earnings Total
- -----------------------------------------------------------------------------
Balance, December 31, 1990 86,090 $ 597 $ 1,262 $ 1,859
Issuance pursuant to stock
option plans 1,112 23 23
Purchases of treasury shares (3,000) (96) (96)
Tax benefit associated with
stock options 14 14
Net income 131 131
----------------------------------------
Balance, December 31, 1991 84,202 538 1,393 1,931
Issuance pursuant to stock
option plans 2,628 57 57
Purchases of treasury shares (7,000) (202) (202)
Tax benefit associated with
stock options 7 7
Net income 213 213
----------------------------------------
Balance, December 31, 1992 79,830 400 1,606 2,006
Issuance pursuant to stock
option plans 4,518 142 142
Tax benefit associated with
stock options 44 44
Net income 462 462
----------------------------------------
Balance, December 31, 1993 84,348 $ 586 $ 2,068 $ 2,654
========================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAGE 18
COMPAQ COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Description of Business and Significant Accounting Policies:
Description of business - Compaq Computer Corporation designs, develops,
manufactures, and markets personal computers, PC systems, and related products
for sale primarily to business, home, government, and education customers. The
Company operates in one principal industry segment across geographically
diverse markets.
Principles of consolidation - The consolidated financial statements include the
accounts of Compaq Computer Corporation and its wholly owned subsidiaries. The
investment in Conner Peripherals, Inc., which represented a less than majority
interest, was accounted for under the equity method. All significant
intercompany transactions have been eliminated.
Cash and cash equivalents - Cash and cash equivalents include cash on hand,
amounts due from banks, money market instruments, commercial paper, and other
investments having maturities of three months or less at date of acquisition
and are reflected as such for purposes of reporting cash flows and are stated
at cost which approximates fair value.
Inventories - Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis.
Property, plant, and equipment - Property, plant, and equipment are stated at
cost. Major renewals and improvements are capitalized; minor replacements,
maintenance, and repairs are charged to current operations. Depreciation is
computed by applying the straight-line method over the estimated useful lives
of the related assets, which are 30 years for buildings and range from three to
ten years for equipment. Leasehold improvements are amortized over the shorter
of the useful life of the improvement or the life of the related lease.
Intangible assets - Licenses and trademarks are carried at cost less
accumulated amortization, which is being provided on a straight-line basis over
the economic lives of the respective assets.
Warranty expense - The Company provides currently for the estimated cost which
may be incurred under product warranties.
Sales recognition - The Company recognizes sales at the time products are
shipped to its customers. Provision is made currently for estimated product
returns which may occur under programs the Company has with its third-party
resellers and floor planning arrangements with third-party finance companies.
Foreign currency - The Company uses the U.S. dollar as its functional currency.
Financial statements of the Company's foreign subsidiaries are translated to
U.S. dollars for consolidation purposes using current rates of exchange for
monetary assets and liabilities and historical rates of exchange for
nonmonetary assets and related elements of expense. Sales and other expense
elements are translated at rates which approximate the rates in effect on the
transaction dates. Gains and losses from this process are included in results
of operations.
The Company hedges certain portions of its foreign currency exposure through
the use of forward exchange contracts and option contracts. Generally, gains
and losses associated with currency rate changes on forward exchange contracts
are recorded currently, while the interest element is recognized over the life
of each contract. However, to the extent such contracts hedge a commitment for
capital expenditures or inventory purchases, no gains or losses are recognized,
and the rate at the time the forward exchange contract is made is, effectively,
the rate used to determine the U.S. dollar value of the asset when it is
recorded. In addition, during 1992 the Company began to hedge a portion of its
probable anticipated sales of its international marketing subsidiaries using
purchased foreign currency options. Realized and unrealized gains and the net
premiums on these options are deferred and recognized as a component of sales
in the same period that the related sales occur.
Income taxes - The provision for income taxes is computed based on the pretax
income included in the consolidated statement of income. Research and
development tax credits are recorded to the extent allowable as a reduction of
the provision for federal income taxes in the year the qualified research and
development expenditures are incurred.
<PAGE>
PAGE 19
In January 1993 the Company adopted Statement of Financial Accounting Standards
No. 109 (FAS 109), Accounting for Income Taxes. The adoption of FAS 109
changed the Company's method of accounting for income taxes from the deferred
method (APB 11) to an asset and liability approach. Previously the Company
deferred the past tax effects of timing differences between financial reporting
and taxable income. The asset and liability approach requires the recognition
of deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of
assets and liabilities. The adoption of FAS 109 had an immaterial effect on
the consolidated financial statements.
Earnings per share - Primary earnings per common and common equivalent share
and earnings per common and common equivalent share assuming full dilution are
computed using the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding options to purchase common
stock.
Note 2 - Inventories:
Inventories consisted of the following components:
December 31,
In millions 1993 1992
- ------------------------------------------------------------------------------
Raw material $ 535 $ 351
Work-in-process 90 124
Finished goods 498 359
----------------------
$ 1,123 $ 834
======================
Note 3 - Property, Plant, and Equipement:
Property, plant, and equipment are summarized below:
December 31,
In millions 1993 1992
- ------------------------------------------------------------------------------
Land $ 72 $ 75
Buildings 542 532
Machinery and equipment 660 548
Furniture and fixtures 53 53
Leasehold improvements 23 20
Construction-in-progress 32 56
----------------------
1,382 1,284
Less-accumulated depreciation 603 476
----------------------
$ 779 $ 808
======================
Interest aggregating $4 million and $6 million was capitalized and added to the
cost of the Company's property, plant, and equipment in 1992 and 1991,
respectively.
Depreciation expense totaled $155 million, $159 million, and $164 million in
1993, 1992, and 1991, respectively.
Note 4 - Investment in Conner Peripherals, Inc.:
In 1992 the Company sold its equity interest in Conner Peripherals, Inc.
(Conner) realizing a gain of $86 million. The Company made disk drive
purchases from Conner during 1992 through the date it sold its equity interest
and during 1991 of $149 million and $197 million, respectively. While the
Company controlled approximately 20% of the equity securities of Conner, the
Company believes that purchases from Conner were made at market prices.
<PAGE>
PAGE 20
Note 5 - Other Current Liabilities:
The estimated costs which may be incurred under product warranties of $166
million and $73 million were included in other current liabilities at December
31, 1993 and 1992, respectively.
Note 6 - Credit Agreement and Financing Arrangements:
At December 31, 1993, the Company had an unsecured line of credit from a
consortium of banks for $300 million, all of which was available and unused.
Borrowings under this credit agreement bear interest, at the Company's
election, at either the base rate (6.0% at December 31, 1993), an interbank
offered rate plus a margin, or a market auction rate. The agreement provides
for payment of commitment fees and contains the usual and customary covenants.
In May 1993 the Company filed a shelf registration with the Securities and
Exchange Commission which permits the Company to issue $300 million in debt
securities. As of December 31, 1993, no amounts had been borrowed under this
shelf registration.
During 1992 the Company repaid its outstanding mortgage note which had a 9.77%
interest rate.
Note 7 - Other Income and Expense:
Other income and expense consisted of the following components:
Year ended December 31,
In millions 1993 1992 1991
- -----------------------------------------------------------------------------
Interest and dividend income $ (20) $ (32) $ (32)
Interest expense associated with hedging 22 15 11
Other interest expense 41 29 27
Currency exchange (gains) losses, net 15 11 (4)
Restructuring charges and other asset write downs 12 87 139
Realized gain on investment in affiliated company (86)
Other, net 6 4 4
---------------------------
$ 76 $ 28 $ 145
===========================
In 1991 the Company announced a major restructuring of its operations and a
reorganization into distinct product divisions. The restructuring plan
included, among other things, a reduction of the Company's worldwide workforce
and provided for the consolidation and streamlining of certain operations. The
estimated cost of the restructuring plan, $135 million, was recorded by the
Company in the third quarter of 1991. In the third quarter of 1992 the Company
recorded $73 million in additional restructuring charges in conjunction with
additional plans for consolidating and streamlining operations. In the fourth
quarter of 1993 the Company recorded charges associated with its plans to
withdraw from the printer business, including costs related to certain
contractual liabilities and the write-downs of the carrying value of certain
assets. The charge, net of the reversal of previously recorded restructuring
reserves, totaled $10 million. Reserves related to these restructurings of $26
million and $54 million were included in other current liabilities at December
31, 1993 and 1992, respectively.
In 1992 the Company sold its $135 million equity interest in Silicon Graphics,
Inc. (SGI) and discontinued the joint technical development agreement with SGI.
The transaction resulted in no material gain or loss to the Company.
<PAGE>
PAGE 21
Note 8 - Provision for Income Taxes:
The components of income before provision for income taxes were as follows:
Year ended December 31,
In millions 1993 1992 1991
- -----------------------------------------------------------------------------
Domestic $ 284 $ 99 $ (33)
Foreign 332 196 187
---------------------------
$ 616 $ 295 $ 154
===========================
The provision for income taxes charged to operations was as follows:
Year ended December 31,
In millions 1993 1992 1991
- -----------------------------------------------------------------------------
Current tax expense
U.S. federal $ 130 $ 36 $ 17
State and local 4 2
Foreign 58 27 33
---------------------------
Total current 192 63 52
---------------------------
Deferred tax expense
U.S. federal (18) 30 (4)
Foreign (20) 4 (5)
---------------------------
Total deferred (38) 34 (9)
---------------------------
Total provision $ 154 $ 97 $ 43
===========================
Total income tax expense for 1993, 1992, and 1991 resulted in effective tax
rates of 25%, 33%, and 28%, respectively. The reasons for the differences
between these effective tax rates and the U.S. statutory rate of 35% in 1993
and 34% in 1992 and 1991 are as follows:
Year ended December 31,
In millions 1993 1992 1991
- -----------------------------------------------------------------------------
Tax expense at U.S. statutory rate $ 216 $ 100 $ 52
Research and development tax credits (6) (3) (9)
Foreign tax effect, net (64) 6
Tax exempt Foreign Sales Corporation income (7) (1) (7)
Provision for tax on equity in net income of
affiliated company 5 7
Other, net 15 (4) (6)
---------------------------
$ 154 $ 97 $ 43
===========================
The Company increased its U.S. deferred tax liability in 1993 as a result of
legislation enacted during 1993 which increased the corporate tax rate to 35%
from 34% retroactive to January 1, 1993. The increase had an immaterial effect
on the consolidated financial statements.
The Company benefits from a tax holiday in Singapore which expires in 1997,
subject to certain extensions. During the first quarter of 1993 the Company
determined that a portion of the undistributed earnings of its Singaporean
subsidiaries will be reinvested indefinitely. As a result of this
determination, no provision for U.S. income tax was made on $158 million of
earnings of such subsidiaries during 1993. These earnings would become subject
to U.S. tax if they were actually or deemed to be remitted to the Company as
dividends or if the Company should sell its stock in these subsidiaries. The
Company estimates an additional tax provision of $55 million would be required
at such time.
<PAGE>
PAGE 22
Deferred tax liabilities (assets) at December 31, 1993 and January 1, 1993 (the
date of adoption of FAS 109) are comprised of the following:
December 31, Date of
In millions 1993 adoption
- -----------------------------------------------------------------------------
Unremitted earnings of foreign subsidiaries $ 178 $ 153
Difference arising from different tax and financial
reporting year ends 12 18
Depreciation and property, plant, and equipment basis
differences 6 13
Unrealized currency gains 2 5
Other 9 15
----------------------
Gross deferred tax liabilities 207 204
----------------------
Warranty reserves (47) (14)
Inventory valuation allowances (26) (24)
Receivable valuation allowances (22) (11)
Intercompany transfer pricing (18) (21)
Loss carryforwards (10) (7)
Restructuring charges (10) (24)
Compensatory absences accruals (4) (4)
Depreciation and property, plant, and equipment basis
differences (2) (3)
Other (8) (9)
----------------------
Gross deferred tax assets (147) (117)
----------------------
Deferred tax assets valuation allowance 11
----------------------
$ 60 $ 98
======================
The decrease in the deferred tax assets valuation allowance in 1993 of $11
million is primarily attributable to the utilization (or expected future
utilization) of loss carryforwards associated with certain of the Company's
foreign subsidiaries.
Deferred tax assets of $126 million and $78 million were included in prepaid
expenses and other current assets at December 31, 1993 and 1992, respectively.
Note 9 - Stockholder's Equity and Employee Benefit Plans:
Equity incentive plans - At December 31, 1993, there were 18,432,000 shares of
common stock reserved by the Board of Directors for issuance under the
Company's employee stock option plans. Options are generally granted at the
fair market value of the common stock at the date of grant and generally vest
over four to five years. In limited circumstances, options may be granted at
prices less than fair market value and may vest immediately. Options granted
under the plans must be exercised not later than ten years from the date of
grant. Options on 4,292,000 shares were exercisable at December 31, 1993.
<PAGE>
PAGE 23
The following table summarizes activity under the plans for each of the three
years in the period ended December 31, 1993:
Shares Price per share
(In thousands)
Options outstanding, December 31, 1990 12,893
Options granted 4,416 23.88-69.75
Options lapsed or cancelled (1,663)
Options exercised (1,112) 22.25-73.50
--------
Options outstanding, December 31, 1991 14,534
Options granted 2,746 23.63-42.38
Options lapsed or cancelled (703)
Options exercised (2,607) .25-47.19
--------
Options outstanding, December 31, 1992 13,970
Options granted 2,152 44.63-73.88
Options lapsed or cancelled (718)
Options exercised (4,490) .26-69.75
--------
Options outstanding, December 31, 1993 10,914
========
There were 7,518,000; 9,041,000; and 11,083,000 shares available for grants
under the plans at December 31, 1993, 1992, and 1991, respectively.
In 1987 the stockholders approved the Stock Option Plan for Non-Employee
Directors (the Director Plan). At December 31, 1993, there were 430,000 shares
of common stock reserved for issuance under the Director Plan. Pursuant to the
terms of the plan, each non-employee director is entitled to receive options to
purchase common stock of the Company upon initial appointment to the Board
(initial grants) and upon subsequent reelection to the Board (annual grants).
Initial grants are exercisable during the period beginning one year after
initial appointment to the Board and ending ten years after the date of grant.
Annual grants vest over two years and are exercisable thereafter until the
tenth anniversary of the date of grant. Both initial grants and annual grants
have an exercise price equal to the fair market value of the Company's stock on
the date of grant. Additionally, pursuant to the terms of the Director Plan,
non-employee directors may elect to receive stock options in lieu of all or a
portion of the annual retainer to be earned. Such options are granted at 50%
of the price of the Company's common stock at the date of grant and are
exercisable during the period beginning one year after the grant date and
ending ten years after the date of grant. Options totaling 117,877 were
exercisable under the Director Plan at December 31, 1993. Activity under the
plan for each of the three years in the period ended December 31, 1993 was as
follows:
Shares Price per share
(In thousands)
Options outstanding, December 31, 1990 116
Options granted 37 17.88-35.76
-----
Options outstanding, December 31, 1991 153
Options granted 27 12.69-25.38
Options exercised (21) 40.25-43.00
-----
Options outstanding, December 31, 1992 159
Options granted 35 24.38-48.75
Options lapsed or cancelled (5)
Options exercised (28) 12.69-40.06
-----
Options outstanding, December 31, 1993 161
=====
There were 269,000; 299,000; and 327,000 shares available for grants under the
plan at December 31, 1993, 1992, and 1991, respectively.
<PAGE>
PAGE 24
Pursuant to a plan adopted by the Board of Directors in 1986, the Company
granted to selected officers and key employees options on shares of Conner
stock owned by the Company. Such options, which were granted at $.09 per
share, vested ratably over four years and expire ten years from the date of
grant. During 1993 options on 22,000 shares were exercised and no options
lapsed or were cancelled. At December 31, 1993, options on 83,000 shares of
Conner common stock were exercisable and outstanding.
Compaq Computer Corporation Investment Plan - The Company has an Investment
Plan available to all domestic employees and intended to qualify as a deferred
compensation plan under Section 401(k) of the Internal Revenue Code of 1986.
Employees may contribute to the plan up to 14% of their salary with a maximum
of $8,994 in 1993 ($9,240 in 1994). The Company will match employee
contributions for an amount up to 6% of each employee's base salary.
Contributions are invested at the direction of the employee in one or more
funds or can be directed to purchase common stock of the Company at fair market
value. Company contributions generally vest over three years although Company
contributions for those employees having five years of service vest
immediately. Company contributions are charged to expense in accordance with
their vesting. Amounts charged to expense were $16 million, $13 million, and
$12 million in 1993, 1992, and 1991, respectively.
Incentive compensation plan - The Company adopted an incentive compensation
plan for the majority of its employees beginning in the second half of 1992.
Provision for payments to be made under the plan is based on 6% of net income
from operations, as defined, and is payable semiannually. The amount expensed
under the plan was $27 million and $8 million in 1993 and 1992, respectively.
Stock repurchases - On May 16, 1991, the Company's Board of Directors
authorized the Company to repurchase up to ten million shares of its common
stock on the open market. During 1992 and 1991 the Company repurchased seven
million and three million shares of its common stock, respectively, at an
aggregate cost of $202 million and $96 million, respectively. The repurchases
of these shares have been accounted for using the par value method.
Post retirement and post employment benefits - The Financial Accounting
Standards Board has issued Statements requiring accrual basis accounting for
post retirement and post employment benefits offered to employees. The Company
currently offers very limited post retirement and post employment benefits and
accordingly the provisions of the Statements had minimal impact on the
Company's financial statements when they were adopted in 1993.
Stockholder rights plan - The Board of Directors adopted a Stockholder Rights
Plan in May 1989 which in certain limited circumstances would permit
stockholders to purchase securities at prices which would be substantially
below market value.
<PAGE>
PAGE 25
Note 10 - Certain Market and Geographic Data:
The Company has subsidiaries in various foreign countries which manufacture and
sell the Company's products in their respective geographic areas. Summary
information with respect to the Company's geographic operations in 1993, 1992,
and 1991 follows:
United
States & Other Elimin- Consol-
In millions Canada Europe countries nations idated
- ----------------------------------------------------------------------------
1993
- ----
Sales to customers $ 3,670 $ 2,718 $ 803 $ 7,191
Intercompany transfers 1,514 109 990 $ (2,613)
---------------------------------------------------
$ 5,184 $ 2,827 $ 1,793 $ (2,613) $ 7,191
===================================================
Income from operations $ 310 $ 183 $ 245 $ 5 $ 743
=========================================
Corporate expenses, net (127)
---------
Pretax income $ 616
=========
Identifiable assets $ 2,457 $ 1,032 $ 620 $ (652) $ 3,457
=========================================
General corporate assets 627
---------
Total assets $ 4,084
=========
1992
- ----
Sales to customers $ 1,833 $ 1,886 $ 381 $ 4,100
Intercompany transfers 899 50 537 $ (1,486)
---------------------------------------------------
$ 2,732 $ 1,936 $ 918 $ (1,486) $ 4,100
===================================================
Income (loss) from
operations $ 37 $ 74 $ 143 $ (2) $ 252
=========================================
Corporate income, net 43
---------
Pretax income $ 295
=========
Identifiable assets $ 2,006 $ 961 $ 323 $ (505) $ 2,785
=========================================
General corporate assets 357
---------
Total assets $ 3,142
=========
1991
- ----
Sales to customers $ 1,388 $ 1,724 $ 159 $ 3,271
Intercompany transfers 838 16 361 $ (1,215)
---------------------------------------------------
$ 2,226 $ 1,740 $ 520 $ (1,215) $ 3,271
===================================================
Income (loss) from
operations $ (29) $ 101 $ 133 $ 12 $ 217
=========================================
Corporate expenses, net (63)
---------
Pretax income $ 154
=========
Identifiable assets $ 1,825 $ 696 $ 125 $ (272) $ 2,374
=========================================
General corporate assets 452
---------
Total assets $ 2,826
=========
<PAGE>
PAGE 26
Note 11 - Commitments, Contingencies, and Financial Instruments:
Litigation - The Company and certain of its current and former officers and
directors are named in a consolidated, alleged class action, lawsuit brought in
federal court in Houston on behalf of persons who purchased Compaq stock or
held certain types of options during the period December 18, 1990 through May
14, 1991. The second amended complaint alleges, among other things, that the
defendants, through certain public statements, misled investors respecting (i)
deterioration in the Company's markets and the demand for its products, (ii)
marketing problems such as pricing pressure from competitors and reduced dealer
loyalty, and (iii) other industry, competitive, and Company conditions. The
complaint seeks damages in an unspecified amount. On October 2, 1993, the
defendants filed a motion to dismiss, which the court on October 28, 1993
converted to a motion for summary judgment. On December 28, 1993, the Court
granted in part and denied in part the defendants' motion. Allegations similar
to those contained in the federal action have been made in individual suits
brought by certain stockholders in Texas State Court in Houston. Management
believes that the outcome of this litigation will not have a material adverse
effect on the financial condition of the Company.
The Company is also subject to legal proceedings and claims which arise in the
ordinary course of its business. Management does not believe that the outcome
of any of those matters will have a material adverse effect on the Company's
financial condition.
Financial instruments, off-balance sheet risk, and concentration of credit risk
- - At December 31, 1993 and 1992, respectively, the Company had entered into
forward exchange contracts with financial institutions to sell $581 million and
$488 million of foreign currencies and also had entered into foreign currency
option contracts relating to the hedges of certain portions of its foreign
currency exposure of the net monetary assets of its international subsidiaries.
In addition, at December 31, 1993 and 1992, respectively, the Company had
entered into forward exchange contracts with financial institutions to buy $325
million and $107 million of foreign currencies and also had entered into
foreign currency option contracts to hedge purchase commitments. Forward
exchange contracts had maturity dates ranging from one day to six months. In
the event of a failure to honor one of these contracts by one of the banks with
which the Company had contracted, management believes any loss would be limited
to the exchange rate differential from the time the contract was made until the
time it was compensated. At December 31, 1993, the Company had entered into
option contracts to sell currency to hedge a portion of its probable
anticipated sales over the next three months of its international marketing
subsidiaries. The net unrealized gain deferred on these contracts at December
31, 1993 totaled $12 million and if realized will be recognized in the periods
that the related sales occur. At December 31, 1992, the net unrealized gain on
these types of contracts totaled $26 million. The gains associated with the
hedging of anticipated sales of the Company's international marketing
subsidiaries, net of premium cost associated with the related purchased
currency options, are included in sales and were $13 million and $3 million in
1993 and 1992, respectively. To the extent the Company has such options
outstanding, the amount of any loss resulting from a breach of contract would
be limited to the amount of premiums paid for the options and the unrealized
gain, if any, related to such contracts.
The Company enters into various types of financial instruments in the normal
course of business. Fair values for certain financial instruments are based on
quoted market prices. For other financial instruments, fair values are based
on the appropriate pricing models using current market information. The
amounts ultimately realized upon settlement of these financial instruments will
depend on actual market conditions during the remaining life of the
instruments. Fair values of cash and cash equivalents, accounts receivable,
accounts payable, and other current liabilities reflected in the December 31,
1993 balance sheet approximate carrying value at that date. The fair value of
prepaid expenses and other current assets at December 31, 1993 would have been
increased by approximately $12 million to reflect the unrealized deferred gain
on the option contracts to sell currency to hedge a portion of the Company's
probable anticipated sales of its international marketing subsidiaries.
The Company's cash and cash equivalents and accounts receivable are subject to
potential credit risk. The Company's cash management and investment policies
restrict investments to low risk, highly-liquid securities and the Company
performs periodic evaluations of the relative credit standing of the financial
institutions with which it deals.
<PAGE>
PAGE 27
The Company distributes products primarily through third-party resellers and as
a result maintains individually significant accounts receivable balances from
various major resellers. The Company evaluates the credit worthiness of its
resellers on an ongoing basis and may, from time to time, tighten credit terms
to particular resellers. Such tightening may take the form of shorter payment
terms, requiring security, reduction of credit availability, or the
deauthorization of a reseller. In addition, the Company uses various risk
transfer instruments such as credit insurance, factoring, and floor planning
with third-party finance companies and financial institutions; however, there
can be no assurance that these arrangements will be sufficient to avoid
significant accounts receivable losses or will continue to be available. While
the Company believes that its distribution strategies will serve to minimize
the risk associated with the loss of a reseller or the decline in sales to a
reseller due to tightened credit terms, there can be no assurance that
disruption to the Company's sales and profitability will not occur. If the
financial condition and operations of these resellers deteriorate, the
Company's operating results could be adversely affected. At December 31, 1993,
the receivable balances from the Company's five largest resellers represented
approximately 22% of accounts receivable.
The Company's resellers typically purchase products on an as-needed basis
through purchase orders. Certain of the Company's resellers finance a portion
of their inventories through third-party finance companies. Under the terms of
the financing arrangements, the Company may be required, in limited
circumstances, to repurchase certain products from the finance companies.
Additionally, the Company has on occasion guaranteed a portion of certain
resellers' outstanding balances with third-party finance companies and
financial institutions. Guarantees under these and other arrangements
aggregating $29 million and $14 million were outstanding at December 31, 1993
and 1992, respectively. During the years that the Company has supported these
financing programs, claims under these arrangements have been negligible. The
Company makes provisions for estimated product returns and bad debts which may
occur under these programs.
Lease commitments - The Company leases certain manufacturing and office
facilities and equipment under noncancelable operating leases with terms from
one to 30 years. Rent expense for 1993, 1992, and 1991 was $32 million, $35
million, and $39 million, respectively.
The Company's minimum rental commitments under noncancelable operating leases
at December 31, 1993 were as follows:
Year Amount
(In millions)
------- ---------
1994 $ 29
1995 22
1996 16
1997 14
1998 13
Thereafter 50
---------
$ 144
=========
<PAGE>
PAGE 28
Note 12 - Selected Quarterly Financial Data (not covered by report of
independent accountants):
The table below sets forth selected financial information for each quarter of
the last two years.
In millions, 1st 2nd 3rd 4th
except per share amounts quarter quarter quarter quarter
- ------------------------------------------------------------------------------
1993
Sales $ 1,611 $ 1,632 $ 1,746 $ 2,202
Gross margin 370 393 413 522
Net income 102 102 107 151
Earnings per common and
common equivalent share
Primary 1.23 1.21 1.26 1.74
Assuming full dilution 1.23 1.21 1.25 1.73
1992
Sales $ 783 $ 827 $ 1,067 $ 1,423
Gross margin 262 250 300 383
Net income 45 29 50 89
Earnings per common and
common equivalent share
Primary 0.53 0.35 0.61 1.11
Assuming full dilution 0.53 0.35 0.61 1.10
<PAGE>
PAGE 29
PART III
Items 10 to 13 inclusive.
These items have been omitted in accordance with instructions to Form 10-K
Annual Report. The Registrant will file with the Commission in March 1994,
pursuant to Regulation 14A, a definitive proxy statement which will involve the
election of directors.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
Financial Statements and Financial Statement Schedules - See Index to
Consolidated Financial Statements at Item 8 of this report.
Exhibit
No. Description of Exhibits
3.1 Restated Certificate of Incorporation of Registrant (incorporated
herein by reference to the corresponding exhibit in the
Registrant's Registration Statement No. 2-96069 on Form S-1).
3.2 Amendment to Registrant's Certificate of Incorporation, filed May
19, 1987 (incorporated herein by reference to the corresponding
exhibit in the Registrant's Form 10-K for the year ended December
31, 1987 (the "1987 Form 10-K")).
3.3 Registrant's Certificate of Amendment to its Restated Certificate
of Incorporation dated July 26, 1991, along with a complete copy
of the Registrant's Restated Certificate of Incorporation, as
amended (incorporated herein by reference to Exhibit 10.1 to the
Registrant's Form 10-Q for the quarter ended June 30, 1991).
3.4 Registrant's Certificate of Stock Designation filed June 28, 1989
(incorporated herein by reference to Exhibit No. 3.1 to the
Registrant's Form 10-Q for the quarter ended June 30, 1989 (the
"1989 Second Quarter Form 10-Q")).
3.5 By-laws of Registrant, as amended (incorporated herein by
reference to Exhibit No. 3.5 to the Registrant's Form 10-Q for
the quarter ended June 30, 1992).
4.1 Form of Rights Agreement dated as of May 18, 1989 between
Registrant and Bank of America NT & SA, as Rights Agent,
including form of Right Certificate (incorporated herein by
reference to Exhibits 1 and 2 to the Registrant's Form 8-A
Registration Statement dated May 30, 1989).
4.2 Successor Rights Agent Agreement dated as of September 17, 1991
between Registrant and First National Bank of Boston
(incorporated herein by reference to Exhibit 4.2 to the
Registrant's Form 10-K for the year ended December 31, 1991 (the
"1991 Form 10-K")).
10.1 Registrant's 1982 Stock Option Plan, as amended (incorporated
herein by reference to the corresponding exhibit in the 1989
Second Quarter Form 10-Q). *
10.2 Registrant's 1983 Nonqualified Stock Option Plan, as amended
(incorporated herein by reference to the corresponding exhibit
in the Registrant's Form 10-K for the year ended December 31,
1988). *
10.3 Registrant's 1985 Stock Option Plan (incorporated herein by
reference to Exhibit 10.3 to the 1991 Form 10-K). *
10.4 Registrant's 1985 Executive and Key Employees Stock Option Plan,
as amended (incorporated herein by reference to Exhibit 10.3 to
the 1989 Second Quarter Form 10-Q). *
10.5 Registrant's 1985 Nonqualified Stock Option Plan, as amended
(incorporated herein by reference to Exhibit 10.4 to the 1989
Second Quarter Form 10-Q). *
10.6 Forms of Stock Option Agreements relating to Exhibits 10.1
through 10.5 (incorporated herein by reference to Exhibit 10.6 to
the 1987 Form 10-K). *
10.7 Registrant's 1989 Equity Incentive Plan, as amended (incorporated
herein by reference to Exhibit 10.7 to the 1991 Form 10-K). *
10.8 Form of Stock Option Notice relating to Exhibit 10.7
(incorporated herein by reference to Exhibit 10.8 to the 1991
Form 10-K). *
<PAGE>
PAGE 30
10.9 Registrant's Stock Option Plan for Non-Employee Directors, as
amended, and Form of Stock Option Agreement (incorporated herein
by reference to Exhibit 10.9 to the 1991 Form 10-K). *
10.10 Registrant's Deferred Compensation and Supplemental Savings Plan
as amended. *
10.11 Form of Agreement for Underleases dated October 1988 between
Compaq Computer Limited, the Company, Hambros Bank Executor and
Trustee Company Limited, Haslemere Estates Public Limited
Company, and Haslemere Estates (Developments) Limited, and
related License, Deed, and Underleases (incorporated by reference
to Exhibit No. 10.3 to the Registrant's Form 10-Q for the quarter
ended September 30, 1988).
10.12 Employment Agreement dated as of January 1, 1992 between the
Registrant and Eckhard Pfeiffer (incorporated by reference to
Exhibit 10.15 to the 1991 Form 10-K). *
10.13 Form of letter agreement between Registrant and its executive
officers (incorporated by reference to Exhibit 10.16 to the 1991
Form 10-K). *
10.14 Credit Agreement dated as of May 10, 1993, among Compaq Computer
Corporation, the banks signatory thereto and NationsBank of
Texas, N.A. as Agent, and Bank of America National Trust and
Savings Association as Co-agent (incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K dated May 10, 1993).
11. Statement regarding the computation of per share earnings.
21. Subsidiaries of Registrant.
23. Consent of Price Waterhouse, independent accountants.
* Indicates management contract or compensatory plan or arrangement.
Exhibit numbers may not correspond in all cases to those numbers in Item
601 of Regulation S-K because of special requirements applicable to EDGAR
filers.
(b) Reports on Form 8-K:
Report on Form 8-K dated January 26, 1994, containing the Company's news
release dated January 26, 1994, with respect to its financial results for the
period ended December 31, 1993, including an unaudited consolidated balance
sheet as of December 31, 1993, and an unaudited consolidated statement of
income for the periods ended December 31, 1993.
The following trademarks and service marks owned by the Company appear in
this Report: Compaq, CompaqCare, Compaq Concerto, Compaq Contura, Compaq
Insight Manager, Compaq ProLinea, Compaq ProLinea Net 1/25s, Compaq ProLiant,
Compaq ProSignia, PageMarq, Deskpro, DirectPlus, Presario, and SmartStart.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Compaq Computer Corporation
By: /s/ ECKHARD PFEIFFER
-------------------------------
Eckhard Pfeiffer, President and
Chief Executive Officer
Date: 2/24/94
-------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ ECKHARD PFEIFFER 2/24/94
- ----------------------------- President and Director -------
(Eckhard Pfeiffer) (principal executive officer)
/s/ DARYL J. WHITE 2/24/94
- ----------------------------- Senior Vice President-Finance -------
(Daryl J. White) and Chief Financial Officer
(principal financial officer)
/s/ BENJAMIN M. ROSEN 2/24/94
- ----------------------------- Chairman of the -------
(Benjamin M. Rosen) Board of Directors
/s/ ROBERT TED ENLOE III 2/24/94
- ----------------------------- Director -------
(Robert Ted Enloe III)
/s/ GEORGE E.R. KINNEAR, II 2/24/94
- ----------------------------- Director -------
(George E.R. Kinnear, II)
/s/ PETER N. LARSON 2/24/94
- ----------------------------- Director -------
(Peter N. Larson)
/s/ KENNETH L. LAY 2/24/94
- ----------------------------- Director -------
(Kenneth L. Lay)
/s/ KENNETH ROMAN 2/24/94
- ----------------------------- Director -------
(Kenneth Roman)
<PAGE>
PAGE S-1
SCHEDULE V
COMPAQ COMPUTER CORPORATION
PROPERTY, PLANT, AND EQUIPMENT
Balance, Balance,
beginning Additions, Retirements end
Description of year at cost or sales of year
- -------------------------------------------------------------------------------
(in millions)
Year ended December 31, 1991:
Land $ 65 $ 8 $ (3) $ 70
Buildings 416 95 (1) 510
Machinery and equipment 529 105 (19) 615
Furniture and fixtures 47 8 (1) 54
Leasehold improvements 24 4 (1) 27
Construction-in-progress, net 106 (60) 46
------------------------------------------------
$ 1,187 $ 160 $ (25) $ 1,322
================================================
Year ended December 31, 1992:
Land $ 70 $ 6 $ (1) $ 75
Buildings 510 37 (15) 532
Machinery and equipment 615 97 (164) 548
Furniture and fixtures 54 5 (6) 53
Leasehold improvements 27 4 (11) 20
Construction-in-progress, net 46 10 56
------------------------------------------------
$ 1,322 $ 159 $ (197) $ 1,284
================================================
Year ended December 31, 1993:
Land $ 75 $ (3) $ 72
Buildings 532 $ 12 (2) 542
Machinery and equipment 548 150 (38) 660
Furniture and fixtures 53 2 (2) 53
Leasehold improvements 20 5 (2) 23
Construction-in-progress, net 56 (24) 32
------------------------------------------------
$ 1,284 $ 145 $ (47) $ 1,382
================================================
During 1991 additions to Construction-in-progress, net include $20
million of assets which were written off as part of the restructuring.
<PAGE>
PAGE S-2
SCHEDULE VI
COMPAQ COMPUTER CORPORATION
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT, AND EQUIPMENT
Balance, Balance,
beginning Additions, Retirements end
Description of year at cost or sales of year
- ---------------------------------------------------------------------------
(in millions)
Year ended December 31, 1991:
Buildings $ (34) $ (22) $ (56)
Machinery and equipment (230) (132) $ 18 (344)
Furniture and fixtures (16) (9) 2 (23)
Leasehold improvements (15) (1) (16)
--------------------------------------------
$ (295) $ (164) $ 20 $ (439)
============================================
Year ended December 31, 1992:
Buildings $ (56) $ (23) $ 2 $ (77)
Machinery and equipment (344) (126) 109 (361)
Furniture and fixtures (23) (7) 2 (28)
Leasehold improvements (16) (3) 9 (10)
--------------------------------------------
$ (439) $ (159) $ 122 $ (476)
============================================
Year ended December 31, 1993:
Buildings $ (77) $ (23) $ 1 $ (99)
Machinery and equipment (361) (122) 22 (461)
Furniture and fixtures (28) (7) 3 (32)
Leasehold improvements (10) (3) 2 (11)
--------------------------------------------
$ (476) $ (155) $ 28 $ (603)
============================================
<PAGE>
PAGE S-3
SCHEDULE VIII
COMPAQ COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
Year ended December 31,
In millions 1993 1992 1991
- --------------------------------------------------------------------
Balance, beginning of period $ 25 $ 18 $ 14
Additions charged to expense 33 14 9
Reductions (9) (7) (5)
------------------------------
Balance, end of period $ 49 $ 25 $ 18
==============================
<PAGE>
PAGE S-4
SCHEDULE X
COMPAQ COMPUTER CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year ended December 31,
In millions 1993 1992 1991
- -----------------------------------------------------------------------------
Advertising expense $ 114 $ 82 $ 55
Royalties $ 119
All other expenses required by this Schedule are disclosed in the
consolidated financial statements or notes thereto included
elsewhere in this Annual Report on Form 10-K.
<PAGE>
COMPAQ COMPUTER CORPORATION
EXHIBIT INDEX
Exhibit
No. Description of Exhibits
3.1 Restated Certificate of Incorporation of Registrant (incorporated
herein by reference to the corresponding exhibit in the
Registrant's Registration Statement No. 2-96069 on Form S-1).
3.2 Amendment to Registrant's Certificate of Incorporation, filed May
19, 1987 (incorporated herein by reference to the corresponding
exhibit in the Registrant's Form 10-K for the year ended December
31, 1987 (the "1987 Form 10-K")).
3.3 Registrant's Certificate of Amendment to its Restated Certificate
of Incorporation dated July 26, 1991, along with a complete copy
of the Registrant's Restated Certificate of Incorporation, as
amended (incorporated herein by reference to Exhibit 10.1 to the
Registrant's Form 10-Q for the quarter ended June 30, 1991).
3.4 Registrant's Certificate of Stock Designation filed June 28, 1989
(incorporated herein by reference to Exhibit No. 3.1 to the
Registrant's Form 10-Q for the quarter ended June 30, 1989 (the
"1989 Second Quarter Form 10-Q")).
3.5 By-laws of Registrant, as amended (incorporated herein by
reference to Exhibit No. 3.5 to the Registrant's Form 10-Q for
the quarter ended June 30, 1992).
4.1 Form of Rights Agreement dated as of May 18, 1989 between
Registrant and Bank of America NT & SA, as Rights Agent,
including form of Right Certificate (incorporated herein by
reference to Exhibits 1 and 2 to the Registrant's Form 8-A
Registration Statement dated May 30, 1989).
4.2 Successor Rights Agent Agreement dated as of September 17, 1991
between Registrant and First National Bank of Boston
(incorporated herein by reference to Exhibit 4.2 to the
Registrant's Form 10-K for the year ended December 31, 1991 (the
"1991 Form 10-K")).
10.1 Registrant's 1982 Stock Option Plan, as amended (incorporated
herein by reference to the corresponding exhibit in the 1989
Second Quarter Form 10-Q). *
10.2 Registrant's 1983 Nonqualified Stock Option Plan, as amended
(incorporated herein by reference to the corresponding exhibit
in the Registrant's Form 10-K for the year ended December 31,
1988). *
10.3 Registrant's 1985 Stock Option Plan (incorporated herein by
reference to Exhibit 10.3 to the 1991 Form 10-K). *
10.4 Registrant's 1985 Executive and Key Employees Stock Option Plan,
as amended (incorporated herein by reference to Exhibit 10.3 to
the 1989 Second Quarter Form 10-Q). *
10.5 Registrant's 1985 Nonqualified Stock Option Plan, as amended
(incorporated herein by reference to Exhibit 10.4 to the 1989
Second Quarter Form 10-Q). *
10.6 Forms of Stock Option Agreements relating to Exhibits 10.1
through 10.5 (incorporated herein by reference to Exhibit 10.6 to
the 1987 Form 10-K). *
10.7 Registrant's 1989 Equity Incentive Plan, as amended (incorporated
herein by reference to Exhibit 10.7 to the 1991 Form 10-K). *
10.8 Form of Stock Option Notice relating to Exhibit 10.7
(incorporated herein by reference to Exhibit 10.8 to the 1991
Form 10-K). *
10.9 Registrant's Stock Option Plan for Non-Employee Directors, as
amended, and Form of Stock Option Agreement (incorporated herein
by reference to Exhibit 10.9 to the 1991 Form 10-K). *
10.10 Registrant's Deferred Compensation and Supplemental Savings Plan
as amended. *
10.11 Form of Agreement for Underleases dated October 1988 between
Compaq Computer Limited, the Company, Hambros Bank Executor and
Trustee Company Limited, Haslemere Estates Public Limited
Company, and Haslemere Estates (Developments) Limited, and
related License, Deed, and Underleases (incorporated by reference
to Exhibit No. 10.3 to the Registrant's Form 10-Q for the quarter
ended September 30, 1988).
10.12 Employment Agreement dated as of January 1, 1992 between the
Registrant and Eckhard Pfeiffer (incorporated by reference to
Exhibit 10.15 to the 1991 Form 10-K). *
10.13 Form of letter agreement between Registrant and its executive
officers (incorporated by reference to Exhibit 10.16 to the 1991
Form 10-K). *
10.14 Credit Agreement dated as of May 10, 1993, among Compaq Computer
Corporation, the banks signatory thereto and NationsBank of
Texas, N.A. as Agent, and Bank of America National Trust and
Savings Association as Co-agent (incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K dated May 10, 1993).
11. Statement regarding the computation of per share earnings.
21. Subsidiaries of Registrant.
23. Consent of Price Waterhouse, independent accountants.
* Indicates management contract or compensatory plan or arrangement.
Exhibit numbers may not correspond in all cases to those numbers in Item
601 of Regulation S-K because of special requirements applicable to EDGAR
filers.
EXHIBIT 10.10
COMPAQ COMPUTER CORPORATION
DEFERRED COMPENSATION AND SUPPLEMENTAL SAVINGS PLAN
TABLE OF CONTENTS
ARTICLE I. ESTABLISHMENT AND PURPOSE
1.1. Establishment 1
1.2. Purpose 1
1.3. Application of Plan 1
ARTICLE II. DEFINITIONS AND CONSTRUCTION
2.1. Definitions 2
2.2. Gender and Number; Severability 5
ARTICLE III. PARTICIPATION
3.1. Eligibility 5
3.2. Participation 5
ARTICLE IV. EXCESS AND SUPPLEMENTAL SAVINGS BENEFITS
4.1. Excess Amount and/or Supplemental Savings Amount 6
4.2. Determination of Excess Amount 6
4.3. Determination of Supplemental Savings Amount 6
ARTICLE V. DEFERRAL AMOUNTS; DEFERRAL ELECTIONS
5.1. Types of Deferral Amounts 6
5.2. Salary Deferral Election 6
5.3. Bonus Deferral Election 7
5.4. Deferral Elections 8
ARTICLE VI. PAYMENT OF BENEFITS
6.1. Time of Payment of Deferral Amounts 8
6.2. Forms of Payment of Deferral Amounts 9
6.3. Distribution of Accounts for Need 9
6.4. Death Benefits 9
6.5. Consolidation of Payments 10
6.6. Withholding of Taxes 10
6.7. Minimum Distributions 10
6.8 Method of Calculation of Payments 10
ARTICLE VII. ACCOUNTS; CREDITED INCOME
7.1. Participant Accounts 11
7.2. Investment Options; Crediting of Income 11
7.3. Nature of Account Entries 11
7.4. Vesting 11
7.5. Account Statements 11
ARTICLE VIII. ADMINISTRATION OF THE PLAN
8.1. Administration 12
8.2. Rules; Claims For Benefits 12
8.3. Finality of Determinations 13
8.4. Indemnification 13
ARTICLE IX. FUNDING
9.1. Funding 13
ARTICLE X. AMENDMENT; TERMINATION; MERGER
10.1. Amendment and Termination 14
10.2. Change of Control 14
10.3 Automatic Payment 14
ARTICLE XI. GENERAL PROVISIONS
11.1. Beneficiary Designation 14
11.2. Effect on Other Plans 15
11.3. Nontransferability 15
11.4. Plan Not an Employment Contract 15
11.5. Applicable Law 15
COMPAQ COMPUTER CORPORATION
DEFERRED COMPENSATION AND SUPPLEMENTAL SAVINGS PLAN
ARTICLE I.
ESTABLISHMENT AND PURPOSE
1.1. Establishment. Effective as of January 1, 1985, COMPAQ COMPUTER
CORPORATION (the "Company") established a deferred compensation plan for
eligible officers. The plan, which was revised in November 1987, was known
as the "Compaq Computer Corporation Deferred Compensation Plan." Effective
as of April 1, 1985, the Company also established the "Compaq Computer
Corporation Excess and Supplemental Savings Plan" in order to provide
additional benefits to certain of its officers. As of July 23, 1992, the
Company combined the aforementioned plans, amending and restating them as the
COMPAQ COMPUTER CORPORATION DEFERRED COMPENSATION AND SUPPLEMENTAL SAVINGS
PLAN (the "Plan"). The Company now desires to enhance and preserve the
benefits offered hereunder by providing that Plan assets shall be held and
invested by the Trustee (to be appointed by the Company), pursuant to the
terms of the Compaq Computer Corporation Deferred Compensation and
Supplemental Savings Trust dated December 17, 1993 (the "Trust"). The
Trustee will invest the Plans assets with the goal of achieving the
hypothetical investment returns credited to Plan Participants in accordance
with Article VII hereof. Payments to the Participants shall be made first
from the Trust and second by the Company to the extent that the Trusts assets
are not sufficient. The effective date of this amendment and restatement is
December 17, 1993. The rights of any Participants in the Plan and the rights
of any individual who is an "Eligible Employee" (as defined herein) on or
after such effective date shall be governed by the Plan as so amended and
restated.
1.2. Purpose. The objective and purpose of the Plan is to attract
competent officers and key executives by offering flexible compensation
opportunities to officers and key executives of the Company, and to provide
them an opportunity to build an estate or supplement income for use after
retirement. The Plan is also intended to compensate the Participant for
amounts that cannot be credited to the Participant's accounts under the
Investment Plan (as hereinafter defined) by reason of the provisions of
Sections 401(a)(17), 401(k), 402(g), and 415 of the Code and the
corresponding provisions of the Investment Plan or by reason of the
Participant's election to participate hereunder.
1.3. Application of Plan. The Plan shall be applicable only with
respect to the eligible corporate officers and key executives of the Company.
This Plan is intended to be an unfunded plan maintained by the Company
primarily to provide deferred compensation for a select group of management
and highly compensated employees. As such the Plan shall be exempt from the
participation, vesting and funding requirements of Parts 2 and 3 of Title I
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and shall be subject to the limited reporting and disclosure requirements
(under Part 1 of Title I of ERISA) applicable to such plans.
ARTICLE II.
DEFINITIONS AND CONSTRUCTION
2.1. Definitions. Whenever used in the Plan, the following terms
shall have the meaning set forth below unless otherwise expressly provided:
(a) "Accounts" means the recordkeeping accounts which are
maintained under the name of a Participant to account for
any Salary Deferral Amounts, Bonus Deferral Amounts, Excess
Amounts, Supplemental Savings Amounts, and Credited Income
thereon, which may be credited from time to time.
(i) Salary Deferral Account - a separate subaccount
maintained to account for a Participant's Salary
Deferral amount plus Credited Income thereon.
(ii) Bonus Deferral Account - a separate subaccount
maintained to account for a Participant's Bonus
Deferral Amount plus Credited Income thereon.
(iii) Excess Account - a separate subaccount maintained to
account for a Participant's Excess Amount plus
Credited Income thereon.
(iv) Supplemental Savings Account - a separate subaccount
maintained to account for a Participant's
Supplemental Savings Amount plus Credited Income
thereon.
In its sole and exclusive discretion, the Committee may
combine, aggregate or separately state all or any
combination of the above Accounts or subaccounts in any
manner and for any administrative purpose it may deem fit
provided, however, no such combination shall impair the
purposes of the Plan.
(b) "Affiliate" means an entity which is a member of a
controlled group of corporations (as defined in Section
414(b) of the Code) which includes the Company.
(c) "Annual Addition" means an "annual addition" within the
meaning of 415(c)(2) of the Code and as further defined in
the Investment Plan.
(d) "Beneficiary" means the person, persons or trust designated
by a Participant as provided in Section 11.1, or designated
as a beneficiary under the terms of Section 11.1.
(e) "Board of Directors" means the Board of Directors of the
Company.
(f) "Bonus" means any management incentive or other bonus award
which an Eligible Employee may become eligible to receive.
(g) "Bonus Deferral Amount" means that portion of an Eligible
Employee's Bonus which he has elected to defer, as provided
in Section 5.3.
(h) "Change of Control" shall be deemed to have occurred if:
(i) any "person" as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, any
trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or any company owned,
directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of
stock of the Company), is or becomes the beneficial owner,
(as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing
30% or more of the combined voting power of the Company's
then outstanding securities; (ii) during any period of two
consecutive years individuals who at the beginning of such
period constitute the Board, and any new director (other
than a director designated by a person who has entered into
an agreement with the Company to effect a transaction
described in clause (i), (iii), or (iv) of this Section
2.1(h)) whose election by the Board or nomination for
election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the
two-year period or whose election or nomination for
election was previously so approved, cease for any reason
to constitute at least a majority of the Board of
Directors; (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which
would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity)
more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected
to implement a recapitalization of the Company (or similar
transaction) in which no person acquires more than 30% of
the combined voting power of the Company's then outstanding
securities shall not constitute a Change in Control of the
Company; or (iv) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(j) "Committee" means the committee of persons appointed by the
Board of Directors of the Company, as provided in Section
8.1. The Committee shall serve as plan administrator,
within the meaning of ERISA.
(k) "Company" means COMPAQ COMPUTER CORPORATION.
(l) "Credited Income" means the assumed earnings credited to a
Participant's Account, as provided in Sections 7.2.
(m) "Deferral Amounts" means Salary Deferral Amounts, Excess
Amounts, Supplemental Savings Amounts and/or Bonus Deferral
Amounts, as more fully described in Article V.
(n) "Deferral Payment Date" means the payment date, as
specified by a Participant on his Salary Deferral Amount or
Bonus Deferral Amount election form, on which he elects to
have his applicable amount paid or commence being paid.
(o) "Eligible Employee" means a key employee of the Company or
an Affiliate who has a grade 110 or above (or its
equivalent) and who is a United States resident paid on a
United States payroll.
(p) "Excess Amount" means the amount creditable to the Excess
Account of a Participant pursuant to Section 4.2.
(q) "Investment Options" means the optional forms of
determining Credited Income with respect to Participants'
Accounts, which the Committee, in its discretion, may elect
to establish pursuant to Section 7.2.
(r) "Investment Plan" means the Compaq Computer Corporation
Investment Plan, as it may be amended from time to time.
(s) "Participant" means an Eligible Employee who has elected,
under the terms and conditions of the Plan, to defer
payment of all or a portion of his bonus or salary, and/or
who is credited with an Excess Amount or a Supplemental
Savings Amount. A Participant who is not currently an
Eligible Employee but whose Account under this Plan is
credited with a balance shall be referred to as an
"Inactive Participant." The term "Participant" shall
include Eligible Employees, former Eligible Employees, and
employees other than Eligible Employees, so long as any
such individual has a balance credited to his Account.
(t) "Plan" means the COMPAQ COMPUTER CORPORATION DEFERRED
COMPENSATION AND SUPPLEMENTAL SAVINGS PLAN as set forth
herein, and as it may be amended from time to time.
(u) "Plan Year" means the 12-month period beginning each
January 1 and ending December 31 of such year.
(v) "Plan Year Quarter" means the three (3) month periods in
each Plan Year ending on March 31, June 30, September 30
and December 31, respectively.
(w) "Salary Deferral Amount" means that portion of an Eligible
Employee's Base Salary, which he has elected to defer, as
provided in Section 5.2.
(x) "Supplemental Savings Amount" means the amount creditable
to the Supplemental Savings Account of a Participant
pursuant to Section 4.3.
2.2. Gender and Number; Severability. Except when otherwise indicted
by the context, any masculine terminology when used in the Plan shall also
include the feminine gender and the definition of any term in the singular
shall also include the plural. In the event any provision of the Plan shall
be held invalid or illegal for any reason, any illegality or invalidity shall
not affect the remaining parts of the Plan, but the Plan shall be construed
and enforced as if the illegal or invalid provision had never been inserted,
and the Company shall have the privilege and opportunity to correct and
remedy such questions of illegality or invalidity by amendment as provided in
the Plan.
ARTICLE III.
PARTICIPATION
3.1. Eligibility. The Committee shall provide each Eligible Employee
with notice of his status as an Eligible Employee, so as to permit such
Eligible Employee the opportunity to make the elections provided for under
Article V. Such notice may be given at such time and in such manner as the
Committee may determine from time to time, and shall advise the Eligible
Employee of the time and manner for filing his election for which he
qualifies. Each Eligible Employee shall be eligible to participate in all
features of the Plan for which he qualifies. In addition, all Eligible
Employees who are subject to the contribution criteria set forth in Section
4.2 shall be eligible to receive credit for an Excess Amount for Plan Years
that they are subject to such criteria.
3.2. Participation.
(a) In General. An Eligible Employee shall become a
Participant in this Plan as of the first day of the
calendar year immediately following the calendar year
during which: (i) the Committee receives his deferral
election pursuant to Article V or (ii) the Committee
credits the Participant with an Excess Amount or
Supplemental Savings Amount. Individuals becoming Eligible
Employees on or after the first day of any Plan Year may
not become Participants and may not make deferral elections
except with respect to amounts otherwise payable in the
succeeding calendar year.
(b) Cessation of Status as Eligible Employee. If an Eligible
Employee with a Salary Deferral Amount and/or Bonus
Deferral Amount election in effect for a particular Plan
Year ceases to be an Eligible Employee during such Plan
Year, his election with respect to a Salary Deferral Amount
shall terminate effective as of the close of the payroll
period during which he ceases to be an Eligible Employee.
Such Employee's election with respect to his Bonus Deferral
Amount shall terminate as of the first day on which he no
longer qualifies as an Eligible Employee. The provisions
in the preceding two sentences only relate to the
discontinuance of the Deferral Amount elections for the
remainder of the Plan Year in which the Employee terminates
employment. Amounts credited to such person's Accounts
under any such election prior to its discontinuance shall
be payable pursuant to the terms of such election.
ARTICLE IV.
EXCESS AND SUPPLEMENTAL SAVINGS BENEFITS
4.1. Excess Amount and/or Supplemental Savings Amount. Each Eligible
Employee and Participant shall be credited with an Excess Amount and/or a
Supplemental Savings Amount as provided in sections 4.2 and 4.3.
4.2. Determination of Excess Amount. Each Eligible Employee shall be
credited with an Excess Amount under the Plan for the applicable Plan Year
equal to the Annual Addition, if any, not allocated to his account under the
Investment Plan for the Plan Year due to, or in excess of, the limitations of
Sections 401(a)(17), (k) and (m), 402(g), and 415 of the Code and the
corresponding provisions of the Investment Plan. The determination of an
Eligible Employee's Excess Amount shall be made no later than as of the last
day of the Plan Year and such Excess Amount shall be credited to his Excess
Account under the Plan as of such date.
4.3. Determination of Supplemental Savings Amount. Each Eligible
Employee shall be credited with a Supplemental Savings Amount on the last day
of each Plan Year Quarter equal to 100% of such Eligible Employee's Salary
Deferral and Excess Amounts but not to exceed 6% of such Eligible Employee's
Considered Compensation as defined in the Investment Plan (calculated
without regard to I.R.C. Section 401(a)(17)) less such Eligible Employee's
actual or accrued Employer Matching Contribution as defined in the Investment
Plan.
ARTICLE V.
DEFERRAL AMOUNTS; DEFERRAL ELECTIONS
5.1. Types of Deferral Amounts. There are two types of Deferral
Amounts which may be applicable to a Participant under the Plan; Salary
Deferral Amounts as described in section 5.2, and Bonus Deferral Amounts as
described in Section 5.3.
5.2. Salary Deferral Election.
(a) Salary Deferral Amount. An Eligible Employee may elect to
defer all or any portion of 50% of his Base Salary (as
hereinafter defined) which he may be entitled to receive
from the Company. For purposes of this Section 5.2, Base
Salary is a Participant's regular gross salary that is
subject to Social Security Tax pursuant to Internal Revenue
Code Section 3100 et. seq. Notwithstanding anything
contained herein to the contrary, if a deferral hereunder
would otherwise result in the Participant's Base Salary not
equalling or exceeding the Social Security Contribution and
Benefit Base as defined in Section 230 of the Social
Security Act, then only the regular gross salary exceeding
the Social Security Contribution and Benefit Base as
defined in Section 230 of the Social Security Act shall be
deferred pursuant to this Section. The amount to be so
deferred shall be specified in such manner as shall be
determined by the Committee.
(b) Election of Salary Deferral Amount. To make an election of
a Salary Deferral Amount for any calendar year, the
Eligible Employee must file a deferral election form with
the Committee in accord with such rules as are set by the
Committee, but in no event later than the last business day
of the calendar year preceding the Plan Year for which the
election is made. Each such election shall be made with
respect to a specific calendar year and all payroll periods
applicable to the Eligible Employee which begin within such
calendar year. An election filed for a calendar year shall
only be applicable for such calendar year.
(c) Treatment of New Eligible Employees. If an individual
first becomes an Eligible Employee on or after the first
day of a calendar year, such Eligible Employee may not make
a Salary Deferral Amount election for the remaining payroll
periods of such calendar year.
5.3. Bonus Deferral Election.
(a) Bonus Deferral Amount. An Eligible Employee may elect to
defer all or any portion of any Bonus he may be awarded by
the Company. The amount to be so deferred shall be
specified in such manner as shall be determined by the
Committee. However, in no event may an Eligible Employee
elect to defer any portion of any Bonus unless the
aggregate payments by the Company to him after such
deferral during the calendar year will equal or exceed the
Social Security Contribution and Benefit base as defined in
Section 230 of the Social Security Act.
(b) Election of Bonus Deferral Amount. To make an election of
a Bonus Deferral Amount, the Eligible Employee must file a
deferral election form with the Committee. Each such
election shall be made with respect to a calendar year and
all Bonus awards made by the Company which are made within
such calendar year. To make an effective Bonus Deferral
Amount election for a calendar year, the Eligible Employee
must file the appropriate deferral election form with the
Committee in accord with such rules as are set by the
Committee, but in no event later than the last business day
of the calendar year preceding the Plan Year for which the
election is made.
(c) Treatment of New Eligible Employee. If an individual first
becomes an Eligible Employee on or after the first day of a
calendar year, such Eligible Employee may not make a Bonus
Deferral Amount election for such calendar year.
5.4. Deferral Elections. All Salary Deferral Amount and Bonus
Deferral Amount elections, as provided under Section 5.2 and 5.3,
respectively, shall be made on such deferral election forms as are prescribed
by the Committee. Each election form shall specify the nature of the
Deferral Amount, the form of payment which is to be applicable with respect
to such designated Deferral Amount, as provided in Article VI, the
Beneficiary or Beneficiaries to receive any death benefit applicable to the
subject amount, as provided in Sections 6.5 and 11.1 and the Deferral Payment
Date on which payment is to commence with respect to such Deferral Amount.
Such Deferral Payment Date must be at least three (3) years after the date of
the filing of the election form but in all events shall commence no later
than the January 1, April 1, July 1 or October 1 following the third
anniversary of the employee's termination of employment with the Company or
related entities. Except as otherwise provided in this Article V, all such
Salary Deferral Amount and Bonus Deferral Amount elections shall become
irrevocable for the subject calendar year once the calendar year has
commenced. An Eligible Employee may change or revoke his Salary Deferral
Election under Section 5.2 and may change or revoke his Bonus Deferral
election under Section 5.3 pursuant to such rules as are set by the Committee
but in no event may any such election be amended or revoked after the last
business day of the calendar year preceding the Plan Year for which the
election is made. Only Eligible Employees may file deferral election forms
as provided for in this Section 5.4 and Sections 5.2 and 5.3, and Inactive
Participants are not eligible to file such forms.
ARTICLE VI.
PAYMENT OF BENEFITS
6.1. Time of Payment of Deferral Amounts. On each deferral election
form filed by a Participant, such Participant shall specify the Deferral
Payment Date on which benefit payments under the Plan are to be made or
commence with respect to the Deferral Amount covered by such deferral
election. In making such designation, the Participant may designate any
January 1, April 1, July 1, or October 1 date of a specified year after the
Plan Year as a Deferral Payment Date. Where an Eligible Employee has made a
designation to receive an amount in annual installments, as permitted under
Section 6.2, his "Deferral Payment Date" shall be the date on which the first
installment payment is to be paid and on the anniversary thereof in each
subsequent years. If for any reason the Eligible Employee fails to make an
effective Deferral Payment Date designation, his Deferral Payment Date for
the amount that is the subject of the deferral election shall be the first
day of the calendar quarter next following the date on which the Eligible
Employee terminates employment with the Company and related entities. Except
as otherwise provided in this Article VI, all benefit payments under the Plan
with respect to Deferral Amounts and Bonus Deferral Amounts shall be made to
the Participants on the Deferral Payment Dates as specified in his applicable
deferral election forms, as provided in the next preceding sentence (if
applicable). Payments with respect to Excess Amounts and Supplemental
Savings Amounts shall be made on the same dates and in the same manner as the
Salary Deferral Amounts for the same subject calendar year.
6.2. Forms of Payment of Deferral Amounts.
(a) In General. On each deferral election form filed by a
Participant, such participant shall specify the form of
payment for the amounts attributable to the Deferral Amount
covered by such deferral election. In making such
designation, the Participant may designate payment in the
form of a single lump sum payment or payment in the form of
annual installment payments payable for not less than two
(2) but no more than fifteen (15) years. Annual
installment payments will be paid once a year beginning on
the date specified on the applicable deferral election
form, as provided in Section 6.1. If for any reason the
participant fails to make an effective designation under
this Section 6.2, payment of the amount that is the subject
of the deferral election shall be made in the form of a
single lump sum payment on the date as specified in Section
6.1. Except as otherwise provided in this Article VI, all
benefit payments under the Plan with respect to a
Participant's Salary Deferral Amounts or Bonus Deferral
Amounts shall be made to the Participants in the payment
forms as specified on his applicable deferral election
forms.
(b) Payment of Deferral Amounts Following Termination of
Employment. Upon a Participant's termination of employment
prior to attainment of age 55, the Deferral Amounts shall
be paid to such Participant as previously designated,
provided, however, that all lump sum or installment
payments scheduled for payment after the fifth anniversary
of the Participant's termination of employment shall be
paid on the first day of the first calendar quarter next
following such fifth anniversary.
6.3. Distribution of Accounts for Need. Notwithstanding the
provisions of Sections 6.1 and 6.2, a Participant shall receive a
distribution of his Accounts under the Plan in the event of a financial
hardship that is due to an unanticipated emergency beyond the control of the
Participant or the Participant's dependents or family. The Committee shall
determine such financial hardship in its sole and complete discretion and any
such distribution shall be limited to the amount necessary to meet the
emergency.
6.4. Death Benefits. If a Participant shall die with a balance
credited to his Accounts, such balance shall be paid to his applicable
designated Beneficiary or Beneficiaries as provided herein. With respect to
all amounts which have not been paid as of the Participant's death, the then
current balance of each such amount payable to a designated Beneficiary shall
be paid to the designated Beneficiary under the form of payment as elected
for such Beneficiary, as provided for in Section 11.1. In the absence of a
designated form of payment to a Beneficiary, the Beneficiary shall be paid in
ten (10) annual installments, with the first of such annual installment
payments being paid to the designated Beneficiary the first day of the first
calendar quarter next following the death of the Participant, and subsequent
installment payments being paid on the anniversaries of such date thereafter.
Each Beneficiary of a deceased Participant who is receiving the death benefit
payments provided for in this Section 6.4 shall have the amounts to be paid
to the Beneficiary credited to a subaccount in the name of the Beneficiary
under the deceased Participant's Account, and such subaccount shall be
adjusted time to time as provided in Section 7.2, including, without
limitation, adjustments for the crediting of Credited Income thereto. The
crediting of such subaccount shall be for bookkeeping purposes and shall not
represent a transfer or segregation of assets for the benefit of such
Beneficiary, but the Beneficiary may select such Investment Options pursuant
to Section 7.2 as if the Beneficiary were a Participant.
6.5. Consolidation of Payments. In any case where a Participant is
receiving more than one benefit payment under Section 6.2 and 6.3 during a
Plan Year, the Committee may, in its sole, discretion elect at any time
during such Plan Year to consolidate such payments into a lesser number of
payments payable on such Plan Year Quarter date as the Committee determines.
6.6. Withholding of Taxes. The Company shall have the right to deduct
from all payments made under the Plan any federal, state or local taxes
required by law to be withheld with respect to such payments.
6.7. Minimum Distributions. If a Participant's employment with the
Company has terminated, and if such Participant has elected (or is entitled)
to receive distributions from the Plan in an amount (or which is reasonably
expected) to be an amount of less than $10,000 annually, the Committee in its
sole and exclusive discretion may pay to such Participant, in lieu of such
annual amount, the total vested balance in such Participant's Accounts
immediately upon termination. In the alternative, the Committee in its
discretion may increase such Participant's annual payments to $10,000 and
reduce the total number of payments to be paid in proportion to such
increased payment but may not otherwise accelerate the time of the payments.
6.8. Method of Calculation of Payments. For purposes of computing the
amount of any distribution to a Participant or a Beneficiary, the balance in
such Participant's or Beneficiary's Account (as of the date preceding the
payment date) shall be multiplied by a fraction, the numerator of which
equals one and the denominator of which equals the number of years that such
Participant or Beneficiary has elected to defer payments under this Article 6
less the number of payments such Participant or Beneficiary has previously
received pursuant to this Section.
ARTICLE VII.
ACCOUNTS; CREDITED INCOME
7.1. Participant Accounts. The Committee shall maintain, or cause to
be maintained, bookkeeping Accounts for each Participant for the purpose of
accounting for the Participant's beneficial interest under the Plan. The
establishment and maintenance of separate Accounts for each Participant shall
not be construed as giving any person an interest in assets of the Company or
a right to payment other than as provided hereunder. Benefits hereunder
shall constitute an unsecured general obligation of the Company, but the
Company has created reserves held in Trust in accordance with the terms
thereof.
7.2. Investment Options; Crediting of Income. The Committee shall
credit Accounts with Credited Income at the rate of return generated by one
(1) or more of the Investment Options established by the Committee and
selected by the Participants. The Committee shall establish separate funds
for bookkeeping purposes to measure a hypothetical rate of return over a
period designated by the Committee. The Committee may, but need not, provide
for such options as are substantially similar (if not identical) to those
provided under the Investment Plan. Such Investment Options and the relevant
funds shall be established for bookkeeping purposes only and shall not
require the establishment of actual corresponding funds by the Committee or
the Company. Any establishment, addition or deletion of Investment Options
shall be in the sole and absolute discretion of the Committee. The Committee
shall promulgate uniform procedures applicable to all Participants for
allocating and transferring amounts credited to individual Accounts based on
the performances of the various Investment Options, and may, in its sole
discretion, establish uniform procedures for Participant direction and
election amongst such funds, including the designation of an Investment
Option for Participants in the absence of a Participant election.
7.3. Nature of Account Entries. The establishment and maintenance of
Participants' Accounts shall be merely bookkeeping entries and shall not be
construed as giving any person an interest in any specific assets of the
Company or of any subsidiary of the Company or Trust or a right to payment or
other than as provided hereunder. Benefits hereunder shall constitute an
unsecured general obligation of the Company, but the Company has provided for
amounts to be held in trust on the Company's behalf under the Trust.
7.4. Vesting. A Participant shall have a fully vested and
nonforfeitable beneficial interest in the balance standing to the credit of
his Salary Deferral, Bonus Deferral, Supplemental Savings and Excess Accounts
as of any relevant date, subject to the conditions and limitations on the
payment of amounts credited to such Accounts as provided in the Plan.
7.5. Account Statements. The Committee shall provide each Participant
with a statement of the status of his Accounts under the plan. The Committee
shall provide such statement annually at such other times as the Committee
may determine from time to time, and such statement shall be in the format as
presented by the Committee.
ARTICLE VIII.
ADMINISTRATION OF THE PLAN
8.1. Administration. The Plan shall be administered by a committee of
persons appointed by the Board of Directors of the Company provided, however,
that such Committee may consist solely of one person. A majority of the
members of the Committee shall constitute a quorum and the acts of a majority
of the members present, or acts approved in writing by a majority of the
members without a meeting, shall be the acts of the Committee. The Committee
shall have that authority which is expressly stated in the Plan as vested in
the Committee, and authority to make rules to administer and interpret the
Plan, to decide questions arising under the Plan, and to take such other
action as may be appropriate to carry out the purposes of the Plan.
8.2. Rules; Claims for Benefits. The Committee shall adopt and
establish such rules and regulations with respect to the administration of
the Plan as it deems necessary and appropriate. In the event that a
Participant, a Beneficiary or the Company claims any right hereunder, he may
submit such information as he deems necessary or appropriate. The Committee
and the claimant shall in good faith attempt to resolve the claim in an
expeditious and informal manner. If the Committee and the claimant fail to
resolve the claim, a written notice of such failure shall be furnished to the
claimant within ninety (90) days after the claim is filed with the Committee.
Such notice shall refer, if appropriate, to pertinent provisions of the Plan
or the Trust, shall set forth in writing the reasons for denial of the claim
and where appropriate shall explain how the claimant can perfect the claim.
If the claim is denied, in whole or in part, the claimant shall also be
notified in writing that a review procedure is available. Thereafter, within
ninety (90) days after receiving the written notice of the Committee's
failure to resolve the claim, the claimant may request in writing, and shall
be entitled to one, de novo review meeting with a person or persons appointed
by the Company to review the Committee's decisions or findings (the
"Reviewer"). The Reviewer shall be independent of the Committee and the
Company and not reportable to any member of the Committee. In addition, the
Reviewer shall not have received any payment from the Company in the three
years prior to his appointment as Reviewer except for those payments to him
for services as a Reviewer. The claimant may present reasons why the claim
should be allowed. The claimant shall be entitled to be represented by
counsel at this review meeting. The claimant may also submit a written
statement of his claim and the reason for requesting a review of the claim.
Such statement may be submitted in addition to, or in lieu of, the review
meeting. The Reviewer shall develop and retain a new administrative record
of all relevant information. If the claimant does not request a review
meeting within ninety (90) days after receiving written notice of the
Committee's failure to resolve the claim, the claimant shall be deemed to
have accepted the Committee's written disposition, unless the claimant shall
have been physically or mentally incapacitated so as to be unable to request
review within such period. A decision on review of the claim by the Reviewer
shall be made within sixty (60) days after review, and a written copy of such
decision shall be delivered to the claimant and the Committee. If special
circumstances require an extension of the ordinary period, the Reviewer shall
so notify the claimant. In any event, if a claim is not determined within
one hundred twenty (120) days after submission for review, it shall be deemed
to be granted. The Reviewer shall have the right to request and receive from
a claimant such additional information, documents or other evidence as the
Reviewer may reasonably require. To the extent required by law, completion
of the claims procedures described in this Article VIII shall be a mandatory
precondition that must be complied with prior to the commencement of a legal
or equitable action by a person claiming rights under the Plan or the Trust.
The Committee and the claimant may by mutual agreement waive these procedures
as a mandatory condition to such action. In no event shall the claims
procedure set forth in this Article VIII be applied to circumvent or have the
effect of modifying either the manner of payment or the time of commencement
of payment under the terms of the Plan.
8.3. Finality of Determinations. Except as provided by law, all
determinations of the Reviewer to any matter arising under the Plan,
including questions of construction and interpretation shall be binding and
conclusive upon all interested parties
8.4. Indemnification. To the extent permitted by law and the
Company's bylaws, the member of the Committee, the Reviewer, and the Trustee,
its agents, and the officers, directors, and employees of the Company shall
be indemnified and held harmless by the Company against and from any all
loss, cost, liability, or expense that may be imposed upon or may be
reasonably incurred by them in connection with or resulting from any claim,
action, suit, or proceeding to which they may be a party or in which they may
be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by them in settlement (with the
Company's written approval) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding.
ARTICLE IX.
FUNDING
9.1. Funding. It is intended that the Company is under a contractual
obligation to make the payments when due under the Plan or as the Committee
or the Reviewer may direct. All amounts paid under the Plan shall be paid in
cash first, from Trust assets and then from the general assets of the
Company. Benefits hereunder and Credited Income shall also be reflected on
the accounting records of the Company, as provided for under the Plan. No
Participant shall have any right, title or interest whatsoever in or to any
investment reserves, trust, accounts, or funds that the Company may purchase,
establish or accumulate to aid in providing the benefit payments described in
the Plan except as provided for under the Trust. Participants and
Beneficiaries shall not acquire any interest under the Plan greater than that
of unsecured general creditors of the Company. Shortly after the end of each
Plan Year the Committee will calculate the total Account Balances of all
Participants. If such aggregate balance exceeds the total net assets of the
Trust, the Company shall contribute such excess to the Trust. If the Trust's
net assets exceed the aggregate balance of the Participants' Accounts, the
Committee will credit such excess against any liabilities or other
obligations of the Company to the Trust. In the event funds of the Trust are
returned to the Company or paid for the benefit of its general creditors, all
payment obligations under this Plan shall be due immediately and the Company
hereby acknowledges that the obligations hereunder accrued not by reason of
the events described in this sentence but by reason of payments that
otherwise would have been paid previously, but for this Plan.
ARTICLE X.
AMENDMENT; TERMINATION; MERGER
10.1. Amendment and Termination. The Board of Directors of the Company
or the Committee acting on behalf of such Board, may amend, modify, or
terminate the Plan at any time but in no event shall any such amendment,
modification or termination result in a reduction in any Participant's
Accounts or postpone the time of payment thereunder as of the time of such
amendment, modification or termination unless, the Board of Directors of the
Company or the Committee acting on behalf of the Board, and any Participant,
Beneficiary or employee who suffers such a reduction or postponement by
reason of such proposed amendment, modification or termination, consents in
writing to such amendment, modification or termination, and such consent is
filed with the Board of Directors or the Committee in the calendar year
preceding the effective date of the proposed amendment, modification or
termination. In the event of a termination of the Plan, no further deferral
elections may be made under the Plan and amounts which are then payable, or
which become payable under the terms of the Plan, shall be paid as scheduled
in accordance with the provisions of the Plan.
10.2. Change of Control. In the event of a Change of Control of the
Company, all benefits hereunder shall become immediately due and payable if
the Participant voluntarily or involuntarily terminates employment on or
before the second anniversary of such change in control and each Participant
shall have the right to receive his benefits hereunder in a single lump sum
payment.
10.3. Automatic Payment. Notwithstanding anything contained herein to
the contrary, if it has been finally determined that funds held pursuant to
this Plan and the relevant Trust or Credited Income are includable in the
taxable income of a Participant or his Beneficiary, such funds shall be
immediately distributed to such Participant or Beneficiary. For purposes of
this Section, a final determination shall occur when a decision is determined
by the highest court which could otherwise render a decision (or the
Participant and the Internal Revenue Service have reached a final agreement)
in this regard.
ARTICLE XI.
GENERAL PROVISIONS
11.1. Beneficiary Designation. A Participant shall designate a
Beneficiary or Beneficiaries who, upon his death, are to receive payments
that otherwise would have been paid to him under the Plan. All Beneficiary
designations shall be in writing and on a form prescribed by the Committee
for such purpose, and any such designation shall only be effective if and
when delivered to the Committee during the lifetime of the Participant. On
the Beneficiary designation form, the Participant may also designate the form
of payment to the designated Beneficiary. Any such designated form of
payment must be a form as permitted under the Plan. A Participant may from
time to time during his lifetime change a designated Beneficiary or
Beneficiaries (or change a designated form of payment to a Beneficiary) by
filing a new Beneficiary designation form with the Committee. In the event a
designated Beneficiary of a Participant predeceases the Participant, the
designation of such Beneficiary shall be void. If a designated Beneficiary
dies after the Participant, but before all death benefit payments relating to
such Beneficiary have been paid, the remainder of such death benefit payments
shall be continued to such Beneficiary's estate, unless the Participant had
designated on the applicable Beneficiary designation form a method of payment
to a contingent Beneficiary. In the event a Participant shall fail to
designate a Beneficiary or Beneficiaries with respect to any death benefit
payments, or if for any reason such designation shall be ineffective, in
whole or in part, any payment that otherwise would have been paid to such
Participant shall be paid to his estate, and in such event, his estate shall
be his Beneficiary with respect to such payments.
11.2. Effect on Other Plans. Deferred Amounts shall not be considered
as part of a Participant's compensation for the purpose of any savings or
pension plan maintained by the Company, but such amounts shall be taken into
account under all other employee benefit plans maintained by the Company in
the year in which such amounts would have been payable in the absence of a
deferral election; provided, however, that such amounts shall not be taken
into account to the extent the inclusion thereof would jeopardize the tax-
qualified status of the plan to which they relate.
11.3. Nontransferability. No right or interest of any Participant in
the Plan shall be assignable or transferable in whole or in part, either
voluntarily or by operation of law or otherwise, or be subject to payment of
debts of any Participant by execution, levy, garnishment, attachment, pledge,
bankruptcy, or in any other manner. Notwithstanding the foregoing, upon
receipt of a copy of a decree from a court of competent jurisdiction which
finally declares a Participant's spouse as having property rights to a
portion of the amounts credited to such Participant's Accounts, the Committee
shall segregate such portion from the Participant's Accounts and hold that
portion for the benefit of the spouse. For purposes of crediting Credited
Income on and determining the timing of the distribution of such segregated
amounts, such segregated amounts shall be treated as if they had remained
part of the Participant's Account but subject to such Investment Option
elections as are made by the spouse. In receiving payment of such amount,
and in designating Beneficiaries, the Spouse shall be treated as if he or she
was a Participant; provided that the spouse shall not be entitled to begin
receiving payments hereunder before the earliest date that the Participant
could have recovered payments under this Plan.
11.4. Plan Not an Employment Contract. The Plan is not an employment
contract. It does not give to any person the right to be continued in
employment, and all Eligible Employees and employees remain subject to change
of salary, transfer, change of job, discipline, layoff, discharge, or any
other change of employment status.
11.5. Applicable Law. The Plan shall be governed and construed in
accordance with the laws of the State of Texas, except to the extent such
laws are preempted by any applicable Federal law.
EXHIBIT 11
COMPAQ COMPUTER CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Year ended December 31,
In millions, except per share amounts 1993 1992 1991
- -------------------------------------------------------------------------------
Primary earnings per share:-
Shares used in computing earnings per share:
Weighted average number of shares outstanding 82.0 84.6 87.0
Incremental shares attributed
to outstanding options 2.7 1.5 2.0
Weighted average number of shares repurchased (3.5) (0.9)
------------------------------
84.7 82.6 88.1
==============================
Earnings:
Net income $ 462 $ 213 $ 131
==============================
Earnings per common and common equivalent share $ 5.45 $ 2.58 $ 1.49
==============================
Earnings per share - assuming full dilution:-
Shares used in computing earnings per share:
Weighted average number of shares outstanding 82.0 84.6 87.0
Incremental shares attributed to
outstanding options 4.3 3.6 2.0
Weighted average number of shares repurchased (3.5) (0.9)
------------------------------
86.3 84.7 88.1
==============================
Earnings:
Net income $ 462 $ 213 $ 131
==============================
Earnings per common and common equivalent share $ 5.35 $ 2.52 $ 1.49
==============================
EXHIBIT 21
COMPAQ COMPUTER CORPORATION
SUBSIDIARIES
Jurisdiction
Name of
incorporation
Compaq Computer Australia Pty. Ltd. Australia
Compaq Computer Gesellschaft m.b.H. Austria
Compaq Computer N.V./S.A. Belgium
Compaq Computer Comercio e Representacoes Ltda. Brazil
Compaq Canada Incorporated/Incorporee (d/b/a Canada
Compaq Canada, Inc.)
Compaq Computer de Colombia S.A. Colombia
Compaq Latin America Corp. Delaware
Compaq Computer International Corporation Delaware
Compaq Computer A/S Denmark
Compaq Computer Oy Finland
Compaq Computer S.A.R.L. France
Compaq Computer GmbH Germany
Compaq Finance Corporation, Ltd. Grand Cayman Islands, B.W.I.
Compaq Computer Hong Kong Limited Hong Kong
Compaq Computer KFT Hungary
Compaq Computer S.p.A. Italy
Compaq Kabushiki Kaisha Japan
Compaq Computer (Malaysia) SDN.BHD. Malaysia
Compaq Computer de Mexico, S.A. de C.V. Mexico
Compaq Computer B.V. Netherlands
Compaq Holdings B.V. (Dutch Subsidiary of Netherlands
Compaq Holdings, Pte. Ltd.)
Compaq Computer New Zealand Limited New Zealand
Compaq Computer Norway A.S. Norway
Compaq Computer Portugal LDA Portugal
Compaq Computer Asia Pte. Ltd. Singapore
Compaq Asia Pte. Limited Singapore
Compaq Holdings Pte. Ltd. Singapore
Compaq Computer Asia/Pacific Pte. Ltd. Singapore
Compaq Ventures Pte. Ltd. Singapore
Compaq Computer S.A. Spain
Compaq Computer AB Sweden
Compaq Computer AG Switzerland
Compaq International Corporation Texas
Compaq Computer (Thailand) Ltd. Thailand
Compaq Computer Manufacturing Limited United Kingdom
Compaq Computer Limited United Kingdom
Compaq Computer Group Limited United Kingdom
Compaq Foreign Sales Corporation U.S. Virgin Islands
Compaq Computer de Venezuela, S.A. Venezuela
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 33-63436) and
Form S-8 (No. 33-44115, No. 33-31819, No. 33-23504, No. 33-7499, No. 2-89925,
No. 33-10106, No. 33-38044, and No. 33-16987) of Compaq Computer Corporation of
our report dated January 25, 1994, which appears on page 13 of this Form 10-K
for the year ended December 31, 1993. We also consent to the reference to us
under the heading "Selected Consolidated Financial Data" in this Form 10-K.
However, it should be noted that Price Waterhouse has not prepared or certified
such "Selected Consolidated Financial Data."
PRICE WATERHOUSE
Houston, Texas
January 25, 1994
