____________________________________________________________
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1995
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)
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 [ ]
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of March 31, 1995, was 261,664,396.
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<PAGE>
P A R T I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMPAQ COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
March 31, December 31,
1995 1994
--------- ------------
(in millions)
Current assets:
Cash and cash equivalents $ 760 $ 471
Accounts receivable, net 2,435 2,287
Inventories 2,110 2,005
Deferred income taxes 303 303
Prepaid expenses and other current assets 109 92
------- -------
Total current assets 5,717 5,158
Property, plant, and equipment,
less accumulated depreciation 970 944
Other assets 80 64
------- -------
$ 6,767 $ 6,166
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,239 $ 888
Income taxes payable 230 246
Other current liabilities 921 879
------- -------
Total current liabilities 2,390 2,013
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Long-term debt 300 300
------- -------
Deferred income taxes 179 179
------- -------
Stockholders' equity:-
Preferred stock, $.01 par value
(authorized: 10 million shares; issued: none)
Common stock and capital in excess of $.01 par value
(authorized: 400 million shares; issued and
outstanding: 261.7 million shares at March 31, 1995
and 261.0 million shares at December 31, 1994) 747 739
Retained earnings 3,151 2,935
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Total stockholders' equity 3,898 3,674
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$ 6,767 $ 6,166
======= =======
See accompanying notes to consolidated financial data
<PAGE>
COMPAQ COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Quarter ended March 31,
1995 1994
------- -------
(in millions, except
per share amounts)
Sales $ 2,959 $ 2,278
Cost of sales 2,235 1,661
------- -------
724 617
------- -------
Research and development costs 60 53
Selling, general, and administrative expense 328 254
Other income and expense, net 36 22
------- -------
424 329
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Income before provision for income taxes 300 288
Provision for income taxes 84 75
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Net income $ 216 $ 213
======= =======
Earnings per common and common equivalent share:
Primary $ 0.80 $ 0.80
======= =======
Assuming full dilution $ 0.80 $ 0.80
======= =======
Shares used in computing earnings per common
and common equivalent share:
Primary 270.9 266.4
======= =======
Assuming full dilution 270.9 267.0
======= =======
See accompanying notes to consolidated financial data
<PAGE>
COMPAQ COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Quarter ended March 31,
1995 1994
-------- --------
(in millions)
Cash flows from operating activities:
Cash received from customers $2,872 $2,112
Cash paid to suppliers and employees (2,343) (1,989)
Interest and dividends received 10 6
Interest paid (25) (15)
Income taxes paid (132) (36)
------ ------
Net cash provided by operating activities 382 78
------ ------
Cash flows from investing activities:
Purchases of property, plant, and equipment, net (84) (54)
Purchases of short-term investments (56)
Other, net (16) (8)
------ ------
Net cash used in investing activities (100) (118)
------ ------
Cash flows from financing activities:
Proceeds from sale of equity securities 8 43
Issuance of long-term debt 300
------ ------
Net cash provided by financing activities 8 343
------ ------
Effect of exchange rate changes on cash (1) 10
------ ------
Net increase in cash and cash equivalents 289 313
Cash and cash equivalents at beginning of period 471 627
------ ------
Cash and cash equivalents at end of period $ 760 $ 940
====== ======
Reconciliation of net income to net cash provided by
operating activities:
Net income $ 216 $ 213
Depreciation and amortization 51 37
Provision for bad debts (3) 15
Deferred income taxes 3
Currency exchange losses 24 9
Increase in accounts receivable (89) (143)
Increase in inventories (105) (306)
Increase in prepaid expenses and
other current assets (16) (31)
Increase in accounts payable 348 203
Increase (decrease) in income taxes payable (22) 36
Increase (decrease) in other current liabilities (22) 42
------ ------
Net cash provided by operating activities $ 382 $ 78
====== ======
See accompanying notes to consolidated financial data
<PAGE>
COMPAQ COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL DATA
Note 1 - Basis of presentation
The accompanying unaudited financial data as of March 31, 1995 and December
31, 1994 and for the three month periods ended March 31, 1995 and 1994 have
been prepared on substantially the same basis as the annual consolidated
financial statements. In the opinion of the Company, the data reflect all
adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results for those periods and the financial
condition at those dates.
Note 2 - Inventories
Inventories consisted of the following components:
March 31, December 31,
1995 1994
--------- ------------
(in millions)
Raw materials 967 1,013
Work-in-process 267 266
Finished goods 876 726
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$ 2,110 $ 2,005
======= =======
Note 3 - Other income and expense
Other income and expense consisted of the following components:
Quarter ended March 31,
1995 1994
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(in millions)
Interest and dividend income $ (10) $ (6)
Interest expense associated with hedging 6 4
Other interest expense 14 13
Currency losses, net 24 9
Other, net 2 2
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$ 36 $ 22
===== =====
Note 4 - Earnings per share
All share and per-share information has been retroactively restated in
the accompanying financial data to reflect the three-for-one stock
split effected in the form of a stock dividend effective May 31, 1994.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with the
consolidated interim financial statements.
Results of Operations
The following table presents, as a percentage of sales,
certain selected financial data for the quarters ended March 31,
1995 and 1994 and December 31, 1994.
Quarter ended
March 31, March 31, December 31,
1995 1994 1994
Sales 100.0% 100.0% 100.0%
Cost of sales 75.5 72.9 75.6
----- ----- -----
Gross margin 24.5 27.1 24.4
----- ----- -----
Research and
development costs 2.0 2.3 1.9
Selling, general,
and administrative expense 11.1 11.2 11.3
Other income and expense, net 1.3 1.0 1.1
----- ----- -----
14.4 14.5 14.3
----- ----- -----
Income before provision
for income taxes 10.1% 12.6% 10.1%
===== ===== =====
Sales
Sales for the first quarter of 1995 increased 30% over the
comparable period of 1994 and declined 9% from the fourth quarter
of 1994. European sales represented 40% of total sales in the
first quarter of 1995 as compared with 36% in the comparable
period of 1994 and 38% in the fourth quarter of 1994. Other
international sales, excluding Canada, represented 13% of the
total sales in the first quarter of 1995 as compared with 11% in
the comparable period of 1994 and 14% in the fourth quarter of
1994. The decline in the Company's sales from the fourth quarter
of 1994 was attributable to seasonality, especially in its
growing consumer business, shortages in components for certain
server products and add-on options, and manufacturing and
distribution constraints on certain newly introduced desktop
products.
The Company's significant increase in consolidated sales in
the first quarter of 1995 in comparison to the same period of
1994 stemmed primarily from an increase in the number of units
sold. Total computer unit sales increased more than 25% in the
first quarter of 1995 over the comparable period of 1994. Unit
sales growth resulted primarily from the Company's aggressively
priced Compaq ProLinea(TM) and Presario(TM) desktop products, the
Compaq Contura(TM) and LTE Elite(TM) portable computers, and the
Compaq Proliant(TM) tower system products. During the first quarter
of 1995 the Company carried out a major product transition. In
February it introduced two new server products primarily targeted
at the NetWare server market. In March the Company introduced new
products in each of its product lines including the new 486 and
Pentium-based Deskpro products designed to deliver desktop
management features known as Intelligent Manageability in a
network environment; the new 486 and Pentium-based ProLinea
desktop products designed for use in a stand-alone environment;
the 120MHz ProLiant 1500 server product using the new Intel
120MHz Pentium processor; and enhanced models of its LTE Elite
Notebook PCs featuring larger displays and hard drives. In April
the Company introduced new models of its Presario PCs, including
the Company's first Pentium-based consumer models.
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. Approximately 29% of the Company's CPU sales in
the first quarter of 1995 were derived from products introduced
in 1995. These new products have been designed to allow the
Company to achieve low product costs while offering high
performance computers and 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. Although the
Company's growth in sales dollars exceeded unit sales growth for
first quarter 1995 when compared to first quarter 1994 the
difference is largely attributable to favorable currency
fluctuations partially offset by unfavorable product mix and
increased sales promotions. Competition will continue to have a
significant impact on prices of the Company's products, and
additional pricing actions are likely to occur as the Company
attempts to maintain its competitive position in terms of price
and performance characteristics and customer support services.
Gross Margin
Gross margin as a percentage of sales declined to 24.5% in
the first quarter of 1995, compared to 27.1% in the comparable
period of 1994, remaining relatively flat with the 24.4% level in
the fourth quarter of 1994. The fall from the first quarter of
1994 primarily resulted from unfavorable product mix, in
particular a higher contribution of consumer products that
generally carry lower margins, increased sales promotions to the
Company's resellers and end user customers, and a decline in the
margins on sales of the Company's option and peripheral products,
partially offset by favorable currency fluctuations. The Company
believes that an aggressive pricing environment will continue
throughout 1995, placing pressure on the Company's gross margins.
The Company maintains a strategy designed to increase its market
share and continues to expand its presence in the price sensitive
consumer market segment. This strategy, along with the
expectation of a continued aggressive pricing environment and
anticipated pricing actions with respect to certain older
products, will continue to put pressure on the Company's gross
margins. Accordingly, the Company anticipates continued
fluctuations in its gross margin levels within a range of 23-24%
for the remainder of 1995. The Company attempts to mitigate the
effect of pricing actions through implementation of effective
design to cost goals, the aggressive pursuit of reduced component
costs, manufacturing efficiencies, and control of operating
expenses.
Operating Expenses
The Company strives to manage total operating expenses in
line with sales growth and gross margin levels. Research and
development costs increased 14% in absolute dollars in the first
quarter of 1995 as compared with the corresponding period of 1994
while falling slightly as a percentage of sales. The Company is
committed to continuing a significant research and development
program and research and development costs are likely to increase
in absolute dollars in the remaining quarters of 1995.
Selling, general, and administrative expense increased in
amount while remaining stable as a percentage of sales in the
first quarter of 1995 as compared with the same period of 1994.
The increase in expenses resulted from domestic and international
selling expense associated with higher unit volumes as well as
expense incurred in connection with the introduction of new
products, increased advertising, the entry into new markets, and
the expansion of distribution channels. The Company anticipates
that in the remainder of 1995 selling, general, and
administrative expense will increase in absolute dollars as it
supports significant new product introductions, steps up its
advertising and promotion programs, expands into new markets, and
increases its investment in the area of service and support,
especially in support of its systems business.
Other Items
Other income and expense in the first quarter of 1995 was an
expense of $36 million. In the first quarter of 1995 compared to
the corresponding period of 1994, the Company experienced a lower
net interest expense in absolute dollars. Net interest expense
as a percentage of sales was lower in the first quarter of 1995
when compared to the corresponding period of 1994 primarily due
to higher sales, higher interest income, and lower floorplan and
factoring costs partially offset by higher interest expense due
to a full quarter of interest expense associated with the
Company's $300 million in senior notes issued in March 1994.
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 were a net loss of $24
million in the first quarter of 1995, compared to a net loss of
$9 million in the first quarter of 1994.
Provision for Income Taxes
The Company estimates the effective tax rate for 1995 will
be 28%, an increase from 26% in 1994. The increase from 1994 is
attributable to a decline in the ratio of earnings derived from
the Company's Singaporean manufacturing subsidiary to total
earnings. The Company's tax rate is heavily dependent upon the
mix of earnings of its Singaporean manufacturing subsidiary due
to this subsidiary's earnings not being subject to taxes in
Singapore until September 1997 (with potential extension to
September 2004 if certain cumulative investment levels and other
conditions are met) and the Company's decision to invest a
majority of the undistributed earnings of this subsidiary
indefinitely in operations outside the United States. 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 this subsidiary. The Company
does not provide tax on these earnings, which lowers its
effective tax rate.
Liquidity and Capital Resources
The Company's working capital increased to $3.3 billion at
March 31, 1995, compared to $3.1 billion at December 31, 1994.
The Company's cash, cash equivalents, and short-term
investments increased to $760 million at March 31, 1995, from
$471 million at December 31, 1994, primarily because of positive
cash flow from operating activities. Accounts receivable
increased to $2.4 billion at March 31, 1995, from $2.3 billion at
December 31, 1994, as a result of an increase in days outstanding
of receivables. Inventory levels increased to $2.1 billion from
$2.0 billion during that period. The increase in inventory
resulted from component shortages that delayed shipment of
certain products and a different sales mix than anticipated. The
Company's high levels of inventory associated with a major
product transition could adversely affect the Company in the
event of a drop in demand for PC products.
Cash used in the first quarter of 1995 for the purchase of
property, plant and equipment totaled $84 million. The Company
estimates that capital expenditures for land, buildings, and
equipment during the remainder of 1995 will be approximately $316
million. The Company has commitments for only a small portion of
such amounts and the actual level of spending will depend on a
variety of factors, including general economic conditions and the
Company's business.
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 financing arrangements.
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 a $500 million syndicated credit
facility, of which $200 million expires in July 1995 and $300
million expires in July 1997, which facility remains unused as of
March 31, 1995. The Company has established a commercial paper
program, which is supported by the $300 million portion of the
syndicated credit facility. This program, which provides the
Company with additional sources of working capital, remains
unused as of March 31, 1995. In the U.S. and various
international locations the Company has uncommitted bank lines of
credit, of which $49 million was outstanding at the end of the
quarter. The Company believes that these sources of credit
provide sufficient financial flexibility to meet future funding
requirements, the Company continually evaluates the need to
establish other sources of working capital and will pursue those
it considers appropriate based upon Company needs and market
conditions.
Factors that May Affect Future Results
The Company participates in a highly volatile industry that
is characterized by fierce industry-wide competition for market
share resulting in aggressive pricing practices, continually
changing customer demand patterns, growing competition from well
capitalized high technology and consumer electronics companies,
and rapid technological development carried out in the midst of
legal battles over intellectual property rights. The Company's
operating results could be adversely affected should the Company
be unable to anticipate customer requirements accurately, to
maintain short design cycles while meeting evolving industry
performance standards, to manage its product transitions,
inventory levels, and manufacturing processes efficiently, to
distribute its products quickly in response to customer demand,
or to differentiate its products from those of its competitors.
In recent quarters the Company has made significant
investments in inventory to support higher sales. The Company
expects the PC market to continue to expand significantly in the
remainder of 1995 and is putting in place programs and products
focused on expanding its market share. In the remainder of 1995
the Company anticipates that its inventory turns will improve as
it implements various reengineering programs and completes a
major product transition; however, in the event of a drop in
worldwide demand for PC products, lower than anticipated demand
for one or more of the Company's products, or a delay in
reengineering implementation, there could be an adverse impact on
inventory, cash, and related profitability.
In order to maintain or increase its market share, the
Company must continue to price its products competitively and
from time to time may use various incentive programs to increase
sales. Some of these strategies lower the average sales price
per unit and may cause declines in gross margin and
profitability. Other sales incentives increase operating
expenses and may lower profitability. To compensate for the
impact of reduced prices and sales incentives on its sales, gross
margins, and profitability, the Company must increase unit
shipments, especially of its high end system products and
options, aggressively reduce costs, and maintain tight control
over operating expenses. In the second quarter of 1995 the
Company confronts the challenge of managing the inventory of its
older products as it increases sales of its newer PCs. If the
Company is not able to sell its inventory of older products at
anticipated prices, there could be an adverse impact on sales,
gross margins, and profitability.
The Company continues to expand manufacturing and
distribution capacity as well as reengineer its internal
processes to support continued growth. During 1995 the Company
is focusing on making its business processes more efficient in
order to increase customer satisfaction, improve productivity,
and lower costs. In connection with these efforts the Company
will move many of its systems from a legacy environment of
proprietary systems to client-server architectures. As the
Company has grown it has outstripped the ability of certain of
its systems to support continued expansion. Should the Company's
transition to new systems not occur in a smooth and orderly
manner, the Company could experience disruptions in the
operations of its business, which could have an adverse financial
impact.
Competition for PC market share remains fierce. A number of
the Company's suppliers also manufacture and market PCs or
motherboards, which contain the microprocessor and other internal
operating components of the PC. Several of the Company's
competitors have recently announced plans to increase their PC
market shares. In addition, a number of large consumer
electronics companies are likely to enter the PC market as it
expands into the consumer sector. Each of these companies may be
willing to accept lower profit margins to win market share or to
increase sales and profits in other parts of their businesses.
Because of the pace of technological advances in the
personal computer industry, the Company must introduce on a
timely basis new products that offer customers competitive
technologies while managing the production and marketing cycles
of its existing products. In managing production levels, product
transitions, and developments in microprocessor and other
component technology, the Company must develop and implement
effective strategies that anticipate component availability and
pricing by suppliers as well as forecast customer demand for its
products. The Company attempts to select suppliers that can
provide sufficient and timely supplies of high quality
components. There can be no assurance, however, that the Company
will acquire sufficient supplies of components, including
microprocessors, to deliver its products in volume in response to
shifts in customer demand. In addition, the forecast of demand
for newly introduced products is complicated by the availability
of different product models, which may include various types of
built-in peripherals and software, and the configuration
requirements in certain markets, such as language. As a result,
while overall demand may be in line with the Company's
projections and manufacturing implementation, local market
variations can lead to differences between expected and actual
demand and resulting delays in shipment, which can affect the
Company's financial results.
The Company continually evaluates its key component and
software content strategies to position its products in the
market. Although the Company designs many of its own product
components, across the Company's full product range significant
elements of strategy are dependent on technological developments
by third parties. Participants in the PC industry traditionally
rely on the creation and implementation of technology standards
to win the broadest market acceptance for their products. The
Company must successfully manage and participate in the
development of standards while continuing to differentiate its
products in a manner valued by customers. A number of industry
participants are expanding their efforts to win a competitive
advantage by securing intellectual property rights to components
and software adopted as standards in PC products. In order to
minimize the impact on the Company of intellectual property
claims by third parties, the Company pursues an active patent
portfolio development plan. While industry participants
generally accept, and may encourage, the use of their
intellectual property by third parties under license, when
intellectual property owned by competitors or suppliers becomes
accepted as an industry standard, the Company must purchase
components utilizing such technology from the owners of such
technology or their licensees or must otherwise acquire rights to
use such technology, which could result in increased Company
costs. In addition, delays in access to technology developed by
competitors and suppliers could delay the Company's design and
manufacture of components and subsystems that distinguish its
products.
Because of rapid technological changes in the computer
industry, extensive patent and copyright coverage, and the rapid
establishment of new copyright and patent rights, certain
components of the Company's products designed by the Company or
purchased from third parties may unknowingly infringe
intellectual property rights 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, obtain components that do not infringe, or obtain
licenses or rights to such intellectual property rights on terms
not having a material adverse effect on the Company. There can
be no assurance, however, that the Company will be able to ensure
that component supplies and the cost of components are not
adversely affected by legal proceedings in which an adverse
determination is made with respect to intellectual property
rights.
During the first quarter of 1995 the Company continued to
broaden its product distribution. Offering its products in an
increasing number of geographic locations and through a variety
of distribution channels, including dealers, distributors, mail
order, mass merchandise stores, consumer electronic outlets, and
computer superstores, requires the Company to increase its
geographic presence and to provide increased levels of sales and
support interface with customers. There can be no assurance,
however, 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 in a cost effective manner. While
the Company anticipates that its geographic expansion will
continue and the number of outlets for its products will continue
to increase in the remainder of 1995, a reduction in the pace of
this growth could affect sales and profitability. Geographic
expansion, particularly the expansion of manufacturing operations
in developing countries, such as Brazil and China, and the
expansion of sales into economically volatile areas such as Latin
America, Eastern Europe, and China also subjects the Company to a
number of economic and other risks, such as currency devaluation,
expropriation, and related financial instability among resellers
in these regions. The Company experienced a decline in its sales
in the Latin American region during the first quarter of 1995
compared to the fourth quarter of 1994 as a result of measures
that it took to manage the risks related to economic instability
in certain countries. The Company anticipates that volatility
will continue in this region in the remainder of 1995 and plans
to try to take appropriate measures to limit its risks in this
area.
The Company's primary means of distribution remains third-
party resellers. The Company continuously monitors and manages
the credit it extends to resellers and attempts to limit credit
risks by broadening its distribution channels, utilizing certain
risk transfer instruments, and obtaining security interests in
property owned by its debtors. The Company's business could be
adversely affected in the event that the financial condition of
third-party computer resellers worsens. Upon 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. During
the first quarter of 1995, the Company's receivable days
outstanding increased to 74 from 63 at the end of the fourth
quarter, primarily related to the sales pattern by month within
the first quarter of 1995 and to a somewhat weaker accounts
receivable condition in its Latin America and Asia markets.
The value of the U.S. dollar continues to affect the
Company's financial results. The functional currency for the
Company's international subsidiaries is the U.S. dollar. When
the U.S. dollar strengthens against other currencies, sales made
in those currencies translate into lower 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
positively or negatively affect the Company's sales (as expressed
in U.S. dollars), gross margins, and operating expenses, and the
Company's results of operations can be significantly affected in
the short term by fluctuations in foreign currency exchange
rates. The Company engages in hedging programs aimed at limiting
in part the impact of currency fluctuations. Through these
programs the Company hedges its non-U.S. dollar net monetary
assets and its Japanese yen denominated purchase commitments
primarily through the use of forward exchange and option
contracts. From time to time the Company also purchases foreign
currency option contracts as well as short-term forward exchange
contracts to protect against currency exchange risks associated
with the anticipated sales of its international marketing
subsidiaries, principally in Europe. These instruments provide
only limited protection against currency exchange risks. The
Company varies the percentage of anticipated sales that it
attempts to protect against currency exchange risks based upon
its judgment of currency markets and the costs of these
instruments, and in some markets, particularly in developing
areas, the Company's ability to utilize such instruments is
limited. If the Company overestimates the hedging amount needed
to protect anticipated sales during a period in which the dollar
weakens, the Company could incur a significant expense that would
not be balanced by the impact of favorable exchange rates on
sales. Although the Company maintains these programs to 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 Company's tax rate is heavily dependent upon the
proportion of earnings that are derived from its Singaporean
manufacturing subsidiary and its ability to reinvest those
earnings permanently outside the U.S. If the earnings of this
subsidiary as a percentage of the Company's total earnings were
to decline, or should the Company's ability to reinvest these
earnings be reduced, the Company's tax rate would likely increase
beyond the estimated 28%. In addition, should the Company's
intercompany transfer pricing with respect to its Singaporean
manufacturing subsidiary require significant adjustment due to
audits or regulatory changes, the Company's overall tax rate
could increase.
General economic conditions have an impact on the Company's
business and financial results. From time to time the markets in
which the Company sells its products experience weak economic
conditions that may negatively affect sales of the Company's
products. Although the Company does not consider its business to
be highly seasonal, it has experienced seasonally higher sales
and earnings in the fourth quarter of the year. The continued
expansion of its retail business is likely to result in the
increased seasonality of the Company's business, particularly in
the second half of the year, and its financial results being more
dependent on retail business fluctuations.
Certain of the Company's facilities, including its European
distribution center in Gorinchem, The Netherlands, and critical
suppliers are located in areas that are at risk for natural
disasters such as floods, tornadoes, and earthquakes. The
Company's operating results and financial condition could be
adversely affected should its ability to manufacture or
distribute its products be impaired by such an event.
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.
P A R T II. OTHER INFORMATION
Item 1. Legal Proceedings
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 in
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
these claims 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 first quarter of 1995. At the annual meeting
of stockholders of the Company on April 26, 1995, the
shareholders voted on: Proposal One to elect Benjamin M. Rosen,
Eckhard Pfeiffer, Robert Ted Enloe, III, George H. Heilmeier,
George E.R. Kinnear II, Peter N. Larson, Kenneth L. Lay and
Kenneth Roman as directors of the Company; Proposal Two to amend
the Company's restated Certificate of Incorporation, as amended,
increasing the number of authorized shares of the Company's
common stock, $.01 par value, from 400 million to 1 billion;
Proposal Three to approve the Company's 1995 Equity Incentive
Plan, and Proposal Four to approve the Compaq Computer
Corporation Bonus Incentive Plan. The following tables set forth
the votes on matters submitted at this meeting:
Matter For Against or Abstentions Broker
Withheld Non-Votes
Proposal One:
Election
of Directors
Benjamin M. Rosen 228,722,049 752,616 0 0
Eckhard Pfeiffer 228,718,842 755,823 0 0
Robert Ted Enloe, III 228,693,710 780,955 0 0
George H. Heilmeier 228,730,845 743,820 0 0
George E.R. Kinnear II 228,670,414 804,251 0 0
Peter N. Larson 228,626,351 848,314 0 0
Kenneth L. Lay 228,727,150 747,515 0 0
Kenneth Roman 228,698,938 775,727 0 0
Proposal Two:
Amend Certificate
of Incorporation 181,588,987 45,516,354 777,030 1,592,294
Proposal Three:
1995 Equity
Incentive Plan 165,659,023 62,492,507 1,323,135 0
Proposal Four:
Bonus Incentive Plan 164,424,042 31,555,744 1,250,969 32,243,910
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Description
No.
11 Statement regarding computation of per share earnings
27 Financial Data Schedule (EDGAR version only)
All other items specified by Part II of this report are
inapplicable and accordingly have been omitted.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
May 15, 1995 Compaq Computer Corporation
/s/ DARYL J. WHITE
-----------------------------------
Daryl J. White, Senior Vice President,
Finance, and Chief Financial Officer
(as authorized officer and as principal
financial officer)
Exhibit 11
COMPAQ COMPUTER CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Quarter ended
March 31,
In millions, except per share amounts 1995 1994
- ---------------------------------------------------------------------
Primary earnings per share:
Shares used in computing earnings per share:
Weighted average number of shares outstanding 261.4 255.3
Incremental shares attributed
to outstanding options 9.5 11.1
----- -----
270.9 266.4
===== =====
Earnings:
Net income $ 216 $ 213
===== =====
Earnings per common and common equivalent share $0.80 $0.80
===== =====
Earnings per share - assuming full dilution:-
Shares used in computing earnings per share:
Weighted average number of shares outstanding 261.4 255.3
Incremental shares attributed to
outstanding options 9.5 11.7
----- -----
270.9 267.0
===== =====
Earnings:
Net income $ 216 $ 213
===== =====
Earnings per common and common equivalent share $0.80 $0.80
===== =====
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
COMPAQ COMPUTER CORPORATION'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF INCOME FOR THE PERIOD ENDED MARCH 31, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 760
<SECURITIES> 0
<RECEIVABLES> 2,435
<ALLOWANCES> 0
<INVENTORY> 2,110
<CURRENT-ASSETS> 5,717
<PP&E> 970
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,767
<CURRENT-LIABILITIES> 2,390
<BONDS> 300
<COMMON> 747
0
0
<OTHER-SE> 3,151
<TOTAL-LIABILITY-AND-EQUITY> 6,767
<SALES> 2,959
<TOTAL-REVENUES> 2,959
<CGS> 2,235
<TOTAL-COSTS> 2,235
<OTHER-EXPENSES> 60<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 300
<INCOME-TAX> 84
<INCOME-CONTINUING> 216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 216
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.80
<FN>
<F1> Includes research and development costs.
</FN>
</TABLE>
