<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the year ended: December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 For the transition period from ____ to ____.
Commission file number: 1-9026
TANDEM COMPUTERS INCORPORATED
401(k) INVESTMENT PLAN
(Full title of the Plan)
COMPAQ COMPUTER CORPORATION
(Name of issuer of the securities held pursuant to the Plan)
20555 State Highway 249
Houston, Texas 77070-2698
(address of principal executive office)
<PAGE> 2
Tandem Computers Incorporated
401(k) Investment Plan
Financial Statements
and Supplemental Schedules
Years ended December 31, 1996 and 1995
CONTENTS
Report of Independent Auditors................................... 1
Audited Financial Statements
Statements of Net Assets Available for Benefits
With Fund Information......................................... 2
Statements of Changes in Net Assets Available
for Benefits With Fund Information............................ 4
Notes to Financial Statements.................................... 6
Supplemental Schedules
Line 27a - Schedule of Assets Held for Investment Purposes....... 12
Line 27d - Schedule of Reportable Transactions................... 13
<PAGE> 3
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
The Plan Administrator
Tandem Computers Incorporated
401(k) Investment Plan
We have audited the accompanying statements of net assets available for
benefits of Tandem Computers Incorporated 401(k) Investment Plan as of December
31, 1996 and 1995, and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1996 and 1995, and the changes in its net assets available for
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedules
of assets held for investment purposes as of December 31, 1996, and reportable
transactions for the year then ended, are presented for purposes of complying
with the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974, and are
not a required part of the basic financial statements. The Fund Information in
the statement of net assets available for benefits and the statement of changes
in net assets available for benefits is presented for purposes of additional
analysis rather than to present the net assets available for plan benefits and
changes in net assets available for plan benefits of each fund. The supplemental
schedules and Fund Information have been subjected to the auditing procedures
applied in our audit of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ ERNST & YOUNG LLP
May 8, 1997
1
<PAGE> 4
Tandem Computers Incorporated
401(k) Investment Plan
Statements of Net Assets Available for Benefits With Fund Information
December 31, 1996
<TABLE>
<CAPTION>
FUND INFORMATION
-----------------------------------------------------------------------------------------
MERRILL LYNCH
-----------------------------------------------------------------------------------------
FEDERAL EQUITY GLOBAL
READY ASSET SECURITIES BASIC VALUE INDEX HOLDINGS CAPITAL PACIFIC
TRUST FUND FUND FUND TRUST FUND FUND FUND
-----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
At fair value:
Units of registered
investment companies $ 25,787 $ 13,712 $ 101,552 $ 16,067 $ 19,844 $ 31,608 $ 24,104
Pooled separate account -- -- -- -- -- -- --
Participant loans receivable -- -- -- -- -- -- --
Tandem Computers Incorporated's
common stock -- -- -- -- -- -- --
--------- --------- --------- -------- --------- -------- ---------
Total investments 25,787 13,712 101,552 16,067 19,844 31,608 24,104
--------- --------- --------- -------- --------- -------- ---------
Net assets available for benefits $ 25,787 $ 13,712 $ 101,552 $ 16,067 $ 19,844 $ 31,608 $ 24,104
========= ========= ========= ======== ========= ======== =========
<CAPTION>
FUND INFORMATION
------------------------------------------------------------------------
FIDELITY
AMEX PARTICIPANT AIM ADVISORS TEMPLETON TANDEM
INCOME LOAN CONSTELLATION HIGH YIELD FOREIGN STOCK
FUND FUND FUND FUND FUND FUND TOTAL
----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
At fair value:
Units of registered
investment companies $ -- $ -- $ 38,228 $ 3,117 $7,463 $ -- $ 286,482
Pooled separate account 76,795 -- -- -- -- -- 76,795
Participant loans receivable -- 14,023 -- -- -- -- 14,023
Tandem Computers Incorporated's
common stock -- -- -- -- -- 13,349 13,349
--------- --------- --------- ------- ------ --------- ---------
Total investments 76,795 14,023 38,228 3,117 7,463 13,349 390,649
--------- --------- --------- ------- ------ --------- ---------
Net assets available for benefits $ 76,795 $ 14,023 $ 38,228 $ 3,117 $7,463 $ 13,349 $ 390,649
========= ========= ========= ======= ======= ========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 5
Tandem Computers Incorporated
401(k) Investment Plan
Statements of Net Assets Available for Benefits With Fund Information
December 31, 1995
<TABLE>
<CAPTION>
FUND INFORMATION
--------------------------------------------------------------------------------------
MERRILL LYNCH
--------------------------------------------------------------------------------------
FEDERAL EQUITY GLOBAL
READY ASSET SECURITIES BASIC VALUE INDEX HOLDINGS CAPITAL PACIFIC
TRUST FUND FUND FUND TRUST FUND FUND FUND
--------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
At fair value:
Units of registered
investment companies $ 23,652 $ 14,528 $ 89,357 $ 8,756 $18,157 $ 28,735 $ 23,827
Pooled separate account -- -- -- -- -- -- --
Participant loans receivable -- -- -- -- -- -- --
Tandem Computers Incorporated's
common stock -- -- -- -- -- -- --
--------- --------- --------- ------- ------ --------- ---------
Total investments 23,652 14,528 89,357 8,756 18,157 28,735 23,827
--------- --------- --------- ------- ------ --------- ---------
Net assets available for benefits $ 23,652 $ 14,528 $ 89,357 $ 8,756 $18,157 $ 28,735 $ 23,827
========= ========= ========= ======= ======= ========= =========
<CAPTION>
FUND INFORMATION
----------------------------------------------------------------------------------
FIDELITY
AMEX PARTICIPANT AIM ADVISORS TEMPLETON TANDEM
INCOME LOAN CONSTELLATION HIGH YIELD FOREIGN STOCK
FUND FUND FUND FUND FUND FUND TOTAL
----------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
At fair value:
Units of registered
investment companies $ -- $ -- $ 23,491 $ 4,456 $ 4,152 $ -- $ 239,111
Pooled separate account 78,845 -- -- -- -- -- 78,845
Participant loans receivable -- 13,838 -- -- -- -- 13,838
Tandem Computers Incorporated's
common stock -- -- -- -- -- 13,500 13,500
--------- --------- --------- ------- ------- --------- ---------
Total investments 78,845 13,838 23,491 4,456 4,152 13,500 345,294
--------- --------- --------- ------- ------- --------- ---------
Net assets available for benefits $ 78,845 $ 13,838 $ 23,491 $ 4,456 $ 4,152 $ 13,500 $ 345,294
========= ========= ========= ======= ======= ========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 6
Tandem Computers Incorporated
401(k) Investment Plan
Statements of Changes in Net Assets Available for Benefits With Fund Information
Year Ended December 31, 1996
<TABLE>
<CAPTION>
FUND INFORMATION
-----------------------------------------------------------------------------------------
MERRILL LYNCH
-----------------------------------------------------------------------------------------
FEDERAL EQUITY GLOBAL
READY ASSET SECURITIES BASIC VALUE INDEX HOLDINGS CAPITAL PACIFIC
TRUST FUND FUND FUND TRUST FUND FUND FUND
-----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Interest and dividend income $ 1,156 $ 922 $ 6,938 $ -- $ 1,208 $ 3,018 $ 1,966
Participant loan interest income
-- -- -- -- -- -- --
Net realized and unrealized
appreciation (depreciation) in
fair value of investments -- (305) 8,624 2,509 1,050 534 (523)
--------- --------- --------- --------- --------- --------- ---------
1,156 617 15,562 2,509 2,258 3,552 1,443
Contributions:
Participants 1,758 1,220 6,472 2,115 1,680 2,763 2,124
Employer 533 350 1,775 464 472 774 593
--------- --------- --------- --------- --------- --------- ---------
2,291 1,570 8,247 2,579 2,152 3,537 2,717
Net transfers between funds 2,424 (1,380) (1,313) 3,619 220 (1,183) (418)
--------- --------- --------- --------- --------- --------- ---------
Total additions (deductions) 5,871 807 22,496 8,707 4,630 5,906 3,742
Deductions from net assets attributed to:
Benefits to terminated
participants and participant
withdrawals (3,212) (1,329) (8,563) (1,199) (2,483) (2,544) (2,915)
Participant loans (524) (294) (1,738) (197) (460) (489) (550)
--------- --------- --------- --------- --------- --------- ---------
Total deductions (3,736) (1,623) (10,301) (1,396) (2,943) (3,033) (3,465)
--------- --------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets
available for benefits 2,135 (816) 12,195 7,311 1,687 2,873 277
Net assets available for benefits:
Beginning of year 23,652 14,528 89,357 8,756 18,157 28,735 23,827
--------- --------- --------- --------- --------- --------- ---------
End of year $ 25,787 $ 13,712 $ 101,552 $ 16,067 $ 19,844 $ 31,608 $ 24,104
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
FUND INFORMATION
---------------------------------------------------------------------------------------
FIDELITY
AMEX PARTICIPANT AIM ADVISORS HIGH TEMPLETON TANDEM
INCOME LOAN CONSTELLATION YIELD FUND FOREIGN STOCK
FUND FUND FUND FUND FUND FUND TOTAL
----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Interest and dividend income $ -- $ -- $ 1,283 $ 693 $ 292 $ -- $ 17,476
Participant loan interest income
-- 1,205 -- -- -- -- 1,205
Net realized and unrealized
appreciation (depreciation) in
fair value of investments 4,633 -- 3,156 142 688 3,341 23,849
--------- --------- --------- --------- ------ --------- ---------
4,633 1,205 4,439 835 980 3,341 42,530
Contributions:
Participants 4,901 -- 4,640 1,012 1,027 -- 29,712
Employer 1,483 -- 1,121 231 228 -- 8,024
--------- --------- --------- --------- ------ --------- ---------
6,384 -- 5,761 1,243 1,255 -- 37,736
Net transfers between funds (4,430) (7,384) 7,651 2,441 1,932 (2,179) --
--------- --------- --------- --------- ------ --------- ---------
Total additions (deductions) 6,587 (6,179) 17,851 4,519 4,167 1,162 80,266
Deductions from net assets attributed to:
Benefits to terminated
participants and participant
withdrawals (6,813) (703) (2,386) (735) (716) (1,313) (34,911)
Participant loans (1,824) 7,067 (728) (123) (140) -- --
--------- --------- --------- --------- ------ --------- ---------
Total deductions (8,637) 6,364 (3,114) (858) (856) (1,313) (34,911)
--------- --------- --------- --------- ------ --------- ---------
Increase (decrease) in net assets
available for benefits (2,050) 185 14,737 3,661 3,311 (151) 45,355
Net assets available for benefits:
Beginning of year 78,845 13,838 23,491 4,456 4,152 13,500 345,294
--------- --------- --------- --------- ------ --------- ---------
End of year $ 76,795 $ 14,023 $ 38,228 $ 8,117 $7,463 $ 13,349 $ 390,649
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
4
<PAGE> 7
Tandem Computers Incorporated
401(k) Investment Plan
Statements of Changes in Net Assets Available for Benefits With Fund Information
Year Ended December 31, 1995
<TABLE>
<CAPTION>
FUND INFORMATION
----------------------------------------------------------------------------------------
MERRILL LYNCH
----------------------------------------------------------------------------------------
FEDERAL EQUITY GLOBAL
READY ASSET SECURITIES BASIC VALUE INDEX HOLDINGS CAPITAL PACIFIC
TRUST FUND FUND FUND TRUST FUND FUND FUND
----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest and dividend income $ 1,265 $ 963 $ 4,046 $ -- $ 961 $ 2,920 $ 710
Participant loan interest income -- -- -- -- -- -- --
Net realized and unrealized
appreciation (depreciation) in
fair value of investments -- 1,076 17,771 1,303 1,724 3,982 872
--------- --------- --------- --------- --------- --------- ---------
1,265 2,039 21,817 1,303 2,685 6,902 1,582
Contributions:
Participants 2,022 1,474 6,497 1,219 2,060 3,126 2,971
Employer 623 419 1,875 217 623 777 910
--------- --------- --------- --------- --------- --------- ---------
2,645 1,893 8,372 1,436 2,683 3,903 3,881
Transfer of assets from the Tandem
Computers Incorporated Employee Stock
Ownership Plan -- -- -- -- -- -- --
Net transfers between funds (213) (944) (1,030) 4,870 (5,368) 144 (9,612)
--------- --------- --------- --------- --------- --------- ---------
Total additions (deductions) 3,697 2,988 29,159 7,609 -- 10,949 (4,149)
Deductions from net assets attributed to:
Benefits to terminated participants
and participant withdrawals (1,997) (824) (5,142) (142) (1,461) (1,651) (1,879)
Transfers to UB Networks, Inc.
401(k) Plan (1,688) (1,202) (3,880) (177) (1,777) (1,745) (2,437)
Participant loans (720) (328) (2,137) (150) (460) (751) (710)
--------- --------- --------- --------- --------- --------- ---------
Total deductions (4,405) (2,354) (11,159) (469) (3,698) (4,147) (5,026)
--------- --------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets
available for benefits (708) 634 18,000 7,140 (3,698) 6,802 (9,175)
Net assets available for benefits:
Beginning of year 24,360 13,894 71,357 1,616 21,855 21,933 33,002
--------- --------- --------- --------- --------- --------- ---------
End of year $ 23,652 $ 14,528 $ 89,357 $ 8,756 $ 18,157 $ 28,735 $ 23,827
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
FUND INFORMATION
---------------------------------------------------------------------------------------
FIDELITY
AMEX PARTICIPANT AIM ADVISORS TEMPLETON TANDEM
INCOME LOAN CONSTELLATION HIGH YIELD FOREIGN STOCK
FUND FUND FUND FUND FUND FUND TOTAL
----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest and dividend income $ -- $ -- $ 742 $ 161 $ 243 $ -- $ 12,011
Participant loan interest income -- 1,081 -- -- -- -- 1,081
Net realized and unrealized
appreciation (depreciation) in
fair value of investments 4,513 -- 1,078 139 10 (317) 32,151
--------- --------- --------- --------- --------- --------- ---------
4,513 1,081 1,820 300 253 (317) 45,243
Contributions:
Participants 6,530 -- 2,002 628 527 -- 29,056
Employer 1,943 -- 406 102 110 -- 8,005
--------- --------- --------- --------- --------- --------- ---------
8,473 -- 2,408 730 637 -- 37,061
Transfer of assets from the Tandem
Computers Incorporated Employee Stock
Ownership Plan -- -- -- -- -- 13,817 13,817
Net transfers between funds (7,380) (7,182) 19,737 3,628 3,350 -- --
--------- --------- --------- --------- --------- --------- ---------
Total additions (deductions) 5,606 (6,101) 23,965 4,658 4,240 13,500 96,121
Deductions from net assets attributed to:
Benefits to terminated participants
and participant withdrawals (6,441) (616) (101) (96) (21) -- (20,371)
Transfers to UB Networks, Inc.
401(k) Plan (5,719) (719) -- -- -- -- (19,344)
Participant loans (2,120) 7,922 (373) (106) (67) -- --
--------- --------- --------- --------- --------- --------- ---------
Total deductions (14,280) 6,587 (474) (202) (88) -- (39,715)
--------- --------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets
available for benefits (8,674) 486 23,491 4,456 4,152 13,500 56,406
Net assets available for benefits:
Beginning of year 87,519 13,352 -- -- -- -- 288,888
--------- --------- --------- --------- --------- --------- ---------
End of year $ 78,845 $ 13,838 $ 23,491 $ 4,456 $ 4,152 $ 13,500 $ 345,294
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
5
<PAGE> 8
Tandem Computers Incorporated
401(k) Investment Plan
Notes to Financial Statements
December 31, 1996
1. DESCRIPTION OF THE PLAN
The following description of the Tandem Computers Incorporated 401(k) Investment
Plan (the Plan) provides only general information. Participants should refer to
the plan document for a more complete description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan covering substantially all domestic
employees of Tandem Computers Incorporated (the Company). The Plan is subject
to the provisions of the Employee Retirement Income Security Act of 1974
(ERISA).
Contributions
o Participants - Participants contributed from 1% to 18% of their
pretax eligible compensation up to a maximum of $9,500 in 1996 and
$9,240 in 1995.
o Company - In 1996 and 1995, the Company matched participants'
contributions as a percentage of pretax eligible compensation based
on the following schedule:
<TABLE>
<CAPTION>
EMPLOYEE
CONTRIBUTION COMPANY MATCH
------------ -------------
<S> <C>
1.0% 1.0%
2.0% 1.5%
3.0% 2.0%
4.0% or more 2.5%
</TABLE>
Participant Accounts
Separate accounts are maintained for each participant. Participant accounts
are periodically adjusted for company matching contributions, participant
contributions, interest income, dividends, changes in the market value of
underlying assets, payment of vested amounts to terminated participants, and
participant withdrawals. The benefit to which a participant is entitled is
the benefit that can be provided from the participant's account.
6
<PAGE> 9
Tandem Computers Incorporated
401(k) Investment Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
GENERAL (CONTINUED)
Vesting
All participant and company matching contributions and the related earned
income are immediately vested.
Payment of Benefits
Upon termination of service, retirement, and/or disability, a participant may
elect to receive vested benefits in a lump-sum payment or in installments over
a fixed period of years not to exceed the participant's life expectancy.
Benefits are recorded when paid.
Participant Loans
Each participant may borrow up to 50% of the account balance, subject to
certain limitations. The minimum loan is $500 and is secured by the individual
participant's accounts in the Plan. The interest rate to be charged is based on
a survey of the most secured loan rates of area banks, savings and loans, and
credit unions. Loan terms range from five years up to twenty-five years for the
purchase of a primary residence. Loan accounts are maintained by Merrill Lynch
Trust Company (the Plan Trustee). Interest income earned on participant loans
is used to acquire additional units of the various funds within the Plan based
on the borrowers' proportionate investment elections. Loan transactions are
treated as a transfer to (from) the investment fund from (to) the loan fund.
Administrative Costs
All administrative costs of the Plan are paid by the Company.
Transfers of Assets
The assets and account balances of participants employed by UB Networks, Inc.,
a subsidiary of Tandem Computers Incorporated, were transferred out of the
Tandem Computers Incorporated 401(k) Plan into the UB Networks, Inc. 401(k)
Plan, established by UB Networks, Inc. on January 1, 1995.
7
<PAGE> 10
Tandem Computers Incorporated
401(k) Investment Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
GENERAL (CONTINUED)
Transfers of Assets (continued)
The Company terminated its Employee Stock Ownership Plan in 1995. All of Tandem
Computers Employee Stock Ownership Plan's net assets were transferred to the
Tandem Computers Incorporated 401(k) Plan in December 1995.
2. INVESTMENTS
Contributions, in accordance with a participant's directives, may be invested in
one or more of the following funds:
SHARES OF REGISTERED INVESTMENT COMPANIES
Merrill Lynch Ready Asset Trust Fund - The Ready Asset Trust Fund is
maintained by Merrill Lynch and consists of short-term obligations of the
U.S. government, bank certificates of deposit, commercial paper, bankers'
acceptances, and shares of money market mutual funds.
Merrill Lynch Federal Securities Fund - The Federal Securities Fund
consists of U.S. government and government agency securities, including
mortgage-backed certificates and U.S. Treasury bills, notes, and bonds.
Merrill Lynch Basic Value Fund - The Basic Value Fund invests primarily in
common and preferred stock.
Merrill Lynch Equity Index Trust - The Equity Index Trust invests primarily
in equity securities with the portfolio composition similar to the Standard
& Poor's 500 composite price index.
Merrill Lynch Global Holdings Fund - The Global Holdings Fund invests
primarily in common and preferred stock, convertible securities, and
corporate debt obligations of companies located in the U.S., Japan, and
Western Europe.
Merrill Lynch Capital Fund - The Capital Fund invests primarily in equity
securities (stock), corporate bonds, or money market securities.
8
<PAGE> 11
Tandem Computers Incorporated
401(k) Investment Plan
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
SHARES OF REGISTERED INVESTMENT COMPANIES (CONTINUED)
Merrill Lynch Pacific Fund - The Pacific Fund invests primarily in common
and preferred stock of corporations based in the Far East or Western
Pacific, including Japan, Australia, Hong Kong, and Singapore.
AIM Constellation Fund - The AIM Constellation Fund invests in small- to
medium-sized emerging growth companies seeking capital appreciation.
Interest and dividend income are incidental.
Fidelity Advisor High Yield Fund - The Fidelity Advisor High Yield Fund is
an aggressively managed fund seeking higher yield and appreciation through
investments in lower-rated bonds.
Templeton Foreign Fund - The Templeton Foreign Fund seeks long-term capital
growth through a flexible policy of investing in stocks and debt
obligations of companies and governments outside of the United States.
SHARES OF POOLED SEPARATE ACCOUNTS
AMEX Income Fund - The American Express (AMEX) Income Fund is a pooled
separate account that invests in both money market investments and
guaranteed investment contracts (GICs). Withdrawals from the AMEX Income
Fund may be recorded without penalty prior to the maturity of the GICs
within the fund. The GICs represent deposits made with insurance companies
and financial institutions with guaranteed rates of return ranging from
5.00% to 8.27%. They mature on various dates through November 2006.
9
<PAGE> 12
Tandem Computers Incorporated
401(k) Investment Plan
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
SHARES OF POOLED SEPARATE ACCOUNTS (CONTINUED)
The shares of registered investment companies are valued at quoted market
prices that represent the net asset values of shares/units held by the Plan
at year end. Net appreciation (depreciation) in fair value of investments
includes the gain (loss) realized on the sale of securities and unrealized
appreciation (depreciation). Investments in the AMEX Income Fund are stated at
the Plan's proportionate share (in units) of participation in the AMEX Income
Fund held and invested by the AMEX Trust Company. The value of participation
units owned by the Plan is based on quoted redemption values on the last
business day of the plan year. Participant loans are valued at cost which
approximates fair value. Investment transactions are recognized as of their
trade dates. Interest income is recorded on the accrual basis. Dividends are
recorded on the ex-dividend rate.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
4. INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter, dated April 1, 1994, that the Plan and related trust are designed in
accordance with applicable sections of the Internal Revenue Code. The Plan has
been amended since receiving the determination letter. However, the plan
administrator and the Plan's tax counsel believe that the Plan is designed and
is currently being operated in compliance with the applicable requirements of
the Internal Revenue Code.
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions of ERISA. In the event of plan termination,
participants are entitled to receive the value of their accounts.
10
<PAGE> 13
Tandem Computers Incorporated
401(k) Investment Plan
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS
Certain plan investments are shares of mutual funds managed by Merrill Lynch,
the Plan Trustee, and therefore, these transactions qualify as
party-in-interest.
7. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to Form 5500:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
Net assets available for benefits per the
financial statements $390,649 $345,294
Amounts allocated to withdrawing participants (1,296) --
-------- --------
Net assets available for benefits per Form 5500 $389,353 $345,294
======== ========
</TABLE>
The following is a reconciliation of benefits paid to participants per the
financial statements to Form 5500:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995
--------- ---------
<S> <C> <C>
Benefits paid to participants per the
financial statements $ 34,911 $20,371
Add amounts allocated to withdrawing participants
at December 31, 1996 1,296 --
Less amounts allocated to withdrawing participants
at December 31, 1995 -- --
-------- -------
Benefits paid to participants per Form 5500 $ 36,207 $20,371
======== =======
</TABLE>
Amounts allocated to withdrawing participants are recorded on Form 5500 for
benefit claims that have been processed and approved for payment prior to
December 31 but have not yet been paid as of this date.
11
<PAGE> 14
Tandem Computers Incorporated
104(k) Investment Plan
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1996
<TABLE>
<CAPTION>
IDENTITY OF ISSUER, BORROWER, DESCRIPTION OF CURRENT
LESSOR OR SIMILAR PARTY INVESTMENTS COST VALUE
- -------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
*The Merrill Lynch Trust Companies: Mutual Funds:
Ready Asset Trust Fund 25,787 units $ 25,787 $ 25,787
Federal Securities Fund 1,431 units 13,723 13,712
Basic Value Fund 3,276 units 77,425 101,552
Equity Index Trust 327 units 12,850 16,067
Global Holdings Fund 1,409 units 18,020 19,844
Capital Fund 1,018 units 29,324 31,608
Pacific Fund 1,117 units 23,242 24,104
AIM Constellation Fund 1,513 units 34,887 38,228
Fidelity Advisors High Yield Fund 665 units 7,928 8,117
Templeton Foreign Fund 720 units 6,871 7,463
AMEX Trust Company: Pooled Separate
Account:
AMEX Income Fund 1,828 units 64,513 76,795
Tandem Computers Incorporated
*Common Stock 970,831 shares 12,748 13,349
*Participant loans receivable (1) 14,023 14,023
---------------------
Total Investments $341,341 $390,649
=====================
</TABLE>
*Party-in-interest to the Plan
(1)Consist of general purpose and home purchase loans made to participants from
their account balances, which have repayment periods not to exceed five and
twenty-five years, respectively. The interest rate charged for both types of
loans based on prevailing rates for secured personal loans is fixed for the
term of the loan. The interest rates at December 31, 1996 range from 6.2% to
12.5%.
12
<PAGE> 15
Tandem Computers Incorporated
401(k) Investment Plan
Line 27d -- Schedule of Reportable Transactions
Year ended December 31, 1996
Category (iii) -- series of transactions in excess of 5% of plan assets
<TABLE>
<CAPTION>
Number of
Cost of Net Transactions
Aggregate Aggregate Investments Gain ----------------------
Identity of Party Involved Description of Security Purchases Sales Sold (Loss) Sales Purchases
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch Basic Value Fund $24,829,009 $20,811,336 $16,697,151 $4,114,186 461 595
Merrill Lynch Capital Fund $10,311,972 $ 7,844,616 $ 7,319,664 $ 524,952 342 516
Merrill Lynch Pacific Fund $10,630,567 $ 9,789,295 $ 9,031,522 $ 757,773 331 525
AIM Advisors, Inc. AIM Constellation Fund $24,138,921 $12,558,130 $11,897,132 $ 660,998 343 590
Merrill Lynch Ready Assets Trust $14,194,876 $12,060,511 $12,060,511 $ -- 358 672
AMEX Trust Co. American Express Trust
Income Fund $17,998,843 $24,681,529 $22,119,544 $2,561,985 477 521
</TABLE>
There were no Category (i), (ii), or (iv) reportable transactions during 1996.
13
<PAGE> 16
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees have duly caused this Annual Report to be signed on their behalf
by the undersigned thereunto duly authorized.
Date: December 31, 1997
By: /s/ DOUGLAS J. RICHARDS
------------------------------------
Douglas J. Richards, on behalf of the
Administrative Committee of the Plan
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Consent of Ernst & Young LLP.
</TABLE>
<PAGE> 1
EXHIBIT 1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8) of Compaq Computer Corporation of our report dated May 8, 1997,
with respect to the financial statements and schedules of Tandem Computers
Incorporated 401 (k) Investment Plan (the "Plan") included in the Plan's Annual
Report (Form 11-K) for the year ended December 31, 1996, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
San Jose, California
December 24, 1997
