SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 28, 1999
COMPAQ COMPUTER CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-9026 76-0011617
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(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
20555 SH 249
HOUSTON, TEXAS 77070
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(Address of Principal Executive Offices) (Zip Code)
(281) 370-0670
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(Registrant's telephone number, including area code)
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
IN A RELEASE DATED JULY 28, 1999, COMPAQ COMPUTER CORPORATION (NYSE:
CPQ) TODAY ANNOUNCED WORLDWIDE SALES OF $9.4 BILLION FOR THE SECOND QUARTER
ENDED JUNE 30, 1999. TOTAL REVENUES FOR THE QUARTER GREW BY 17 PERCENT ON A PRO
FORMA (1) BASIS OVER THE SECOND QUARTER OF 1998 (19 PERCENT IN CONSTANT
CURRENCY). THE COMPANY REPORTED A NET LOSS FOR THE QUARTER OF $184 MILLION, OR
$0.10 PER SHARE. THE NEWS RELEASE IS ATTACHED AS EXHIBIT 99.
ITEM 7. EXHIBITS.
Exhibit 99 News Release dated July 28, 1999 is attached.
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 hereunto duly authorized.
COMPAQ COMPUTER CORPORATION
Dated: July 28, 1999 By: /s/ Ben K. Wells
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Ben K. Wells
Vice President, Corporate
Treasurer and acting Chief
Financial Officer
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(1) Pro forma reflects prior quarterly information as if Compaq and Digital
had been combined as of the beginning of the second quarter 1998
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COMPAQ COMPUTER CORPORATION P.O. BOX 692000 NEWS RELEASE
PUBLIC RELATIONS DEPARTMENT HOUSTON, TEXAS 77269-2000
TEL 281-514-0484
FAX 281-514-4583
[COMPAQ LOGO]
FOR IMMEDIATE RELEASE
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COMPAQ REPORTS SECOND QUARTER RESULTS
HOUSTON, JULY 28, 1999 - Compaq Computer Corporation (NYSE: CPQ) today
announced worldwide sales of $9.4 billion for the second quarter ended June 30,
1999. Total revenues for the quarter grew by 17 percent on a pro forma (1)
basis over the second quarter of 1998 (19 percent in constant currency). The
company reported a net loss for the quarter of $184 million, or $0.10 per share.
On June 17, Compaq warned that it expected its financial performance for
the second quarter to be negatively affected by a number of factors, including
pricing pressures in the PC segment, inadequate revenue growth and a
non-competitive cost structure. As also stated, associated with the announced
realignment of the company, Compaq expected to take a restructuring charge
during the third quarter. The company now anticipates this charge to be in the
range of $700 million to $900 million, which includes a headcount reduction of
6,000 to 8,000 employees and some related facility closings.
"We are aggressively taking the appropriate actions to restore the
company's growth and financial performance," said Michael Capellas, Compaq
President and Chief Executive Officer. "The realignment of the company is fully
underway, our management team is basically in place and we already offer the
powerful solutions and range of
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(1) Pro forma reflects prior quarterly information as if Compaq and Digital
had been combined as of the beginning of the second quarter 1998
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products customers need to maximize Internet benefits through Compaq's NonStop
eBusiness capabilities."
Capellas said the realignment will ensure Compaq's leadership in delivering
innovative, next-generation products; simplify the company's distribution
strategy; and reduce costs, resulting in a return to profitable growth and
long-term shareholder value.
RESULTS
According to Capellas, the primary factors leading to the second quarter
results were inadequate revenue growth, a decline in gross margins and an
increase in operating expenses. The decline in gross margins and the increase
in operating expenses included several unusual items.
GROSS MARGIN
Total gross margin for the quarter was 20.5 percent versus 24.7 percent in
the first quarter. The sequential decrease in gross margin was the result of
intense price competition in the commercial PC segment, an increase in warranty
expenses associated with several commercial PC products no longer shipping,
costs associated with discontinued programs, and penalties related to some
long-term purchasing contracts.
OPERATING EXPENSES
Operating expenses increased from $1.9 billion in the first quarter to $2.2
billion in the second quarter. The company cited several factors which
contributed to higher operating costs. These included increased spending in
promotional events and advertising during the quarter, incremental AltaVista
goodwill amortization, an increase in costs related to discontinued business
ventures, incremental accounts receivable allowances, and substantial completion
of internal Y2K activities.
"Overall, we expect the realignment to have a positive effect on both gross
margin and operating expenses going forward," said Capellas.
<PAGE>
SECOND QUARTER BUSINESS SUMMARY
During the quarter, the company saw:
- - Enterprise-related revenues increase 11 percent year-over-year, with
particularly strong growth in the industry standard server and storage
segments
- - Commercial PC revenue growth of 19 percent from the second quarter of 1998
- - A 2.2 point increase in its U.S. PC market share over the second quarter
of 1998, resulting in total U.S. market share of 16.6 percent (source:
IDC)
- - Worldwide PC market share grow to 14.6 percent by shipping more than 3.7
millions PCs during the second quarter, approximately one million more
than its nearest competitor (source: IDC)
- - Worldwide commercial channel inventory average 3.5 weeks (an improvement
from the average 3.9 weeks of the first quarter)
- - Continued worldwide market share leadership in the consumer sector,
recording an all-time high in June for monthly shipments
- - Year-over-year unit growth of 63 percent and revenue growth of 35 percent
in the consumer business
- - Major customer wins including Motorola, Nike, OptiMark Technologies and
the State of Georgia, as well as winning quality supplier awards from
Xerox and the U.S. Postal Service
OUTLOOK
In summary, Capellas said, "We have an aggressive schedule for meeting our
realignment goals and reducing our cost structure. We are intently focused on
meeting customers' needs and positioning the company for increased growth and
profitability as we begin the year 2000."
COMPANY BACKGROUND
Compaq Computer Corporation, a Fortune Global 100 company, is the
second-largest computer company in the world and the largest global supplier of
computer systems. Compaq develops and markets hardware, software, solutions,
and services, including industry-leading enterprise computing solutions,
fault-tolerant business-critical solutions, enterprise network storage products,
commercial desktop and portable products and consumer PCs. The company is an
industry leader in environmentally friendly programs and business practices.
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Compaq products are sold and supported in more than 100 countries through a
network of authorized Compaq marketing partners. Customer support and
information about Compaq and its products are available at
http://www.compaq.com, or by calling 1-800-345-1518.
# # #
Compaq, Registered U.S. Patent and Trademark Office. Product names mentioned
herein may be trademarks and/or registered trademarks of their respective
companies. This release contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. The potential
risks and uncertainties that could cause actual results to differ materially
include the failure of systems associated with order fulfillment; changes in
product mix; inventory risks due to shifts in market demand; continued
competitive factors and pricing pressures; and market responses to pricing
actions and promotional programs. Further information on the factors that
could affect Compaq's financial results are included in its SEC filings,
including the annual report on Form 10-K for the year ended December 31, 1998,
and the quarterly report on Form 10-Q for the quarter ended March 31, 1999.
For further information, Media may contact:
Compaq Computer Corporation Jim Finlaw 281-514-6137 [email protected]
Compaq Computer Corporation Alan Hodel 281-518-8932 [email protected]
Compaq Investor Relations: 281-514-9549 OR 800-433-2391
[email protected]
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COMPAQ COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, DECEMBER 31,
(In millions, except par value) . . . . . . . . . . . . . . . . . . 1999 1998
===============================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $ 2,855 $ 4,091
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . 6,556 6,998
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,224 2,005
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . 1,382 1,602
Other current assets . . . . . . . . . . . . . . . . . . . . . . 451 471
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Total current assets. . . . . . . . . . . . . . . . . . . . 13,468 15,167
Property, plant and equipment, less accumulated depreciation. . . . 3,018 2,902
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,762 1,341
Intangible and other assets . . . . . . . . . . . . . . . . . . . . 4,177 3,641
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$ 22,425 $ 23,051
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 4,152 $ 4,237
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 385 282
Accrued restructuring costs. . . . . . . . . . . . . . . . . . . 713 1,110
Other current liabilities. . . . . . . . . . . . . . . . . . . . 5,126 5,104
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Total current liabilities . . . . . . . . . . . . . . . . . 10,376 10,733
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Postretirement and other postemployment benefits. . . . . . . . . . 524 545
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Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . - 422
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Stockholders' equity:
Preferred stock, $.01 par value
(authorized: 10 million shares; issued: none). . . . . . . . - -
Common stock and capital in excess of $.01 par value
(authorized: 3 billion shares; issued and outstanding:
1,709 million and 1,693 million shares at June 30, 1999 and
1,698 million and 1,687 million shares at December 31, 1998) 7,520 7,270
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 4,552 4,501
Accumulated comprehensive income. . . . . . . . . . . . . . . . 5 ( 36)
Treasury stock (at cost). . . . . . . . . . . . . . . . . . . . ( 552) ( 384)
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Total stockholders' equity . . . . . . . . . . . . . . . . . 11,525 11,351
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$ 22,425 $ 23,051
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COMPAQ COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
SIX MONTHS ENDED QUARTER ENDED
JUNE 30, JUNE 30,
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(In millions, except per share amounts) 1999 1998 1999 1998
=========================================================================================
<S> <C> <C> <C> <C>
Revenue:
Products . . . . . . . . . . . . . . . . . . $15,600 $ 10,947 $ 7,781 $ 5,372
Services . . . . . . . . . . . . . . . . . . 3,239 572 1,639 460
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Total revenue. . . . . . . . . . . . . . 18,839 11,519 9,420 5,832
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Cost of sales:
Products . . . . . . . . . . . . . . . . . . 12,338 9,007 6,331 4,406
Services . . . . . . . . . . . . . . . . . . 2,238 379 1,153 316
------- --------- -------- ---------
Total cost of sales. . . . . . . . . . . 14,576 9,386 7,484 4,722
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Selling, general and administrative expense. . . 3,209 1,836 1,732 1,051
Research and development costs . . . . . . . . . 870 494 466 249
Purchased in-process technology. . . . . . . . . - 3,234 - 3,234
Restructuring and asset impairment charges . . . - 393 - 393
Other income and expense, net. . . . . . . . . . 42 ( 74) 8 ( 44)
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4,121 5,883 2,206 4,883
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Income (loss) before provision for income taxes. 142 ( 3,750) ( 270) ( 3,773)
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Provision (benefit) for income taxes . . . . . . 45 ( 134) ( 86) ( 141)
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Net income (loss). . . . . . . . . . . . . . . . $ 97 $( 3,616) $ ( 184) $( 3,632)
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Earnings (loss) per common share:
Basic. . . . . . . . . . . . . . . . . $ 0.07 $ ( 2.35) $( 0.10) $ ( 2.33)
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Diluted. . . . . . . . . . . . . . . . $ 0.07 $ ( 2.35) $( 0.10) $ ( 2.33)
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Shares used in computing earnings (loss) per
common share:
Basic. . . . . . . . . . . . . . . . . 1,691 1,539 1,693 1,556
======= ========= ======== =========
Diluted. . . . . . . . . . . . . . . . 1,741 1,539 1,693 1,556
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