- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
A. Full title of the plan and the address of the plan, if different from
that of the Issuer below:
TANDEM COMPUTERS INCORPORATED 401(K) INVESTMENT PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
COMPAQ COMPUTER CORPORATION
20555 SH 249, Houston, Texas 77070-2698
(281) 370-0670
- --------------------------------------------------------------------------------
<PAGE>
TANDEM COMPUTERS INCORPORATED
401(K) INVESTMENT PLAN
INDEX TO FINANCIAL STATEMENTS, ADDITIONAL INFORMATION AND EXHIBIT
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . . 1
Financial Statements:
Statement Net Assets Available for Benefits
As of December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Changes in Net Assets Available for Benefits, with Fund Information
For the Year Ended December 31, 1998 . . . . . . . . . . . . . . . . . . . . . 3
Statement of Changes in Net Assets Available for Benefits, with Fund Information
For the Year Ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Supplemental Schedule:
Item 27d - Schedule of Reportable Transactions . . . . . . . . . . . . . . . . . 10
Exhibits:
(1) Consent of Independent Accountants. . . . . . . . . . . . . . . . . . . . . 12
<FN>
Note: Other schedules required by 29CFR 2520.103-10 of the Department of Labor's Rules
and Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974 have been omitted because they are not applicable.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Administrator of the
Tandem Computers Incorporated
401(k) Investment Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Tandem Computers Incorporated 401(k) Investment Plan (the "Plan") at
December 31, 1998 and 1997, and the changes in net assets available for benefits
for the years then ended in conformity with generally accepted accounting
principles. 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 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.
As further discussed in Note 1 to the financial statements, effective December
31, 1998, the Plan was merged with the Compaq Computer Corporation Investment
Plan and, as a result of the merger, was terminated on December 31, 1998.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of reportable
transactions is presented for the purpose of additional analysis and is not a
required part of the basic financial statements but is supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. The fund
information in the statement of changes in net assets available for benefits is
presented for purposes of additional analysis rather than to present the changes
in net assets available for benefits of each fund. This supplemental schedule
and fund information are the responsibility of the Plan's management. The
supplemental schedule and fund information have been subjected to the auditing
procedures applied in the audits 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/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
San Jose, California
June 15, 1999
<PAGE>
TANDEM COMPUTERS INCORPORATED
401(K) INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
- --------------------------------------------------------------------------------
DECEMBER 31,
1998 1997
(IN THOUSANDS)
Assets
Investments, at fair value:
Units of registered investment companies:
Merill Lynch Ready Asset Trust Fund. . . $ - $ 24,804
Merill Lynch Federal Securities Fund . . - 14,090
Merill Lynch Basic Value Fund. . . . . . - 135,755
Merill Lynch Equity Index Trust. . . . . - 35,917
Merill Lynch Global Holdings Fund. . . . - 19,843
Merill Lynch Capital Fund. . . . . . . . - 39,603
Merill Lynch Pacific Fund. . . . . . . . - 18,621
AIM Constellation Fund . . . . . . . . . - 45,158
Fidelity Advisors High Yield Fund. . . . - 12,146
Templeton Foreign Fund . . . . . . . . . - 13,121
Common/Collective Trust:
AMEX Income Fund . . . . . . . . . . . . - 71,449
Compaq Computer Corporation Common Stock . - 23,558
Participant loans receivable . . . . . . . - 14,201
----- --------
Net assets available for benefits. . . . . . . $ - $468,266
===== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
TANDEM COMPUTERS INCORPORATED
401(K) INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
- ---------------
<TABLE>
<CAPTION>
FEDERAL EQUITY GLOBAL
READY ASSET SECURITIES BASIC VALUE INDEX HOLDINGS CAPITAL PACIFIC
TRUST FUND FUND FUND TRUST FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest and dividend income. . . . . $ 1,306 $ 831 $ 11,848 $ - $ 2,607 $ 2,529 $ 577
Net realized and unrealized
appreciation (depreciation) in
fair value of investments - 56 3,531 13,015 774 (441) 576
------------- ------------ ------------- --------- ---------- --------- ---------
1,306 887 15,379 13,015 3,381 2,088 1,153
------------- ------------ ------------- --------- ---------- --------- ---------
Contributions:
Participants. . . . . . . . . . . . . 1,905 1,043 6,831 4,811 1,421 2,890 1,283
Company . . . . . . . . . . . . . . . 506 306 2,002 1,282 434 829 398
------------- ------------ ------------- --------- ---------- --------- ---------
2,411 1,349 8,833 6,093 1,855 3,719 1,681
------------- ------------ ------------- --------- ---------- --------- ---------
Total additions . . . . . . . . . . . . 3,717 2,236 24,212 19,108 5,236 5,807 2,834
Deductions from net assets attributed to:
Benefits to terminated participants
and participant withdrawals . . . . . (5,049) (1,643) (13,697) (4,443) (2,252) (4,512) (1,522)
------------- ------------ ------------- --------- ---------- --------- ---------
Net increase (decrease) before
transfers . . . . . . . . . . . . . . . (1,332) 593 10,515 14,665 2,984 1,295 1,312
Interfund transfers . . . . . . . . . . . 8,728 5,109 (12,715) 25,655 (4,373) (4,493) (6,232)
Transfer to Compaq Investment Plan. . . . (32,200) (19,792) (133,555) (76,237) (18,454) (36,405) (13,701)
------------- ------------ ------------- --------- ---------- --------- ---------
Net decrease. . . . . . . . . . . . . . . (24,804) (14,090) (135,755) (35,917) (19,843) (39,603) (18,621)
Net assets available for benefits:
Beginning of year . . . . . . . . . . . 24,804 14,090 135,755 35,917 19,843 39,603 18,621
------------- ------------ ------------- --------- ---------- --------- ---------
End of year . . . . . . . . . . . . . . $ - $ - $ - $ - $ - $ - $ -
------------- ------------ ------------- --------- ---------- --------- ---------
FIDELITY
AMEX AIM ADVISORS TEMPLETON PARTICIPANT
INCOME CONSTELLATION HIGH YIELD FOREIGN STOCK LOAN
FUND FUND FUND FUND FUND FUND TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest and dividend income. . . . . $ - $ 1,094 $ 1,009 $ 1,213 $ 44 $ 1,240 $ 24,298
Net realized and unrealized
appreciation (depreciation) in
fair value of investments 4,277 5,403 (1,287) (1,871) 15,227 - 39,260
--------- --------------- ------------ ----------- --------- ------------- ----------
4,277 6,497 (278) (658) 15,271 1,240 63,558
--------- --------------- ------------ ----------- --------- ------------- ----------
Contributions:
Participants. . . . . . . . . . . . . 3,721 4,090 1,767 1,385 426 - 31,573
Company . . . . . . . . . . . . . . . 1,081 1,161 436 410 97 - 8,942
--------- --------------- ------------ ----------- --------- ------------- ----------
4,802 5,251 2,203 1,795 523 - 40,515
--------- --------------- ------------ ----------- --------- ------------- ----------
Total additions . . . . . . . . . . . . 9,079 11,748 1,925 1,137 15,794 1,240 104,073
Deductions from net assets attributed to:
Benefits to terminated participants
and participant withdrawals . . . . . (7,054) (4,655) (1,651) (1,174) (1,907) (561) (50,120)
--------- --------------- ------------ ----------- --------- ------------- ----------
Net increase (decrease) before
transfers . . . . . . . . . . . . . . . 2,025 7,093 274 (37) 13,887 679 53,953
Interfund transfers . . . . . . . . . . . (7,864) (9,576) 892 (4,400) 9,825 (556) -
Transfer to Compaq Investment Plan. . . . (65,610) (42,675) (13,312) (8,684) (47,270) (14,324) (522,219)
--------- --------------- ------------ ----------- --------- ------------- ----------
Net decrease. . . . . . . . . . . . . . . (71,449) (45,158) (12,146) (13,121) (23,558) (14,201) (468,266)
Net assets available for benefits:
Beginning of year . . . . . . . . . . . 71,449 45,158 12,146 13,121 23,558 14,201 468,266
--------- --------------- ------------ ----------- --------- ------------- ----------
End of year . . . . . . . . . . . . . . $ - $ - $ - $ - $ - $ - $ -
--------- --------------- ------------ ----------- --------- ------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TANDEM COMPUTERS INCORPORATED
401(K) INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL EQUITY GLOBAL
READY ASSET SECURITIES BASIC VALUE INDEX HOLDINGS CAPITAL PACIFIC
TRUST FUND FUND FUND TRUST FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest and dividend income . . . . . $ 1,314 $ 892 $ 10,332 $ - $ 2,347 $ 3,274 $ 2,972
Net realized and unrealized
appreciation (depreciation) in
fair value of investments. . . . . . - 234 20,076 6,968 (1,077) 3,560 (4,202)
------------- ------------ ------------- -------- ---------- --------- ---------
1,314 1,126 30,408 6,968 1,270 6,834 (1,230)
------------- ------------ ------------- -------- ---------- --------- ---------
Contributions:
Participants . . . . . . . . . . . . . 2,022 1,160 6,803 3,770 1,692 3,016 1,816
Company. . . . . . . . . . . . . . . . 524 315 1,815 842 463 788 507
------------- ------------ ------------- -------- ---------- --------- ---------
2,546 1,475 8,618 4,612 2,155 3,804 2,323
------------- ------------ ------------- -------- ---------- --------- ---------
Total additions. . . . . . . . . . . . . 3,860 2,601 39,026 11,580 3,425 10,638 1,093
Deductions from net assets attributed to:
Benefits to terminated participants
and participant withdrawals. . . . . . (3,461) (1,884) (9,141) (1,752) (1,266) (3,452) (1,872)
------------- ------------ ------------- -------- ---------- --------- ---------
Net increase (decrease) before
interfund transfers. . . . . . . . . . . 399 717 29,885 9,828 2,159 7,186 (779)
Interfund transfers. . . . . . . . . . . . (1,382) (339) 4,318 10,022 (2,160) 809 (4,704)
------------- ------------ ------------- -------- ---------- --------- ---------
Net increase (decrease). . . . . . . . . . (983) 378 34,203 19,850 (1) 7,995 (5,483)
Net assets available for benefits:
Beginning of year. . . . . . . . . . . . 25,787 13,712 101,552 16,067 19,844 31,608 24,104
------------- ------------ ------------- -------- ---------- --------- ---------
End of year. . . . . . . . . . . . . . . $ 24,804 $ 14,090 $ 135,755 $35,917 $ 19,843 $ 39,603 $ 18,621
------------- ------------ ------------- -------- ---------- --------- ---------
FIDELITY
AMEX AIM ADVISORS TEMPLETON PARTICIPANT
INCOME CONSTELLATION HIGH YIELD FOREIGN STOCK LOAN
FUND FUND FUND FUND FUND FUND TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest and dividend income . . . . . $ - $ 3,244 $ 1,189 $ 1,406 $ - $ 1,263 $ 28,233
Net realized and unrealized
appreciation (depreciation) in
fair value of investments. . . . . . 4,474 1,445 261 (842) 13,758 - 44,655
-------- --------------- ------------ ----------- -------- ------------- ---------
4,474 4,689 1,450 564 13,758 1,263 72,888
-------- --------------- ------------ ----------- -------- ------------- ---------
Contributions:
Participants . . . . . . . . . . . . . 4,419 4,965 1,603 1,789 - - 33,055
Company. . . . . . . . . . . . . . . . 1,251 1,236 355 392 - - 8,488
-------- --------------- ------------ ----------- -------- ------------- ---------
5,670 6,201 1,958 2,181 - - 41,543
-------- --------------- ------------ ----------- -------- ------------- ---------
Total additions. . . . . . . . . . . . . 10,144 10,890 3,408 2,745 13,758 1,263 114,431
Deductions from net assets attributed to:
Benefits to terminated participants
and participant withdrawals. . . . . . (6,674) (3,080) (916) (770) (1,654) (892) (36,814)
-------- --------------- ------------ ----------- -------- ------------- ---------
Net increase (decrease) before
interfund transfers. . . . . . . . . . . 3,470 7,810 2,492 1,975 12,104 371 77,617
Interfund transfers. . . . . . . . . . . . (8,816) (880) 1,537 3,683 (1,895) (193) -
-------- --------------- ------------ ----------- -------- ------------- ---------
Net increase (decrease). . . . . . . . . . (5,346) 6,930 4,029 5,658 10,209 178 77,617
Net assets available for benefits:
Beginning of year. . . . . . . . . . . . 76,795 38,228 8,117 7,463 13,349 14,023 390,649
-------- --------------- ------------ ----------- -------- ------------- ---------
End of year. . . . . . . . . . . . . . . $71,449 $ 45,158 $ 12,146 $ 13,121 $23,558 $ 14,201 $468,266
-------- --------------- ------------ ----------- -------- ------------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TANDEM COMPUTERS INCORPORATED
401(K) INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------
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 was a defined contribution plan covering substantially all United
States employees of Tandem Computers Incorporated (the "Company"). Employees of
the Company became eligible to participate in the Plan on their date of hire.
The Plan was subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended (ERISA).
MERGER OF PLAN SPONSOR
Effective August 29, 1997, the Company merged with Compaq Computer Corporation
("Compaq"). As a result of this merger, each share of the Company's Common
Stock owned by the Plan was exchanged for .525 shares of Compaq Common Stock.
MERGER OF PLAN ASSETS
Effective December 31, 1998, all Plan accounts and related assets were merged
into the Compaq Computer Corporation Investment Plan (the "Investment Plan")
sponsored by Compaq Computer Corporation. Employees previously eligible to
participate in the Plan immediately became eligible to participate in the
Investment Plan. As a result of the merger with the Investment Plan, the Plan
was terminated on December 31, 1998.
CONTRIBUTIONS
Employees - Employees of the Company were able to contribute from 1% to 18% of
their eligible pretax compensation up to a maximum of $10,000 in 1998 and $9,500
in 1997.
Company - In 1998 and 1997, the Company matched participants' contributions as a
percentage of eligible pretax compensation based on the following schedule:
EMPLOYEE COMPANY
CONTRIBUTION MATCH
- ------------- --------
1.0% 1.0%
2.0% 1.5%
3.0% 2.0%
4% or more 2.5%
Plan provisions also allowed the Company, in its discretion, to make additional
matching contributions on behalf of each participant.
Non-Matching Contributions - Plan provisions allowed for Profit Sharing
contributions to be made to the Plan at the discretion of the Board of Directors
of the Company. The Company made no such contribution during the life of the
Plan.
<PAGE>
TANDEM COMPUTERS INCORPORATED
401(K) INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
PARTICIPANT ACCOUNTS
Separate accounts were maintained for each participant. Participant accounts
were adjusted for Company matching contributions, participant contributions,
interest income, dividends, changes in the market value of underlying assets and
participant withdrawals. The benefit to which a participant was entitled was
the benefit that could be provided from the participant's account.
VESTING
All participant and Company matching contributions and the related earned income
were immediately vested.
PARTICIPANT LOANS
Each participant was able to borrow up to 50% of their account balance, subject
to certain limitations. The minimum loan was $500 and was secured by the
individual participant's accounts in the Plan. The interest rate to be charged
was fixed at the time of the loan and was based on a survey of the most secured
loan rates of area banks, savings and loans and credit unions. Maximum loan
terms ranged from five years up to twenty-five years for the purchase of a
primary residence. Loan accounts were maintained by Merrill Lynch Trust Company
(the "Plan Trustee"). Principal and interest payments, representing repayments
of loans taken by participants, were typically made through payroll deductions
for employees of the Company and serviced, at least every 90 days, for those who
were no longer employees of the Company. Interest income earned on participant
loans and repayment of principal was used to acquire additional units of the
various funds within the Plan based on the borrowers' investment elections.
Loans outstanding at the time of the Plan's merger with the Investment Plan were
transferred to the Investment Plan.
ADMINISTRATIVE COSTS
Administrative costs of the Plan were paid by the Company or out of the Plan
assets.
PAYMENT OF BENEFITS
Upon termination of service, retirement and/or disability, a participant was
able to 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. In addition, a participant who had reached age 59 1/2 or incurred a
financial hardship was entitled to withdraw some or all of their account balance
while employed by the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared using the accrual basis of
accounting.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
<PAGE>
TANDEM COMPUTERS INCORPORATED
401(K) INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
INVESTMENT VALUATION
The shares of registered investment companies are valued at quoted market
prices. 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. The shares of Common Stock included in the Stock Fund are valued at
the closing market share price as of December 31. Participant loans are valued
at cost, which approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the administrator and Plan Trustee to make
estimates that affect the amounts of assets and liabilities in the financial
statements. Actual results could differ from those estimates.
3. INVESTMENTS
All contributions made under the Plan were paid to and invested by the Plan
Trustee, in accordance with a participant's directives, in one or more of eleven
investment options. The eleven investment funds were:
Ready Asset Trust Fund - This fund invested in the Ready Asset Trust Fund which
- -----------------------
is a mutual fund 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.
Federal Securities Fund - This fund invested in the Merrill Lynch Federal
- -------------------------
Securities Fund which is a mutual fund consisting of U.S. government and
government agency securities, including mortgage-backed certificates and U.S.
Treasury bills, notes, and bonds.
Basic Value Fund - This fund invested in the Merrill Lynch Basic Value Fund
- ------------------
which is a mutual fund which invests primarily in common and preferred stock.
Equity Index Trust - This fund invested in the Merrill Lynch Equity Index Trust
- -------------------
which is a mutual fund which invests primarily in equity securities with a
portfolio composition similar to the Standard & Poor's 500 composite price
index.
Global Holdings Fund - This fund invested in the Merrill Lynch Global Holdings
- ----------------------
Fund which is a mutual fund which invests primarily in common and preferred
stock, convertible securities, and corporate debt obligations of companies
located in the U.S., Japan, and Western Europe.
Capital Fund - This fund invested in the Merrill Lynch Capital Fund which is a
- -------------
mutual fund which invests primarily in equity securities (stock), corporate
bonds, or money market securities.
Pacific Fund - This fund invested in the Merrill Lynch Pacific Fund which is a
- -------------
mutual fund which invests primarily in common and preferred stock of
corporations based in the Far East or Western Pacific, including Japan,
Australia, Hong Kong, and Singapore.
<PAGE>
TANDEM COMPUTERS INCORPORATED
401(K) INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
AMEX Income Fund - This fund invested in the American Express ("AMEX") Income
- ------------------
Fund which is a common/collective trust account that invests in both money
market investments and guaranteed investment contracts ("GICs"). Withdrawals
from the AMEX Income Fund were able to be made 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 5.56% to 8.27%. They mature on various dates through May 6, 2003.
AIM Constellation Fund - This fund invested in the AIM Constellation Fund which
- -----------------------
is a mutual fund which invests in small- to medium-sized emerging growth
companies seeking capital appreciation. Interest and dividend income are
incidental.
Fidelity Advisors High Yield Fund - This fund invested in the Fidelity Advisor
- -----------------------------------
High Yield Fund which is a mutual fund which is aggressively managed and seeks
higher yield and appreciation through investments in lower-rated bonds.
Templeton Foreign Fund - This fund invested in the Templeton Foreign Fund which
- -----------------------
is a mutual fund which 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.
In addition to the eleven investment options, the Plan also had an investment in
a Stock Fund. The assets in the fund were invested in shares of Tandem Stock
until August 1997, at which time the shares of Tandem stock were exchanged for
shares of Compaq Stock as described in Note 1. The Plan did not allow
contributions or transfers into the Stock Fund; however, when participants
became eligible for Plan distributions, they were able to elect to receive their
account balance by distribution of the underlying stock (cash for any fractional
shares) or have the stock sold by the Plan Trustee and receive the cash
equivalent.
Effective May 1, 1998, the Stock Fund was added to the funds eligible for
participant direction for allocation of contributions or transfers to or from
other funds.
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 were designed in
accordance with applicable sections of the Internal Revenue Code. The Plan had
been amended since receiving the determination letter. However, the plan
administrator believes that the Plan was designed and was operated in compliance
with the applicable requirements of the Internal Revenue Code. Accordingly, no
provision for Federal or State income taxes was made in the financial statements
of the Plan.
5. RELATED PARTY TRANSACTIONS
Certain plan investments were shares of mutual funds managed by Merrill Lynch,
the Plan Trustee, and therefore, these transactions qualify as
party-in-interest. Any purchases and sales of these funds were open market
transactions at fair market value. Consequently, such transactions were
permitted under the provisions of the Plan and are exempt from the prohibition
of party-in-interest transactions under ERISA.
<PAGE>
TANDEM COMPUTERS INCORPORATED
401(K) INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
6. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits from the
financial statements to the Form 5500 (in thousands):
<TABLE>
<CAPTION>
December 31,
1997
<S> <C>
Net assets available for benefits
from the financial statements. . . . . . . . . . $ 468,266
Amounts allocated to withdrawing participants. . . (923)
------------
Net assets available for benefits in the Form 5500 $ 467,343
============
</TABLE>
The following is a reconciliation of benefits paid to participants per the
financial statements to Form 5500 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
<S> <C> <C>
Benefits paid to participants
from the financial statements. . . . . . . . $ 50,120 $36,814
Add amounts allocated to withdrawing
participants at December 31, 1998 and 1997 . - 923
Less amounts allocated to withdrawing
participants at December 31, 1997 and 1996 . (923) (1,296)
--------- --------
Benefits paid to participants in the Form 5500 $ 49,197 $36,441
========= ========
</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 that date.
<PAGE>
SUPPLEMENTAL SCHEDULE
<PAGE>
TANDEM COMPUTERS INCORPORATED
401(K) INVESTMENT PLAN
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Transactions in excess of 5% of plan assets as of December 31, 1997
<TABLE>
<CAPTION>
A AGGREGATE AGGREGATE
A PURCHASES SALES
A AND FAIR VALUE AND FAIR VALUE COST OF NET NUMBER OF
A AT DATE OF AT DATE OF INVESTMENTS GAIN TRANSACTIONS
IDENTITY OF PARTY INVOLVED DESCRIPTION OF SECURITY TRANSACTION TRANSACTION SOLD (LOSS) SALES
<S> <C> <C> <C> <C> <C> <C>
SERIES OF TRANSACTIONS:
Merrill Lynch Compaq Computer Stock $ 19,649,155 $ 58,175,563 $ 29,819,354 $28,356,209 192
Merrill Lynch Basic Value 33,579,810 172,585,083 129,748,827 42,836,256 440
Merrill Lynch Equity Index Trust 47,003,876 95,935,380 73,986,708 21,948,672 366
Merrill Lynch Pacific Fund 4,616,768 23,616,164 26,727,029 (3,110,865) 329
Merrill Lynch Capital Fund 10,118,286 49,276,480 44,642,842 4,633,638 350
Merrill Lynch Ready Assets Trust 33,799,068 58,603,368 58,603,302 66 376
Merrill Lynch Global Holdings Fund 6,920,338 27,436,883 26,456,188 980,695 295
Merrill Lynch Federal Securities Trust 11,352,920 25,503,826 25,235,428 268,398 300
AIM Advisors, Inc. AIM Constellation Fund 16,829,362 67,389,934 58,692,811 8,697,123 401
AMEX Trust Co. AMEX Trust Income Fund 16,796,387 26,912,039 22,962,211 3,949,848 403
SINGLE TRANSACTIONS:
Merrill Lynch Compaq Computer Stock $ - $ 47,270,106 $ 21,504,693 $25,765,413 1
Merrill Lynch Basic Value - 133,555,013 99,444,974 34,110,039 1
Merrill Lynch Equity Index Trust - 76,236,685 57,249,923 18,986,762 1
Merrill Lynch Capital Fund - 36,404,925 33,045,070 3,359,855 1
Merrill Lynch Ready Assets Trust - 32,200,291 32,200,276 15 1
AIM Advisors, Inc. AIM Constellation Fund - 42,674,797 36,243,395 6,431,402 1
IDENTITY OF PARTY INVOLVED PURCHASES
<S> <C>
SERIES OF TRANSACTIONS:
Merrill Lynch 277
Merrill Lynch 685
Merrill Lynch 638
Merrill Lynch 452
Merrill Lynch 558
Merrill Lynch 777
Merrill Lynch 463
Merrill Lynch 473
AIM Advisors, Inc. 625
AMEX Trust Co. 570
SINGLE TRANSACTIONS:
Merrill Lynch -
Merrill Lynch -
Merrill Lynch -
Merrill Lynch -
Merrill Lynch -
AIM Advisors, Inc. -
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this annual
report to be signed by the undersigned thereunto duly authorized.
Tandem Computers Incorporated 401(k)
Investment Plan
Date: June 29, 1999 By: /s/ Linda S. Auwers
--------------------
Linda S. Auwers
Vice President, Associate General
Counsel and Secretary
Compaq Computer Corporation
<PAGE>
EXHIBIT 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-43595) of Tandem Computers Incorporated of our
report dated June 15, 1999, relating to the financial statements of the Tandem
Computers Incorporated 401(k) Investment Plan, which appears in this Form 11-K.
By:/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
San Jose, California
June 29, 1999
