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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
COMPAQ COMPUTER CORPORATION
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)
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COMPAQ COMPUTER CORPORATION INVESTMENT PLAN
INDEX TO FINANCIAL STATEMENTS, ADDITIONAL INFORMATION, AND EXHIBITS
The following plan financial statements, schedules, and reports have been
prepared in accordance with the financial reporting requirements of ERISA.
Page
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Report of Independent Accountants 3
Financial Statements:
Statement of Net Assets Available for Plan Benefits
at December 31, 1996 and 1995 4
Statement of Changes in Net Assets Available for Plan Benefits
for the Year Ended December 31, 1996 5
Notes to Financial Statements 6-12
Additional Information:*
Item 27a - Schedule of Plan Assets Held for Investment
Purposes at December 31, 1996 13
Item 27d - Schedule of Reportable Transactions for the
Year Ended December 31, 1996 14
Exhibits:
(1) Consent of Independent Accountants 17
* Other schedules required by Section 2520.103-10 of the Department of
Labor's Rules and Regulations for reporting and disclosure under ERISA
have been omitted because they are not applicable.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Administrative Committee of the
Compaq Computer Corporation Investment Plan
In our opinion, the accompanying Statement of Net Assets available for plan
benefits and the related Statement of Changes in Net Assets available for plan
benefits present fairly, in all material respects, the net assets available for
plan benefits of the Compaq Computer Corporation Investment Plan at December
31, 1996 and 1995, and the changes in net assets available for plan benefits
for the year ended December 31, 1996, 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.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included in
the schedules listed in the accompanying index is presented for purposes of
additional analysis and is not a required part of the basic financial
statements but is additional information required by ERISA. The information in
Note 6, Net Assets Available For Plan Benefits by Investment Fund and Note 7,
Changes in Net Assets Available for Plan Benefits by Investment Fund is
presented for the purpose 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 schedules listed in the accompanying index and the
information by fund have been subjected to the auditing procedures applied in
the 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.
PRICE WATERHOUSE LLP
Houston, Texas
June 9, 1997
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COMPAQ COMPUTER CORPORATION INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31,
1996 1995
------------ ------------
Investments, at fair value (Notes 2 and 6) $530,701,147 $364,819,695
Loans to participants 27,412,263 23,100,713
------------ ------------
Net assets available for plan benefits $558,113,410 $387,920,408
============ ============
The accompanying notes are an integral part of these financial statements.
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COMPAQ COMPUTER CORPORATION INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1996
Additions to net assets attributed to:
Employee contributions $ 31,228,913
Employer contributions, less forfeitures of $528,000 20,864,458
Rollover contributions 6,425,678
Transfers from other plans (Note 1) 3,571,338
Interest on participant loans 2,252,502
Investment income 9,176,205
Net appreciation in fair market value of investments 120,880,458
-------------
194,399,552
Deductions from net assets attributed to:
Benefits paid to participants (24,170,190)
Administrative expenses (36,360)
-------------
(24,206,550)
Net increase 170,193,002
Net assets available for plan benefits:
Beginning of year 387,920,408
-------------
End of year $ 558,113,410
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The accompanying notes are an integral part of these financial statements.
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COMPAQ COMPUTER CORPORATION INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
Note 1 - Description of the Plan and Significant Accounting Policies:
Compaq Computer Corporation (the Company) initially adopted the Compaq Computer
Corporation Savings Plan effective April 1, 1985, to establish a savings and
investment plan for the benefit of the Company's employees and their
beneficiaries. The Compaq Computer Corporation Savings Plan was renamed the
Compaq Computer Corporation Investment Plan (the Plan) effective January 1,
1986, pursuant to a Plan amendment on October 28, 1986. There were no material
changes in the Plan as a result of amendments in 1996.
In January 1995, the Administrative Committee of the Plan changed plan
administrators from T. Rowe Price Trust Company to the Vanguard Group, Inc. The
transfer of administrative duties and Participant funds occurred on June 30,
1995.
Effective January 1996 and April 1996, the net assets of the Thomas-Conrad
Corporation Investment Plan and Networth, Inc. Investment Plan, respectively,
were merged into the Plan as a result of the Company's acquisition of
Thomas-Conrad Corporation and Networth, Inc.
The following description of the Plan provides only general information.
Eligible employees may refer to the official Investment Plan document, as
amended, for a more complete description of the Plan's provisions. Capitalized
terms used and not otherwise defined herein are as defined in the Plan.
Basis of Accounting -
The financial statements of the Plan are prepared under the accrual method of
accounting.
Investment Valuation and Income Recognition -
The Plan's investments are stated at fair value. Shares of registered
investment companies are valued at quoted market prices which represent the net
asset value of shares held by the Plan at year end. The Company stock is valued
at its quoted market price. Loans to participants are valued at cost which
approximates fair value. Purchases and sales of securities are recorded on a
trade-date basis. Interest income is recorded on the accrual basis.
Payment of Benefits -
Benefits are recorded when paid.
Participation -
The Plan is a voluntary defined contribution plan. Employees are eligible to
participate at the beginning of any month after completion of six months of
service with the Company. Participants may contribute to the Plan, through
salary reduction, an amount between 1% and 14% of Base Compensation.
Participants may change their (i) contribution percentage at the beginning of
any month, (ii) allocation of contributions to the funds (in 1% increments) on
a daily basis, and (iii) allocation of investment balances in the Company's
Common Stock Fund and the mutual funds on a daily basis. All participating
employees of the Company are required to adhere to the Company's policy
regarding insider trading, and executive officers are required to adhere to
rules issued by the Securities and Exchange Commission under Section 16 of the
Securities Exchange Act of 1934, as amended. Each Participant's annual salary
reduction contribution is limited to the maximum amount permitted by the
Secretary of the Treasury ($9,500 in 1996).
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Contributions -
The Company is required to make monthly matching contributions to the Plan in
an amount equal to the respective Participant's salary reduction contribution,
subject to a maximum of 6% of the Participant's Base Compensation up to a
maximum of $150,000. At its discretion, the Company may make additional Company
contributions in equal amounts to the accounts of certain Participants to the
extent necessary to meet tests imposed by the Internal Revenue Code (Code). The
Company's contributions can be deferred to subsequent periods (within certain
limitations) if current or accumulated earnings are not sufficient to permit
the Company to make such contribution on any contribution date.
Investment Options -
Participants are permitted to direct the investment of all Company matching
contribution and Participant salary reduction contributions into any of the
following seven funds:
* Vanguard Money Market Prime Portfolio Fund, a money market fund, seeks
maximum current income consistent with the preservation of capital and
liquidity.
* Vanguard Short-Term Corporate Bond Fund seeks to provide the highest level
of current income consistent with the conservation of capital and the
investment policy of the fund.
* Vanguard Index 500 Portfolio Fund, a stock market index fund that attempts
to replicate the investments and returns of the U.S. equity market, as
represented by the Standard & Poor's 500 Index.
* Vanguard Primecap Fund, a fund that invests primarily in dividend-paying
common stocks selected on the basis of greater-than-average earnings
growth potential, consistency of earnings growth, and quality of
management.
* Warburg Pincus Institutional International Equity Fund, a fund that seeks
long-term capital appreciation by investing in a broadly diversified
portfolio of equity securities of companies that have their principal
business activities and interests outside the United States.
* Vanguard Explorer Fund, a fund that seeks to provide long-term capital
appreciation by investing in the common stocks of relatively small,
unseasoned or embryonic companies.
* The Compaq Stock Fund, a fund that is comprised of common stock of the
Company.
Participants' Accounts -
Each Participant's account is credited with his or her contribution, the
Company's matching contribution and an allocation of Plan earnings or losses.
Allocations of Plan earnings or losses are based upon the directed investment
account balances, as defined. The benefit to which a Participant is entitled is
the benefit that can be provided from the Participant's vested account balances
net of any outstanding loans against those vested amounts.
Vesting -
Participants are immediately vested in their contributions and any net earnings
thereon. Within the Participant's first five years of service with the Company,
the Company matching contributions vest one-third on December 31 of the year of
contribution, one-third on December 31 of the first succeeding year and
one-third on December 31 of the second succeeding year. All Company matching
contributions become 100% vested after a Participant has attained five years of
service with the Company. The Plan provides for full vesting in the respective
Company matching contributions for Participants who attain the age of 55 or
become disabled and for the Participant's beneficiaries upon death of the
Participant.
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Loans -
Participants may borrow up to 50% of the current value of their vested account
balances, including any earnings or losses. The minimum amount that may be
borrowed is $1,000 and the maximum is $50,000 less the highest outstanding
principal balance of any loan outstanding within the past twelve months. Loan
terms range up to 5 years or up to 30 years for the purchase of a primary
residence. The loans are secured by the balance in the participant's account
and bear interest at a fixed rate of 1 percent above the prime rate for the
term of the loan. A Participant may originate three loans within a calendar
year and can have no more than three loans outstanding at any given time. The
carrying value of Participant loans approximates fair value.
Forfeitures -
Forfeitures of terminated Participants' nonvested accounts serve to reduce
subsequent Company contributions. Forfeitures aggregated $967,080 and $528,000
was used to reduce Company contributions for the year ended December 31, 1996.
Administration -
Vanguard Group, Inc. is responsible for the administration of the amounts
contributed by the Company and Participants to the Plan. Expenses incidental to
the administration of the Plan and Trust may be paid by the Company or the
Trust. Such administrative expenses aggregated $410,791 for the year ended
December 31, 1996 and were paid by the Company.
Payment of Benefits -
Participants or their designated beneficiaries are entitled to receive a
lump-sum distribution of all vested amounts net of any outstanding loans
against those vested amounts in the event of termination of service, total and
permanent disability, attainment of age 59 1/2, retirement or death.
Estimates-
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Management believes the
estimates are reasonable.
Note 2 - Investments
The number of shares and net asset values or quoted market price for each fund
are as follows:
Net Asset
Number of Value/
Shares Market Price
--------- ---------
Warburg Pincus Institutional International Equity Fund 1,213,329 $ 16.35
Vanguard Explorer Fund 426,930 53.83
Vanguard Money Market Prime Portfolio Fund 66,559,573 1.00
Vanguard Short-Term Corporate Bond Fund 927,976 10.75
Vanguard Index 500 Portfolio Fund 1,284,716 69.16
Vanguard Primecap Fund 2,070,715 30.08
Compaq Stock Fund 3,504,486 74.25
Net realized gains determined based on the current value method related to
sales of the Company's stock and related to the sales of mutual fund
investments for year ended December 31, 1996 are $15,132,227 and $2,179,101
respectively. Proceeds and costs related to sales of the Company's stock and
related to the sales of mutual fund investments for the year ended December 31,
1996 are $103,107,324 and $ 118,689,893, and $87,975,096 and $116,510,792
respectively.
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Note 3 - 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 will be credited with a 100% vested interest in their respective
Company matching contributions and net earnings thereon.
Note 4 - Federal Income Tax Status:
Management believes that the Plan is designed and is currently being operated
in compliance with the applicable requirements of the Code and therefore the
related trust is exempt from taxation under Code Section 501(a). In connection
with certain amendments to the Plan, the Internal Revenue Service granted a
favorable letter of determination to the Plan in January 1995.
Note 5 - Party-in-Interest Transactions:
During 1996, the Plan held certain assets in mutual funds managed by Vanguard
Group, Inc. Any purchases and sales of these funds are open market transactions
at fair market value. Consequently, such transactions are permitted under the
provisions of the Plan and are exempt from prohibition of party-in-interest
transactions under ERISA.
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Note 6 - Net Assets Available For Plan Benefits by Investment Fund:
December 31, 1996
Warburg Pincus Vanguard Vanguard Vanguard
Institutional Vanguard Money Market Short-Term Index 500
International Explorer Prime Corporate Portfolio
Equity Fund Fund Portfolio Fund* Bond Fund Fund*
------------ ------------ ------------ ------------ ------------
Investments, at fair value $ 19,837,930 $ 22,981,647 $ 66,559,573 $ 9,975,752 $ 88,850,985
Loans to participants
------------ ------------ ------------ ------------ ------------
Net assets available for plan
benefits $ 19,837,930 $ 22,981,647 $ 66,559,573 $ 9,975,752 $ 88,850,985
============ ============ ============ ============ ============
Vanguard Compaq
Primecap Stock Participant
Fund* Fund* Loans Total
------------ ------------ ------------ ------------
Investments, at fair value $ 62,287,111 $260,208,149 $530,701,147
Loans to participants $ 27,412,263 27,412,263
------------ ------------ ------------ ------------
Net assets available for plan
benefits $ 62,287,111 $260,208,149 $ 27,412,263 $558,113,410
============ ============ ============ ============
* Fund balance represents more than 5% of total net assets available for
plan benefits.
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Note 6 (continued) - Net Assets Available For Plan Benefits by Investment Fund:
December 31, 1995
Warburg Pincus Vanguard Vanguard Vanguard
Institutional Vanguard Money Market Short-Term Index 500
International Explorer Prime Corporate Portfolio
Equity Fund Fund Portfolio Fund* Bond Fund Fund*
----------- ----------- ----------- ---------- -----------
Investments, at fair value $15,029,531 $13,616,592 $50,033,113 $7,649,383 $60,121,601
Loans to participants
----------- ----------- ----------- ---------- -----------
Net assets available for plan
benefits $15,029,531 $13,616,592 $50,033,113 $7,649,383 $60,121,601
=========== =========== =========== ========== ===========
Vanguard Compaq
Primecap Stock Participant
Fund* Fund* Loans Total
----------- ------------ ----------- ------------
Investments, at fair value $42,540,940 $175,828,535 $364,819,695
Loans to participants $ 23,100713 23,100,713
----------- ------------ ----------- ------------
Net assets available for plan
benefits $42,540,940 $175,828,535 $23,100,713 $387,920,408
=========== ============ =========== ============
* Fund balances represents more than 5% of total net assts available for
plan benefits.
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Note 7 - Changes in Net Assets Available For Plan Benefits by Investment Fund:
For the Year Ended December 31, 1996
Warburg Pincus Vanguard Vanguard Vanguard
Institutional Vanguard Money Market Short-Term Index 500
International Explorer Prime Corporate Portfolio
Equity Fund Fund Portfolio Fund Bond Fund Fund
------------ ------------ ------------ ------------ ------------
Additions to net assets
attributed to:
Employee contributions $ 1,810,974 $ 2,204,552 $ 4,758,256 $ 1,041,520 $ 5,657,173
Employer contributions,
less forfeitures 1,150,200 1,383,394 3,957,558 641,510 3,661,157
Rollover
contributions 305,157 733,713 986,257 389,576 1,591,160
Interest on
participant loans 79,270 101,012 481,026 43,635 348,129
Dividend income 715,028 1,246,712 2,971,811 542,452 1,862,282
Net appreciation
in fair market
value of investments 1,103,702 1,022,132 (118,977) 13,535,012
------------ ------------ ------------ ------------ ------------
5,164,331 6,691,515 13,154,908 2,539,716 26,654,913
Deductions from net
assets
attributed to:
Benefits paid to participants (888,456) (773,936) (6,009,646) (598,618) (3,707,631)
Administrative expenses (36,360)
Total Interfund
Transfers 144,113 3,364,014 9,103,676 114,693 4,957,361
Transfers from other 424,771 83,462 277,522 270,577 824,742
plans
------------ ------------ ------------ ------------ ------------
Net Increase 4,808,399 9,365,055 16,526,460 2,326,368 28,729,385
Net assets available at
Beginning of Period 15,029,531 13,616,592 50,033,113 7,649,383 60,121,601
------------ ------------ ------------ ------------ ------------
Net assets available at
End of Period $ 19,837,930 $ 22,981,647 $ 66,559,573 $ 9,975,751 $ 88,850,986
============ ============ ============ ============ ============
Vanguard Compaq
Primecap Stock Participant
Fund Fund Loans Total
------------ ------------ ------------ ------------
Additions to net assets
attributed to:
Employee contributions $ 5,264,153 $ 10,492,285 $ 31,228,913
Employer contributions,
less forfeitures 3,318,506 6,752,133 20,864,458
Rollover
contributions 1,233,068 1,186,747 6,425,678
Interest on
participant loans 264,834 934,596 2,252,502
Dividend income 1,837,914 6 9,176,205
Net appreciation
in fair market
value of investments 7,314,236 98,024,353 120,880,458
------------ ------------ ------------ ------------
19,232,711 117,390,120 190,828,214
Deductions from net
assets
attributed to:
Benefits paid to participant (3,285,035) (7,449,337) (1,457,531) (24,170,190)
Administrative expenses (36,360)
Total Interfund
Transfers 2,217,108 (25,561,169) 5,660,204
Transfers from other 1,581,388 108,876 3,571,338
plans
------------ ------------ ------------ ------------
Net Increase 19,746,172 84,379,614 4,311,549 170,193,002
Net assets available at
Beginning of Period 42,540,940 175,828,535 23,100,713 387,920,408
------------ ------------ ------------ ------------
Net assets available at
End of Period $ 62,287,112 $260,208,149 $ 27,412,262 $558,113,410
============ ============ ============ ============
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COMPAQ COMPUTER CORPORATION INVESTMENT PLAN
LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AT DECEMBER 31, 1996
(a) (b) (c) (d) (e)
Description of Current
Identity of issue investment Cost value
----------------- -------------- ------------ ------------
* Compaq Stock Fund Common stock $112,933,620 $260,208,149
* Warburg Pincus Institutional International Equity Mutual fund 18,351,684 19,837,930
Fund
* Vanguard Explorer Fund Mutual fund 22,120,179 22,981,647
* Vanguard Money Market Prime Portfolio Fund Mutual fund 66,559,573 66,559,573
* Vanguard Short-Term Corporate Bond Fund Mutual fund 9,986,016 9,975,752
* Vanguard Index 500 Portfolio Fund Mutual fund 73,297,732 88,850,985
* Vanguard Primecap Fund Mutual fund 55,457,903 62,287,111
* Participant Loans Maturing March 15, 1997 through
May 15, 2027, with interest rates
ranging from 6% to 11.5% 27,412,263 27,412,263
------------ ------------
Plan assets held for investment $386,118,970 $558,113,410
============ ============
* Represents an investment associated with a party-in-interest.
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COMPAQ COMPUTER CORPORATION INVESTMENT PLAN
LINE 27d - SCHEDULE OF REPORTABLE TRANSACTION
FOR THE YEAR ENDED DECEMBER 31, 1996
(a) (b) (c) (d) (e)
Identity of Description Purchase Selling Lease
party involved of asset price price rental
-------------- ----------- -------- ------- ------
Compaq Stock Fund Common stock $89,602,880
Compaq Stock Fund Common stock $ 103,107,324
Vanguard Money Market Prime Portfolio Fund Mutual fund 83,240,593
Vanguard Money Market Prime Portfolio Fund Mutual fund 67,004,707
Vanguard Index 500 Portfolio Fund Mutual fund 34,218,018
Vanguard Primecap Fund Mutual fund 27,941,861
(a) (f) (g) (h) (i)
Current
value on
Identity of Expense Cost of transaction Net gain
party involved incurred asset date or (loss)
-------------- -------- ------- ----------- ---------
Compaq Stock Fund $ 89,602,880
Compaq Stock Fund $73,117,396 103,107,324 $ 29,889,928
Vanguard Money Market Prime Portfolio Fund 83,240,593
Vanguard Money Market Prime Portfolio Fund 67,004,707 67,004,707
Vanguard Index 500 Portfolio Fund 34,218,018
Vanguard Primecap Fund 27,941,861
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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.
COMPAQ COMPUTER CORPORATION
INVESTMENT PLAN
Date: , 1997 By:
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Earl Mason
Senior Vice President,
Chief Financial Officer
Compaq Computer Corporation
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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1 Consent of Independent Accountants