June 24, 2002
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Compaq Computer Corporation
Commission File No. 1-4423
Annual Report on Form 11-K for
The Compaq Computer Corporation 401(k) Investment Plan
Ladies and Gentlemen:
Pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended, I
am transmitting on behalf of Compaq Computer Corporation its Annual Report on
Form 11-K for the Compaq Computer Corporation 401(k) Investment Plan for the
fiscal year January 1, 2001 to December 31, 2001.
Very truly yours,
/s/ Ann O. Baskins
-------------------
ANN O. BASKINS
Vice President
and Secretary
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
(X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
for the fiscal year ended December 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from
____________ to ____________
Commission File Number: 1-4423
A. Full title of the plan and address of the plan, if different from that of
the issuer named below:
COMPAQ COMPUTER CORPORATION 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
3000 HANOVER STREET
PALO ALTO, CALIFORNIA 94304
REQUIRED INFORMATION
COMPAQ COMPUTER CORPORATION
401(k) INVESTMENT PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
DECEMBER 31, 2001 AND 2000 AND FOR THE YEAR ENDED DECEMBER 31, 2001
-------------------------------------------------------------------------------
Page
----
Report of Independent Auditors - Ernst & Young, LLP.........................1
AUDITED FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits.............................2
Statement of Changes in Net Assets Available for Benefits...................3
Notes to Financial Statements...............................................4
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2001
Schedule H, Line 4i--Schedule of Assets Held for Investment Purposes.......11
Exhibit 23.1 Consent of Ernst & Young LLP, Independent Auditors............16
REPORT OF INDEPENDENT AUDITORS
Participants and Administrative Committee of the
Compaq Computer Corporation
401(k) Investment Plan
We have audited the accompanying statements of net assets available for benefits
of Compaq Computer Corporation 401(k) Investment Plan as of December 31, 2001
and 2000, and the related statement of changes in net assets available for
benefits for the year ended December 31, 2001. 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 auditing standards generally accepted
in the United States. 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, 2001 and 2000, and the changes in its net assets available for
benefits for the year ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Our audits were performed
for the purpose of forming an opinion on the financial statements taken as a
whole. The accompanying supplemental schedule of assets (held at end of year) as
of December 31, 2001, is presented for purposes of additional analysis and is
not a required part of the 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
supplemental schedule is the responsibility of the Plan's management. The
supplemental schedule has been subjected to the auditing procedures applied in
our audits of the financial statements and, in our opinion, is fairly stated in
all material respects in relation to the financial statements taken as a whole.
/s/ Ernst & Young, LLP
---------------------
ERNST & YOUNG, LLP
Houston, Texas
May 6, 2002
-1-
COMPAQ COMPUTER CORPORATION
401 (K) INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
-------------------------------------------------------------------------------
DECEMBER 31,
2001 2000
--------------------------------------
ASSETS
Investments $ 3,030,777,096 $ 3,310,800,451
Contribution receivable:
Employer 112,722 114,816
Participant - 151,721
--------------- ---------------
Net assets available for benefits $ 3,030,889,818 $ 3,311,066,988
=============== ===============
See accompanying notes.
-2-
COMPAQ COMPUTER CORPORATION
401(k) INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
-------------------------------------------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31, 2001
------------------
Additions:
Participant contributions $ 208,310,362
Employer contributions 123,045,148
Rollovers 10,028,456
Dividends and interest 72,574,120
------------
Total additions 413,958,086
Deductions:
Net depreciation in fair value of investments 459,749,170
Benefit payments 237,384,752
-----------
Total deductions 697,133,922
Transfer to other qualified plan (1,554,886)
Transfer from other qualified plans 4,553,552
-------------
Net decrease (280,177,170)
Net assets available for benefits:
Beginning of year 3,311,066,988
-------------
End of year $ 3,030,889,818
================
See accompanying notes.
-3-
COMPAQ COMPUTER CORPORATION
401(K) INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
-------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN
----------------------
GENERAL
The following description of the Compaq Computer Corporation 401(k) Investment
Plan (the "Plan") is provided for general information only. The Plan,
established April 1, 1985, is a defined contribution plan covering all eligible
employees of Compaq Computer Corporation and certain of its subsidiaries (the
"Company"). The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). Participants should refer to the Summary
Plan Description for a more complete description of the Plan's provisions, a
copy of which is available from the Company.
The Plan was restated in its entirety effective January 1, 2001 to amend the
Plan to comply with tax legislation acts and to reflect certain provisions of
the Economic Growth and Tax Relief Reconciliation Act of 2001.
Effective September 4, 2001, the Company entered into an agreement and plan of
reorganization with Hewlett-Packard Company ("HP") and Heloise Merger
Corporation. Effective May 3, 2002, the Company became a wholly owned subsidiary
of HP.
Effective January 2, 2001, in connection with certain divestitures, net assets
of approximately $1.6 million representing individual account balances of
certain participants were transferred to the B2E Solutions 401(k) Plan.
Effective December 31, 2001, individual account balances from B2E Solutions
401(k) Plan of approximately $1.6 million were returned to the Plan.
Effective December 31, 2001, net assets of approximately $2.9 million
representing individual account balances returned to the Plan from Ranier
Technology, Inc. 401(k) Plan.
CONTRIBUTIONS
Participants may contribute from 1% to 19% of pretax annual compensation, as
defined in the plan document. Participants may also rollover amounts
representing distributions from other qualified defined benefit or defined
contribution plans.
-4-
The Company contributes an amount equal to the participant's contribution which
does not exceed 6% of $170,000 of base compensation for all participants except
certain former employees of Digital Equipment Corporation ("Digital"). For those
former Digital employees who had elected to earn employer pay credits in another
company-sponsored benefit plan, so long as they remain eligible, the Company
contributes an amount equal to the lesser of (i) 33 1/3% of such participant's
contributions or (ii) 2% of the participant's compensation, not to exceed
$170,000 of base compensation, to the 401(k) plan and contributes the remaining
4% as an employer credit in the other company-sponsored benefit plan.
Participants direct the investment allocation of all contributions.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution and
allocations of (a) the Company's contribution, and (b) Plan earnings or losses,
and is charged with an allocation of administrative expenses, if any. Forfeited
balances of terminated participants' nonvested accounts are used to reduce
future Company contributions or pay eligible plan expenses. The benefit to which
a participant is entitled is the benefit that can be provided from the
participant's vested account, net of any outstanding loans against those vested
amounts.
VESTING
Participants are immediately vested in their deferral and rollover contributions
plus actual earnings thereon. Vesting in the Company contribution portion of
their accounts plus actual earnings thereon is based on years of service.
Effective January 1, 1999, participants vest 20% per year in the employer
contributions with 100% vesting after 5 years of credited service. The Plan
document provides the vesting provisions for a participant's interest in their
employer contribution account prior to January 1, 1999.
-5-
PARTICIPANT LOANS
Participants may borrow from their fund accounts up to a maximum equal to the
lesser of $50,000 or 50% of their vested account balance. Loan terms range from
1 - 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% above the prime rate for the term of the loan. Principal and
interest is paid ratably through payroll deductions. A participant can have no
more than three loans outstanding at any given time.
PAYMENT OF BENEFITS
On termination of service or death, a participant or beneficiary may elect to
receive Plan benefits in either a lump-sum distribution or in periodic
installments. In addition, a participant who has attained age 59 1/2 may make
withdrawals of his or her account while employed by the Company. The Plan also
allows for hardship withdrawals.
ADMINISTRATIVE EXPENSES
The Company pays certain administrative expenses of the Plan.
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 become 100% vested in their accounts.
2. SUMMARY OF ACCOUNTING POLICIES
---------------------------------
BASIS OF ACCOUNTING
The financial statements have been prepared under the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States. Benefits are recorded when paid.
-6-
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at fair value, which represents the quoted
market price on the last business day of the Plan year. 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. Investments in common collective trust funds are
based on the quoted market value as determined by the issuer based on the fair
value of the underlying investments. The participant loans are valued at their
outstanding balances, which approximates fair value.
The Stable Value Fund is stated at fair value, which approximates contract
value. It is expected that each unit of the Stable Value Fund will maintain a
constant net asset value of $1. However, there is no assurance that this will be
the case. Contract value represents contributions made plus interest accrued at
the contract rate, less withdrawals. Insurance contracts and bank contracts are
nontransferable, but provide for benefit-responsive withdrawals by Plan
participants at contract value in accordance with Statement of Position 94-4.
The Stable Value Fund invests in both guaranteed investment contracts and
alternative investment contracts. The guaranteed investment contracts are
promises by an insurance company or bank to repay principal plus accrued income
at contract maturity subject to the credit worthiness of the issuer. Alternative
investment contracts consist of investments together with contracts under which
a bank or other institution provides for benefit responsive withdrawals by Plan
participants at contract value. In determining fair value, the Board of
Directors of the Vanguard Fiduciary Trust Company considers such factors as the
benefit responsiveness of the investment contracts, the ability of the parties
to perform in accordance with the terms of the contracts, and the likelihood
that plan-directed withdrawals would cause payments to Plan participants to be
at amounts other than contract value. There are no limitations on liquidity
guarantees and no valuation reserves are being recorded to adjust contract
amounts.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
-7-
RISK AND UNCERTAINTIES
The Plan provides for various investments in common stock, mutual funds, and the
Stable Value Fund. In general, investment securities are exposed to various
risks, such as interest rate, credit, and overall market volatility risk. Due to
the level of risk associated with certain investment securities, it is
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially affect the amounts
reported in the statement of net assets available for benefits and participant
account balances.
3. INVESTMENTS
--------------
The Plan's investments are held by Vanguard Fiduciary Trust Company. Individual
investments that represent 5% or more of net assets available for benefits at
year end are as follows:
December 31
2001 2000
---------------------------------
Compaq Computer Corporation common stock $ 297,575,020 $ 432,074,249
Compaq Computer Corporation Stable Value Fund 616,237,472 631,185,879
Vanguard 500 Index Fund 600,928,759 502,477,388
Vanguard Primecap Fund 583,842,804 683,230,825
Vanguard Growth and Income Fund 324,084,769 457,833,888
Franklin Small - Mid Cap Growth Fund, Class A 137,365,252 197,662,444
During 2001, the Plan's investments (including
investments bought, sold, and held during the year)
appreciated/(depreciated) in value as follows:
Mutual funds $ (316,030,212)
Common collective trusts 11,489,674
Common stock (155,208,632)
-------------
$ (459,749,170)
===============
-8-
The average yield of the Stable Value Fund for 2001 and 2000 was 6.24% and
6.86%, respectively. The crediting interest rates at December 31, 2001 and 2000
range from 4.50% to 7.84% and 5.64% to 7.84%, respectively. Investment contracts
typically mature between 2 and 5 years after the date of initial deposit. The
interest rate paid by the issuer or contract rate may be fixed over the life of
the contract or adjusted periodically. Contract rates should not fall below
-0-%.
4. INCOME TAX STATUS
--------------------
The Plan has received a determination letter from the Internal Revenue Service
("IRS") dated January 3, 1995, stating that the Plan is qualified under Section
401(a) of the Internal Revenue Code (the "Code") and, therefore, the related
trust is exempt from taxation. Once qualified, the Plan is required to operate
in conformity with the Code to maintain its qualification. The plan document was
completely restated subsequent to its submission for a determination letter. On
February 25, 2002, the Company submitted a request to the IRS for a
determination on the restated plan document. The Company has indicated that it
will take the necessary steps, if any, to maintain the Plan's qualified status.
5. SUBSEQUENT EVENTS
--------------------
Effective May 3, 2002, any active employee of the Company and any former
employee who had an account balance under the Plan as of May 3, 2002 was made
fully vested in any unvested and unforfeited balance they may have had under the
Plan as of this date.
In addition, any former employee (including a beneficiary or alternate payee of
a former employee) with an account balance in the Plan as of May 3, 2002 is
prohibited from further investments in the Compaq Stock Fund (which became the
Hewlett-Packard Stock Fund effective May 3, 2002), and any dividend payments or
loan repayment that would have been invested in the Hewlett-Packard Stock Fund
will be invested in the Stable Value Fund.
-9-
SUPPLEMENTAL SCHEDULE
-10-
COMPAQ COMPUTER CORPORATION
401(K) INVESTMENT PLAN
EIN: 76-0011617 PN: 001
SCHEDULE H, LINE 4(I) - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
-------------------------------------------------------------------------------
IDENTITY OF ISSUE,
BORROWER, LESSOR, OR CURRENT
SIMILAR PARTY DESCRIPTION OF INVESTMENT VALUE
------------- ------------------------- -----
* Compaq Computer
Corporation Common stock $ 297,575,020
Franklin Small - Mid Cap Growth Fund, Class A 137,365,252
Capital Guardian International Equity Fund 105,195,428
T. Rowe Price Small-Cap Stock Fund 4,681,828
* The Vanguard Group LifeStrategy Conservative Growth Fund 34,948,936
* The Vanguard Group LifeStrategy Growth Fund 103,968,255
* The Vanguard Group LifeStrategy Moderate Growth Fund 100,411,331
* The Vanguard Group Total Bond Market Index Fund 18,165,975
* The Vanguard Group 500 Index Fund 600,928,759
* The Vanguard Group PrimeCap Fund 583,842,804
* The Vanguard Group Growth and Income Fund 324,084,769
The Vanguard Group Compaq Computer Corporation Stable
* The Vanguard Group Value Fund** 616,237,472
* The Vanguard Group Extend Market Index Fund 30,091,032
* Wells Fargo Bank, N.A. S&P 500 Index Fund 216,010
* Wells Fargo Bank, N.A. Stable Return Fund 397,873
Goldman Sachs Government Income Fund Service Class 375,806
Dreyfus Dreyfus Technology Growth Fund 663,859
Janus Funds Janus Investment Growth & Income Fund 285,251
MFS New Discovery Fund Class A 559,693
* Wells Fargo Bank, N.A. International Equity Fund Institutional Class 114,439
* Wells Fargo Bank, N.A. Large Company Growth Fund Institutional Class 246,690
Janus Funds Janus Investment Fund Balanced Fund 23,550
* The Vanguard Group Equity Income Fund 23,007
* The Vanguard Group International Group Fund 104,492
* The Vanguard Group Small Cap Index Fund 134,924
* The Vanguard Group Retirement Savings Trust 194,961
* Participant loans Loans with varying maturing dates and
interest rates ranging from 5.75% to 10% 69,939,680
----------------
$ 3,030,777,096
================
* Party-in-interest
** See attached for detail of underlying investments
-11-
IDENTITY OF ISSUE,
BORROWER, LESSOR, OR INTEREST MATURITY CURRENT
SIMILAR PARTY RATE DATE VALUE
------------- ---- ---- -----
COMPAQ COMPUTER CORPORATION STABLE VALUE FUND:
AIG Financial Products 245258: 6.23 N/A
Wrapper $ (2,027,390)
*Vanguard Total Bond Market Institutional Index 59,274,168
-------------
$ 57,246,778
AIG Life Assurance 1104 7.60 8/15/2003 13,776,296
Allstate Life Insurance 6210 7.15 7/1/2003 32,006,055
Bankers Trust 175570 6.32 5/1/2002 386,482
Bayerische Landesbank BLB00005B 7.84 5/15/2005 10,494,028
Bayerische Landesbank 00-005 7.53 2/15/2005 11,361,411
Canada Life Insurance P45973 7.13 1/2/2002 3,814,947
CDC Financial Products FA 423-01: 4.50 11/21/2004
Wrapper (1,762,300)
RASC 1999-KS4 AI6 - Amstel Commercial Paper 26,883,435
-------------
25,121,135
CDC Financial Products 423-02: 6.72 12/25/2004
Wrapper (611,050)
AMLT 1997-3 A7 - Motorola Commercial Paper 18,324,313
-------------
17,713,263
CDC Financial Products 423-03: 6.78 10/15/2003
Wrapper (78,659)
GTHEL 1999-D A6 - TASMAN Commercial Paper 10,218,011
-------------
10,139,352
-12-
CDC Financial Products 423-04: 7.09 10/15/2005
Wrapper $(825,884)
RFMS2 1999-H18 AI4 5,918,958
CF AB 1999-2 IA5 13,206,587
GTHEL 1999-D A6 1,991,448
--------------
20,291,109
GE Life and Annuity Assurance 3435 7.66 5/15/2005 22,339,202
Jackson National Life Insurance 1205 6.14 4/1/2002 3,383,224
John Hancock Life Insurance 15119 6.47 7/15/2005 10,299,838
John Hancock Life Insurance 8915 7.02 1/2/2002 3,814,679
John Hancock Life Insurance 9656 6.30 10/1/2002 10,001,674
John Hancock Life Insurance 9779 6.18 7/1/2003 13,197,982
Massachusetts Mutual Life Insurance 35056 7.21 8/15/2005 10,908,193
Metropolitan Life Insurance 25234 7.04 10/1/2002 25,004,660
New York Life Insurance 270071: 7.06 3/15/2005
Wrapper (405,952)
GSI Collective Investment Trust 11,318,009
--------------
10,912,057
New York Life Insurance 30261-2 6.26 1/2/2003 13,613,137
New York Life Insurance 31257-001 6.24 2/28/2006 5,268,136
Principal Life Insurance 4-19159-3 6.35 3/31/2002 10,922,397
Principal Life Insurance 4-191594 6.08 11/30/2005 10,493,689
Rabobank Nederland CPQ090001: 5.41 N/A
Wrapper (265,875)
*VFTC Corporate Bond Trust 14,783,618
*VFTC Intermediate-Term Bond Trust 21,040,499
--------------
35,558,242
-13-
Rabobank Nederland CPQ119901: 6.88 9/30/2004
Wrapper $ (2,778,044)
*Vanguard Targeted Return Trust (4-03) 12,148,964
*Vanguard Targeted Return Trust (3-04) 12,252,410
*Vanguard Targeted Return Trust (2-04) 12,229,766
*Vanguard Targeted Return Trust (1-04) 12,196,122
--------------
46,049,218
State Street Bank & Trust 100003: 6.23 9/30/2006
Wrapper (2,422,816)
*Vanguard Targeted Return Trust (1-04) 12,311,058
*Vanguard Targeted Return Trust (3-06) 9,956,815
*Vanguard Targeted Return Trust (2-04) 12,330,929
*Vanguard Targeted Return Trust (1-06) 10,818,280
*Vanguard Targeted Return Trust (2-05) 11,623,285
*Vanguard Targeted Return Trust (2-06) 10,850,000
--------------
65,467,551
Travelers Life Insurance 17149 5.67 4/1/2002 6,147,057
Travelers Life Insurance 17412 7.16 7/1/2003 10,001,895
UBS Warburg 2752: 7.14 9/30/2005
Wrapper (4,171,281)
*Vanguard Targeted Return Trust (2-03) 6,044,975
*Vanguard Targeted Return Trust (4-04) 13,573,686
*Vanguard Targeted Return Trust (3-04) 12,384,612
*Vanguard Targeted Return Trust (3-05) 11,284,946
*Vanguard Targeted Return Trust (1-03) 6,006,194
*Vanguard Targeted Return Trust (3-03) 12,196,494
---------------
57,319,626
*Vanguard Prime Money Market Institutional 2.32 N/A $ 43,850,257
--------------
Totals 616,903,570
Pending Trades (666,098)
Total Compaq Computer Corporation
Stable Value Fund ----------------
$ 616,237,472
================
* Party-in-interest
-14-
SIGNATURES
The Plan. Pursuant to the requirements of the Securities and Exchange Act
of 1934. The trustees (or other persons who administer the employee benefits
plan) have duly caused this annual report to be signed by the undersigned
thereunto duly authorized.
Date: June 24, 2002
COMPAQ COMPUTER CORPORATION
401(K) INVESTMENT PLAN
/s/ Ann O. Baskins
------------------
ANN O. BASKINS
Vice President,
and Secretary
-15-
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-87742) pertaining to the Compaq Computer Corporation 401(k)
Investment Plan of our report dated May 6, 2002, with respect to the financial
statements and schedule of the Compaq Computer Corporation 401(k) Investment
Plan included in this Annual Report (Form 11-K) for the year ended December 31,
2001.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG, LLP
Houston, Texas
June 17, 2002
-16-