El......
Here is the speech from April in which the stock re-purchase program was initiated. I don't think i have seen this published before, so here goes, its actually good reading:
RichieH
Ben Rosen
Chairman of the Board
Compaq Computer Corporation
April 23, 1998
Thank you, Eckhard. Thank all of you for coming here today, and welcome to what is the 15th Annual Compaq Shareholder Meeting as a public company. We started in February of 1982, and we went public in December of 1983.
Today, by the way, is also April 23rd, Shakespeare's birthday. While Compaq is 16 years old, Shakespeare is somewhat older than that, 16th Century.
We went public in 1983 at a price -- adjusted for 30 to 1 in stock splits over that time -- of 37 cents per share. Yesterday, we closed at 28-1/2. So, for those of you who were prescient enough to have invested $1,000 at the public offering, today you'd have $78,000 for your investment. That exemplifies the objective of what we're all about - that, is over a long period of time, despite fluctuations and a volatile stock, to create long-term shareholder value.
Just to emphasize the fluctuation, I said we went public in December of '83. Had you invested that $1,000, six months later your $1,000 would have been worth $320. So, the stock has always been volatile, but over the long-term it has appreciated.
Now, just continuing on the theme of stock price, I am quite disappointed at where our stock price is today -- having been at over $39 a share last fall and yesterday closing at 28-1/2. But let me put it in perspective. Do you remember where we were a year ago at the Annual Meeting? Again adjusted for five-for-two stock splits and two-for-one stock splits, a year ago the stock was trading at $16 a share at this annual meeting. So, your stock has appreciated 75 percent in the last year. It's just that all of us think that the high tick in the stock prices are God-given prices that we all deserve. But, it's going to fluctuate.
In any event, there is a disappointment among the board and the management with what's happened to the stock since then. We simply didn't execute well. A little later, Eckhard is going to tell you what we are doing to meet these issues, and how we're going to restore our rightful value to the stock. The result, however, has been a disappointing first half in stock price, a disappointing first half in earnings. So, we're facing a challenge.
But let me differentiate this challenge with the challenge of 1991, and in fact, the challenge of 1984 when our stock dropped by two-thirds, which I alluded to earlier. Let's see, '84, '91, '98, it seems every seven years -- in some Biblical way -- something happens. But, unlike those earlier two challenges, we're a much stronger company today.
In 1991, the challenge was really serious. It was life threatening. Our corporate life was threatened. And yet, Eckhard took over the company, and you know what's happened since then. We were then a fragile company, dispirited, and there were high risks. In contrast today, the challenges that we face -- while not trivial -- are much more tractable. We're an incomparably larger company ... a stronger company ... a more resilient company than we've ever been. By every measure compared to then:
Our market share has gone from number six to number one.
Our cash balances have gone from hundreds of millions of dollars to over $7 billion.
Our revenues have gone from $3 billion to $25 billion.
We're a very strong, solid company.
So, there's no question in my mind. Just as after 1991 we emerged as a strong company and a great investment from this trial, we also will emerge and be an even stronger company, and also a great investment. And I believe that we will consolidate our position as the industry leader.
Indeed, with the pending acquisition of Digital Equipment -- pending regulatory approval and a favorable vote by the Digital shareholders -- we should increase our industry leadership even further. Now, it's a challenge to integrate two large companies such as ours, but everybody is working hard to do it, and when we achieve this, I think we'll be an incredibly broad, strong and profitable company.
In recent annual meetings, I've mentioned the issue of our growing cash balances, and now it's over $7 billion. This is up from just two years ago when it was in the hundreds of millions of dollars. What do we do with this cash? That's known as a high-class problem to have, and we're working on solving it. In fact, you're working on helping us solve it because I received a lot of suggestions from you as to what to do with the cash.
Some of these suggestions have been constructive. Some have been highly imaginative. There are four things you can do with the cash.
You can use it to grow the business,
You can pay it out in cash dividends,
You can make cash acquisitions, or
You can buy back your stock.
For most of our history, we've been focusing on growing the business. As I mentioned, these last six years the company has grown from $3 billion to $25 billion in sales. And normally, when companies grow at these hyper rates, they consume cash. But what's happened -- particularly in recent years because of our efficiencies and profitability -- even while growing very fast, rather than consuming cash, we've been generating cash. And it is prudent to keep healthy cash balances in a company for contingencies and for potential acquisitions and other corporate uses. But in the year since the last annual meeting, we've undertaken three initiatives that will affect our cash balances.
Late in 1997, we announced that for the first time ever, Compaq would initiate a cash dividend. On the present stock, this is 1-1/2 cents per share per quarter. Now, that may not sound like much, but over a full year, it's 6 cents!
And when we complete the pending Digital acquisition, we'll have about 1.6 billion shares outstanding. That's about $100 million a year, a very small part of our cash balances, a small part of our cash generation, but it's a start. And we did this in response to the interest of many of you shareholders who -- even though you bought Compaq because it's a growth stock -- do want some income, however small. We also did it in response to many institutional investors -- many of whom are not interested in the yield. The yield is very low. But if we are able to increase our revenues and earnings over a long period of time, and the board deems it prudent to improve -- to increase the dividend over a long period of time, that adds value to the stock.
For example, an institutional investor, five or 10 years from now, may perform a screen looking for companies that have had rising dividends without a break for the last ten years. What we're trying to do is to build yet another measure of value that will be attractive to investors of the future. So, even though the dividend is small now, if we perform, it should increase year-by-year, and become meaningful in some years' time.
The second initiative we undertook in late January was the announcement of the acquisition of Digital Equipment Corporation. An acquisition that, at the time it was announced, was $9.6 billion total value, half stock, half cash. So that would use up, from us, about $4.8 billion of the cash. Although Digital also has cash, which will be available to the combined companies.
And a final use of cash, which we just voted on this morning, is to initiate a stock repurchase. The board has decided to do this, because the stock buy-back connotes three things and offers three reasons for doing it.
First, it will offset the share dilution from the stock options that we issue each year.
Second, it's a vote of confidence by the board in the future of the company.
And third, we think it's a terrific investment in a stock that's greatly undervalued.
I might mention we've done this once before in our corporate history. In 1991 and '92, we authorized a share repurchase for 10 percent of the company's stock, for $300 million. We successfully completed that buy-back in 1992. Do you know what the average share price was when we did it, based on today's shares? Two dollars a share! That was a terrific investment by the company. I hope that the current repurchase program is equally successful.
Let me just read to you from the first couple of paragraphs of the press release that's going out the moment.
HOUSTON, April 23, 1998 -- Compaq Computer Corporation announced today that it has been authorized by its Board of Directors to begin a systematic stock repurchase program to acquire up to 100 million shares of its common stock. As of March 31, 1998, the company had approximately 1.5 billion shares outstanding.
The shares will be purchased in open market or private transactions. The number of shares to be purchased and the timing of the purchases will be based on several factors, including the level of stock issuance under the equity incentive plans, the price of Compaq stock, general market conditions and other factors.
Well, the first three-and-a-half months of 1998 have not gotten off to a very salutary start for Compaq. But, I hope that by December 31st I'll be able to characterize the full year of 1998 by, say, using one of the titles of one of the plays of our birthday boy today, William Shakespeare. But, I don't plan to call 1998 the year of, say, The Tempest. I don't plan to call 1998 the year of, say, Much Ado About Nothing. As you might guess, what I think the year is going to turn out to be is the title of the play All's Well That Ends Well.
Now, I'd like to add my final poignant note to what Eckhard said earlier, because today is the last day of the tenure of Gus Kinnear, who has been with us for 10 years. He's helped nurture us -- from a billion dollar company when he joined us to a $25 billion company as of last year. And he really served admirably as Chairman of our Audit Committee, one of the most important functions of any board of directors.
I'd just like to add to what Eckhard said that before joining Compaq, Gus had a remarkable background. To cite a few of the highlights: Gus joined the U.S. Navy when he was 17 years old, with no high school diploma. Some years later, while in the Navy, he had gone all the way up through college and received a Ph.D. from Stanford University. He later reached the rank of Four Star Admiral in the Navy -- an extremely rare achievement for an admiral to not go to the U.S. Naval Academy. He ran the air arm of the U.S. Navy for the Atlantic sector. And finally, and this is the one that impresses me, he's flown more different Navy combat aircraft than any other person alive.
Gus, we're going to miss your counsel, your camaraderie and your humor. You served your country well, and your company well. Godspeed.
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