<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                    FORM 10-Q



               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934



                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001



                          COMMISSION FILE NUMBER 1-9026



                           COMPAQ COMPUTER CORPORATION
             (Exact name of registrant as specified in its charter)



              DELAWARE                                    76-0011617
   (State or other jurisdiction of                     (I.R.S. Employer
   incorporation or organization)                     Identification No.)



                       20555 SH 249, HOUSTON, TEXAS 77070
                                 (281) 370-0670
          (Address, including zip code, and telephone number, including
             area code, of registrant's principal executive offices)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes [X] No [ ]


The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of June 30, 2001, was approximately 1.7 billion.


<PAGE>   2



                           COMPAQ COMPUTER CORPORATION
                                    FORM 10-Q
                    THREE AND SIX MONTHS ENDED JUNE 30, 2001

                                TABLE OF CONTENTS




<TABLE>
<S>       <C>                                                                                       <C>
                                                  PART I

Item 1.   Financial Statements                                                                        3

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations      12

Item 3.   Quantitative and Qualitative Disclosures About Market Risks                                21


                                                  PART II

Item 1.   Legal Proceedings                                                                          23

Item 2.   Changes in Securities and Use of Proceeds                                                  23

Item 4.   Submission of Matters to a Vote of Security Holders                                        24

Item 5.   Other Information                                                                          25

Item 6.   Exhibits and Reports on Form 8-K                                                           25

          Signatures                                                                                 26
</TABLE>


                                       2
<PAGE>   3


                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                           COMPAQ COMPUTER CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                   JUNE 30,     DECEMBER 31,
(In millions, except par value)                                      2001           2000
                                                                  ----------    ------------
                                                                  (UNAUDITED)
<S>                                                               <C>           <C>
ASSETS

Current assets:
   Cash and cash equivalents                                      $    3,829    $      2,569
   Trade accounts receivable, net                                      5,104           6,715
   Leases and other accounts receivable                                1,858           1,677
   Inventories                                                         1,731           2,161
   Other assets                                                        2,148           1,989
                                                                  ----------    ------------
       Total current assets                                           14,670          15,111

Property, plant and equipment, net                                     3,300           3,431
Other assets, net                                                      6,019           6,314
                                                                  ----------    ------------
           Total assets                                           $   23,989    $     24,856
                                                                  ==========    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Short-term borrowings                                          $    1,209    $        711
   Accounts payable                                                    3,434           4,233
   Deferred income                                                     1,249           1,089
   Other liabilities                                                   4,835           5,516
                                                                  ----------    ------------
       Total current liabilities                                      10,727          11,549
                                                                  ----------    ------------

Long-term debt                                                           875             575
                                                                  ----------    ------------
Postretirement and other postemployment benefits                         645             652
                                                                  ----------    ------------
Commitments and contingencies
Stockholders' equity:
   Preferred stock, $.01 par value
       Shares authorized: 10 million; shares issued: none                 --              --
   Common stock and capital in excess of $.01 par value
       Shares authorized: 3 billion
       Shares issued:  June 30, 2001 - 1,753 million
            December 31, 2000 - 1,742 million                          8,196           8,039
   Retained earnings                                                   5,062           5,347
   Accumulated other comprehensive income (loss)                         (95)             27
   Treasury stock (shares: June 30, 2001 - 59 million
            December 31, 2000 - 53 million)                           (1,421)         (1,333)
                                                                  ----------    ------------
       Total stockholders' equity                                     11,742          12,080
                                                                  ----------    ------------
           Total liabilities and stockholders' equity             $   23,989    $     24,856
                                                                  ==========    ============
</TABLE>

 See accompanying notes to interim condensed consolidated financial statements.


                                       3
<PAGE>   4


                           COMPAQ COMPUTER CORPORATION
                   CONDENSED CONSOLIDATED STATEMENT OF INCOME
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED JUNE 30,      SIX MONTHS ENDED JUNE 30,
                                                                ----------------------------   ----------------------------
(In millions, except per share amounts)                            2001              2000         2001              2000
                                                                ----------        ----------   ----------        ----------
<S>                                                             <C>               <C>          <C>               <C>
Revenue:
    Products                                                    $    6,720        $    8,499   $   14,216        $   16,311
    Services                                                         1,733             1,636        3,434             3,329
                                                                ----------        ----------   ----------        ----------
        Total revenue                                                8,453            10,135       17,650            19,640
                                                                ----------        ----------   ----------        ----------

Cost of sales:
    Products                                                         5,401             6,586       11,294            12,694
    Services                                                         1,234             1,161        2,446             2,374
                                                                ----------        ----------   ----------        ----------
        Total cost of sales                                          6,635             7,747       13,740            15,068
                                                                ----------        ----------   ----------        ----------


Selling, general and administrative                                  1,348             1,466        2,786             2,867
Research and development                                               352               354          716               710
Restructuring and related charges                                      493                --          742                --
Other (income) expense, net                                             23                (3)         (47)              (49)
                                                                ----------        ----------   ----------        ----------
                                                                     2,216             1,817        4,197             3,528
                                                                ----------        ----------   ----------        ----------

Income (loss) before income taxes                                     (398)              571         (287)            1,044
Provision (benefit) for income taxes                                  (119)              183          (86)              334
                                                                ----------        ----------   ----------        ----------
Income (loss) before cumulative effect of accounting change           (279)              388         (201)              710
Cumulative effect of accounting change, net of tax                      --                --           --               (26)
                                                                ----------        ----------   ----------        ----------

Net income (loss)                                               $     (279)       $      388   $     (201)       $      684
                                                                ==========        ==========   ==========        ==========


Earnings (loss) per common share:
Basic:
    Before cumulative effect of accounting change               $    (0.17)       $     0.23   $    (0.12)       $     0.42
    Cumulative effect of accounting change, net of tax                  --                --           --             (0.02)
                                                                ----------        ----------   ----------        ----------
                                                                $    (0.17)       $     0.23   $    (0.12)       $     0.40
                                                                ==========        ==========   ==========        ==========
Diluted:
    Before cumulative effect of accounting change               $    (0.17)       $     0.22   $    (0.12)       $     0.41
    Cumulative effect of accounting change, net of tax                  --                --           --             (0.02)
                                                                ----------        ----------   ----------        ----------
                                                                $    (0.17)       $     0.22   $    (0.12)       $     0.39
                                                                ==========        ==========   ==========        ==========

Shares used in computing earnings (loss) per common share:
    Basic                                                            1,688             1,722        1,687             1,699
                                                                ==========        ==========   ==========        ==========
    Diluted                                                          1,688             1,760        1,687             1,739
                                                                ==========        ==========   ==========        ==========
</TABLE>


 See accompanying notes to interim condensed consolidated financial statements.


                                       4
<PAGE>   5


                           COMPAQ COMPUTER CORPORATION

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              SIX MONTHS ENDED JUNE 30,
                                                                              -------------------------
(In millions)                                                                    2001           2000
                                                                              ----------    -----------
<S>                                                                           <C>            <C>
Cash flows from operating activities:
     Net income (loss)                                                        $     (201)    $      684
     Adjustments to reconcile net income (loss) to net cash
        provided by (used in) operating activities:
           Depreciation and amortization                                             704            688
           Restructuring and related charges                                         742             --
           Deferred income taxes and other                                          (125)           106
           Changes in operating assets and liabilities, net of
              effects of acquired businesses                                         (37)        (1,909)
                                                                              ----------     ----------
                  Net cash provided by (used in) operating activities              1,083           (431)
                                                                              ----------     ----------

Cash flows from investing activities:
     Capital expenditures, net                                                      (570)          (502)
     Proceeds from sale of investments                                               295            156
     Purchases of investments                                                        (75)          (314)
     Decrease in short-term investments                                               --            636
     Acquisitions of businesses, net of cash acquired                                 --           (370)
     Other, net                                                                     (107)           (37)
                                                                              ----------     ----------
                  Net cash used in investing activities                             (457)          (431)
                                                                              ----------     ----------

Cash flows from financing activities:
       Increase in short-term borrowings                                             498            658
       Increase in long-term borrowings                                              300             --
     Issuance of common stock for stock options                                      138            177
     Treasury stock purchases                                                        (88)          (146)
     Dividends to stockholders                                                       (84)           (85)
                                                                              ----------     ----------
                  Net cash provided by financing activities                          764            604
                                                                              ----------     ----------

Effect of exchange rate changes on cash and cash equivalents                        (130)           163
                                                                              ----------     ----------
                  Net increase (decrease) in cash and cash equivalents             1,260            (95)
                                                                              ----------     ----------

Cash and cash equivalents at beginning of period                                   2,569          2,666
                                                                              ----------     ----------

Cash and cash equivalents at end of period                                    $    3,829     $    2,571
                                                                              ==========     ==========

SUPPLEMENTAL CASH FLOW INFORMATION

Acquisitions of businesses:

Fair value of:
   Assets acquired                                                            $       --     $      499
   Liabilities assumed                                                                --           (129)
                                                                              ----------     ----------
Cash paid                                                                     $       --     $      370
                                                                              ==========     ==========
</TABLE>


 See accompanying notes to interim condensed consolidated financial statements.


                                       5
<PAGE>   6


                           COMPAQ COMPUTER CORPORATION
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

         The accompanying interim condensed consolidated financial statements of
Compaq Computer Corporation ("Compaq") as of June 30, 2001 and December 31, 2000
and for the three and six month periods ended June 30, 2001 and 2000,
respectively, have been prepared on substantially the same basis as Compaq's
annual consolidated financial statements and should be read in conjunction with
Compaq's Annual Report on Form 10-K for the year ended December 31, 2000. The
interim condensed consolidated financial statements reflect all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the results for those periods and the financial condition at
those dates. The consolidated results for interim periods are not necessarily
indicative of results to be expected for the full year.

          Compaq purchased certain assets and liabilities of InaCom Corp.
("Inacom") in February 2000. This transaction was accounted for as a purchase.
Compaq's interim condensed consolidated financial statements include the results
of operations from the date of acquisition through June 30, 2001.

NOTE 2 - RECENT PRONOUNCEMENTS

         In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations
("FAS 141") and No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS
141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under FAS 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are reviewed annually
(or more frequently if impairment indicators arise) for impairment. Separable
intangible assets that are not deemed to have indefinite lives will continue to
be amortized over their useful lives (but with no maximum life). The
amortization provisions of FAS 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, Compaq is required to adopt FAS 142 effective
January 1, 2002. Compaq is currently evaluating the effect that adoption of the
provisions of FAS 142 that are effective January 1, 2002 will have on its
results of operations and financial position.

NOTE 3 - ACCOUNTING CHANGES

         Effective January 1, 2001, Compaq adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended ("FAS 133"). This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. Under FAS
133, all derivatives must be recognized as assets or liabilities and measured at
fair value. If the derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are recorded in other
comprehensive income ("OCI") and are recognized in the income statement when the
hedged item affects earnings. Ineffective portions of changes in the fair value
of cash flow hedges are recognized in earnings. The adoption of this statement
did not have a significant impact on Compaq's results of operations or financial
position.

         Effective January 1, 2000, Compaq adopted Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements, as amended ("SAB 101"), issued
by the Securities and Exchange Commission in December 1999. Compaq's adoption of
SAB 101 resulted in a change in method of accounting for certain revenue product
shipments. The cumulative effect of this accounting change was $38 million ($26
million, net of tax). The accounting change did not have a material effect on
revenue or quarterly earnings during 2000. Compaq has restated its results for
the three and six month periods ended June 30, 2000.


                                       6
<PAGE>   7


 NOTE 4 - ACQUISITIONS

         In February 2000, Compaq acquired certain configuration and
distribution assets of Inacom, a provider of information technology services and
products, for approximately $370 million in cash and the assumption of certain
related liabilities. The acquisition was accounted for as a purchase. The
estimated purchase price was allocated to the assets acquired and liabilities
assumed, including goodwill of $230 million.

NOTE 5 - RESTRUCTURING AND RELATED CHARGES

         In March 2001 and June 2001, Compaq's management approved restructuring
plans to realign its organization and reduce operating costs. Compaq combined
its commercial and consumer personal computer operations into a single Access
business. Compaq is also implementing significant changes in its business model
and supply chain operations. These actions are designed to simplify product
offerings, derive greater internal operating efficiencies, lower order cycle
time, reduce channel inventory and improve account and order management. In
addition, Compaq plans to consolidate certain functions within the global
business units and reduce administrative functions. Accordingly, Compaq plans to
reduce associated employee positions by approximately 4,500 and 4,000 worldwide
in connection with the first and second quarter plans, respectively.

         Restructuring and related charges of $249 million and $493 million were
expensed during the first and second quarter of 2001, respectively. The first
quarter charge was comprised of $173 million related to employee separations,
$64 million of related asset impairment charges and $12 million for other exit
costs. The second quarter charge was comprised of $303 million related to
employee separations, $138 million of related asset impairment charges, $40
million for facility closure costs and $12 million for other exit costs.
Employee separation benefits under each plan include severance, medical and
other benefits. Employee separations related to the first quarter plan were
3,600 as of June 30, 2001. Compaq expects to substantially complete the
initiatives contemplated under both restructuring plans by December 31, 2001.

         There were no amounts charged against the second quarter restructuring
plan as of June 30, 2001. Components of accrued restructuring costs and amounts
charged against the first quarter plan as of June 30, 2001 were as follows:

<TABLE>
<CAPTION>
                                    BEGINNING                   JUNE 30,
(In millions)                        ACCRUAL     EXPENDITURES     2001
                                   -----------   ------------   --------
<S>                                <C>           <C>            <C>
Employee separations               $       173   $        (30)  $    143
Other exit costs                            12             --         12
                                   -----------   ------------   --------
                                   $       185   $        (30)  $    155
                                   ===========   ============   ========
</TABLE>

         The accrual at June 30, 2001 includes amounts related to future cash
payments to employees separated prior to June 30, 2001.

NOTE 6 - CERTAIN BALANCE SHEET COMPONENTS

         Raw materials, work in progress and finished goods were $432 million,
$233 million and $1.1 billion, respectively, at June 30, 2001 and $540 million,
$298 million and $1.3 billion, respectively, at December 31, 2000.

         Accumulated depreciation was $4.0 billion and $3.6 billion at June 30,
2001, and December 31, 2000, respectively.

         At June 30, 2001 and December 31, 2000, Compaq held $561 and $864
million of equity investments, respectively, included in other non-current
assets. As of June 30, 2001, the cost basis and fair value of Compaq's
available-for-sale securities were approximately $329 million and $245 million,
respectively. Gross unrealized gains and gross unrealized losses related to
these investments were $53 million and $137 million, respectively at June 30,
2001.


                                       7
<PAGE>   8


         In May 2000, Compaq filed a shelf registration statement with the
Securities and Exchange Commission to register $2.0 billion of debt securities.
Compaq had the following debt securities outstanding under its effective
registration statement as of June 30, 2001:

<TABLE>
<CAPTION>
          DATE              AMOUNT          INTEREST RATE           INTEREST PAYABLE              MATURITY DATE
     ----------------    --------------     --------------    -----------------------------    ---------------------
<S>                      <C>                <C>               <C>                              <C>
       August 2000       $300 million           7.65%           February 1 and August 1           August 1, 2005
       August 2000       $275 million           7.45%           February 1 and August 1           August 1, 2002
</TABLE>

         In February 2001, Compaq established under its effective registration
statement a $1.4 billion medium-term notes program for issuance of debt
securities due nine months or more from date of issue. Compaq had the following
debt securities outstanding under its medium-term notes program as of June 30,
2001:

<TABLE>
<CAPTION>
          DATE              AMOUNT          INTEREST RATE           INTEREST PAYABLE              MATURITY DATE
     ----------------   ---------------     --------------    -----------------------------    ---------------------
<S>                     <C>                 <C>               <C>                              <C>
        May 2001         $300 million           6.2%             May 15 and November 15            May 15, 2003
</TABLE>

         The net proceeds from the sale of these senior unsecured debt
securities were used for general corporate purposes (including investments in
Compaq Financial Services Corporation and other subsidiaries), capital
expenditures and repayment of outstanding indebtedness (including commercial
paper issued for working capital purposes).

         On April 26, 2001, the Board of Directors of Compaq approved a cash
dividend of $0.025 per share of common stock, or approximately $43 million, to
stockholders of record as of June 29, 2001, payable on July 20, 2001. On April
27, 2000, the Board of Directors of Compaq approved a cash dividend of $0.025
per share of common stock, or approximately $43 million, to stockholders of
record as of June 30, 2000, paid on July 20, 2000.

NOTE 7 - COMPREHENSIVE INCOME (LOSS)

         The components of comprehensive income (loss), net of tax, are listed
below:

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                            ---------------------------    -------------------------
(In millions)                                                  2001             2000          2001           2000
                                                            ----------       ----------    ----------     ----------
<S>                                                         <C>              <C>           <C>            <C>
Net income (loss)                                           $     (279)      $      388    $     (201)    $     710
Other comprehensive income (loss):
     Unrecognized gains (losses) on cash flow hedges                (3)              --            11            --
     Foreign currency translations                                 (10)               1            (4)            2
     Unrealized gains (losses) on investments                        6           (2,283)         (129)       (2,338)
                                                            ----------       ----------    ----------    ----------
Comprehensive income (loss)                                 $     (286)      $   (1,894)   $     (323)   $   (1,626)
                                                            ==========       ==========    ==========    ==========
</TABLE>

NOTE 8 - OTHER INCOME AND EXPENSE

         Other (income) and expense consisted of the following:


<TABLE>
<CAPTION>
                                   THREE MONTHS ENDED JUNE 30,      SIX MONTHS ENDED JUNE 30,
                                   ----------------------------   ----------------------------
(In millions)                         2001              2000         2001              2000
                                   ----------        ----------   ----------        ----------
<S>                                <C>               <C>          <C>               <C>
Interest and dividend income       $      (45)       $      (46)  $     (155)       $      (92)
Investment income, net                     (1)              (38)         (76)             (106)
Interest expense                           61                73          123               130
Currency losses, net                        2                21           43                27
Other, net                                  6               (13)          18                (8)
                                   ----------        ----------   ----------        ----------
                                   $       23        $       (3)  $      (47)       $      (49)
                                   ==========        ==========   ==========        ==========
</TABLE>



                                       8
<PAGE>   9


         Other income and expense for the six months ended June 30, 2001
included investment income of $76 million, net of unrelated investment
impairment charges, and interest income of $61 million resulting primarily from
the sale of an investment in a limited liability corporation.

NOTE 9 - EARNINGS PER COMMON SHARE

         Basic earnings per common share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings per
common share is computed using the combination of dilutive common share
equivalents and the weighted average number of common shares outstanding during
the period. Diluted loss per common share for the three and six month periods
ended June 30, 2001 is based only on the weighted average number of common
shares outstanding during the periods, as the inclusion of 17 million and 13
million common share equivalents, respectively, would have been antidilutive.
Incremental shares of 38 million and 40 million were used in the calculation of
diluted earnings per share for the three and six month periods ended June 30,
2000, respectively.

         Stock options to purchase 230 million and 111 million shares of common
stock for the three month periods and 171 million and 60 million shares of
common stock for the six month periods ended June 30, 2001 and 2000,
respectively, were outstanding but not included in the computation of diluted
earnings per common share because the option exercise price was greater than the
average market price of the common shares.

NOTE 10 - SEGMENT DATA

         During the first quarter of 2001, Compaq combined Commercial Personal
Computing with Consumer to form the Access business, and realigned its financing
business within the Compaq Global Services segment. Further, Compaq allocated
certain shared expenses to the segments during 2001. Financial data for prior
periods has been restated to conform to the current presentation.

         Summary financial data by business segment follows:

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED JUNE 30,        SIX MONTHS ENDED JUNE 30,
                                           ---------------------------        -------------------------
(In millions)                                2001               2000            2001             2000
                                           --------           --------        --------         --------
<S>                                        <C>                <C>             <C>              <C>
Enterprise Computing
        Revenue                            $  2,711           $  3,441        $  5,619         $  6,394
        Operating income                         74                383             206              645
Access
        Revenue                               3,824              4,905           8,198            9,609
        Operating income (loss)                (155)                44            (237)              59
Compaq Global Services
        Revenue                               1,943              1,819           3,878            3,682
        Operating income                        271                214             525              426
Segment Eliminations and Other
        Revenue                                 (25)               (30)            (45)             (45)
        Operating loss                          (23)                (9)             (3)              (6)
Consolidated Segment Totals
        Revenue                            $  8,453           $ 10,135        $ 17,650         $ 19,640
        Operating income                   $    167           $    632        $    491         $  1,124
</TABLE>


                                       9
<PAGE>   10


         A reconciliation of Compaq's consolidated segment operating income to
consolidated income (loss) before income taxes follows:

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                 ---------------------------    -------------------------
(In millions)                                       2001             2000          2001           2000
                                                 ----------       ----------    ----------     ----------
<S>                                              <C>              <C>           <C>            <C>
Consolidated segment operating income            $      167       $      632    $      491     $    1,124
Unallocated corporate expenses                          (49)             (64)          (83)          (129)
Restructuring and related charges                      (493)              --          (742)            --
Other income (expense), net                             (23)               3            47             49
                                                 ----------       ----------    ----------     ----------
Income (loss) before income taxes                $     (398)      $      571    $     (287)    $    1,044
                                                 ==========       ==========    ==========     ==========
</TABLE>


NOTE 11 - COMMITMENTS AND CONTINGENCIES

Litigation

         Compaq is subject to legal proceedings and claims that arise in the
ordinary course of business. Compaq does not believe that the outcome of any of
those matters will have a material adverse effect on Compaq's consolidated
financial position, operating results or cash flows.

         Compaq and certain of its current and former officers and directors are
named in two consolidated class action lawsuits pending in the United States
District Court for the Southern District of Texas, Houston Division ("USDC -
Houston"). One lawsuit was filed in 1998 and the other in 1999. The 1998
litigation consolidates five class action lawsuits, brought by persons who
purchased Compaq common stock from July 10, 1997 through March 6, 1998. It
asserts claims under Section 10(b) of the Securities Exchange Act of 1934
("Exchange Act") and Rule 10b-5 promulgated thereunder and Section 20(a) of the
Exchange Act. Allegations in the 1998 lawsuit include the claim that the
defendants withheld information and made misleading statements about channel
inventory and factoring of receivables in order to inflate the market price of
Compaq's common stock and further alleges that certain of the individual
defendants sold Compaq common stock at the inflated prices. The 1999 litigation
also consolidates a number of class action lawsuits. The litigation is brought
on behalf of purchasers of Compaq common stock between January 27, 1999 and
April 9, 1999. It asserts claims for alleged violations of Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder; Section 20(a) of the
Exchange Act; and Sections 11 and 15 of the Securities Act of 1933 ("Securities
Act"). Allegations in the 1999 litigation include the claim that certain
defendants and Compaq issued a series of materially false and misleading
statements concerning Compaq's prospects in 1999 in order to inflate the market
price of Compaq's common stock and further alleges that certain of the
individual defendants sold Compaq common stock at the inflated prices. Lead
counsels for the plaintiffs have been appointed in both the 1998 and 1999
litigation. The plaintiffs seek monetary damages, interest, costs and expenses
in both the 1998 and 1999 litigation. In the 1998 litigation, the USDC - Houston
entered an order granting class certification on July 18, 2000. Compaq has
appealed class certification to the United States Court of Appeals for the Fifth
Circuit ("Fifth Circuit Appellate Court"). Oral argument on this appeal was
heard on June 4, 2001. Discovery has been stayed by order of the Fifth Circuit
Appellate Court pending its decision on the class certification appeal. On
December 12, 2000, the USDC - Houston judge in the 1999 litigation dismissed the
consolidated amended complaint after finding that it failed to comply with
pleading requirements under the law. The plaintiffs filed a second amended
complaint on January 31, 2001. Compaq moved to dismiss the second amended
complaint on March 6, 2001 and is awaiting a ruling from the USDC - Houston.
Compaq is vigorously defending both lawsuits.

         Several purported class action lawsuits were filed against Digital
during 1994 alleging violations of the Federal securities laws arising from
alleged misrepresentations and omissions in connection with Digital's issuance
and sale of Series A 8 7/8 percent Cumulative Preferred Stock and Digital's
financial results for the quarter ended April 2, 1994. During 1995, the lawsuits
were consolidated into three cases, which were pending


                                       10
<PAGE>   11


before the United States District Court for the District of Massachusetts ("USDC
- Massachusetts"). Compaq settled all remaining class action lawsuits relating
to this matter for approximately $5 million on July 11, 2001.

         Compaq is vigorously defending several consumer class action lawsuits
alleging certain defects in its computers. One set of five related cases,
involving claims in North Carolina, Illinois, Texas, Washington and California
state courts with respect to certain desktop computers sold in 1996 and 1997, is
in the process of being resolved. A Texas court has preliminarily approved a
proposed settlement agreement under which Compaq will offer some combination of
cash, coupons and software updates to qualifying class members. If approved,
Compaq believes that this settlement will not have a material adverse effect on
Compaq's consolidated financial position or its results of operations. Two other
consumer class action lawsuits, (LaPray v. Compaq and Sprung v. Compaq) are part
of a series of similar lawsuits filed against other major computer
manufacturers, involving claims that the computer industry sold computers with
allegedly defective floppy disk controllers. LaPray is pending in the District
Court of Jefferson County, Texas, 60th Judicial District in Beaumont ("State
District Court - Beaumont") while Sprung is pending in the United States
District Court for the District of Colorado ("USDC - Colorado"). A class
certification hearing was held in LaPray on June 8, 2001. The State District
Court - Beaumont entered an order granting class certification on July 23, 2001.
Compaq will appeal the class certification order. The Sprung case has been
stayed while the USDC - Colorado considers Compaq's motion to dismiss. Compaq
continues to provide information to the Federal government and state attorneys
general in California and Illinois in response to inquiries regarding floppy
disk controllers in computers sold to government entities.


                                       11
<PAGE>   12


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         Founded in 1982, Compaq Computer Corporation ("Compaq") is a leading
global provider of enterprise technology and solutions. Compaq designs,
develops, manufactures and markets hardware, software, solutions and services,
including industry-leading enterprise storage and computing solutions,
fault-tolerant business-critical solutions, communication products, and desktop
and portable personal computers that are sold in more than 200 countries.

         The following discussion should be read in conjunction with the interim
condensed consolidated financial statements presented in Item 1.

RESULTS OF OPERATIONS

         Compaq purchased certain assets and liabilities of InaCom Corp.
("Inacom") in February 2000. This transaction was accounted for as a purchase.
Accordingly, Compaq's interim condensed consolidated financial statements
include the results of operations from the date of acquisition through June 30,
2001.

         Summary financial data by business segment follows:

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED JUNE 30,     SIX MONTHS ENDED JUNE 30,
                                            ---------------------------     -------------------------
(In millions)                                  2001             2000           2001           2000
                                            ----------       ----------     ----------     ----------
<S>                                         <C>              <C>            <C>            <C>
Enterprise Computing
        Revenue                             $    2,711       $    3,441     $    5,619     $    6,394
        Operating income                            74              383            206            645
Access
        Revenue                                  3,824            4,905          8,198          9,609
        Operating income (loss)                   (155)              44           (237)            59
Compaq Global Services
        Revenue                                  1,943            1,819          3,878          3,682
        Operating income                           271              214            525            426
Segment Eliminations and Other
        Revenue                                    (25)             (30)           (45)           (45)
        Operating loss                             (23)              (9)            (3)            (6)
Consolidated Segment Totals
        Revenue                             $    8,453       $   10,135     $   17,650     $   19,640
        Operating income                    $      167       $      632     $      491     $    1,124
</TABLE>

         A reconciliation of Compaq's consolidated segment operating income to
consolidated income (loss) before income taxes follows:


<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED JUNE 30,     SIX MONTHS ENDED JUNE 30,
                                            ---------------------------     -------------------------
(In millions)                                  2001             2000           2001           2000
                                            ----------       ----------     ----------     ----------
<S>                                         <C>              <C>            <C>            <C>
Consolidated segment operating income       $      167       $      632     $      491     $    1,124
Unallocated corporate expenses                     (49)             (64)           (83)          (129)
Restructuring and related charges                 (493)              --           (742)            --
Other income (expense), net                        (23)               3             47             49
                                            ----------       ----------    -----------     ----------
Income (loss) before income taxes           $     (398)      $      571    $      (287)    $    1,044
                                            ==========       ==========    ===========     ==========
</TABLE>


OVERVIEW

         Compaq reported second quarter and six month consolidated revenue of
$8.5 billion and $17.7 billion, respectively, a decrease of 17 percent and 10
percent compared with the prior year periods, or a decrease of 13 percent and 6
percent, respectively, adjusted for the effects of currency. Higher revenue from
Compaq Global


                                       12
<PAGE>   13


Services was more than offset by lower revenue from Access and Enterprise
Computing. The decline in consolidated revenue resulted primarily from continued
weakness in the United States economy and worsening economic conditions in
Europe, as well as actions to reduce inventory levels across Compaq's supply
chain.

         Consolidated gross margin of 21.5 percent of revenue ($1.8 billion) and
22.2 percent of revenue ($3.9 billion) for the three and six months ended June
30, 2001, respectively, declined by 2.1 and 1.1 percentage points from the
comparable periods in 2000. Savings from improved inventory management and
improved revenue mix were more than offset by weakening demand resulting in an
aggressive pricing environment.

         Consolidated operating expense was $1.7 billion for the second quarter
of 2001, a reduction of $120 million, or 7 percent, compared with the second
quarter of 2000. On a year to date basis, operating expense decreased $75
million, or 2 percent. The decline in operating expense was driven by solid
execution of the restructuring program, Compaq's intense focus on reducing its
cost structure, and expense reductions associated with the decline in revenue.
Second quarter operating expense represented the lowest level in the past three
years.

         The effective tax rate was 30 percent for the three and six month
periods ended June 30, 2001, compared with 32 percent for the three and six
month periods ended June 30, 2000.

         For the second quarter of 2001, Compaq's net income (excluding special
items) was $67 million, or $0.04 per diluted common share, compared with $363
million, or $0.21 per diluted common share, for the corresponding period in
2000. On a reported basis, Compaq's consolidated net loss was $279 million, or
$(0.17) per diluted common share, in the second quarter of 2001, compared with
consolidated net income of $388 million, or $0.22 per diluted common share, in
the prior year quarter.

         For the six months ended June 30, 2001, Compaq's net income (excluding
special items) was $265 million, or $0.16 per diluted common share, compared
with $615 million, or $0.35 per diluted common share, for the corresponding
period in 2000. On a reported basis, Compaq's consolidated net loss was $201
million, or $(0.12) per diluted common share in the first half of 2001, compared
with consolidated net income of $684 million, or $0.39 per diluted common share,
in the prior year period.

         The second quarter of 2001 included a restructuring charge of $493
million and related tax effect, while special items in the second quarter of
2000 included net investment income of $38 million and related tax effect.

         Special items in the first half of 2001 included restructuring charges
of $742 million, net investment income of $76 million, and related tax effects,
while the first half of 2000 included net investment income of $106 million and
related tax effect.

ENTERPRISE COMPUTING

         Enterprise Computing designs, develops, manufactures and markets
advanced computing and telecommunication products, including business-critical
servers, industry-standard servers and storage products.

Revenue

         Enterprise Computing revenue decreased $730 million, or 21 percent,
compared with the second quarter of 2000 and represented 32 percent of
consolidated revenue during the quarter. On a year to date basis, revenue from
this segment decreased $775 million, or 12 percent. Outside the United States
and adjusted for the effects of currency, revenue was unchanged for the quarter
and increased 14 percent for the year to date period compared with the prior
year. Enterprise Computing revenue declined primarily due to continued weakness
in the United States economy that spread to Europe toward the end of the second
quarter. These conditions have led to intense competitive pricing pressures,
resulting in lower average unit prices. Compaq took significant actions during
the quarter to reduce channel inventory levels, which also contributed to lower
revenue.


                                       13
<PAGE>   14


Operating Income

         Enterprise Computing operating income decreased $309 million, or 81
percent, in the second quarter of 2001 compared with the corresponding period in
2000. For the six months ended June 30, 2001, operating income decreased $439
million, or 68 percent, compared with the corresponding period in 2000. Lower
operating income in this segment resulted from a weakening economy, pricing
pressures and inventory reduction actions as discussed above.

ACCESS

         The Access business delivers products and solutions targeting the
convergence of business and home-user computing for the Internet-connected
world.

Revenue

         Access revenue decreased $1.1 billion, or 22 percent, compared with the
second quarter of 2000 and represented 45 percent of consolidated revenue during
the quarter. On a year to date basis, Access revenue decreased $1.4 billion, or
15 percent. Outside the United States and adjusted for the effects of currency,
revenue declined 4 percent for the quarter and increased 5 percent for the year
to date period compared with the prior year. While overall unit sales increased
over the prior periods in the Access business, weakening economic conditions in
the United States and Europe led to an aggressive pricing environment resulting
in lower average unit prices. Lower revenue also resulted from strong actions
taken by Compaq to reduce channel inventory during the quarter.

Operating Income

         The Access business incurred an operating loss of $155 million during
the quarter compared with operating income of $44 million in the second quarter
of 2000. For the six months ended June 30, 2001, Access incurred an operating
loss of $237 million compared with operating income of $59 million for the
corresponding period in 2000. The operating losses were primarily driven by
weakening economic conditions and an aggressive pricing environment. In
addition, operating losses resulted from falling margins in the consumer market,
particularly in United States retail, where Compaq heavily discounted products
to make room for newer models, and reductions in channel inventory.

COMPAQ GLOBAL SERVICES

         Compaq Global Services delivers worldwide infrastructure and solution
design implementation, management and support services, as well as leasing and
asset management services.

Revenue

         Compaq Global Services revenue increased $124 million, or 7 percent,
compared with the second quarter of 2000 and represented 23 percent of
consolidated revenue. On a year to date basis, revenue from this segment
increased $196 million, or 5 percent. Adjusted for the effects of currency,
revenue increased 13 percent and 11 percent for the three and six months ended
June 30, 2001, respectively, compared with the corresponding periods in 2000.
Compaq Global Services' broad portfolio and geographic diversification
contributed to revenue growth, despite a weak economy in the United States
during the quarter and year to date periods. Given current economic
uncertainties, customers are focused on service and solution expenditures that
reduce costs and increase productivity, resulting in growth in revenue from
outsourcing and support services. Revenue also benefited from stronger service
attach rates as well as higher leasing revenues due to growth in Compaq's leased
asset portfolio.


                                       14
<PAGE>   15


Operating Income

         Compaq Global Services operating income increased $57 million, or 27
percent, in the second quarter of 2001 compared with the corresponding period in
2000. For the six months ended June 30, 2001, operating income from this segment
increased $99 million, or 23 percent, compared with the corresponding period in
2000. The increase in operating income resulted primarily from higher revenue as
noted above, improved profitability in Compaq's professional services
organization due to strategic actions taken over the past year and lower
operating costs resulting from an aggressive focus on expense management.

UNALLOCATED CORPORATE EXPENSES

         The results of the business segments exclude separately managed
unallocated corporate expenses, which are comprised primarily of general and
administrative costs as well as other items not controlled by the business
segments. Unallocated corporate expenses decreased 23 percent from $64 million
in the second quarter of 2000 to $49 million in the second quarter of 2001. On a
year to date basis, unallocated corporate expenses decreased 36 percent from
$129 million to $83 million. Unallocated corporate expenses declined due to
improved spending discipline.

RESTRUCTURING AND RELATED CHARGES

         In March 2001 and June 2001, Compaq's management approved restructuring
plans to realign its organization and reduce operating costs. Compaq combined
its commercial and consumer personal computer operations into a single Access
business. Compaq is also implementing significant changes in its business model
and supply chain operations. These actions are designed to simplify product
offerings, derive greater internal operating efficiencies, lower order cycle
time, reduce channel inventory and improve account and order management. In
addition, Compaq plans to consolidate certain functions within the global
business units and reduce administrative functions. Accordingly, Compaq plans to
reduce associated employee positions by approximately 4,500 and 4,000 worldwide
in connection with the first and second quarter plans, respectively.

         Restructuring and related charges of $249 million and $493 million were
expensed during the first and second quarter of 2001, respectively. The first
quarter charge was comprised of $173 million related to employee separations,
$64 million of related asset impairment charges and $12 million for other exit
costs. The second quarter charge was comprised of $303 million related to
employee separations, $138 million of related asset impairment charges, $40
million for facility closure costs and $12 million for other exit costs.
Employee separation benefits under each plan include severance, medical and
other benefits. Employee separations related to the first quarter plan were
3,600 as of June 30, 2001. Compaq expects to substantially complete the
initiatives contemplated under both restructuring plans by December 31, 2001.
Upon conclusion of its restructuring initiatives, Compaq expects to achieve
annualized savings of approximately $900 million in cost of sales and operating
expenses as a result of the first and second quarter restructuring actions.
However, there can be no assurance that such cost reductions can be sustained or
that the estimated costs of such actions will not change.

         There were no amounts charged against the second quarter restructuring
plan as of June 30, 2001. Components of accrued restructuring costs and amounts
charged against the first quarter plan as of June 30, 2001 were as follows:

<TABLE>
<CAPTION>
                             BEGINNING                  JUNE 30,
(In millions)                 ACCRUAL    EXPENDITURES     2001
                             ---------   ------------   --------
<S>                          <C>         <C>            <C>
Employee separations         $     173   $        (30)  $    143
Other exit costs                    12             --         12
                             ---------   ------------   --------
                             $     185   $        (30)  $    155
                             =========   ============   ========
</TABLE>

         The accrual at June 30, 2001 includes amounts related to future cash
payments to employees separated prior to June 30, 2001.


                                       15
<PAGE>   16


LIQUIDITY AND CAPITAL RESOURCES

          Compaq's cash and cash equivalents increased $1.3 billion to $3.8
billion at June 30, 2001. The increase resulted primarily from $1.1 billion and
$764 million provided by operating and financing activities, respectively,
offset in part by $457 million used in investing activities.

         Net cash of $1.1 billion provided by operating activities consisted
primarily of a net loss of $201 million adjusted for non-cash items of $1.3
billion, slightly offset by $37 million used in working capital and other
activities. Net cash used in working capital and other activities resulted
primarily from a decrease in accounts payable and current liabilities, offset by
a decrease in receivables and inventory. Days sales outstanding were 55 days in
the current quarter compared with 53 days in the fourth quarter of 2000.
Inventory turns were 15.2 in the second quarter of 2001 compared with 16.3 in
the fourth quarter of 2000.

         Net cash of $457 million used in investing activities consisted of $570
million used for net capital expenditures, $75 million used for the purchase of
investments and $107 million used in other investing activities, partially
offset by proceeds received from the sale of investments of $295 million.

         Cash provided by financing activities of $764 million consisted
primarily of increases in short-term borrowings and long-term debt of $798
million and the issuance of common stock for stock options of $138 million,
partially offset by treasury stock purchases of $88 million and dividends paid
to stockholders of $84 million.

         Estimated future uses of cash in 2001 include capital expenditures for
land, buildings and equipment of approximately $400 million, purchases of
equipment to be leased to third parties of approximately $275 million and
funding for potential strategic acquisitions. Compaq has approximately $550
million remaining under the $1.0 billion program for the repurchase of Compaq
common shares authorized by the Board of Directors in December 2000.

         Compaq also plans to use available liquidity to develop the purchased
in-process technology related to the Digital acquisition into commercially
viable products. At June 30, 2001, the estimated costs to be incurred to develop
the purchased in-process technology into commercially viable products totaled
approximately $790 million in the aggregate through the year 2004 ($230 million
in 2001, $350 million in 2002, $150 million in 2003 and $60 million in 2004).

         Compaq currently expects to fund expenditures for capital requirements
as well as liquidity needs from a combination of available cash balances,
internally generated funds and financing arrangements. Compaq has a $2.2 billion
revolving credit facility that expires in September 2001 and a $3.0 billion
revolving credit facility that expires in October 2002. The facilities bear
interest at LIBOR plus 0.625 percent and LIBOR plus 0.325 percent, respectively.
Both of these facilities were unused at June 30, 2001. Compaq also operates two
short-term commercial paper programs: a $3.7 billion program in the name of
Compaq Computer Corporation and a $1.0 billion program in the name of Compaq
Financial Services Corporation ("CFS"). Both programs are supported by the $3.0
billion and $2.2 billion credit facilities. Outstanding commercial paper reduces
available borrowings under these credit facilities. At June 30, 2001, Compaq had
$905 million and $241 million in commercial paper outstanding under the Compaq
and CFS programs, respectively, with a weighted average interest rate of 4.2
percent. The carrying amounts of the borrowings under the commercial paper
programs approximate their fair value. Additionally, Compaq maintains various
uncommitted lines of credit, which totaled approximately $675 million at June
30, 2001. There were no outstanding borrowings against these lines at June 30,
2001. Compaq believes that these sources of credit provide sufficient financial
flexibility to meet future funding requirements. Compaq continually evaluates
the need to establish other sources of working capital and will pursue those it
considers appropriate based upon its needs and market conditions.


                                       16
<PAGE>   17


         In May 2000, Compaq filed a shelf registration statement with the
Securities and Exchange Commission to register $2.0 billion of debt securities.
Compaq had the following debt securities outstanding under its effective
registration statement as of June 30, 2001:

<TABLE>
<CAPTION>
          DATE              AMOUNT          INTEREST RATE           INTEREST PAYABLE              MATURITY DATE
     ----------------    --------------     --------------    -----------------------------    ---------------------
<S>                      <C>                <C>               <C>                              <C>
       August 2000       $300 million           7.65%           February 1 and August 1           August 1, 2005
       August 2000       $275 million           7.45%           February 1 and August 1           August 1, 2002
</TABLE>

         In February 2001, Compaq established under its effective registration
statement a $1.4 billion medium-term notes program for issuance of debt
securities due nine months or more from date of issue. Compaq had the following
debt securities outstanding under its medium-term notes program as of June 30,
2001:

<TABLE>
<CAPTION>
          DATE              AMOUNT          INTEREST RATE           INTEREST PAYABLE              MATURITY DATE
     ----------------   ---------------     --------------    -----------------------------    ---------------------
<S>                     <C>                 <C>               <C>                              <C>
        May 2001         $300 million           6.2%             May 15 and November 15            May 15, 2003
</TABLE>

         The net proceeds from the sale of these senior unsecured debt
securities were used for general corporate purposes (including investments in
CFS and other subsidiaries), capital expenditures and repayment of outstanding
indebtedness (including commercial paper issued for working capital purposes).

 FACTORS THAT MAY AFFECT FINANCIAL CONDITION AND FUTURE RESULTS

         Compaq participates in a highly volatile industry that is characterized
by intense industry-wide competition. Industry participants confront aggressive
pricing practices by competitors, continually changing customer demand patterns
and rapid technological developments. The following cautionary statements
discuss important factors that could cause actual results to differ materially
from the projected results contained in the forward-looking statements in this
report.

         Worsening global economic conditions could impact revenues and growth
rate. During the first half of 2001, the information technology market weakened,
first in the United States and then in Europe. Continued softness in the United
States and European markets, particularly in the telecommunications and consumer
sectors, and the possibility that it will affect demand in other regions could
result in lower demand for products and services. These conditions have
negatively affected Compaq's revenue and earnings and may continue to affect
results in future periods.

         Competitive environment places pressure on revenue, gross margins and
market share. Competition remains intense in the information technology industry
with a large number of competitors vying for customers and market share,
domestically and internationally. These competitive factors could spur more
aggressive pricing tactics due to market weakness in the information technology
industry, which continues to pressure revenue, gross margins and market share.
In the third quarter of 2001, Compaq intends to continue aggressive pricing
programs to drive demand generation in core markets and to reduce reseller
inventories.

         Restructuring activity and expense constraints could impede operations
and divert focus. Compaq has undertaken two restructuring plans to realign its
organization and reduce operating costs. Compaq is focused on bringing its
operational expenses to appropriate levels for each of its businesses while
simultaneously implementing extensive new company-wide programs. The significant
risks associated with these actions include the unanticipated consequences of
reductions in personnel devoted to ongoing programs and administrative
functions, delays in implementation of anticipated reductions in force in highly
regulated locations in a number of countries in Europe, customer confusion about
Compaq's future products and services, adverse impact on employee morale and
retention, and the failure to meet operational targets by not matching
commitments in new programs to reductions in ongoing programs.

         Expansion of solutions model could be delayed by cost constraints and
organizational transitions. Compaq recently began to focus its business
development on offering total information technology solutions to


                                       17
<PAGE>   18


its customers. To succeed in this effort, Compaq must expand its vertical
industry presence, increase its service and software offerings, and offer
programs that enable its customers to purchase information technology as a
utility. Additionally, Compaq must invest significant resources in developing
new solutions offerings and must retain or develop significant new employee
skills while under significant company-wide cost constraints. Delays in internal
development or the acquisition of significant external resources in this area
could result in Compaq's offerings not being competitive.

         Delays in implementation of changes in various delivery models could
negatively affect financial results. Compaq uses a variety of delivery models to
sell its broad array of products and services. Compaq sells directly to end
users in all market sectors, but the largest proportion of direct hardware sales
is in large enterprise accounts. Computing hardware products are sold to the
commercial market primarily through third-party resellers while consumer
personal computing products are sold principally through retail outlets. Compaq
has established a variety of programs designed to achieve improved operational
capabilities for all of its delivery models by simplifying its product-set and
pricing model, re-engineering the channel delivery model and more rapidly
expanding e-commerce capabilities for large, medium and small businesses. Should
Compaq not be successful in implementing the most advantageous delivery model
for its products and services, profitability could be adversely affected.

         Inability to integrate acquisitions could adversely affect financial
condition. Compaq recently announced its intent to pursue an acquisition
strategy as part of its overall business model. Compaq's growth through
acquisition strategy will be capital intensive in nature and depends in large
measure on its ability to successfully acquire specific targeted companies.
Should Compaq consummate an acquisition, its financial position and results of
operations will depend to a large extent on Compaq's ability to integrate
acquisitions effectively, realize expected efficiencies and gain economies of
scale. Failure to effectively integrate acquisitions could have a material
adverse effect on Compaq's future results of operations. As Compaq continues to
pursue its acquisition strategy in the future, its financial position and
results of operations may fluctuate from period to period.

         Credit risks could increase if financial condition of resellers or
equipment lessees erodes. Much of Compaq's revenue results from selling products
through distributors and resellers. Compaq continually monitors and manages the
credit it extends to distributors and resellers and attempts to limit credit
risks by utilizing risk transfer arrangements and obtaining security interests.
Compaq's business could be adversely affected in the event that the financial
condition of its distributors and resellers erodes. As the information
technology market weakens in the United States and Europe, the likelihood of the
erosion of the financial condition of these distributors and resellers
increases. Upon the financial failure of a distributor or reseller, Compaq could
experience disruptions in distribution as well as a loss associated with the
unsecured portion of any outstanding accounts receivable. Additionally, Compaq
provides information technology leasing and financing solutions to customers. As
a consequence, Compaq is exposed to the risk that lessees will be unable to make
required lease payments and to the risk that leased equipment will be worth less
upon its return to Compaq than was estimated at lease inception. While Compaq
believes that its allowances for credit losses are adequate and that its
estimates of the residual value of leased equipment are reasonable, there can be
no assurance that such allowances will cover actual losses or that estimated
residual values will be realized.


                                       18
<PAGE>   19


         Unanticipated delays in product schedules could affect product demand.
The process of developing new high-technology products and services is complex
and often uncertain. Successful product transitions and deployment of new
products requires accurate predictions of the product development schedule as
well as volumes, product mix, customer demand and configuration. Compaq may also
anticipate demand and perceived market acceptance that differs from the
product's realizable customer demand and revenue stream. Further, in the face of
intense competition in the industry, any delay in a new product rollout could
decrease any advantage Compaq may have to be the first to market. A failure on
the part of Compaq to carry out a product rollout in the time frame anticipated
and in the quantities appropriately matching current customer demand could
directly affect the future demand for the product and the profitability of
Compaq.

         Quarterly sales cycle makes planning and operational efficiencies
difficult. Compaq, like other technology companies, generally sells more
hardware products in the third month of each quarter than in the first and
second months. This sales pattern places pressure on manufacturing and logistics
systems based on internal forecasts and may adversely affect Compaq's ability to
predict its financial results accurately. In addition, to rationalize
manufacturing utilization, Compaq may build products early in the quarter in
anticipation of demand late in the quarter. Developments late in a quarter, such
as lower-than-anticipated product demand, a systems failure, or component
pricing movements, can adversely impact inventory levels, cash and related
profitability in a manner that is disproportionate to the number of days in the
quarter affected.

         Reliance on third party suppliers could delay product shipments and
adversely affect operating results. Compaq depends on many suppliers for key
supply components for its product offerings and certain other supply chain
functions. For some of these key components Compaq may only use a single source
supplier. In the event that supply of a key material component is delayed or
curtailed, Compaq's ability to ship the related product in desired quantities
and in a timely manner could be adversely affected. Compaq's business could also
be adversely affected in the event that the financial condition of its original
equipment manufacturers ("OEMs") erodes. Further, Compaq's reliance on these
OEMs for key material components exposes Compaq to potential product quality
issues that could affect the reliability and performance of its product set.
Compaq attempts to mitigate the risk of reliance on third party manufacturers by
working closely with key suppliers on product plans, coordinated product
introductions, purchases on the spot market and selected strategic purchases.

         Consolidation of high performance servers on single microprocessor
architecture could adversely affect revenue. In June 2001, Compaq and Intel
Corp. ("Intel") announced a strategic alliance that, over a multi-year period,
will lead to Compaq consolidating its high performance enterprise servers on a
single microprocessor architecture. Plans to consolidate Compaq's high
performance enterprise servers on a single microprocessor architecture could
lead to the loss of high-end business. Compaq believes that the current
development plans for the Compaq Alpha(TM) microprocessor offer significant
advantages for its customers and that the cost effectiveness of the Intel(R)
Itanium(TM) microprocessor will be an attractive value. However, the transition
to the Intel architecture could lead to the loss of potential new business for
Compaq's high-end enterprise products and the associated service business, and,
more significantly, the loss of current customers to high-end enterprise
hardware competitors in this sector.

         Minority investments could adversely affect earnings. Compaq holds
minority interests in companies having operations or technology in areas within
Compaq's strategic focus. Certain investments are in publicly traded companies
whose share prices are highly volatile. The market value of certain of these
investments at the end of the second quarter of 2001 was less than the carrying
value of such investments. The continuation of these valuations, further adverse
changes in market conditions or poor operating results of underlying investments
could result in Compaq incurring losses or an inability to recover the carrying
value of its investments.

         Doing business in certain locations creates additional risks.
Manufacturing operations in developing countries, such as Brazil and China, and
the expansion of sales into economically volatile areas, such as Asia-Pacific,
Latin America and other emerging markets, subject Compaq to a number of economic
and other risks. Such risks include financial instability among resellers in
these regions and the volatility of economic conditions in countries dependent
on exports from the United States and European markets. Compaq generally has
experienced longer accounts receivable cycles in emerging markets, in particular
Asia-Pacific and Latin America, when compared with United States and European
markets. Compaq is also subject to any political and financial instability in
the countries in which it operates, including inflation, recession, currency
devaluation and interest rate fluctuations. Compaq continues to monitor its
business operations in these regions and takes various measures to manage risks
in these areas.

  Delays in new systems implementation could hamper operational efficiency.
Compaq continues to focus on increasing the effectiveness and efficiency of its
business and information management processes to increase customer satisfaction,
improve productivity and lower costs. In 2001, Compaq is focusing on
improvements required to support more direct sales and changes in manufacturing
supply chain operations. Efforts to improve systems infrastructure and increase
system security could be hampered by the need to balance


                                       19
<PAGE>   20


increased operational efficiency against budgetary constraints. Delays in
implementing further improvements could adversely affect plans to improve
inventory levels, cash and related profitability.

         Changes in the services business mix could adversely affect earnings.
Compaq's Global Services business has traditionally provided services that
included the design and implementation of high-end proprietary systems. If the
trend for design and implementation of systems continues to move from
proprietary environments to industry standard products, Compaq will need to
continue and accelerate retraining its services personnel to compete in the new
environment. There can be no assurance that Compaq will be able to successfully
continue training, attracting and retaining the necessary personnel to achieve
this transition as Compaq adapts its service practices to changing conditions.

         Income taxes. Compaq anticipates an effective tax rate of 30 percent
for 2001. Compaq's manufacturing entity in Singapore is subject to a tax holiday
that is not expected to extend beyond 2001. Compaq's tax rate has historically
been heavily dependent upon the proportion of earnings derived from its
Singaporean manufacturing subsidiary and its ability to reinvest those earnings
permanently outside the United States. If Compaq's intercompany transfer pricing
with respect to its Singaporean manufacturing subsidiary for prior years
requires significant adjustment due to audits or regulatory changes, Compaq's
overall tax rate could increase.


                                       20
<PAGE>   21


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

         Compaq is exposed to market risks, which include changes in currency
exchange rates as measured against the U.S. dollar and each other, changes in
United States and international interest rates as well as changes in equity
security prices. Compaq attempts to reduce certain of these risks by utilizing
derivatives and other financial instruments.

         Compaq uses market valuations and value-at-risk valuation methods to
assess the market risk of its financial instruments and derivative portfolios.
It uses software by RiskMetrics to estimate the value-at-risk of its financial
instruments and derivative portfolios based on estimates of volatility and
correlation of market factors drawn from RiskMetrics data sets for the dates
calculated. RiskMetrics defines loss as a reduction in the value of a portfolio
in the event of adverse market conditions, using a predetermined confidence
interval, over a specified period of time. Compaq's model uses a
variance/covariance method for a holding period of one day with a 95 percent
confidence level.

FOREIGN CURRENCY RISK

         The value of the U.S. dollar affects Compaq's financial results.
Changes in exchange rates may positively or negatively affect Compaq's revenues,
gross margins, operating expenses and retained earnings as expressed in U.S.
dollars. Compaq engages in hedging programs aimed at limiting in part the impact
of currency fluctuations. Principal currencies hedged include the Euro, Japanese
yen and British pound. Compaq primarily uses forward exchange contracts to hedge
those assets and liabilities that impact the income statement when remeasured
according to accounting principles generally accepted in the United States. For
some markets, Compaq has determined that ongoing hedging of non-U.S. dollar net
monetary assets is not cost effective and instead attempts to minimize currency
exposure risk through working capital management. There can be no assurance that
such an approach will be successful, especially if a significant and sudden
decline occurs in the value of local currencies. Compaq purchases foreign
currency option contracts from time to time as well as forward exchange
contracts to protect against currency exchange risks associated with the
anticipated revenues of Compaq's international marketing subsidiaries, with the
exception of certain subsidiaries that reside in countries in which such
activity would not be cost effective or local regulations preclude this type of
activity. These hedging activities provide only limited protection against
currency exchange risks. Factors that could impact the effectiveness of Compaq's
hedging programs include accuracy of sales forecasts, volatility of the currency
markets and availability of hedging instruments. All currency contracts that are
entered into by Compaq are components of hedging programs and are entered into
for the sole purpose of hedging an existing or anticipated currency exposure,
not for speculation. Although Compaq maintains these programs to reduce the
impact of changes in currency exchange rates, Compaq's revenues or costs are
adversely affected when the U.S. dollar sustains a strengthening position
against currencies in which Compaq sells products and services or a weakening
exchange rate against currencies in which Compaq incurs costs.

         Based on Compaq's foreign currency exchange instruments outstanding at
June 30, 2001, Compaq estimates a maximum potential one-day loss in fair value
of approximately $38 million. Compaq included all foreign exchange contracts in
the value-at-risk calculation. The holding period for these instruments varies
from one day to nine months, with the exception of instruments held by CFS,
which have holding periods up to four years.

INTEREST RATE RISK

         Changes in interest rates affect interest income earned on Compaq's
cash equivalents and short-term investments, interest expense on short-term
borrowings, and the fair value of Compaq's debt and investment portfolios.
Compaq does not enter into derivative transactions related to its cash, cash
equivalents or short-term investments. Compaq does periodically enter into
interest rate swap transactions for the purpose of hedging existing or
anticipated liabilities. All interest rate swaps entered into by Compaq are for
the sole purpose of hedging existing or anticipated interest rate sensitive
positions, not for speculation.

         Based on Compaq's debt and investment portfolios outstanding at June
30, 2001, Compaq estimates a maximum potential one-day loss in fair value of $1
million. Compaq included all fixed income investments,


                                       21
<PAGE>   22


interest rate swaps, commercial paper and long-term debt obligations in the
value-at-risk calculation. The holding period for these instruments varies from
one day to five years.

EQUITY PRICE RISK

         Compaq is exposed to equity price risks on the marketable portion of
investments in publicly traded equity securities. These investments are
generally in companies having operations or technology in areas within Compaq's
strategic focus. Compaq does not attempt to reduce or eliminate its market
exposure on these securities. As of June 30, 2001, the fair value of Compaq's
available-for-sale securities was $245 million. A 20 percent adverse change in
equity prices would result in an approximate $49 million decrease in the fair
value of Compaq's available-for-sale securities as of June 30, 2001.

         Because of the foregoing factors (Factors That May Affect Financial
Condition and Future Results and Market Risk), as well as other variables
affecting Compaq's operating results, past financial performance should not be
considered a reliable indicator of future performance and investors should not
use historical trends to anticipate results or trends in future periods.


                                       22
<PAGE>   23


                           PART II. OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

         See Note 11 to interim condensed consolidated financial statements.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         In May 2000, Compaq filed a shelf registration statement (file number
333-36750) with the Securities and Exchange Commission to register $2.0 billion
of debt securities. The effective date of the registration statement was June
16, 2000. In August 2000, Compaq offered the following long-term debt securities
pursuant to the shelf registration statement:

<TABLE>
<CAPTION>
                                            FACE AMOUNT            AGGREGATE PRICE OF       UNDERWRITING DISCOUNTS,
              TITLE OF NOTES                 OF NOTES              OFFERING TO PUBLIC         COMMISSIONS AND FEES
       ----------------------------- -------------------------- -------------------------- ---------------------------
<S>                                  <C>                        <C>                        <C>
       7.65% Notes due 2005                $300 million               $299 million                 $2 million
       7.45% Notes due 2002                $275 million               $275 million                 $1 million
</TABLE>

         The entire amount of the registered 7.65% Notes Due 2005 and 7.45%
Notes Due 2002 were sold to Merrill Lynch, Pierce, Fenner & Smith, Incorporated,
Chase Securities, Inc., Morgan Stanley & Co., Incorporated, Lehman Brothers,
Inc. and Solomon Smith Barney, Inc. as underwriters.

         The net proceeds from the sale of these senior unsecured debt
securities were used for general corporate purposes (including investments in
Compaq Financial Services Corporation and other subsidiaries), capital
expenditures and repayment of outstanding indebtedness (including commercial
paper issued for working capital purposes).

         In February 2001, Compaq established under the shelf registration
statement a $1.4 billion medium-term notes program for issuance of debt
securities due nine months or more from date of issue. In May 2001, Compaq
offered the following medium-term debt securities under the effective shelf
registration statement:

<TABLE>
<CAPTION>
                                            FACE AMOUNT            AGGREGATE PRICE OF       UNDERWRITING DISCOUNTS,
              TITLE OF NOTES                 OF NOTES              OFFERING TO PUBLIC         COMMISSIONS AND FEES
       ----------------------------- -------------------------- -------------------------- ---------------------------
<S>                                  <C>                        <C>                        <C>
       6.2% Medium-Term Notes due
       May 15, 2003                        $300 million              $299.8 million               $1.0 million
</TABLE>

         The entire amount of the registered 6.2% Medium-Term Notes due May 15,
2003 was sold to Merrill Lynch, Pierce, Fenner & Smith, Incorporated, J.P.
Morgan Securities, Inc. and Solomon Smith Barney, as agents.

         The net proceeds from the sale of these senior unsecured debt
securities were used for general corporate purposes (including investments in
Compaq Financial Services Corporation and other subsidiaries), capital
expenditures and repayment of outstanding indebtedness (including commercial
paper issued for working capital purposes).



                                       23
<PAGE>   24



ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         At the annual meeting of stockholders of Compaq on April 26, 2001, the
stockholders voted on three proposals: the election of eight directors for
one-year terms, a proposal to approve Compaq's 2001 Stock Option Plan and a
proposal to vote on the stockholder proposal relating to Board of Director
candidates.

         The first matter voted on was a proposal to elect Lawrence T. Babbio,
Jr., Michael D. Capellas, Judith L. Craven, George H. Heilmeier, Kenneth L. Lay,
Sanford M. Litvack, Thomas J. Perkins and Lucille S. Salhany, as directors of
Compaq. All director nominees were elected. The following table sets forth the
votes in such election:

<TABLE>
<CAPTION>
                                                                     Votes
                     Director                  Votes For            Withheld
                     --------                --------------       ------------
<S>                                          <C>                  <C>
           Lawrence T. Babbio, Jr.            1,368,193,466        14,957,508

           Michael D. Capellas                1,367,933,242        15,217,731

           Judith L. Craven                   1,367,505,482        15,645,492

           George H. Heilmeier                1,368,253,590        14,897,383

           Kenneth L. Lay                     1,367,842,269        15,308,704

           Sanford M. Litvack                 1,368,208,685        14,942,288

           Thomas J. Perkins                  1,368,051,218        15,099,756

           Lucille S. Salhany                 1,368,031,774        15,119,200
</TABLE>


         The second matter voted on was a proposal to approve the Compaq
Computer Corporation 2001 Stock Option Plan (the "Plan"). The following table
sets forth the votes on the proposal to approve the Plan:

<TABLE>
<CAPTION>
                              Number of Shares:
                              ----------------
<S>                                                                       <C>
                                  Voted For                               831,509,936

                                  Voted Against                           541,857,988

                                  Abstentions                               9,783,049
</TABLE>


         The third matter voted on was a stockholder proposal relating to the
disclosure and number of nominations for future Board of Directors candidates.
The following table sets forth the votes on the stockholder proposal:

<TABLE>
<CAPTION>
                              Number of Shares:
                              ----------------
<S>                                                                       <C>
                                  Voted For                                58,030,443

                                  Voted Against                           895,194,894

                                  Abstentions                              20,632,768

                                  Broker Non-Votes                            409,292
</TABLE>


                                       24
<PAGE>   25


ITEM 5.  OTHER INFORMATION

         On May 17, 2001 Compaq filed a registration statement on Form S-8 with
the Securities and Exchange Commission to register 80,000,000 shares of common
stock under the Compaq Computer Corporation 2001 Stock Option Plan.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a)   Reports on Form 8-K

     (i)   Report on Form 8-K dated May 7, 2001, containing Compaq's computation
           of the ratio of earnings to fixed charges for the years ended
           December 31, 1996 through December 31, 2000 and for the three months
           ended March 31, 2001.

     (ii)  Report on Form 8-K dated June 25, 2001, containing Compaq's news
           release dated June 25, 2001, announcing a multi-year agreement with
           Intel Corp. that accelerates availability of next-generation
           enterprise servers based on certain Intel architecture.

     (iii) Report on Form 8-K dated July 11, 2001, containing Compaq's news
           release dated July 10, 2001, reporting that, based on preliminary
           financial data, earnings on an operational basis for the second
           quarter ended June 30, 2001 are expected to be $0.04 per diluted
           common share and revenue for the same period to be $9.4 billion.

     (iv)  Report on Form 8-K/A dated July 11, 2001, containing Compaq's news
           release dated July 10, 2001, reporting that, based on preliminary
           financial data, earnings on an operational basis for the second
           quarter ended June 30, 2001 are expected to be $0.04 per diluted
           common share and revenue for the same period to be $8.4 billion.

     (v)   Report on Form 8-K dated July 26, 2001, containing Compaq's news
           release dated July 25, 2001, announcing its earnings release for the
           second quarter of 2001 and attaching the financial discussion
           document, Compaq's chief executive officer, Michael D. Capellas' and
           Compaq's chief financial officer, Jeff Clarke's second quarter
           earnings presentation to security analysts on July 25, 2001 and
           second quarter financial slides from Compaq's website, supplementing
           the information in the news release for the second quarter of 2001.



All other items specified by Part II of this report are inapplicable and
accordingly have been omitted.


                                       25
<PAGE>   26


                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


July 26, 2001                             COMPAQ COMPUTER CORPORATION



                                               /s/ Jeff Clarke
                                              ---------------------------------

                                              Jeff Clarke
                                              Senior Vice President, Finance and
                                              Administration and Chief Financial
                                              Officer
                                              (as authorized officer and as
                                              principal financial officer)


                                       26