EXHIBIT 99.2
HP's consolidated financial statements for the fiscal year ended October 31,
2001 to be included in its 2001 Annual Report on Form 10-K, when filed, will
include a cumulative effect of an accounting change as a result of adoption of
Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," as amended, as well as certain minor
reclassifications. HP's Current Report on Form 8-K, dated November 14, 2001,
included a copy of HP's press release with respect to certain financial
information for the fiscal year ended October 31, 2001 and also included
certain quarterly financial information for the first three quarters of fiscal
2001 which has been restated for the effects of this accounting change and
these reclassifications. The effect of this accounting change on the nine
months ended July 31, 2001 and the effect of these reclassifications for all
prior periods have not been reflected in the historical financial information
of HP included herein, and accordingly are not reflected in the pro forma
financial information of the combined company included herein.
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following table presents comparative historical per share data regarding
the net earnings (loss), book value and dividends of each of HP and Compaq and
unaudited combined pro forma per share data after giving effect to the merger
as a purchase of Compaq by HP assuming the merger had been completed at the
beginning of the periods presented below. The following data assumes 0.6325 of
a share of HP common stock will be issued in exchange for each share of Compaq
common stock in connection with the merger and the assumption of options based
upon the same exchange ratio. This data has been derived from and should be
read in conjunction with the summary selected historical consolidated financial
data and unaudited pro forma condensed combined consolidated financial
statements contained elsewhere in this joint proxy statement/prospectus, and
the separate historical consolidated financial statements of HP and Compaq and
accompanying notes incorporated by reference into this joint proxy
statement/prospectus. The unaudited pro forma per share data is presented for
informational purposes only and is not intended to represent or be indicative
of the consolidated results of operations or financial condition of HP that
would have been reported had the merger been completed as of the dates
presented, and should not be taken as representative of future consolidated
results of operations or financial condition of HP. All per share amounts
reflect the retroactive effects of the two-for-one stock split of HP in the
form of a stock dividend effective October 27, 2000.
As of or For the Nine Months Ended July 31, 2001
----------------------------------------------
Pro Forma
-------------------------
HP and Compaq
HP Compaq/(1)/ Compaq/(2)/ Equivalent/(3)/
----- ---------- ---------- --------------
(Unaudited)
Net earnings (loss) per share from continuing operations/(4)/:
Basic........................................................... $0.24 $(0.52) $(0.20) $(0.13)
Diluted......................................................... $0.24 $(0.52) $(0.20) $(0.13)
Book value per share at period end/(5)/............................ $7.15 $ 6.93 $12.19 $ 7.71
Cash dividends declared per share.................................. $0.32 $ 0.075 $ 0.37 $ 0.23
As of or For the Year Ended October 31, 2000
--------------------------------------------
Pro Forma
-------------------------
HP and Compaq
HP Compaq/(1)/ Compaq/(2)/ Equivalent/(3)/
----- ---------- ---------- --------------
(Unaudited)
Net earnings per share from continuing operations/(4)/:
Basic........................................................... $1.80 $0.94 $ 1.60 $1.01
Diluted......................................................... $1.73 $0.92 $ 1.54 $0.97
Book value per share at period end/(5)/............................ $7.30 $7.63 $12.29 $7.77
Cash dividends declared per share.................................. $0.32 $0.10 $ 0.38 $0.24
- --------
(1) Compaq historical per share data is as of or for the nine months ended June
30, 2001 and as of or for the twelve months ended September 30, 2000.
(2) Because of different fiscal period ends, financial information for HP as of
or for the nine months ended July 31, 2001 and fiscal year ended October
31, 2000 has been combined with financial information relating to Compaq as
of or for the nine months ended June 30, 2001 and twelve months ended
September 30, 2000, respectively.
(3) The Compaq equivalent pro forma combined per share amounts are calculated
by multiplying HP combined pro forma share amounts by the exchange ratio in
the merger of 0.6325 of a share of HP common stock for each share of Compaq
common stock.
(4) Net earnings (loss) per share from continuing operations are presented
before extraordinary item and cumulative effect of accounting change.
(5) Historical book value per share is computed by dividing stockholders'
equity by the number of shares of HP or Compaq common stock outstanding at
the end of each period. Pro forma book value per share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares
of HP common stock outstanding at the end of each period.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined consolidated balance
sheet as of July 31, 2001 and the unaudited pro forma condensed combined
consolidated statements of earnings for the nine months ended July 31, 2001 and
for the year ended October 31, 2000 are based on the historical financial
statements of HP and Compaq after giving effect to the merger as a purchase of
Compaq by HP using the purchase method of accounting and the assumptions and
adjustments described in the accompanying notes to the unaudited pro forma
condensed combined consolidated financial statements.
The unaudited pro forma condensed combined consolidated balance sheet as of
July 31, 2001 is presented to give effect to the proposed merger as if it
occurred on July 31, 2001 and, due to different fiscal period ends, combines
the historical balance sheet for HP at July 31, 2001 and the historical balance
sheet of Compaq at June 30, 2001. The unaudited pro forma condensed combined
consolidated statement of earnings of HP and Compaq for the nine months ended
July 31, 2001 is presented as if the combination had taken place on November 1,
2000 and, due to different fiscal period ends, combines the historical results
of HP for the nine months ended July 31, 2001 and the historical results of
Compaq for the nine months ended June 30, 2001. The unaudited pro forma
condensed combined consolidated statement of earnings of HP and Compaq for the
year ended October 31, 2000 is presented as if the combination had taken place
on November 1, 1999 and, due to different fiscal year ends, combines the
historical results of HP for the year ended October 31, 2000 with the
historical results of Compaq for the twelve months ended September 30, 2000.
Under the purchase method of accounting, the total estimated purchase price,
calculated as described in Note 1 to these unaudited pro forma condensed
combined consolidated financial statements, is allocated to the net tangible
and intangible assets of Compaq acquired in connection with the merger, based
on their fair values as of the completion of the merger. Independent valuation
specialists are currently conducting an independent valuation in order to
assist management of HP in determining the fair values of a significant portion
of these assets. The preliminary work performed by the independent valuation
specialists has been considered in management's estimates of the fair values
reflected in these unaudited pro forma condensed combined consolidated
financial statements. A final determination of these fair values, which cannot
be made prior to the completion of the merger, will include management's
consideration of a final valuation prepared by the independent valuation
specialists. This final valuation will be based on the actual net tangible and
intangible assets of Compaq that exist as of the date of completion of the
merger.
Further, the unaudited pro forma condensed combined consolidated financial
statements do not include any adjustments for liabilities resulting from
integration planning, as management of HP and Compaq are in the very early
stages of making these assessments and estimates of these costs are not
currently known. However, liabilities ultimately will be recorded for severance
or relocation costs related to Compaq employees, costs of vacating some
facilities (leased or owned) of Compaq, or other costs associated with exiting
activities of Compaq. In addition, HP may incur significant restructuring
charges upon completion of the merger or in subsequent quarters for severance
or relocation costs related to HP employees, costs of vacating some facilities
(leased or owned) of HP, or other costs associated with exiting activities of
HP.
Because these unaudited pro forma condensed combined consolidated financial
statements have been prepared based on preliminary estimates of fair values and
do not include liabilities which are not presently estimable as discussed
above, the actual amounts recorded as of the completion of the merger may
differ materially from the information presented in these unaudited pro forma
condensed combined consolidated financial statements. In addition to the
receipt of the final valuation, the impact of ongoing integration activities,
the timing of completion of the merger and other changes in Compaq's net
tangible and intangible assets which occur prior to completion of the merger
could cause material differences in the information presented.
The unaudited pro forma condensed combined consolidated financial statements
should be read in conjunction with the historical consolidated financial
statements and accompanying notes of HP and Compaq incorporated by reference
into this joint proxy statement/prospectus and the summary selected historical
consolidated financial data included elsewhere in this joint proxy
statement/prospectus. The unaudited pro forma condensed combined consolidated
financial statements are not intended to represent or be indicative of the
consolidated results of operations or financial condition of HP that would have
been reported had the merger been completed as of the dates presented, and
should not be taken as representative of the future consolidated results of
operations or financial condition of HP.
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet
of HP and Compaq
July 31, 2001
(In millions)
Historical
--------------- Pro Forma Pro Forma
HP Compaq Adjustments Combined
------- ------- ----------- ---------
Assets
Current assets:
Cash and cash equivalents.......................... $ 2,727 $ 3,829 $ -- $ 6,556
Short-term investments............................. 513 -- -- 513
Accounts receivable, net........................... 4,900 5,104 -- 10,004
Financing receivables, net......................... 2,153 1,067 -- 3,220
Inventory.......................................... 5,489 1,731 50 (a) 7,270
Other current assets............................... 5,180 3,191 -- 8,371
------- ------- ------- -------
Total current assets........................... 20,962 14,922 50 35,934
Property, plant and equipment, net.................... 4,613 3,300 1,100 (b) 9,013
Long-term investments and other assets................ 6,347 4,300 (1,989)(c) 8,658
Amortizable intangible assets, net.................... 36 1,492 2,608 (d) 4,136
Goodwill and intangible assets with indefinite lives.. 416 227 10,522 (e) 11,165
------- ------- ------- -------
Total assets................................... $32,374 $24,241 $12,291 $68,906
======= ======= ======= =======
Liabilities and stockholders' equity
Current liabilities:
Notes payable and short-term borrowings............ $ 2,012 $ 1,209 $ -- $ 3,221
Accounts payable................................... 3,238 3,434 -- 6,672
Deferred revenue................................... 1,879 1,249 (249)(f) 2,879
Other accrued liabilities.......................... 6,821 4,546 150 (g) 11,517
------- ------- ------- -------
Total current liabilities...................... 13,950 10,438 (99) 24,289
Long-term debt........................................ 3,511 875 -- 4,386
Other liabilities..................................... 1,044 1,186 1,282 (h) 3,512
Total stockholders' equity............................ 13,869 11,742 11,108 (i) 36,719
------- ------- ------- -------
Total liabilities and stockholders' equity..... $32,374 $24,241 $12,291 $68,906
======= ======= ======= =======
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
Unaudited Pro Forma Condensed Combined Consolidated Statement of Earnings
of HP and Compaq
Nine Months ended July 31, 2001
(In millions, except per share amounts)
Historical
---------------- Pro Forma Pro Forma
HP Compaq Adjustments Combined
------- ------- ----------- ---------
Net revenue:
Products................................................... $27,856 $23,999 $ -- $51,855
Services................................................... 5,846 4,937 -- 10,783
------- ------- ----- -------
Total net revenue...................................... 33,702 28,936 -- 62,638
Cost and expenses:
Cost of products sold and services/(1)/.................... 24,890 22,374 95 (j) 47,359
Research and development................................... 2,020 1,093 -- 3,113
Selling, general and administrative/(1)/................... 5,460 4,396 15 (b) 9,871
Restructuring and related charges.......................... 102 656 -- 758
Amortization of intangible assets.......................... 12 224 226 (d) 462
Amortization of goodwill................................... 112 22 (22)(e) 112
------- ------- ----- -------
Total cost and expenses................................ 32,596 28,765 314 61,675
------- ------- ----- -------
Earnings from operations...................................... 1,106 171 (314) 963
Interest and other, net....................................... (604) (1,446) -- (2,050)
------- ------- ----- -------
Earnings (loss) from continuing operations before taxes....... 502 (1,275) (314) (1,087)
Provision (benefit) for taxes................................. 39 (402) (110)(k) (473)
------- ------- ----- -------
Net earnings (loss) from continuing operations/(2)/........... $ 463 $ (873) $(204) $ (614)
======= ======= ===== =======
Net earnings (loss) per share from continuing operations/(2)/:
Basic...................................................... $ 0.24 $ (0.52) $ (0.20)
======= ======= =======
Diluted.................................................... $ 0.24 $ (0.52) $ (0.20)
======= ======= =======
Average number of shares and share equivalents:
Basic...................................................... 1,935 1,690 3,004
Diluted.................................................... 1,976 1,690 3,004
- --------
(1) Historical amounts for amortization of intangibles and goodwill have been
reclassified to separate line items.
(2) Net earnings (loss) and net earnings (loss) per share from continuing
operations for HP are presented before extraordinary items.
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
Unaudited Pro Forma Condensed Combined Consolidated Statement of Earnings
of HP and Compaq
Year ended October 31, 2000
(In millions, except per share amounts)
Historical Pro
--------------- Pro Forma Forma
HP Compaq Adjustments Combined
------- ------- ----------- --------
Net revenue:
Products............................................ $41,446 $34,599 $ -- $76,045
Services............................................ 7,336 6,485 -- 13,821
------- ------- ----- -------
Total net revenue............................... 48,782 41,084 -- 89,866
Cost and expenses:
Cost of products sold and services/(1)/............. 34,864 31,539 110 (j) 66,513
Research and development............................ 2,646 1,481 -- 4,127
Selling, general and administrative/(1)/............ 7,297 5,799 20 (b) 13,116
Amortization of intangible assets................... 7 281 319 (d) 607
Amortization of goodwill............................ 79 19 (19)(e) 79
------- ------- ----- -------
Total cost and expenses......................... 44,893 39,119 430 84,442
------- ------- ----- -------
Earnings from operations............................... 3,889 1,965 (430) 5,424
Interest and other, net................................ 736 333 -- 1,069
------- ------- ----- -------
Earnings from continuing operations before taxes....... 4,625 2,298 (430) 6,493
Provision for taxes.................................... 1,064 699 (151)(k) 1,612
------- ------- ----- -------
Net earnings from continuing operations/(2)/........... $ 3,561 $ 1,599 $(279) $ 4,881
======= ======= ===== =======
Net earnings per share from continuing operations/(2)/:
Basic............................................... $ 1.80 $ 0.94 $ 1.60
======= ======= =======
Diluted............................................. $ 1.73 $ 0.92 $ 1.54
======= ======= =======
Average number of shares and share equivalents:
Basic............................................... 1,979 1,698 3,053
Diluted............................................. 2,077 1,738 3,176
- --------
(1) Historical amounts for amortization of intangibles and goodwill have been
reclassified to separate line items.
(2) Net earnings and net earnings per share from continuing operations for
Compaq are presented before cumulative effect of accounting change.
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements
1. Basis of Pro Forma Presentation
On September 4, 2001, HP and Compaq entered into a merger agreement which
will result in Compaq becoming a wholly-owned subsidiary of HP in a transaction
to be accounted for using the purchase method. The total estimated purchase
price of approximately $24.0 billion includes HP common stock valued at $22.5
billion, assumed stock options with a fair value of $1.4 billion and estimated
direct transaction costs of $150 million.
The unaudited pro forma condensed combined consolidated financial statements
provide for the issuance of approximately 1.1 billion shares of HP common
stock, based upon an exchange ratio of 0.6325 of a share of HP common stock for
each outstanding share of Compaq common stock as of June 30, 2001. The actual
number of shares of HP common stock to be issued will be determined based on
the actual number of shares of Compaq common stock outstanding at the
completion of the merger. The average market price per share of HP common stock
of $20.92 is based on an average of the closing prices for a range of trading
days (August 30, August 31, September 4 and September 5, 2001) around the
announcement date (September 3, 2001) of the proposed merger. Based on the
total number of Compaq options outstanding at June 30, 2001, HP would assume
options to purchase approximately 178.5 million shares of HP common stock at a
weighted average exercise price of $37.04. The actual number of options to be
assumed will be determined based on the actual number of Compaq options
outstanding at the completion of the merger.
The estimated total purchase price of the Compaq merger is as follows (in
millions):
Value of HP common stock issued... $22,450
Assumption of Compaq options...... 1,400
-------
Total value of HP securities... 23,850
Estimated direct transaction costs 150
-------
Total estimated purchase price.... $24,000
=======
Under the purchase method of accounting, the total estimated purchase price
as shown in the table above is allocated to Compaq's net tangible and
intangible assets based on their estimated fair values as of the date of the
completion of the merger. Based on the preliminary independent valuation, and
subject to material changes upon receipt of the final valuation and other
factors as described in the introduction to these unaudited pro forma condensed
combined consolidated financial statements on page 92 of this joint proxy
statement/prospectus, the preliminary estimated purchase price is allocated as
follows (in millions):
Preliminary estimated purchase price allocation:
Net tangible assets........................................... $10,275
Amortizable intangible assets:
Customer contracts and lists, distribution agreements..... 2,400
Developed and core technology, patents.................... 1,500
Other..................................................... 200
Goodwill and intangible assets with indefinite lives.......... 10,749
Net deferred tax liability.................................... (2,124)
In-process research and development........................... 1,000
-------
Total preliminary estimated purchase price allocation............ $24,000
=======
Of the total estimated purchase price, a preliminary estimate of $10.3
billion has been allocated to net tangible assets acquired and approximately
$4.1 billion has been allocated to amortizable intangible assets acquired. The
depreciation and amortization related to the fair value adjustment to net
tangible assets and the amortization related to the amortizable intangible
assets are reflected as pro forma adjustments to the unaudited pro forma
condensed combined consolidated statements of earnings.
Developed technology, which comprises products that have reached
technological feasibility, includes products in most of Compaq's product lines,
principally the Compaq Himalaya, Proliant, Enterprise Storage Array, and
AlphaServer products. Core technology and patents represent a combination of
Compaq processes, patents and trade secrets developed through years of
experience in design and development: clustering, fault tolerant systems,
proprietary Alpha processor architecture, and storage area networks. Compaq's
technology and products are designed for hardware, software, solutions and
services, including enterprise storage and computing solutions, fault tolerant
business critical solutions, communication products, and desktop and portable
personal computers. This proprietary know-how can be leveraged by Compaq to
develop new technology and improved products and manufacturing processes. HP
expects to amortize the developed and core technology and patents on a
straight-line basis over an average estimated life of 6 years.
Customer contracts represent existing contracts that relate primarily to
underlying customer relationships pertaining to the services provided by Compaq
Global Services, including contractual Customer Services relationships,
contractual Managed Services client relationships and contractual Systems
Integration consulting client relationships. Customer lists and distribution
agreements represent Compaq's relationships with its Enterprise and Personal
Systems installed base, and agreements with Enterprise value-added resellers.
HP expects to amortize the fair value of these assets, on a straight-line basis
over an average estimated life of 9 years.
Of the total estimated purchase price, approximately $10.7 billion has been
allocated to goodwill and intangible assets with indefinite lives. Goodwill
represents the excess of the purchase price of an acquired business over the
fair value of the underlying net tangible and intangible assets. Intangible
assets with indefinite lives consist primarily of the estimated fair value
allocated to the Compaq trade name. The Compaq trade name will not be amortized
as it is estimated to have an indefinite remaining useful life based on many
factors and considerations, including the length of time that the Compaq name
has been in use, the Compaq brand awareness and market position, and the
assumption of continued use of the Compaq brand within HP's overall product
portfolio.
In accordance with the Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," goodwill and intangible assets with
indefinite lives resulting from business combinations completed subsequent to
June 30, 2001 will not be amortized but instead will be tested for impairment
at least annually (more frequently if certain indicators are present). In the
event that the management of the combined company determines that the value of
goodwill or intangible assets with indefinite lives has become impaired, the
combined company will incur an accounting charge for the amount of impairment
during the fiscal quarter in which the determination is made.
Of the total estimated purchase price, a preliminary estimate of $1.0
billion has been allocated to in-process research and development and will be
charged to expense in the period during which the merger is completed. Due to
its non-recurring nature, the in-process research and development expense has
been excluded in the unaudited pro forma condensed combined consolidated
statements of earnings.
Compaq is currently developing new products that qualify as in-process
research and development in multiple product areas. Projects which qualify as
in-process research and development represent those that have not yet reached
technological feasibility. Technological feasibility is defined as being
equivalent to completion of a beta-phase working prototype in which there is no
remaining risk relating to the development.
Compaq is currently involved in numerous research and development projects,
which are focused on developing new products, integrating new technologies,
improving product performance and broadening features and functionalities. The
principal research and development efforts of Compaq are directed within the
Enterprise and Personal System businesses. There is a risk that these
developments and enhancements will not be competitive with other products using
alternative technologies that offer comparable functionality.
The value assigned to in-process research and development was determined by
considering the importance of each project to the overall development plan,
estimating costs to develop the purchased in-process research and development
into commercially viable products, estimating the resulting net cash flows from
the projects when completed and discounting the net cash flows to their present
value. The revenue estimates used to value the purchased in-process research
and development were based on estimates of relevant market sizes and growth
factors, expected trends in technology and the nature and expected timing of
new product introductions by Compaq and its competitors.
The rates utilized to discount the net cash flows to their present value are
based on Compaq's weighted average cost of capital. The weighted average cost
of capital was adjusted to reflect the difficulties and uncertainties in
completing each project and thereby achieving technological feasibility, the
percentage of completion of each project, anticipated market acceptance and
penetration, market growth rates and risks related to the impact of potential
changes in future target markets. Based on these factors, discount rates that
range from 25%-42% were deemed appropriate for valuing the in-process research
and development.
The estimates used in valuing in-process research and development were based
upon assumptions believed to be reasonable but which are inherently uncertain
and unpredictable. Assumptions may be incomplete or inaccurate, and
unanticipated events and circumstances may occur. In addition, some projects
which are currently in process may not be in process at completion of the
merger and new projects may be started prior to completion of the merger which
may be in process at the completion of the merger. Accordingly, actual results
may vary from the projected results.
2. Pro Forma Adjustments
Pro forma adjustments are necessary to reflect the estimated purchase price,
to adjust amounts related to Compaq's net tangible and intangible assets to a
preliminary estimate of their fair values, to reflect the amortization expense
related to the estimated amortizable intangible assets, to reflect changes in
depreciation and amortization expense resulting from the estimated fair value
adjustments to net tangible assets and to reflect the income tax effect related
to the pro forma adjustments.
Intercompany balances or transactions between HP and Compaq were not
significant. No pro forma adjustments were required to conform Compaq's
accounting policies to HP's accounting policies. Certain reclassifications have
been made to conform Compaq's historical amounts to HP's presentation.
The pro forma combined provision for income taxes does not reflect the
amounts that would have resulted had HP and Compaq filed consolidated income
tax returns during the periods presented.
The pro forma adjustments included in the unaudited pro forma condensed
combined consolidated financial statements are as follows:
(a) Adjustment to record the preliminary estimate of the fair value of
Compaq's inventory.
(b) Adjustment to record the preliminary estimate of the fair value of
Compaq's property, plant and equipment and the resulting adjustment to
depreciation expense.
(c) Adjustments to reflect certain other long-term assets of Compaq at a
preliminary estimate of their fair values:
Pension assets..................................................... $ (343)
Valuation allowance related to deferred tax assets................. (710)
Reclassification to offset the deferred tax assets against deferred
tax liabilities.................................................. (936)
-------
$(1,989)
=======
The adjustment to the valuation allowance related to Compaq's net
deferred tax assets is based on a preliminary estimate of the tax assets
which can be utilized by the combined company. Upon the finalization of
the combined company's legal entity structure and the restructuring
plans, the valuation allowance may be adjusted further to reflect the
combined company's ability to utilize certain foreign net operating loss
carryforwards and certain other tax losses and credits.
(d) Adjustments to amortizable intangible assets and the resulting
adjustments to amortization expense:
Amortization Effect
------------------
Nine
Annual Months
------ ------
To reflect Compaq's intangible assets at a
preliminary estimate of fair value and related
amortization expense........................... $ 4,100 $ 600 $ 450
To eliminate Compaq's historical intangible
assets and related amortization expense........ (1,492) (281) (224)
------- ----- -----
$ 2,608 $ 319 $ 226
======= ===== =====
(e) Adjustments to goodwill and intangible assets with indefinite lives:
Amortization Effect
------------------
Nine
Annual Months
------ ------
To reflect intangible assets with indefinite
lives at a preliminary estimate of fair
value and goodwill......................... $10,749
To eliminate Compaq's historical goodwill
and related
amortization expense....................... (227) $(19) $(22)
-------
$10,522
=======
(f) Adjustment to record the preliminary estimate of the fair value of
Compaq's historical deferredrevenue.
(g) Adjustment to reflect the estimated direct transaction costs.
(h) Adjustments to deferred income taxes and other liabilities:
To reflect the deferred tax liability
primarily resulting from the pro forma
adjustments related to intangible assets... $ 2,124
Reclassification to offset the deferred tax
assets against deferred tax liabilities.... (936)
To reflect pension liabilities at a
preliminary estimate of their fair values.. 94
-------
$ 1,282
=======
(i) Adjustments to stockholders' equity:
To record the value of HP shares to be issued and Compaq options
to be assumed in the transaction............................... $ 23,850
To record the preliminary estimate of the fair value of
in-process research and development............................ (1,000)
To eliminate Compaq's historical stockholders' equity............ (11,742)
--------
$ 11,108
========
Year Nine Months
Ended Ended
October 31, 2000 July 31, 2001
---------------- -------------
(j) Adjustments to cost of products sold and
services:
To record the related costs of products sold
resulting from the increase in inventory
to its estimated fair value................ $ 50 $50
To record the related depreciation expense
resulting from the fair value adjustment
to property, plant and equipment as noted
in (b) above............................... 60 45
---- ---
$110 $95
==== ===
(k) Adjustment to record the income tax effect of the pro forma adjustments.
3. Pro Forma Earnings Per Share
The pro forma basic and diluted earnings per share are based on the weighted
average number of shares of HP common stock outstanding during each period and
weighted average number of Compaq common stock outstanding during each period
multiplied by the exchange ratio. All HP historical and pro forma per-share
amounts reflect the retroactive effects of all HP stock splits including the
two-for-one stock split in the form of a stock dividend effective October 27,
2000.