Exhibit 99.2
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
on November 1, 2000. 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 unaudited pro forma condensed combined consolidated
financial statements contained herein and the separate historical consolidated
financial statements and accompanying notes of HP contained in HP's Annual
Report on Form 10-K for the period ended October 31, 2001 and of Compaq
contained in Compaq's Annual Report on Form 10-K for the period ended December
31, 2001. 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 date presented, and should
not be taken as representative of future consolidated results of operations or
financial condition of HP.
As of or For the Twelve Months
Ended October 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...................................................... $0.32 $(0.81) $(0.34) $(0.22)
Diluted.................................................... $0.32 $(0.81) $(0.34) $(0.22)
Book value per share at period end/(5)/....................... $7.20 $ 6.64 $12.22 $ 7.73
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 twelve months ended
September 30, 2001.
(2) Because of different fiscal period ends, financial information for HP as of
or for the year ended October 31, 2001 has been combined with financial
information relating to Compaq as of or for the twelve months ended
September 30, 2001.
(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.
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.
UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined consolidated balance
sheet as of October 31, 2001 and the unaudited pro forma condensed combined
consolidated statement of earnings for the year ended October 31, 2001 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
October 31, 2001 is presented to give effect to the proposed merger as if it
occurred on October 31, 2001 and, due to different fiscal period ends, combines
the historical balance sheet for HP at October 31, 2001 and the historical
balance sheet of Compaq at September 30, 2001. The unaudited pro forma condensed
combined consolidated statement of earnings of HP and Compaq for the year ended
October 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 year ended October 31, 2001 and the historical results of
Compaq for the twelve months ended September 30, 2001.
Compaq's consolidated financial statements for the year ended December 31,
2001 included in its 2001 Annual Report on Form 10-K filed on January 30, 2002
included a cumulative effect of an accounting change and certain
reclassifications as a result of adoption in the fourth quarter of 2001 of EITF
01-9, Accounting for Consideration Given by a Vendor to a Customer or a Reseller
of the Vendor's Products. The effect of this accounting change has not been
reflected in the historical financial information of Compaq for the period ended
September 30, 2001 included in these unaudited pro forma combined consolidated
financial statements.
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 process 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
that would affect amounts in the pro forma financial statements. 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.
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 included in HP's Annual Report
on Form 10-K for the year ended October 31, 2001 and of Compaq, included in
Compaq's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
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.
These unaudited pro forma condensed combined consolidated financial
statements have been prepared based on preliminary estimates of fair values.
They do not include liabilities resulting from integration planning which are
not presently estimable as discussed above. Amounts preliminarily allocated to
intangible assets with indefinite lives may significantly decrease or be
eliminated and amounts allocated to intangible assets with definite lives may
increase significantly, which could result in a material increase in
amortization of intangible assets. Therefore, 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 included in HP's Annual Report
on Form 10-K for the period ended October 31, 2001 and of Compaq, included in
Compaq's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
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
October 31, 2001
(In millions)
Historical
-------------------------- Pro Forma Pro Forma
HP Compaq Adjustments (1) Combined
Assets ------------ ----------- --------------- -----------
Current assets:
Cash and cash equivalents .............................. $ 4,197 $ 3,940 $ - $ 8,137
Short-term investments ................................. 139 - - 139
Accounts receivable, net ............................... 4,488 4,780 - 9,268
Financing receivables, net ............................. 2,183 1,076 - 3,259
Inventory .............................................. 5,204 1,582 50 (a) 6,836
Other current assets ................................... 5,094 3,291 - 8,385
---------- ---------- ---------- ----------
Total current assets ................................ 21,305 14,669 50 36,024
Property, plant and equipment, net ........................ 4,397 3,244 1,100 (b) 8,741
Long-term investments and other assets .................... 6,126 4,224 (2,366) (c) 7,984
Amortizable intangible assets, net ........................ 89 1,451 2,649 (d) 4,189
Goodwill and intangible assets with indefinite lives ...... 667 220 11,363 (e) 12,250
---------- ---------- ---------- ----------
Total assets ........................................ $ 32,584 $ 23,808 $ 12,796 $ 69,188
========== ========== ========== ==========
Liabilities and stockholders' equity
Current liabilities:
Notes payable and short-term borrowings ................ $ 1,722 $ 1,501 $ - $ 3,223
Accounts payable ....................................... 3,791 3,619 - 7,410
Deferred revenue ....................................... 1,867 1,170 (220) (f) 2,817
Other accrued liabilities .............................. 6,584 4,493 150 (g) 11,227
---------- ---------- ---------- ----------
Total current liabilities ........................... 13,964 10,783 (70) 24,667
Long-term debt ............................................ 3,729 600 - 4,329
Other liabilities ......................................... 938 1,185 1,256 (h) 3,379
Total stockholders' equity ................................ 13,953 11,240 11,610 (i) 36,803
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity .......... $ 32,584 $ 23,808 $ 12,796 $ 69,188
========== ========== ========== ==========
- ----------
(1) The letters refer to a description of the adjustments in Note 2.
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, 2001
(In millions, except per share amounts)
Historical
--------------------------
Pro Forma Pro Forma
HP Compaq Adjustments (1) Combined
------------ ------------ --------------- -----------
Net revenue:
Products ......................................................... $ 37,498 $ 29,834 $ - $ 67,332
Services ......................................................... 7,325 6,505 - 13,830
Financing income ................................................. 403 168 - 571
---------- ---------- ---------- ----------
Total net revenue ............................................. 45,226 36,507 - 81,733
Cost and expense:
Cost of products sold (2) ........................................ 28,370 23,485 110 (j) 51,965
Cost of services ................................................. 4,870 4,718 - 9,588
Financing interest ............................................... 234 114 - 348
Research and development ......................................... 2,670 1,390 - 4,060
Selling, general and administrative (2) .......................... 7,085 5,657 20 (b) 12,762
Restructuring and related charges ................................ 384 656 - 1,040
Amortization of intangible assets ................................ 12 302 298 (d) 612
Amortization of goodwill ......................................... 162 29 - 191
---------- ---------- ---------- ----------
Total cost and expenses ....................................... 43,787 36,351 428 80,566
---------- ---------- ---------- ----------
Earnings from operations ............................................ 1,439 156 (428) 1,167
Interest and other, net ............................................. (737) (2,116) - (2,853)
----------- ----------- ---------- -----------
Earnings (loss) from continuing operations before taxes ............. 702 (1,960) (428) (1,686)
Provision (benefit) for taxes ....................................... 78 (588) (150) (k) (660)
---------- ---------- ---------- ----------
Net earnings (loss) from continuing operations (3) .................. $ 624 $ (1,372) $ (278) $ (1,026)
========== ========== ========== ==========
Net earnings (loss) per share from continuing operations (3)
Basic ............................................................ $ 0.32 $ (0.81) $ (0.34)
========== ========== ==========
Diluted .......................................................... $ 0.32 $ (0.81) $ (0.34)
========== ========== ==========
Average number of shares and share equivalents:
Basic ............................................................ 1,936 1,689 3,004
Diluted .......................................................... 1,974 1,689 3,004
- ----------
(1) The letters refer to a description of the adjustments in Note 2.
(2) Historical amounts for amortization of intangibles and goodwill have been
reclassified to separate line items.
(3) Net earnings (loss) and net earnings (loss) per share from continuing
operations are presented before extraordinary items and cumulative effect
of change in accounting principle.
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 September 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 September 30, 2001, HP
would assume options to purchase approximately 171.7 million shares of HP common
stock at a weighted average exercise price of $37.26. 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 fair value of the
outstanding options was determined using a Black-Scholes valuation model. In
accordance with the terms of Compaq's equity-based plans, all of Compaq's
outstanding options which were granted prior to September 1, 2001 will vest upon
Compaq shareowner approval of the merger. Options outstanding as of September
30, 2001 which were granted subsequent to August 31, 2001 are insignificant.
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, the preliminary estimated purchase price is
allocated as follows (in millions):
Preliminary estimated purchase price allocation:
Net tangible assets ........................................ $ 9,260
Amortization intangible assets:
Customer contracts and lists, distribution agreements .. 2,400
Developed and core technology, patents ................. 1,500
Other .................................................. 200
Intangible assets with indefinite lives .................... 2,500
Goodwill ................................................... 9,083
Net deferred tax liability ................................. (1,943)
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 $9.3
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 statement 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 $11.6 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 assumption used in the preliminary
valuation is that the Compaq trade name will not be amortized and will 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. If HP management should
change the assumption used in the valuation, amounts preliminarily allocated to
intangible assets with indefinite lives may significantly decrease or be
eliminated, and amounts allocated to intangible assets with definite lives may
increase significantly, which could result in a material increase in
amortization of intangible assets.
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
statement 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 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 process 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
that would affect amounts in the pro forma financial statements. 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, and other costs
associated with exiting activities of HP.
HP has not identified any preacquisition contingencies where the related
asset, liability or impairment is probable and the amount of the asset,
liability or impairment can be reasonably estimated. Prior to the end of the
purchase price allocation period, if information becomes available which would
indicate it is probable that such events have occurred and the amounts can be
reasonably estimated, such items will be included in the purchase price
allocation.
The pro forma adjustments included in the unaudited pro forma condensed
combined consolidated financial statements are as follows:
(a) Adjustment to record the difference between the preliminary estimate
of the fair value and the historical amount of Compaq's inventory.
(b) Adjustment to record the difference between the preliminary estimate
of the fair value and the historical amount of Compaq's property,
plant and equipment and the resulting adjustment to depreciation
expense, as follows (in millions):
Preliminary Increase in Useful
Historical Fair Annual Life
Amount Value Increase Depreciation (Years)
---------- ----------- --------- ------------ -------
Land ........................................... $ 315 $ 425 $ 110 $ -- n/a
Buildings ...................................... 935 1,465 530 23 23
Machinery & equipment .......................... 1,994 2,454 460 57 2-10
--------- --------- --------- ---------
Total property, plant and equipment ......... $ 3,244 $ 4,344 $ 1,100 $ 80
========= ========= ========= =========
(c) Adjustments to reflect certain other long-term assets of Compaq at a
preliminary estimate of their fair values:
Pension assets ............................................................................ $ (604)
Valuation allowance related to deferred tax assets ........................................ (710)
Reclassification to offset the deferred tax assets against deferred tax liabilities ....... (1,052)
---------
$ (2,366)
=========
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 reflect the preliminary estimate of the fair value of
amortizable intangible assets and the resulting increase in
amortization expense, as follows (in millions):
Preliminary Increase in Useful
Historical Fair Annual Life
Amount Value Increase Depreciation (Years)
---------- ----------- --------- ------------ -------
Customer contracts and lists, distribution
agreements .................................. $ 948 $ 2,400 $ 1,452 $ 187 4-10
Developed and core technology, patents ......... 430 1,500 1,070 87 3-10
Other .......................................... 73 200 127 24 2-10
--------- --------- --------- ---------
$ 1,451 $ 4,100 $ 2,649 $ 298
========= ========= ========= =========
(e) Adjustments to reflect the preliminary estimate of the fair value of
goodwill and intangible assets with indefinite lives, as follows (in
millions):
Preliminary
Historical Fair
Amount Amount Increase
---------- ----------- --------
Intangible assets with indefinite lives ................................ $ - $ 2,500 $ 2,500
Goodwill ............................................................... 200 9,083 8,863
------- ------- -------
$ 220 $11,583 $11,363
======= ======= =======
(f) Adjustment to record the difference between the preliminary estimate
of the fair value and the historical amount of Compaq's deferred
revenue.
(g) Adjustment to reflect the estimated direct transaction costs.
(h) Adjustments to deferred income taxes and other liabilities (in
millions):
To reflect the deferred tax liability primarily resulting from the
pro forma adjustments related to intangible assets ...................... $ 1,943
Reclassification to offset the deferred tax assets against
deferred tax liabilities ................................................ (1,052)
To reflect pension liabilities at a preliminary estimate of their
fair values ............................................................. 365
----------
$ 1,256
==========
(i) Adjustments to stockholders' equity (in millions):
To record the estimated 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 ..................... (11,240)
----------
$ 11,610
==========
(j) Adjustments to cost of products sold and services (in millions):
To record the related costs of products sold resulting from the
increase in inventory to its estimated fair value ....................... $ 50
To record the related depreciation expense resulting from the fair
value adjustment to property, plant and equipment as noted in
(b) above ............................................................... 60
----------
$ 110
==========
(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 and weighted
average number of Compaq common stock outstanding 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.