Saturday, April 19, 2014
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

HP claims fraud prompted $5B overpayment for co.

NEW YORK — Hewlett-Packard Co. said on Tuesday that it’s the victim of a multi-billion dollar fraud at the hands of a British company it bought last year that lied about its finances.

HP CEO Meg Whitman said executives at Autonomy Corporation PLC “willfully” boosted the company’s figures through various accounting tricks, which convinced HP to pay $9.7 billion for the company in October 2011.

Autonomy’s former CEO said HP’s allegations are false.

HP is now taking an $8.8 billion charge to align Autonomy’s purchase price with what HP now says is its real value. More than $5 billion of that charge is due to false accounting, HP said.

The revelation is another blow for HP, which is struggling to reinvent itself as PC and printer sales shrink. The company’s stock hit a 10-year low in morning trading.

Among other things, Autonomy makes search engines that help companies find vital information stored across computer networks. Acquiring it was part of an attempt by HP to strengthen its portfolio of high-value products and services for corporations and government agencies. The deal was approved by Whitman’s predecessor, Leo Apotheker, but closed three weeks into Whitman’s tenure as chief executive. Whitman was a member of HP’s board of directors when Apotheker initiated the Autonomy purchase.

Among the tricks used at Autonomy, Whitman said: The company had been booking the sale of computers as software revenue and claiming the cost of making the machines as a marketing expense. Revenue from long-term contracts was booked up front, instead of over time.

As a result, Autonomy appeared to be more profitable than it was and seemed to be growing its core software business faster than was actually the case. The moves were apparently designed to groom the company for an acquisition, Whitman said.

Once HP bought the company, Autonomy’s reported revenue growth and profit margin quickly declined. Autonomy CEO Mike Lynch continued to run the company as part of HP, but Whitman forced him out on May 23 because it was not living up to expectations.

“Little did I know that there was more than met the eye,” Whitman said.

With Lynch gone, a senior Autonomy executive volunteered information about the alleged accounting irregularities, prompting an internal investigation, Whitman said.

The case has been referred to the U.S. Securities and Exchange Commission and the UK’s Serious Fraud Office, she said. The company will also try to recoup some of the cash it paid for Autonomy through lawsuits.

In a statement to the Financial Times, Lynch said “The former management team of Autonomy was shocked to see this statement today, and flatly rejects these allegations, which are false.”

“It took 10 years to build Autonomy’s industry-leading technology and it is sad to see how it has been mismanaged since its acquisition by HP,” he added.

On a conference call with Whitman following the earnings report, analyst Ben Reitzes of Barclays Capital asked who will be held responsible internally for the disastrous acquisition.

Whitman answered that the two executives who should have been held responsible — Apotheker and strategy chief Shane Robison — are gone. But the deal was also approved by the board of directors.

“Most of the board was here and voted for this deal, and we feel terribly about that,” Whitman said. “What I will say is that the board relied on audited financials. Audited by Deloitte — not ‘Brand X’ accounting firm, but Deloitte. During our very extensive due diligence process, we hired KPMG to audit Deloitte. And neither of them saw what we now see after someone came forward to point us in the right direction.”

Apotheker told The Associated Press on Tuesday that he was “stunned and disappointed” to learn of the allegations against Autonomy, and pointed out that they had gone undiscovered by HP’s auditors, executives and directors.

Deloitte UK said it could not comment on the matter because of client confidentiality rules.

Whitman said she still views Autonomy as a “growth engine for HP software,” albeit a weaker one than initially thought. HP has been attempting to morph itself into a company that not only makes computer hardware but one that delivers software and services, too.

HP’s stock dipped $1.59, or 12 percent, to $11.72 in afternoon trading. Just after the market’s open, the stock hit $11.35, its lowest level since 2002.

HP’s net loss for the fiscal fourth quarter, which ended Oct. 31, amounted to $6.85 billion, or $3.49 per share. That compares with net income of $239 million, or 12 cents per share, in the same period last year.

It was the second mammoth loss in a row for HP. In the third fiscal quarter, it lost a record $8.86 billion, or $4.49 per share. That was due to a charge for another acquisition — that of Electronic Data Systems, a technology consulting service that it bought for $13 billion in 2009. In that case, HP didn’t blame improper accounting, just results that didn’t live up to expectations.

Excluding the charges in the latest quarter, HP earned $1.16 per share in the latest quarter, just above the average analyst forecast of $1.14 per share, as polled by FactSet.

HP’s revenue was $30.0 billion, down 7 percent from last year. That was below analyst expectations at $30.5 billion.

The Palo Alto, Calif., company stuck to its previously given earnings forecast for the fiscal year that just started, but it issued a forecast for this quarter that was well below analyst expectations. It expects earnings, excluding items, to be 68 cents to 71 cents per share, while analysts were looking for 85 cents, according to FactSet.

The Associated Press

The Associated Press

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

Transplant recipients talk about their best gifts

By Amy Maginnis-Honey | From Page: A1 | Gallery

 
Solano unemployment inches downward

By Barry Eberling | From Page: A1, 1 Comment

 
Implementing Common Core: A work in progress

By Mayrene Bates | From Page: A2

 
Spering, Bertani spar over fighting crime

By Ryan McCarthy | From Page: A3, 5 Comments | Gallery

 
Fairfield council candidates weigh in on crime

By Ryan McCarthy | From Page: A3 | Gallery

Police release name of woman found dead in Fairfield canal

By Ryan McCarthy | From Page: A3 | Gallery

 
Five homes featured on Symphony Home Tour

By Amy Maginnis-Honey | From Page: A4

 
Congregation invites public to Easter music, message

By Amy Maginnis-Honey | From Page: A4

Jury acquits substitute teacher in child abuse case

By Jess Sullivan | From Page: A4

 
 
Local woman helps spread Easter joy

By Amy Maginnis-Honey | From Page: B12 | Gallery

Weather for April 19, 2014

By Daily Republic | From Page: B13

 
.

US / World

California farmers to get more water

By The Associated Press | From Page: A1

 
Teen sentenced in Oakland toddler’s killing

By The Associated Press | From Page: A4

More Latino than white students admitted to UC

By The Associated Press | From Page: A4, 1 Comment

 
3 alleged gang members convicted of murder

By The Associated Press | From Page: A5

Health care site flagged in Heartbleed review

By The Associated Press | From Page: A5

 
From Clinton to Obama, many parallels

By The Associated Press | From Page: A5

Study: Half of jailed NYC youths have brain injury

By The Associated Press | From Page: A5

 
PG&E to be arraigned in fatal pipeline blast

By The Associated Press | From Page: A5

Mom and son who died in San Francisco fire ID’d

By The Associated Press | From Page: A5

 
Easter on 4/20, pot holy day; pastors reach out

By The Associated Press | From Page: A8

Colorado deaths stoke worries about pot edibles

By The Associated Press | From Page: A8

 
NASA’s moon-orbiting robot crashes down as planned

By The Associated Press | From Page: A8

Atheist national conference aims at Mormon church

By The Associated Press | From Page: A8

 
Sudden movement raises alarm in Wyoming slide area

By The Associated Press | From Page: A9

Some countries get Obama, but want his wife, too

By The Associated Press | From Page: A9, 1 Comment

 
Man who avoided prison is overwhelmed by support

By The Associated Press | From Page: A9

Teen suspended for asking Miss America to prom

By The Associated Press | From Page: A9

 
White House updating online privacy policy

By The Associated Press | From Page: A9

SpaceX making Easter delivery of station supplies

By The Associated Press | From Page: A9

 
In Egypt, a corruption watchdog hit by backlash

By The Associated Press | From Page: A12

Military scales down, modifies Guam buildup plan

By The Associated Press | From Page: A13

 
Captain of sunken SKorean ferry arrested

By The Associated Press | From Page: A13

Avalanche sweeps down Everest, killing at least 12

By The Associated Press | From Page: A13

 
Diplomacy doesn’t move insurgents in Ukraine

By The Associated Press | From Page: A14

Magnitude-7.2 earthquake shakes Mexican capital

By The Associated Press | From Page: A14

 
57-nation OSCE plays key Ukraine monitoring role

By The Associated Press | From Page: A14

Ukraine crisis: The turning points

By The Associated Press | From Page: A14

 
.

Opinion

Time to fix a law the courts have mucked up

By Thomas Elias | From Page: A11

 
Editorial Cartoons for April 19, 2014

By Daily Republic Syndicated Content | From Page: A11

 
Here we go again in Sacramento

By Letter to the Editor | From Page: A11, 1 Comment

Cheers, jeers for the week of April 13-19, 2014

By Daily Republic | From Page: A11

 
.

Living

Today in History for April 19, 2014

By The Associated Press | From Page: A2

 
Community Calendar: April 19, 2014

By Susan Hiland | From Page: A2

Seniors, it’s never too late to do something about your health

By Kathy Mitchell and Marcy Sugar | From Page: B7

 
Horoscopes for April 19, 2014

By Holiday Mathis | From Page: B7

.

Entertainment

TVGrid

By Daily Republic Syndicated Content | From Page: B10

 
Prince reaches agreement with music label

By The Associated Press | From Page: B14

‘The Boondocks’ back for final ‘offensive’ season

By The Associated Press | From Page: B14

 
A nutty finale for ‘Scandal,’ TV’s craziest show

By The Associated Press | From Page: B14

Stratocaster still a favorite at 60

By The Associated Press | From Page: B14

 
.

Sports

Big innings lift Mustangs over Indians

By Paul Farmer | From Page: B1 | Gallery

 
Ross, Padres beat Cain and Giants 2-1

By The Associated Press | From Page: B1 | Gallery

A’s come out swinging to beat Astros 11-3

By The Associated Press | From Page: B1

 
Warriors to start O’Neal for Bogut vs. Clippers

By The Associated Press | From Page: B1

Hertl has impressive playoff debut for Sharks

By The Associated Press | From Page: B1

 
Warriors and Clippers take dislike to playoffs

By The Associated Press | From Page: B1

TNT’s Sager to miss NBA playoffs due to leukemia

By The Associated Press | From Page: B2

 
Nadal ousted by Ferrer in Monte Carlo quarters

By The Associated Press | From Page: B2 | Gallery

A’s lefty reliever Doolittle gets 5-year deal

By The Associated Press | From Page: B2 | Gallery

 
’40-and-up club’: Ageless Hopkins after more belts

By The Associated Press | From Page: B2

Jimenez shoots 65 to lead Greater Gwinnett field

By The Associated Press | From Page: B2

 
Solano scores in ninth for 2-1 BVC baseball win over Yuba

By Daily Republic staff | From Page: B2

Choi leads rain-delayed RBC Heritage

By The Associated Press | From Page: B2 | Gallery

 
NBA’s Silver wants age limit change, no rush on others

By The Associated Press | From Page: B2

NBA playoffs looking more wide-open than expected

By The Associated Press | From Page: B2

 
Source: Grizzlies’ G Calathes suspended for 20 games

By The Associated Press | From Page: B2

Avalanche sweeps down Everest, killing at least 12

By The Associated Press | From Page: B2

 
Mets trade 1B Ike Davis to Pirates

By The Associated Press | From Page: B2

.

Business

Judge says American can’t end retiree benefits yet

By The Associated Press | From Page: B10

 
Mazda recalls 109,000 older SUVs for rust problem

By The Associated Press | From Page: B10

5 features an Amazon phone might offer

By The Associated Press | From Page: B10

 
.

Obituaries

Sealwyn Shirley Brucefield Shepherd Malkiewicz

By Nancy Green | From Page: A4

 
.

Comics

For Better or Worse

By Daily Republic Syndicated Content | From Page: B6

 
Beetle Bailey

By Daily Republic Syndicated Content | From Page: B6

Rose is Rose

By Daily Republic Syndicated Content | From Page: B6

 
B.C.

By Daily Republic Syndicated Content | From Page: B6

Baby Blues

By Daily Republic Syndicated Content | From Page: B6

 
Pickles

By Daily Republic Syndicated Content | From Page: B6

Baldo

By Daily Republic Syndicated Content | From Page: B6

 
Blondie

By Daily Republic Syndicated Content | From Page: B6

Dilbert

By Daily Republic Syndicated Content | From Page: B6

 
Wizard of Id

By Daily Republic Syndicated Content | From Page: B6

Zits

By Daily Republic Syndicated Content | From Page: B6

 
Garfield

By Daily Republic Syndicated Content | From Page: B6

Frank and Ernest

By Daily Republic Syndicated Content | From Page: B6

 
Get Fuzzy

By Daily Republic Syndicated Content | From Page: B6

Peanuts

By Daily Republic Syndicated Content | From Page: B6

 
Sally Forth

By Daily Republic Syndicated Content | From Page: B6

Word Sleuth

By Daily Republic Syndicated Content | From Page: B7

 
Sudoku

By Daily Republic Syndicated Content | From Page: B7

Bridge

By Daily Republic Syndicated Content | From Page: B7

 
Cryptoquote

By Daily Republic Syndicated Content | From Page: B7

Crossword

By Daily Republic Syndicated Content | From Page: B7

 
.

Home Seller 04/19/14

Summerwood features 8 new homes in Suisun

By Daily Republic | From Page: HSR2

Real estate transactions for April 19, 2014

By Daily Republic | From Page: HSR3

Average US 30-year mortgage rate falls to 4.27 percent

By The Associated Press | From Page: HSR3