Hewlett-Packard Co. (NYSE:HPQ) has released documentation proving that the British software company Autonomy, which HP acquired for $11 billion back in 2011, committed fraud in advance of the acquistion, according to a report from the Wall Street Journal. HP has accused Autonomy of overstating its revenue and other financial information, but this documentation is the first proof HP has shown to back up its claims.
According to a filing with a UK regulator seen by the Journal, an internal audit of Autonomy’s financials performed by HP found that the company’s revenue for 2010 was overstated by 54 percent. Operating profit was overstated by 81 percent. Autonomy was found to have recorded revenue for deals that were never paid for and claimed false transactions for customers that do not exist. The audit found similar overstatements in Autonomy’s financials for 2011.
“These restatements, and the reasons for them, are consistent with HP’s previous disclosures regarding accounting improprieties in Autonomy’s pre-acquisition financials,” said an HP spokesperson to the Journal. “The substantial work necessary to prepare these accounts has revealed extensive accounting errors and misrepresentations in the previously issued 2010 audited financial statements, including the problems previously identified by HP.”
HP investors were not happy after the Autonomy acquisition led to an $8.8 billion write down, which HP blamed on the inaccuracies in Autonomy’s financial reports. The spokesperson for Autonomy’s former management told the Journal on Monday that, “Given the size of HP’s write-down, we are very surprised by the small size of the adjustments in Autonomy Systems Limited that are attributed to the ongoing accounting dispute, which represent a few percent of group revenue.”
Autonomy has repeatedly denied HP’s claims and continues to do so. Autonomy’s founder Mike Lynch has said that HP’s accusations are “completely and utterly wrong.” The discrepancies, according to Lynch, are because of HP not understanding differences between GAAP and international accounting rules, and HP moving some of Autonomy’s assets into offshore accounts, according to a report from UK paper The Telegraph. Autonomy has said that HP claimed the massive write-down and moved the assets into foreign accounts all to avoid paying taxes to the British government. According to HP, regulators in both the U.S. and the UK, including the U.S. Justice Department and the UK’s Financial Reporting Council, are investigating the matter.
The acquisition was made shortly before HP’s former CEO Leo Apotheker was replaced by current CEO Meg Whitman. Whitman completed the purchase even though her turnaround efforts have shifted focus away from software.
HP announced at the end of last year in a regulatory filing with the U.S. Securities and Exchange Commission that the company will be increasing its planned layoffs for 2014 by 5,000 jobs. That brings the total number of job cuts HP will make from 2012 through 2014 up to 34,000, or 11 percent of the company’s entire workforce. HP had originally estimated that it would cut 29,000 jobs between 2012 and 2014.
The company is currently undergoing a massive turnaround engineered by Whitman. HP has struggled in the tech market in recent years and was booted from the Dow Jones Industrial Average as it failed to adequately capitalize on the switch to mobile. In pursuing the Autonomy issue, HP is hoping to undo some of the damage done during the disastrous acquisition.
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