HP says acquired company lied about finances
Hewlett-Packard Co. said that a British company it bought for $10 billion last year lied about its finances, resulting in a massive write-down of the value of the business.
CEO Meg Whitman avoided calling it a fraud, but said Tuesday that there were "serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation PLC."
HP is taking an $8.8 billion charge in its latest quarter largely to align the accounting value of Autonomy with its real value. It said most of that charge was due to the fictional bookkeeping at Autonomy.
The revelation is another blow for HP, which is struggling to reinvent itself as PC and printer sales shrink.
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.
Whitman said Autonomy's financial illusion started to unravel after founder and CEO Mike Lynch left May 23. A senior Autonomy executive then volunteered information about the accounting shenanigans, prompting an internal investigation, she 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 what it paid for Autonomy through lawsuits.
HP shares were at a 10-year low.
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.