HP Unveils Autonomy Accounts, Where $US140 Million Has Allegedly Disappeared

Meg Whitman HP
HP CEO Meg Whitman Reuters

HP’s battle to prove that it was duped into paying far more for British enterprise and cloud computing company Autonomy than it should have rages on.

The company has filed documents with British regulators that represent the first public evidence HP has shared to date to back up its claims that Autonomy’s books were filled with “accounting improprieties.”

On Jan. 31, HP refiled a copy of the 2010 and 2011 income statements of “Autonomy Systems Ltd” with British authorities. That’s the largest business unit of Autonomy. 2010 was from the year before HP bought the company for $US11 billion. HP shared the restated revenue documents with Business Insider.

These documents now report vastly reduced revenue and profit for the unit in 2010: HP changed net profit from £105.7 million (about $US172 million) to £19.6 million (about $US32 million), according to these new documents. That’s £86.1 million ($140 million) of net profit gone after HP restated 2010. Put another way, HP reduced reported revenue by 54% and reduced reported net profits by 81%.

HP admits that not all of the changes are from the alleged fraud. HP said that some £13.4 million is from “changes in accounting policy.”

Autonomy founder Mike Lynch has vehemently denied HP’s claims that anything was wrong with Autonomy’s books. In 2012, Lynch told Business Insider that HP’s mismanagement of Autonomy after the acquisition is what hurt Autonomy.

Today an Autonomy spokesperson points out that this restatement is fairly small considering the billions that HP wrote off. Here’s the statement:

We continue to reject these allegations by HP. 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 per cent of group revenue. We know even these include revenue that will be recognised at a later time, under HP’s new approach. Other causes of the change including explicitly stated changes in accounting policy. We note that a majority of the change in numbers is due to transfer pricing between jurisdictions, a mechanism which often reduces a company’s tax bill in the UK. We hope the UK government will take a robust position in rebuffing HP’s attempts to deprive it of over £38m in tax revenue.

Here is the full statement from an HP spokesperson that accompanied the documents:

The two largest of Autonomy’s eight UK entities filed their 2011 accounts with Companies House on January 31, including restatements of their 2010 UK financials. These restatements, and the reasons for them, are consistent with HP’s previous disclosures regarding accounting improprieties in Autonomy’s pre-acquisition financials. 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.

For example, the financials for Autonomy Systems Limited (ASL), the main Trading company and largest portion of the UK business, were restated with significant adjustments to revenue and costs in 2010:

— Approximately 54% decrease in restated vs. reported revenue

— Approximately 81% decrease in operating profit

Accounting errors accounted for approximately a 2/3rds reduction in operating profit in these 2010 UK entity accounts and a greater than 40 per cent lower revenue.

Here’s the key section from HP’s review of Autonomy’s accounts:

HP document