This is a summary of the document that the FT has reported and which shows HP’s decision-making process for removing bona fide revenue from Autonomy’s accounts – and none of it was fraud. It also shows no money was missing. The run rate revenue was at the time around a billion dollars.
When you look at these adjustments, the two biggest categories are hardware and hosted deals. If we consider each of these in turn, firstly hardware.
It is hard to know on what accounting basis one does not count this as revenue: it was sold and fully paid for by customers and there is nothing wrong in selling hardware. In fact, HP has now confirmed was well aware of Autonomy’s hardware sales long before the “whistleblower” came forward.
HP misrepresented its own knowledge regarding Autonomy’s hardware sales to the market. Over time its position has evolved from the original statements in November 2012 when HP claimed it did not know about the mischaracterization of revenue from “negative-margin, low-end hardware sales” until a “whistleblower” came forward in June 2012 all the way to today’s stance where, in court filings in September HP stated that, although it knew Autonomy sold hardware prior to the acquisition, Autonomy management had indicated that such sales were “either ‘appliance sales’ or ‘strategic sales’ designed to further purchases of Autonomy software”.
The next largest category of adjustments are hosted deals. They have taken out all of these deals, including from companies such as BP, JPMorgan Chase, Deutsche Bank, and so on. These are noted in the adjustment column as being “US management judgement” ie they are not being removed for fraud, but for different accounting policies.
HP made these aggressive revenue adjustments even though HP was aware, prior to the acquisition, that Autonomy sold hybrid hosted deals and understood the associated accounting.
The document shows that, for example, revenue from Autonomy’s hosted business was removed due to “management judgment / US Gaap difference”, not fraud.
Critically, the rebasing exercise in question was completed a month after HP made its allegations about Autonomy, which appears to suggest that the allegations were made before the facts had actually been investigated.
Moreover, HP was aware of the transactions addressed in the document before completing the acquisition of Autonomy, and did not raise any concerns. The column headings in the document purely address whether or not valid transactions were reported under IFRS, or could be open to interpretation. Where HP considered there was a possibility to classify revenue differently, they did so. This shows that HP arbitrarily adjusted whole categories of deals it already knew about and did not question before it made the acquisition.
HP’s shareholders deserve an honest explanation and an end to this charade.