Autonomy Accounts

Responding to a court filing made by HP today, a spokesperson for the former Autonomy management team said:

“What we see here is one email taken out of context. The emails around it, which HP has decided not to disclose, show that, although Mr Hussain was extremely frustrated with the unreliability of forecasting of certain sections of the sales force, the company’s forecast for the quarter, even taking out these deals, was still ahead of target. And indeed, the quarter was successfully delivered three weeks later. It is not hard, when going through hundreds of thousand of emails to pick a misleading example if you are prepared not to release other emails around it. The radical action referred to, was the termination of the unreliable sales reps.”

“HP is trying to smear us by leaking partial information and half-truths, here behind the defamation shield of a court filing. After three years, when HP finally starts putting out a case, it turns out to be built on a handful of assumptions that can all be explained, have never been put to the Autonomy team, and prove absolutely nothing. A large number of documents they have chosen not to release show the reality of the situation: that Autonomy was completely open with its auditors, and all accounting details were known to HP and its advisers long before they decided to take a write down. The real story here is HP’s utter mismanagement of Autonomy, which Meg Whitman is attempting to cover up through an increasingly bitter attack campaign. We will not be her scapegoat.”

Response to details in the filing:

HP has posted a long court filing containing many partial pieces of information, taken out of context and used to draw false conclusions. Much of this information has already been selectively leaked to the media. (It should be noted that this information has nothing to do with the actual issue before the court, which is whether HP should be allowed to pay up to $48 million to a group of lawyers to settle a case against it by HP’s shareholders, a settlement Sushovan Hussain has challenged as corrupt.)

Within the document, four further things are mentioned that we respond to below:

Due Diligence

The due diligence information was provided to HP in the format it requested. It was not interested in which resellers’ deals had gone through, but the industries of the intended end users.

Vatican and VAR deals

The fact that a VAR had not sold through to its intended end user is not relevant under IFRS. The VAR decided to become part of this deal so that when the project got underway, it could undertake the services contracts. The Vatican project was substantive and well publicized by the Vatican at the time, including on TV. To claim that the Vatican deal was fake is unsupportable: emails show a large amount of work with the Vatican and that at the time, they were on the verge of signing the deal.

Hosted contracts

The handling of hosted contracts was fully and transparently handled by Deloitte, who concurred with the accounting treatment. Furthermore, the methodology by which these were recognized was discussed with HP and its advisors in detail before the acquisition. Emails show that HP’s CFO and other senior accounting staff were also intimately aware of how Autonomy accounted for hosted deals early on in the acquisition, and played active roles in discussing how this would be converted using US GAAP. The HP CFO expressed no concern about the accounting treatment.

OEM

The definition of OEM is made clear in Autonomy’s annual report and is not the definition now being used by HP. Furthermore, this was discussed in detail with HP before the acquisition.

Hardware

We know that in compiling its adjustments to revenue HP has excluded Autonomy’s hardware sales. This is at odds with its own version of the Autonomy accounts filed with the UK statutory regulator, in which they handled the hardware in exactly the same way. Furthermore, a number of emails and documents show that the highest levels of HP management were well-aware of Autonomy’s hardware sales long before any alleged whistleblower came forward. HP also continued to do the same after it owned the company. The hardware sales were fully disclosed to the auditors and covered in the audit packs, which HP and its advisers had access to. In fact, prior to the acquisition, HP even supplied some of the hardware Autonomy re-sold.

The ledgers of the company and the audit packs show that hardware was correctly booked as “hardware” under the heading “hardware”. These ledgers were reviewed in detail by Hewlett Packard and its advisers.

In short, on 20 November 2012, HP made unsubstantiated allegations in order to justify a rushed write down within that financial year. But it simply hadn’t substantiated those allegations at the time and now can’t back out of that story. HP’s own version of the Autonomy accounts shows that there is no cash missing. This is the simplest fact that shows these allegations are untrue. This was real business and Autonomy got paid for it. On 20 November 2012, HP claimed the alleged wrongdoing was incredibly well-concealed. Since then, many internal HP emails have surfaced showing they were well aware of Autonomy’s accounting practices, and were comfortable with them. The Autonomy audit packs, which HP had access to immediately and were reviewed by it and its advisers, also surfaced all of these items in full clarity.

What we see here is a resumption of partial leaking and smear tactics, which have characterized HP’s behaviour from the outset. We note that Deloitte continues to state that it is fully confident in its work in relation to Autonomy.