$8.8b accounting charge after HP cites irregularities

Hewlett-Packard’s CEO said it might take legal action against several parties in connection with “accounting improprieties” at Autonomy, acquired in 2011.
Justin Sullivan/Getty Images/File 2008
Hewlett-Packard’s CEO said it might take legal action against several parties in connection with “accounting improprieties” at Autonomy, acquired in 2011.

NEW YORK — Hewlett-Packard Co. said Tuesday that it had taken an $8.8 billion accounting charge, after discovering ‘‘serious accounting improprieties’’ and ‘‘outright misrepresentations’’ at Autonomy Corp., a British software maker that it bought for $10 billion last year.

It is a major setback for a struggling HP. The charge essentially wiped out its profit. In the latest quarter, HP reported a net loss of $6.9 billion, compared with a $200 million profit a year earlier.

The company said the improprieties and misrepresentations took place just before the acquisition and accounted for most of the charges in the quarter, more than $5 billion.


Shares of HP plummeted nearly 12 percent to $11.71.

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HP bought Autonomy in 2011 in an attempt to bolster its presence in the enterprise software market and catch up with rivals like IBM. The takeover was the brainchild of Leo Apotheker, HP’s chief executive at the time, and was criticized in Silicon Valley as a hugely expensive blunder.

Apotheker resigned a month later. The management shake-up came about one year after Mark Hurd was forced to step down as the head of HP after questions were raised about his relationship with a female contract employee.

“I’m both stunned and disappointed to learn of Autonomy’s alleged accounting improprieties,’’ Apotheker said in a statement. ‘‘The developments are a shock to the many who believed in the company, myself included.”

HP has been trying to revive the company and to move past the controversies. Last year, Meg Whitman, a former head of eBay, took over as chief executive and began rethinking the products and marketing strategy. But the efforts have been slow to take hold.


When the company assessed Autonomy before the acquisition, the financial results appeared to pass muster. Whitman said HP’s board at the time — which remains the same now, except for the addition of activist investor Ralph V. Whitworth — relied on Deloitte’s auditing of Autonomy’s financial statements.

As part of the due-diligence process, HP then hired KPMG to audit Deloitte’s work. Neither Deloitte nor KPMG caught the accounting discrepancies. Deloitte said in a statement that it could not comment on the matter, citing client confidentiality.

HP said it began looking into potential accounting problems in the spring, after a senior Autonomy executive came forward. HP hired PricewaterhouseCoopers to conduct an investigation covering Autonomy’s sales between the third quarter of 2009 and the second quarter of 2011, just before the acquisition.

The company said it discovered several irregularities, which disguised Autonomy’s actual costs and the nature of its products. Autonomy makes software that finds patterns, data that are used by companies and governments.

HP said that Autonomy, in some instances, sold hardware like servers, which have higher associated costs, but booked these as software sales. It had the effect of underplaying the company’s expenses and inflating the margins.


HP also says Autonomy was booking licensing revenue before receiving the money.


HP sent its findings to US and British regulators.

Autonomy has offices in Boston and Southborough, mostly because of its 2011 acquisition of parts of Iron Mountain Corp., of Boston. Two months before its acquisition by HP, Autonomy bought Iron Mountain’s digital archiving service, an online backup product, and a product that searches for legal documents.

HP did not respond to a request for comment on the Iron Mountain purchase.

Michael B. Farrell of the Globe staff contributed to this report.