Rockstar Consortium US LP et al v. Google Inc

Filing 92

MOTION for Leave to File A Supplemental Brief In Response To Googles Motion To Transfer In Light Of Newly-Acquired Evidence by NetStar Technologies LLC, Rockstar Consortium US LP. (Attachments: # 1 Text of Proposed Order Granting Motion for Leave to File a Supplemental Brief In Response to Google's Motion to Transfer in Light of Newly-Acquired Evidence, # 2 Supplement Plaintiffs' Supplemental Brief In Response to Google's Motion to Transfer, # 3 Affidavit of Amanda Bonn In Support of Plaintiffs' Supplemental Brief In Response to Google's Motion to Transfer, # 4 Exhibit 1, # 5 Exhibit 2, # 6 Exhibit 3, # 7 Exhibit 4, # 8 Exhibit 5, # 9 Exhibit 6, # 10 Exhibit 7, # 11 Exhibit 8, # 12 Exhibit 9, # 13 Exhibit 10, # 14 Exhibit 11, # 15 Exhibit 12, # 16 Exhibit 13, # 17 Exhibit 14, # 18 Exhibit 15, # 19 Exhibit 16, # 20 Exhibit 17, # 21 Exhibit 18, # 22 Exhibit 19, # 23 Exhibit 20, # 24 Exhibit 21, # 25 Exhibit 22, # 26 Exhibit 23, # 27 Exhibit 24, # 28 Exhibit 25, # 29 Exhibit 26, # 30 Exhibit 27, # 31 Exhibit 28, # 32 Exhibit 29, # 33 Exhibit 30)(Bonn, Amanda)

Exhibit 20

Autonomy made 80% less UK profit than stated, Hewlett-Packard finds | Business | The ...

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Autonomy made 80% less UK profit
than stated, Hewlett-Packard finds
American firm investigated irregularities in accounting at British
software company it bought for more than $10bn
Juliette Garside, telecoms correspondent
The Guardian, Monday 3 February 2014 14.45 EST

Cambridge-based software company Autonomy Corporation was bought for more than £10bn by Hewlett-Packard.
Photograph: Tim Ireland/PA

Hewlett-Packard's long-running investigation into claims of accounting irregularities by
the former management team of Autonomy, the British software company it bought for
more than £7.1bn, has concluded that the firm's main UK trading company made 80%
less profits and 54% less revenues than originally stated.
Accounts to be published this week at Companies House will show HP has drastically
revised the 2010 performance of Autonomy Systems Ltd (ASL), and its holding
company Autonomy Corporation Ltd (ACL). HP has been combing through Autonomy's
books since May 2012, when it says a whistleblower claimed that false accounting was
used to flatter its performance during its period as one of the largest technology
companies on the London Stock Exchange.
After buying Autonomy in 2011, HP wrote down the value of the company by £5.5bn in
November 2012. The writedown drove the US firm to a $6.9bn quarterly loss at the
time, and led to furious accusations from the British company's founder Mike Lynch
that he and his management team were being made "scapegoats for HP's own failings".
"These restatements, and the reasons for them, are consistent with HP's previous
disclosures regarding accounting improprieties in Autonomy's pre-acquisition
financials," HP said in a statement released on Monday. "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 exact problems previously identified by HP."

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The findings in the UK will have a substantial impact on Autonomy's overall
performance for the year before it was sold, because ASL accounted for roughly one
third of the company's stated $870m (£565m) revenues in 2010.
According to the accounts, many of the issues related "to the overstatement of revenues
in Autonomy's US operations".
Profit at ASL has been revised down from £106m to £20m. Its revenue number was
originally stated as £176m, but is now reported as £81m. The 2010 loss at ACL, the
holding company, has been restated from the original £12m to £22m.
A spokesman for Lynch and his former management team said Ernst & Young, the
auditor hired by HP, had not signed off Autonomy's restated accounts. In the
Companies House filing for ASL, Ernst & Young states: "We have not been able to
obtain sufficient appropriate audit evidence to provide a basis for an audit opinion."
The former Autonomy management team released a statement saying: "We continue to
reject these allegations by HP. Given the size of HP's writedown, we are very surprised
by the small size of the adjustments in ASL 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."
HP chief executive, Meg Whitman, has vowed to recover the money lost on Autonomy
for her shareholders, although doing so could take years. In the meantime, HP and its
directors are being sued by shareholders, who claimed they ignored red flags from
analysts and industry experts questioning Autonomy's accounts. An update on the case
is expected on 28 February.
HP's complaints about Autonomy's financial reporting are being investigated by the US
justice department and the UK's Serious Fraud Office. Among the issues HP said it
uncovered was: revenue being recognised for products where payments were unlikely to
be made by the buyers; barter-type transactions where the value of the sale could not be
properly assessed; and sales of hardware wrongly logged as software.
HP found the ownership of a 20% stake in Realise Ltd, an IT consultancy, was recorded
as being held by ASL, when it should have been recorded as belonging to its holding
company, ACL. HP also corrected sums relating to staff expenses.
A closer look at the debtors and creditors columns shows Autonomy's original accounts
claimed the company was owed more by third parties and its own subsidiaries abroad
than HP thought it should have been. The original accounts put the amount owed to
ASL at £266m, when HP thinks the figure should have been £148m. Amounts owed by
other group companies were originally recorded at £216m, but have been revised to
£108m.
ASL owed money too. The original accounts put debts at £36m, but HP believes £64m
was outstanding in 2010.
Lynch has argued that much of the discrepancy between what Autonomy's annual
results suggested the company was worth and what HP now believes it should be valued
at stem from applying different accounting rules. HP uses the GAAP system, while
Autonomy filed under IFRS, which is more common in the UK.
A spokesperson for Autonomy said many of the errors uncovered in the British
subsidiaries would have been regarded as such under both IFRS and GAAP.
However, the accounts show that nearly £14m of the £86m profit reduction at ASL is
due to a change of accounting policy. Research and development costs had been
recognised across the lifetime of the product they related to under Autonomy's original

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accounting system. Under the new GAAP policy, they are fully charged to the year in
which the costs were incurred.
HP claimed in 2012 that Lynch's management team, which included finance director
Sushovan Hussein, had made a "willful" effort to "inflate the underlying financial
metrics of the company in order to mislead potential buyers". The accusation was that
Autonomy had mischaracterised revenue from loss-making low-end hardware sales that
represented as much as 15% of the company's revenue. HP said Autonomy also
presented licensing transactions where no end-customer existed at the time of sale as
revenue.
A spokesperson for the former senior management of Autonomy said: "We continue to
reject these allegations by HP. Given the size of HP's writedown, we are very surprised
by the small size of the adjustments in Autonomy Systems Ltd 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."
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