Careful readers of footnoted — the type of folks who revel in reading the fine print — might have noticed that I haven’t been writing lately, even though if you Google footnoted you’ll see that it’s called “Michelle Leder’s Guide to What’s Hiding in SEC filings”. That’s because I had a baby boy — his name is Soren and his picture is to the left — in May and was taking some much-needed time off to get used to this new stage of life. Given that footnoted is nearly seven years old, the past 12 weeks were the longest period I’ve gone in quite a number of years without reading SEC filings. But Friday was my first day back. And, as pretty much everyone knows by now, Friday also saw some pretty shocking news from HP (HPQ).
The 8-K had all the makings of a footnoted classic: filed late on a Friday, just seven seconds before the SEC stops accepting filings for the day, a big management change at a big company and a lucrative separation agreement that pays Mark Hurd $12.2 million in cash plus millions more in options (the actual number is a bit harder to calculate given that the proxy is nearly 8 months old).
Honestly, it’s hard not to think of it as a gift-wrapped welcome back package — a baby gift of sorts — to the world of SEC filings. Many of the details have already been reported over the past three days, so there’s no need to recount them here. But one piece absolutely worth reading is my friend, Jeff Matthews’ insightful take on the Hurd Instinct to manage the numbers. Here’s a snip:
The gist of our argument was simple: by reporting so-called “non-GAAP” earnings, HP was able to include good stuff from the EDS deal (EDS-related earnings), and exclude the bad stuff (EDS-related costs).
That kind of “non-GAAP” earnings management was a practice we thought had ended with the fall of Enron, WorldCom, and the many other Dot-com-era practioners of earnings fakery whose eventual falls from grace yielded losses for investors, howls of indignation from the halls of Congress, and calls for the elimination of “non-GAAP” earnings from the vocabulary of Wall Street’s Finest.
Yet HP was able to revive the practice, and make something of an art of it, with the complicity of Wall Street, its analyst community, and even the press: our Bloomberg, for example, reports only the non-GAAP earnings in its HP earnings page, without so much as an asterisk.
Of course, footnoted had done its own poking at HP over the years. But one piece that seems particularly prescient right now in light of the shared meals between Hurd and the recently named consultant, Jodie Fisher, is this post from nearly two years ago that talked about some hefty gross-ups for Hurd’s meal. As we noted at the time, we used some back-of-the-envelope math to come up with a total meal bill of $243K. Several days later, HP filed a revised proxy to say that $79,814 tax gross up that was originally reported was actually only $4,117, which we viewed with a healthy serving of skepticism. In light of the expense report dust-up — the given reason for Hurd’s sudden dismissal — it makes us wonder whether the initial number was closer to the mark. Then again, as Jeff points out in his piece, many of HP’s numbers were open to interpretation.
I’m glad to be back reading filings and appreciative of the hard work that Theo Francis, Sonya Hubbard and Jennifer Sun put in to keep the site going during my time off.
See more of what’s in the filings: Check out FootnotedPro, where we highlight unusual opportunities and potential problems well in advance of the market. For more information or to inquire about a trial subscription, email us at email@example.com.