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Hewlett-Packard President Meg Whitman Visits CNBC

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Hewlett-Packard President Meg Whitman Visits CNBC

Meg Whitman, Hewlett-Packard President & CEO speaks one-on-one with David Faber Today on CNBC. A transcript follows:

DAVID FABER: BACK TO CERTAINLY THE BIGGEST NEWS OF THE DAY, HEWLETT-PACKARD THE LARGEST LAGGARD ON THE DOW, OF COURSE, NOW TRADING AT A DECADE LOW. THE COMPANY SAYING AS IT RELEASED EARNINGS THIS MORNING THAT IT WAS ALSO THE VICTIM OF FACTIOUS ACCOUNTING AT AUTONOMY, THE COMPANY IT PURCHASED IN OCTOBER OF LAST YEAR. THE CEO OF HEWLETT-PACKARD, SHE WAS NOT CEO THEN BUT SHE IS NOW, OF COURSE, IS MEG WHITMAN. SHE JOINS US NOW. AND MEG IT DOES NOT GO UNNOTICED BY US THAT YOU ARE WILLING TO COME ON WHETHER IT IS GOOD NEWS OR BAD AND SO WE CERTAINLY APPRECIATE THAT. I WANT TO GET YOUR RESPONSE ACTUALLY TO SOME COMMENTS THAT ARE JUST OUT FROM MIKE LYNCH. HE’S THE GENTLEMAN THAT YOU FIRED WHO FOUNDED AND RAN AUTONOMY, OF COURSE OVERSAW THE SALE TO HEWLETT-PACKARD. HE SAYS, “HP’S DUE DILIGENCE DURING THE ACQUISITION WAS OVERSEEN BY KPMG AND OTHERS. THAT THE DUE DILIGENCE WAS EXTENSIVE AND THAT HE REJECTS THESE FALSE ALLEGATIONS FLATLY.” I’D LOVE TO GET YOUR RESPONSE TO THAT.

MEG WHITMAN: WELL WHAT I CAN TELL YOU IS THAT AFTER I FIRED MIKE LYNCH FOR MISSING HIS Q2 NUMBERS WHEN HE WAS A PART OF THE AUTONOMY MANAGEMENT TEAM WHEN HP BOUGHT THE COMPANY, A SENIOR EXECUTIVE ON HIS TEAM CAME FORWARD TO TELL US ABOUT THESE ACCOUNTING IMPROPRIETIES, ABOUT OUTRIGHT MISREPRESENTATIONS AND DISCLOSURE FAILURES. AND WE LAUNCHED AN INVESTIGATION LED BY PWC A FORENSIC REVIEW OF AUTONOMY’S FINANCIALS PRIOR TO THE ACQUISITION BY HP AND WE BELIEVE THAT THERE IS A WILLFUL EFFORT ON THE PART OF CERTAIN MEMBERS OF AUTONOMY MANAGEMENT TO MISLEAD SHAREHOLDERS WHEN AUTONOMY WAS A PUBLICLY HELD COMPANY AND MISLEAD POTENTIAL BUYERS INCLUDING HP AND WE STAND BY THE FORENSIC REVIEW THAT WE’VE SEEN. AND AS YOU KNOW WE HAVE TURNED THIS OVER TO THE SEC, THE ENFORCEMENT DIVISION OF THE SEC, AS WELL AS THE SERIOUS FRAUD OFFICE IN THE UK.

FABER: WHAT WOULD YOU SAY TO THOSE THAT SAY YOU KNOW WHAT HP OF COURSE NEVER SHOULD HAVE BOUGHT THIS COMPANY BUT THAT YOU ARE NOW COMING UP WITH REASONS AS TO WHY ITS VALUE IS NOT WHAT IT ONCE WAS AND WHY IT IS NOT PERFORMING AS WELL AND NONE OF THESE WILL RISE TO THE LEVEL, MEG, OF OUTRIGHT FRAUD THEY’LL SIMPLY BE THINGS THAT WERE NOT DONE PERHAPS AS WELL AS THEY COULD’VE BEEN AT AUTONOMY?

WHITMAN: WELL OBVIOUSLY, WE FEEL THERE WAS VERY SERIOUS ACCOUNTING IMPROPRIETIES, FINANCIAL DISCLOSURES THAT WERE NOT MADE APPROPRIATELY AS WELL AS MISREPRESENTATIONS. AND WHAT I WILL TELL YOU ABOUT AUTONOMY IS WE STILL LIKE THE BUSINESS, WE LIKE THE TECHNOLOGY. WE THINK IT IS GOING TO BE AN IMPORTANT PART OF HP SOFTWARE’S GROWTH STRATEGY, BUT IT IS NOT BEEN AS VALUABLE AS WE HAD BELIEVED IT TO BE BECAUSE REVENUES ARE LOWER, GROWTH RATE, WE BELIEVE, WILL BE SLOWER, AND THE MARGIN IS NOT WHAT WAS REPORTED, WHICH WAS IN A 40 TO 45% RANGE. WE NOW THINK MORE OF A 28 TO 30% RANGE. AND AS YOU KNOW WHEN YOU DO A TEN YEAR DISCOUNTED CASH FLOW YOU COME UP WITH A QUITE DIFFERENT VALUATION AND THE PORTION OF THE RIGHT DOWN THAT WE BELIEVE IS AN EXCESS OF FIVE BILLION DOLLARS BASED ON MISSTATED FINANCIALS WHEN AUTONOMY WAS A PUBLIC COMPANY.

FABER: NOW YOU WERE OF COURSE ON THE BOARD OF HEWLETT-PACKARD AT THE TIME AND AGREED THAT THE DEAL WAS ONE THAT SHOULD BE UNDERTAKEN. DO YOU REGRET THE DECISION ON YOUR PART AND ON THE PART OF THE BOARD AT THAT TIME?

WHITMAN: WELL, OBVIOUSLY WITH 20/20 HINDSIGHT WE ARE DISAPPOINTED BY THIS NEWS. WHAT I WILL TELL YOU IS OUR DUE DILIGENCE WAS THOROUGH. WE RELIED ON AUDITED FINANCIALS BY DELOITTE. NOT EXACTLY BRAND X ACCOUNTING FIRM, AND THAT IS WHAT YOU DO WHEN YOU ARE ON A BOARD YOU RELY ON THE RECOMMENDATIONS OF MANAGEMENT AND THE FINANCIALS AUDITED BY A LEGITIMATE FINANCIAL ACCOUNTING FIRM. OBVIOUSLY WE ARE DISAPPOINTED. WE FEEL TERRIBLE ABOUT IT. I REGRET THAT I VOTED FOR THIS DEAL BUT WE ARE WHERE WE ARE AND NOW WHAT WE NEED TO DO IS TURN THIS OVER TO THE AUTHORITIES, SEEK REDRESS ON BEHALF OF HP SHAREHOLDERS TO RECOUP WHAT WE CAN. AND THEN WE WANT TO TAKE THE AUTONOMY BUSINESS AND GROWN IT, BECAUSE IT DOES SOLVE A REAL NEED IN THE MARKET PLACE ON BEHALF OF THE CUSTOMERS. THERE IS AN EXPLOSION OF DATA AND THERE IS SOME VERY INTERESTING TECHNOLOGY THAT HELPS COMPANIES MAKE SENSE OF ALL THE DATA OUT THERE IN TERMS OF THEIR MARKETING PLANS AND OTHER IMPORTANT MEANING-BASED COMPUTE OPPORTUNITIES.

FABER: LISTEN, NOBODY EXPECTS A BOARD, AT LEAST MY EXPERIENCE WOULD NOT INDICATE TO ME, THAT A BOARD SHOULD BE EXPECTED TO HAVE THE FORENSIC INTELLIGENCE, SO TO SPEAK, TO UNDERSTAND WHEN A COMPANY IS COMMITTING FRAUD, MY WORD, NOT A WORD YOU GUYS HAVE USED. BUT NONE THE LESS, THERE WERE A LOT OF DOUBTS ABOUT AUTONOMY OUT THERE IN THE MARKETPLACE REGARDLESS IN TERMS OF ITS GROWTH RATE AND A NUMBER OF INVESTORS CERTAINLY WHO WERE QUESTIONING ITS ACCOUNTING. DO YOU RECALL AT ALL, DID THAT COME UP IN ANY OF THE CONVERSATIONS PERHAPS THAT THE BOARD HAD WITH MR. APOTHEKER AT THE TIME WHO WAS THE CEO?

WHITMAN: NOT WHEN I WAS ON THE BOARD. WHAT I DO KNOW IS THAT AFTER WE ANNOUNCED THE ACQUISITION THERE WERE A NUMBER OF BLOGS THAT CAME TO THE FORE ABOUT POTENTIAL ISSUES AT AUTONOMY. THE FORMER MANAGEMENT TEAM RAN THAT TO GROUND AND CAME UP WITH THE CONCLUSION THAT THERE WAS NOTHING THERE. NOW OFTEN IN A CUTTING-EDGE COMPANY LIKE AUTONOMY THERE WILL BE RUMORS LIKE THIS BUT THEY WENT THROUGH WORKING WITH DELOITTE AND KPMG, WHO HP HAD HIRED TO TALK TO DELOITTE ABOUT THESE ISSUES AS WELL AS TALKING TO MIKE LYNCH AND THEY RAN IT TO GROUND AND SAID THERE’S NO THERE THERE. OBVIOUSLY WE KNOW DIFFERENT NOW.

FABER: MEG WE ARE WATCHING THE COMPANY STOCK DECLINE TODAY. HARD TO SAY HOW MUCH OF THAT IS DUE TO THE AUTONOMY NEWS AND HOW MUCH MAY BE DUE TO SIMPLY INVESTORS CONCERNED ABOUT THE FUTURE FOR THE COMPANY SO LET’S GO THERE FOR A MOMENT. YOU HIT YOUR NUMBER OR THE NUMBER THAT ANALYSTS WERE ESTIMATING AT LEAST THE COMPANY WOULD EARN FOR THIS CURRENTLY REPORTED QUARTER. BUT YOU HAVE LOWERED IT WOULD SEEM GUIDANCE FOR THE FIRST HALF OF NEXT YEAR, ALTHOUGH AT THE END OF THE DAY YOU THINK YOU ARE GOING TO MAKE IT UP IN THE SECOND HALF. WHY DO YOU HAVE CONFIDENCE THAT THE SECOND HALF IS WILL BE BETTER THAN THE FIRST HALF OF NEXT YEAR.

WHITMAN: WELL FIRST LET ME SAY, Q4 WAS ACTUALLY A PRETTY GOOD QUARTER FOR HEWLETT-PACKARD. WE GENERATED 4.1 BILLION DOLLARS WORTH OF CASH WHICH IS MORE CASH THAT MANY RESPECTED COMPANIES LIKE DISNEY AND FEDEX AND OTHERS REPORTED IN THEIR MOST RECENT FISCAL YEAR AND WE REDUCED OUR NET DEBT POSITION SIGNIFICANTLY SO WORKING HARD ON RESTORING OUR BALANCE SHEETS. SO I THINK PEOPLE SHOULD FEEL GOOD ABOUT THAT. IN ADDITION, EARNINGS WERE ABOUT FLAT. DOWN ONE PERCENT ON AN EPS BASIS WHICH IS QUITE AN IMPROVEMENT OVER THE 39%, I THINK, WE SAW IN Q1 – 22% AND THEN 9% DECLINE IN Q3. SO YOU CAN SEE WHAT WE ARE DOING IS WE’RE GETTING OUR COST STRUCTURE INLINE WITH OUR REVENUE TRAJECTORY SO THAT’S A REAL ACCOMPLISHMENT FOR THE COMPANY. AS YOU MENTIONED, WE ARE CONFIDENT ABOUT OUR FISCAL 2013 GUIDANCE FROM 3.40 TO 3.60 A SHARE BUT WE ARE GUIDING WHAT WE THINK IS REALISTIC FOR Q1, WHICH IS A TOUGH MACRO-ECONOMIC ENVIRONMENT, A LOT OF OUR SAVINGS, IN TERMS OF OUR SAVINGS PROGRAM, WILL BE BACKEND LOADED BECAUSE A LOT OF THAT IS LABOR NOW MOVING TO EUROPE, WHERE IT IS MUCH MORE DIFFICULT TO SEPARATE PEOPLE AND TAKES LONGER. AND THEN SOME OF OUR NON-LABOR SAVINGS WE’RE INSTITUTING THAT EXECUTIONAL EXCELLENCE AROUND SKEW REDUCTIONS, SUPPLY CHAIN AND THOSE WILL KICK IN IN THE SECOND HALF. BUT PERHAPS MOST IMPORTANTLY WE HAVE SOME FANTASTIC PRODUCT COMING UP AND I THINK I’VE BEEN CLEAR THAT GREAT COMPANIES COME BACK ON THE BACKS OF TERRIFIC PRODUCTS AND THOSE WILL REALLY START TO KICK IN IN THE SECOND HALF.

FABER: WELL YEAH I MEAN MANY WOULD SAY THEY ARE GOING TO HAVE TO. I MEAN TO THOSE WHO WOULD SAY MEG WHAT YOU ARE REALLY DOING IS MANAGING A DECLINING BUSINESS BECAUSE AT THE END OF THE DAY THE RISE OF THE TABLET IS ACTUALLY THE FALL OF THE PC AND PRINTING BECAUSE PEOPLE JUST CARRY THIS THING AROUND WITH THEM EVERYWHERE. HOW DO YOU CHALLENGE THAT ASSUMPTION THAT REALLY ALL YOU ARE DOING IS MANAGING A DECLINING BUSINESS – YOU MAY BE MANAGING IT WELL, BUT THAT’S WHAT IT IS.

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