<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Jonathan Weil</p> <p>Hewlett-Packard Co. shares <a href="http://www.bloomberg.com/news/2012-10-04/whitman-s-hp-turnaround-plan-sends-shares-to-10-year-low-tech.html">hit a new 10-year low </a>today, following yesterday's remarks by Chief Executive Officer Meg Whitman that HP's revenue would be down sharply next year.</p> <p>In her words: "I've learned at HP that you do not get what you expect. You get what you inspect."</p> <p>That's a good lesson for anyone reading corporate earnings reports, too, especially HP's. The first number in its Aug. 22 fiscal third quarter <a href="http://h30261.www3.hp.com/phoenix.zhtml?c=71087&amp;p=irol-newsarticle&amp;ID=1727793">earnings release</a> was a profit of $1 a share -- except that wasn't a real profit. It was calculated according to HP accounting rules, which are much more generous than generally accepted accounting principles. The GAAP number was a loss of $4.49 a share, or $8.9 billion.</p> <p>The biggest expense HP excluded was an $8 billion charge to write down the value of goodwill, which is the bookkeeping entry a company records when it pays a premium price to buy another company. HP has bought lots of companies over the years, with awful results. The writedown was an admission that HP overpaid. But it also was a forward-looking indicator, because it meant HP had drastically cut its cash-flow projections for the future.</p> <p>HP still had almost $37 billion of goodwill on its <a href="http://sec.gov/Archives/edgar/data/47217/000104746912008732/a2210845z10-q.htm">balance sheet</a> as of July 31. That was more than its $32 billion of shareholder equity, or assets minus liabilities. Meanwhile, at about $14.75 a share this afternoon, the stock market says the whole company is worth only about $29 billion. The stock is down 14 percent since Tuesday's close.</p> <p>Unfortunately for Whitman, who joined the company last year, goodwill isn't a saleable asset. It's nothing but hot air. Look for lots more red ink to come.</p> <p>(Jonathan Weil is a Bloomberg View columnist. <a href="https://twitter.com/#!/JonathanWeil">Follow</a> him on Twitter.)</p> <p>Read more breaking commentary from Bloomberg View at <a href="http://www.bloomberg.com/view/the-ticker/">the Ticker</a>.</p> </body> </html>