GMI Ratings Governance Issue | Hewlett-Packard Co.

Hewlett-Packard Co. just lost its battle with the IRS related to a complex overseas tax deal with American International Group, Inc. that took place many years ago, in the latest sign that the Palo Alto technology firm’s new CEO Meg Whitman has inherited a legacy that remains troubling.

HP sought more than $190 million in tax refunds tied to a Dutch shelter designed by the New York insurer’s derivatives arm AIG Financial Products, Reuters reported. Judge Joseph Goeke of United States Tax Court in Washington, D.C. ruled against HP on Monday, noting that HP had used a debt vehicle rather than an equity investment and the tax offsets created through it weren’t valid for deductions.

The unfavorable ruling isn’t the only headache HP has faced since Whitman dared take on her role in Sept. 2011, the same time executive chairman Raymond J. Lane began leading HP’s board. This April, for example, investigators of the South Korean Fair Trade Commission raided the company’s office in Seoul over suspicions of collusion with other multinational information technology giants to fix prices, the Korea Times reported. HP reportedly said that the probe was “routine” after the regulator promised to tighten its monitoring of multinationals.

Meanwhile HP’s financial statements continue to reflect problems that critics had protested against before Whitman took the helm. HP’s AGR score remained a 4 as of this March, keeping it in the very aggressive category, and it has gone no higher than 8 since June 2009; this reflects more accounting and governance risk than most companies. One reason for the low score is that HP overpaid for its acquisitions in earlier years, exposing itself to the risk of having to write them down later as less than originally thought. HP’s goodwill, which reflects intangible assets such as acquisition valuations, has risen to $44.6 billion as of Jan. 31 this year from $38.5 billion as of Jan. 31, 2011.

HP declined comment.

How long will it take for Whitman to clean up the troubled company? Only time will tell. GMI rates HP an F on its corporate governance.

Region:  North America
Industry: Technology
Sector:   Computer Hardware
Market Cap: $47,990.1mm (Large Cap)
ESG Rating:  F
AGR:   Very Aggressive (4)

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