The Statement of Cash Flows from the 2012 annual report of Hewlett-Packard shows that $10.5 billion of cash was paid in 2011 for acquisitions (Investing Activities) and that in 2012 an $18.0 billion “impairment of goodwill and purchased intangibles assets” expense was added back in the Operating Activities sections, both related to HP’s acquisition of software company Autonomy. For the year ending 12/31/2012 the company shows a $12.7 billion Net Loss, mainly due to the impairment charge, but a positive $10.6 billion of Net Cash Provided by Operating Activities.

REQUIRED:

Discuss how an adjustment to a disastrous acquisition can drastically affect earnings but not operating cash flows.