Broadcom to Change Accounting for Warrants (Updated)

Suits filed against Amazon and Ariba, more big layoffs, another IPO withdrawal and more.


Nothing like public pressure to get you to change your accounting methods.

Broadcom Corp. said that it is changing the way it accounts for warrant- related agreements issued to customers in its most recent acquisition, VisionTech Ltd. The reason: Published reports, which called into question its accounting method used when Broadcom purchased companies that issued sales contracts with warrants as incentives.

What’s more, the communications-chip maker said that it is currently reviewing accounting for last year’s acquisition of Altima Communications Inc. In fact, it may revise its pro forma results for the first nine months of last year.

Broadcom said that five companies that it bought in recent months had these warrant agreements with customers.

Under the warrant arrangements, customers were given rights to buy stock if they bought a certain amount of product from the companies that Broadcom was about to buy. Broadcom was criticized because it placed most of the value of these sales contracts into the goodwill portion of the purchase price rather than reflecting it as a reduction to revenue.

Broadcom has maintained that it used the correct accounting method in these transactions.

In a recent SEC filing, the company said it will account for 5.7 million warrants issued by VisionTech as a reduction to revenue as customers fulfill the purchase requirements. The warrants, which have a strike price of about $0.002 a share, will be valued at the time that they vest, according to the filing.

The warrants, held by customers of VisionTech and now exercisable as rights to buy Broadcom shares, vest quarterly from January 2001 to December 2004, according to the filing.

Earlier this month, Broadcom said that it was reviewing its accounting policy for these warrant-based contracts because one large customer, 3Com Corp. recently canceled one such contract, which raised concerns that others would also cancel. 3Com had signed a purchase agreement with Altima in July, two months before it was acquired by Broadcom.

At least eight shareholder lawsuits have been filed against Broadcom because of the way that it accounted for these contracts, alleging that the practice inflated both sales and gross margins at Broadcom.

Amazon Sued Over Public Disclosures

A class-action suit has been filed against Inc. on behalf of people who purchased the company’s stock between Feb. 2, 2000 and March 9, 2001.

Their complaint alleges that the online retailer, along with certain of its officers and directors, violated securities laws by distributing false and misleading statements.

The suit alleges that the defendants failed to disclose that Amazon’s investments in its Amazon Commerce Network Partners “were losing millions of dollars” and that “much of the purported revenue recorded appeared to investors as cash, but was actually in the form of highly speculative equity investments.”

The complaint also charges that Amazon Chairman and Chief Executive Jeffrey Bezos sold more than 1 million Amazon shares at artificially inflated prices. See related story

Today’s Layoff News

  • General Motors Corp. and a United Auto Workers union local have reached an agreement that reversed plans to lay off hundreds of workers at a Lake Orion, Mich., vehicle assembly plant, according to GM. Under the pact, GM agreed to idle for short periods of time the plant that builds large sedans instead of reducing the line speed by 25 percent, which would have resulted in the layoffs. The union also made some concessions, which were not made public. As a slowing U.S. economy squeezed sales of large sedans, GM considered cutting the work force of 3,400 amid a 25 percent production cutback at the plant that builds the Oldsmobile Aurora, Pontiac Bonneville and Buick Park Avenue and LeSabre models.
  • Oracle Corp. said it would cut up to 866 jobs, or 2 percent of its work force in reaction to the slowing economy.
  • Procter & Gamble Co. is mulling cuts of between 10 percent and 20 percent of its 110,000 global work force due to the slowing economy and to compensate for prior restructurings that didn’t cut enough costs, according to the Wall Street Journal
  • Teradyne Inc. plans to lay off about 650 people world-wide and implement furloughs, salary delays for all employees and salary cuts for senior managers in order to cut operating expenses. The semiconductor-equipment maker said its customers are facing declining world-wide demand and a softening economic environment, resulting in fewer orders for Teradyne.
  • Adaptec Inc. said Tuesday that it will cut 450 jobs, or 20 percent of its work force, because of the slowing economy. The maker of data- storage devices issued a fiscal fourth-quarter warning three weeks ago.
  • 3Com Corp., which on Wednesday reported a third-quarter loss that was worse than Wall Street had expected, said it had cut an undisclosed number of jobs.
  • Milacron Inc. said it has cut 300 jobs in its North American operations because of major cutbacks in capital spending by customers for plastics processing equipment.
  • Jabil Circuit Inc. said it would make an undisclosed number of job cuts even though the contract electronics manufacturer reported second- quarter earnings that beat Wall Street estimates.
  • APW Ltd., a provider of contract-manufacturing services for electronics firms, said it cut its work force by 4 percent during the second quarter, excluding those employees from acquisitions completed before Feb. 28. In March, it cut another 4 percent of its staff. The company reported a second-quarter loss as higher costs and reduced customer demand overshadowed a 15 percent rise in sales.

Suit Filed Over Ariba IPO

A number of shareholders have filed a lawsuit against Ariba Inc., two of its executives, and Morgan Stanley Dean Witter & Co.

The suit, filed Tuesday in Manhattan federal court, alleges that investors weren’t informed that Morgan Stanley, in deciding how to allocate Ariba shares, received hefty commissions or made so- called “tie-in” arrangements with customers to artificially inflate Ariba’s stock price after the offering.

Similar allegations have been made in pending lawsuits against VA Linux Systems Inc. and other major Wall Street investment banks.

The suit comes on the heels of published reports that the SEC and the U.S. attorney’s office in Manhattan have launched a joint investigation into a number of IPO practices.

The suit filed by Ariba shareholder Glenn Luksik also describes a tie- in arrangement in which Morgan Stanley allegedly required customers who received sought-after IPO shares to buy additional shares in the aftermarket at pre-determined prices.

The suit also charges Ariba Chief Executive, Chairman and President Keith J. Krach and Chief Financial Officer Edward S. Kinsey with making false and misleading statements in the company’s prospectus.

In other IPO news

  • Israel’s Verisity Ltd., a maker of automated inspection systems, on Tuesday sold 3.35 million shares at $7 per share, slightly below its expected range of $8-10 a share. It raised $28 million, slightly less than the $33 million it had hoped to fetch. The lead underwriter was Robertson Stephens.
  • QK Healthcare Inc., a national wholesale distributor of selected healthcare products to retailers, on Tuesday postponed its IPO due to market conditions.

From the “Brief” Case

  • PricewaterhouseCoopers is prepared to give up plans to sell its finance unit, according to The times of London. The company put its Financial Advisory Services unit up for sale last year, but has yet to find a buyer. Potential suitors are understood to have expressed concern over the diversity of the unit’s activities, which include dispute analysis and investment banking, according to the paper. PwC was reportedly looking to fetch $1 billion.
  • Intel Corp. today plans to announce that it has begun shipping a new high-end version of its Pentium III Xeon microprocessor used in powerful server computers. The new version operates at a speed of 900 megahertz and includes two megabytes of built-in memory, boosting performance up to 20 percent over prior comparable products.

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