Broadcom to Alter Method of Accounting on Acquisition

Broadcom Corp., under scrutiny for certain financial reporting practices, said it is changing the way it will account for at least one of its purchases last year, and also may revise financial results for the first nine months of 2000.

In five of 12 acquisitions last year, the Irvine chip maker had arranged for warrants--or rights to stock--to be issued to customers of the companies it was buying to lock in future sales. Critics said Broadcom essentially was offering deep discounts to some of its customers, without adequately accounting for the costs of those discounts in the company’s financial statements, hence inflating sales and gross margins.

But in a filing late Monday with the Securities and Exchange Commission, Broadcom said it will change the accounting method for its purchase in November of VisionTech Ltd. Broadcom said it will now account for 5.7 million warrants issued by VisionTech as a reduction to revenue when customers meet the purchase requirements and exercise the warrants, which is what critics said should have been done all along.

Broadcom said it is reviewing portions of the accounting treatment for its July acquisition of Altima Communications Inc. in San Jose. The review “may result in a revision of amounts in the company’s financial statements” for the nine months ending Sept. 30, Broadcom said in its filing.

It was unclear what the revision might be. A Broadcom spokesperson declined to comment Tuesday.

Broadcom shares lost $3.69 a share Tuesday in Nasdaq trading, to close at a 52-week low of $30.50. The stock has lost 89% of its value since reaching a peak of $274.75 a share in August.

Broadcom has acknowledged that before acquiring five privately held companies last year, it encouraged them to issue their customers warrants in exchange for commitments to continue buying their products. The warrants issued by VisionTech, for example, have a strike price of about 0.2 cents a share.

Broadcom accounted for much of the warrants’ value as goodwill, an accounting term for the amount of the purchase price exceeding the value of the company acquired. Goodwill is treated as an asset to be written off over time.

Financial analysts and accounting experts described the practice as highly unusual. One Broadcom competitor said the practice is unfair because it locked out rivals who could not match generous discounts Broadcom was offering to its customers.

Broadcom said last week that it was consulting with the SEC over the accounting method, but has maintained that it was proper.

One of Broadcom’s key customers, 3Com Corp., canceled its warrant-based deal in early March, and Broadcom said it was rethinking its policies because other customers might cancel their agreements.

Broadcom faces at least eight shareholder lawsuits related to this matter. Broadcom has said it believes the suits are without merit.