Broadcom Cuts 10% Off Sales Report
The decision to change its unusual and much-criticized method of accounting for some of its acquisitions led Broadcom Corp. on Wednesday to reduce its previously reported fourth-quarter sales by 10%.
The Irvine communications chip maker cut about $38.6 million from its quarterly revenue to account for costs associated with customer agreements reached by three companies it acquired during the final three months. The reduction from its original $378.8 million lowered sales for the year by 3.4%.
The company said most of the deals that had provided customers with warrants to buy stock have been canceled. The accounting changes, along with the canceled warrant deals, also helped reduce Broadcom’s net losses by 3 cents a share for the third quarter and by 2 cents a share for the year.
Broadcom said the revisions had only “a minor impact” on results.
Its stock, which had lost about 89% of its value since August, gained $1.13 Wednesday to close at $31.63 a share on Nasdaq. It had hit a 52-week low of $30.44 a share on Tuesday.
The company said it changed its accounting procedure on five acquisitions after consulting with its auditors, Ernst & Young, and with the U.S. Securities and Exchange Commission.
In five of 12 acquisitions last year, Broadcom acknowledged last month that it had arranged for warrants--or rights to stock--to be issued to customers of the companies it was buying in order to lock in future sales. It accounted for much of the warrants’ value as goodwill, an asset to be written off over time.
Critics said Broadcom was essentially 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 its accounting for its purchase in November of VisionTech Ltd. It said it will reflect 5.7 million warrants issued 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.
