Broadcom Nabs Altima

July 31, 2000

Broadcom Nabs Altima

Broadcom Corp, (NASDAQ:BRCM), a provider of integrated circuits enabling high-speed broadband communications, Monday purchased Altima in a deal valued at more than $533 million.

As part of the definitive agreement, Broadcom will exchange about 2.5 million shares of its Class A common stock for all outstanding shares of Altima preferred and common stock and outstanding employee stock options.

The deal is expected to close within two months.

Officials said the acquisition of Altima, a supplier of networking integrated circuits for the small-to-medium business (SMB) networking market, will speed its penetration in that market.

"By combining forces with Broadcom, our team will help accelerate introductions of next-generation solutions for the SMB market," said Stewart Wu, president and chief executive of Altima.

The SMB market for 10/100 switches and hubs is forecasted to more than double this year, and to reach 58 million ports by 2001, according to The Dell'Oro Group, a market research firm.

Broadcom plans to retain the Altima brand name for the SMB product line, taking advantage of the company's established identity in Asia, where a majority of SMB manufacturers reside.

"Altima's well-established infrastructure in Asia will strengthen our presence and enable us to better serve our customers engaged in the high-growth SMB market segment," said Henry T. Nicholas III, Broadcom president and chief executive.

Source: http://www.internetnews.com/bus-news/article/0,,3_426051,00.html

 

Broadcom Completes Acquisition of Altima Communications

IRVINE, Calif. - September 8, 2000 - Broadcom Corporation (Nasdaq: BRCM), the leading provider of integrated circuits enabling high speed broadband communications, today announced that it has completed the acquisition of Altima Communications, Inc.

Altima is a leading supplier of networking integrated circuits (ICs) for the small-to-medium business (SMB) networking market. Altima's product portfolio has been designed and optimized for the value-oriented SMB customer, with emphasis on low power, small footprint, and low system cost.

Broadcom plans to operate Altima as a wholly-owned subsidiary and to retain the Altima™ name for the SMB product line.

In connection with the acquisition, Broadcom issued an aggregate of 1,661,784 shares of its Class A Common Stock in exchange for all outstanding shares of Altima Preferred and Common Stock and reserved 875,111 additional shares of Class A Common Stock for issuance upon exercise of outstanding employee stock options of Altima. The share issuances were exempt from registration pursuant to section 3(a)(10) of the Securities Act of 1933, as amended. Portions of the shares issued will be held in escrow pursuant to the terms of the acquisition agreement as well as various employee share repurchase agreements.

The merger transaction will be accounted for under the purchase method of accounting. Broadcom expects to record a one-time write-off for purchased in-process research and development expenses related to the acquisition in its third fiscal quarter (ending September 30).

In addition to the purchase consideration, Broadcom reserved 2,889,667 shares of its Class A Common Stock for future issuance to customers upon the exercise of outstanding Altima performance-based warrants that become exercisable upon satisfaction of certain customer purchase requirements.

About Broadcom

Broadcom Corporation is the leading provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video, and data. Using proprietary technologies and advanced design methodologies, the company designs, develops and supplies integrated circuits for a number of the most significant broadband communications markets, including the markets for cable set-top boxes, cable modems, high-speed local, metropolitan and wide area networks, home networking, Voice over Internet Protocol (VoIP), residential broadband gateways, direct broadcast satellite and terrestrial digital broadcast, optical networking, digital subscriber lines (xDSL) and wireless communications. Broadcom is headquartered in Irvine, Calif., and may be contacted at 949-450-8700 or at www.broadcom.com.

Source: http://www.altimacom.com/news/

 

 

Warrant Deals Raise Concerns On Broadcom
By Molly Williams, 02/27/2001, The Wall Street Journal

…When Broadcom bought Altima in September, it paid more than $500 million in stock for the closely held maker of chips used in networking gear. In a footnote to its 10Q filing, Broadcom noted that it also set aside 2.89 million shares -- worth more than $689 million at the time the transaction closed -- for warrants on Altima shares that had been issued to customers who agreed to buy a certain amount of Altima products. Altima had issued 41 million warrants in July at an exercise price of $0.001, according to SEC filings. Broadcom's agreement to buy Altima was announced on July 31. The 2.89 million shares exceeded the 2.5 million shares Broadcom paid to buy the company. Broadcom had about 220 million shares outstanding as of Dec. 31.

3Com is one such Altima customer. In its SEC filing for the quarter ended in December, 3Com said it agreed to buy $360 million worth of networking products in the next three years from an unspecified company that was bought by Broadcom. A 3Com spokesman confirms the company was Altima. As it buys the networking products, 3Com will receive warrants to buy 992,000 shares of Broadcom, valued at about $244 million, according to the filing. …

 

 

Broadcom ponders accounting changes

by Olaf de Senerpont Domis Posted 04:10 PM EST, Mar-7-2001

Communications chipmaker Broadcom Corp., facing canceled customer contracts, criticism from Wall Street, regulatory scrutiny and a handful of shareholder lawsuits, is considering an about-face in the controversial way it accounts for performance-based stock warrants issued to customers of acquired companies.

At issue are warrants distributed by startups acquired by the Irvine, Calif.-based semiconductor firm as an incentive for customers to buy products. The warrants were issued in deals struck last year for five companies by the hyper-acquisitive Broadcom: Allayer Communications, Altima Communications Inc., SiByte Inc., Silicon Spice Inc. and VisionTech Ltd.

Though Broadcom as recently as last week defended the warrants as "aggressive marketing practices," it said late Tuesday that its outside auditor, Ernst & Young International, has advised it to consider accounting for them differently.

The complicated warrant arrangements essentially work like this: While in negotiations with an acquisition target, Broadcom would encourage the target company to issue stock warrants to its customers as an inducement to continue purchasing products. Broadcom would then assume those warrants and purchase agreements when the merger closed.

Broadcom classified most of these warrant expenses as goodwill— the amount of consideration paid over the value of the acquisition target.

This is the heart of the controversy. Critics argue the warrants amount to no more than discounts on products and that their cost should therefore be offset against revenue.

"These warrants have nothing to do with goodwill or the acquisition—it is an enticement to get customers," said E. John Larsen, a professor at the University of Southern California's Leventhal School of Accounting. "Goodwill is the excess of the cost paid for an acquisition over the fair value of assets... it is not supposed to be monkeyed with in this fashion."

The size of Broadcom's warrant packages were often huge. In the Altima deal, which closed last summer, Broadcom issued a fixed 2.5 million shares, worth roughly $533 million based on Broadcom's then-lofty share price of $213.

The warrants were worth even more than the basic consideration: 2.9 million shares, worth $618 million.

Broadcom said Tuesday it is considering assigning value to the warrants only when a customer earns them. In other words, the value of the earned warrants during each period would be treated as a deduction from the revenue earned under the purchase agreements for any given quarter. "If you account for these warrants any other way than what Broadcom is now proposing, it would be misleading," Larsen said.

The need for a change came to the fore, Broadcom said, partly because 3Com Corp., one of Broadcom's top three customers and the largest customer of Altima, notified the chipmaker last week that it was terminating a purchase agreement that involved the warrants. The current market slowdown increases the possibility that other customers with similar purchase agreements may back out, Broadcom said.

Ernst & Young is consulting with the U.S. Securities and Exchange Commission on which accounting route Broadcom will take, the company said.

But even if Broadcom decides to treat the earned warrants as revenue deductions, the number of shareholder suits filed against the company this week over the accounting methods are unlikely to be dropped.

Jeffrey Block, a lawyer with Berman DeValerio & Pease llp in Boston, said Broadcom considering changing its accounting for the warrants strengthens his firm's case against the company.

"We view it as an admission that the way they were accounting for these things was wrong," Block said. "Our clients bought stock in Broadcom based on what they believed to be a certain level of revenue, when in fact the revenue levels were less than what Broadcom said."

Berman DeValerio filed a suit against Broadcom in the U.S. District Court for the Central District of California on Tuesday, alleging that the company defrauded shareholders by mis-accounting for the warrants.

At least five other law firms have filed similar suits, all of which seek class-action status. A Broadcom spokesman was not available for comment.

Executives with the companies Broadcom was seeking to acquire were often nervous about the ramifications of issuing the warrants, according to an investment banker involved in one of the deals.

"They [the acquisition target] would think: If this deal with Broadcom comes apart, I'll be stuck with a lot of warrants and have a potential for a lot of dilution if they vest," said the investment banker, who spoke on condition of anonymity.

Along with its announcement regarding its accounting practices, Broadcom revealed that revenue in the first quarter would range from $315 million to $325 million. That translates into pro forma diluted earnings per share of 8 cents to 9 cents, a major shortfall compared with analysts forecasts of 25 cents per share.

"The business fundamentals look to be much worse than people expected," said WR Hambrecht & Co. analyst Jim Liang in a research note Wednesday. "At current valuation, we see limited upside in the next 12 months."

Liang and several other analysts downgraded Broadcom's stock Wednesday, helping to drive it down more than 13% to $41.69 in afternoon trading.

Source: http://www.thedeal.com

 

 

There's no accounting for Broadcom's troubles
The former tech star's latest warnings raise accounting questions that could affect much of the sector. What happens when, along with an uncertain future, companies have an uncertain past?
By Jim Jubak

Promises of stock
You can find the details in a section of its March 6 press release with the crowd-pleasing title of "Accounting Treatment of Assumed Performance-Based Warrants": Many of companies that Broadcom has acquired recently, the company disclosed, were in the habit of giving their key customers stock warrants when they signed a contract. These warrants could be turned into stock at a discounted price if the customer bought enough stuff. Broadcom took on the obligation to honor the warrants in Broadcom stock when it acquired companies such as Altima Communications, Silicon Spice, Allayer Communications and SiByte in late 2000. By my count, according to Broadcom's third quarter 2000 10Q report to the Securities and Exchange Commission, we're talking about warrants for better than 5.5 million shares of Class A Common Stock, or about 4% of the shares outstanding last fall. Even at current prices those warrants represent a sizable piece of change. At the time of the acquisitions, of course, we were talking serious money. In its September quarter 10Q, Broadcom valued the 2,889,667 Altima warrants at about $700 million.

I want to make it clear that, in my opinion, Broadcom hasn't done anything illegal here. (The class-action lawyers who have already sued clearly think the company has broken the law. In its press release, one firm, Wolf Haldenstein Adler Freeman & Herz, accused Broadcom of "buying its own revenue.") All these warrants are disclosed in the company's SEC filings, and the company certainly put the issue fairly and in detail in front of investors in its earnings warning. The company made an accounting decision on how to deal with these warrants that passed muster with its outside accountants at the time.

Still, that decision was a lousy one. It has the effect of making it difficult for investors to know exactly how profitable Broadcom is in general, and how profitable its most recent acquisitions in particular actually were. And it makes it hard to calculate an accurate revenue growth rate for the company in the past and for the future. Through that decision, Broadcom has called into question all the numbers it recently provided to investors.

The accounting issue was triggered when a customer canceled a purchase. 3Com (COMS, news, msgs), a big customer of Altima Communications even before Broadcom acquired it, backed out on a purchase agreement that it had worked out with Altima even though the purchase would have enabled 3Com to cash in some of the warrants it received when it signed the contract with Altima. That threw into doubt the entire system of accounting that Broadcom used for revenues resulting from such warrant deals. What Broadcom had done at the time of each acquisition was to assign a value to the warrant obligations each acquired company had made to its customers. Broadcom then divided that value into two parts. One part, the company decided, would be charged off at the time a customer actually bought and paid for Broadcom/Altima's product. That charge would immediately reduce the value of revenues in any such deal, and the lower net revenue would be the number reported by Broadcom to investors.

The other part Broadcom called good will. The company, as is common in accounting practice, amortized this charge over five years on the assumption that, of course, customers would honor their purchase agreements. That had the effect of making current revenue look larger, since the charge would be spread over five years rather than applied against current revenue.

Now that it's uncertain that customers will actually purchase from Broadcom, this whole system of accounting for the warrants by amortizing them over five years probably no longer meets accounting standards. The company and its accountants are now casting about for another method of accounting for these warrants.

Whatever accounting method Broadcom and its auditors settle on, it will be hard to put the business issues to rest. By granting warrants to some customers, Broadcom was, whatever the accounts say, paying those customers to buy its products. These customers were getting a discount on the purchase price in the form of shares of a highly desirable, high-flying stock.

Would those customers have purchased chips from Broadcom without the discount? We don't know. When Broadcom reported its results for the fourth quarter of 2000, it was only a huge surge in sales to 3Com -- up more than 100% -- that enabled the company to avoid missing the analyst consensus of 31 cents for the quarter. In its March 6 warnings, Broadcom cited 3Com by name as a customer that had canceled a contract.

Will these customers buy chips from Broadcom at the same rate as in the past now that the warrants don't offer a highly attractive discount? Will other customers who weren't part of the warrant program demand discounts in their future purchases? No one knows. But I can bet that Broadcom's competitors, themselves struggling to keep revenues up, will be talking to all those customers -- those with warrants and those without -- to see who they can steal away from Broadcom.

 

Source: http://moneycentral.msn.com/articles/invest/jubak/6364.asp

 

Broadcom Changes Warrant Accounting
By Caroline Humer
Senior Writer
3/20/01 5:56 PM ET
URL: http://www.thestreet.com/tech/semis/1353360.html

Communications chip company Broadcom (BRCM:Nasdaq) changed the accounting method on warrants related to its purchase of Israel's VisionTech and said it may restate earnings to reflect a similar change with a previous acquisition, according to documents filed Monday with the Securities and Exchange Commission.

Broadcom wasn't available to comment.

Broadcom earlier this month warned of weak revenue and said that it was in consultations with the SEC over how it should account for warrants held by the customers of companies it purchased. Warrants related to the VisionTech purchase will be accounted for as a reduction in revenue as they vest, the filing states. Under the previous method, warrants were also accounted for as goodwill and amortized. (Goodwill is the price a company pays in an acquisition above book value. It's then written down as a charge against earnings over time.)

In the filing, Broadcom also said it may restate earnings for the nine months ended Sept. 30, 2000, because of changes in the way it accounts for its purchase of Altima Communications last year. The company said it's still reviewing the possible accounting changes.

Broadcom purchased numerous companies in 2000 whose customers hold warrants that allow them to buy Broadcom shares if they follow through on agreements to purchase products. Broadcom cited the loss of such an agreement from customer 3Com (COMS:Nasdaq) as one of the reasons it was reviewing its warrants practice. 3Com, which ended the agreement because of weak demand it was seeing, had the purchase agreement with Altima before Broadcom took it over. But investors and the press, including both TheStreet.com and the The Wall Street Journal, had already raised concerns about the warrants.

In addition to the revenue reduction issue, shareholders also were concerned that if the shares associated with the warrants were issued, they would dilute Broadcom's earnings per share at a time when the chip industry is struggling with shrinking demand.