SAN FRANCISCO Broadcom Corp. announced Tuesday (Jan. 23) the filing of amended and delayed 2005 annual and 2006 quarterly reports with the U.S. Securities and Exchange Commission (SEC), which included net readjustments of $2.2 billion as a consequence of improperly backdated stock options.
Broadcom (Irvine, Calif.) said an internal review of all stock options grants since the company's initial public offering in 1998 concluded that the accounting measurement dates for most of the stock options granted by Broadcom between June 1998 and May 2003, covering options to purchase 232.9 million shares of its common stock, differed from the measurement dates previously used for such awards.
As a consequence, Broadcom said it recorded a total of $2.26 billion in additional non-cash stock-based compensation expense for the years 1998 through 2005. After related tax adjustments of $38.7 million, the restatement resulted in total net adjustments of $2.2 billion to the company's consolidated statements of operations for the years 1998 through 2005, Broadcom said. This amount is net of forfeitures related to employee terminations.
Broadcom said the review concluded that no option grants awarded to co-founders Henry Samueli and Henry T. Nicholas III required revision, nor did those awarded to successive CEOs Alan Ross or Stott McGregor. No grants made to any current members of the board of directors required revision, Broadcom said.
Of the options to purchase 232.9 million shares that required a measurement date revision, options covering 9.7 million shares, or 4.2 percent of the shares, were awarded to executive officers, and options covering 223.2 million shares, or 95.8 percent of the shares, were awarded to other employees, Broadcom said.
"None of the employees found to have been actively responsible for the historical problems resulting in the restatement are still with the company," McGregor said through a statement. "In addition, in mid-2003 we significantly strengthened our equity award practices and put into place rigorous processes to prevent and detect any future instances of improper accounting for equity awards."
McGregor said less than a third of the total charges taken by Broadcom relate to options that were actually exercised by employees or currently remain outstanding.
Broadcom initially said last year that it expected stock-based compensation expenses related to backdated historical options grants to be about $750 million. In September 2006, the company said it expected this figure to be at least $1.5 billion.
Broadcom said last month that the SEC was conducting a formal investigation of the company's historical stock option backdating practices. The Nasdaq stock exchange had given Broadcom an extended deadline of Jan. 31 to make the SEC filings or face the threat of delisting.
In a research note published Wednesday, Alex Gauna, an analyst with UBS Securities LLC, said Broadcom's restatement contains "no significant adverse surprises." He added, "We believe this removes a fairly significant cloud of uncertainty on the fame and should afford a boost to sentiment on the stock."
UBS maintains a rating of "neutral" on Broadcom stock.