Hi Duke and GV,
RE: "Brcm has been requested by the sec to and will restate earnings. They were giving there customers warrants in brcm stock in proportion to customer purchases. This could be construed as a disguised discount, not reflected in earnings."
------------
That's interesting, because many times a startup's early customers do a lot of work for you. They can be early adopters paving the way for the industry. This can include a tremendous amount of work, as most likely was the case for Broadcom's customers, given the nature of their product. In exchange for this hard work, the customer might be awarded options if their work is significant enough.
Options for such services rendered fall under the category of SOPs, not discounts.
However, in BRCM's case, it sounds like:
a) no services were rendered (?)
b) it was tied to a sales volume (?)
which would classify these as discounts. (?)
GV, if services are rendered yet options are tied to sales volume, would that be considered options issued under SOPs (not counted against earnings) or as a discount (counted against earnings)? I would assume the later, as a discount counted against earnings.
However, I assume the ruling does not mean the SEC will now 'generally rule' that options given to any/all early customers for services rendered are automatically product discounts? I believe it depends upon the type of work. I mean, a customer that's providing services (e.g. upfront one-time work, etc.) could be earning options for their work, which would not be considered a product 'discount', but rather a SOP. Right?
Separate, unrelated question. If source code were turned into a binary code that shipped with product, then that would be what? Is it:
a) COGs (if license fee is based upon volume shipment, i.e. recurring)
b) a discount (because SEC now thinks it should be, just because it happened to come from the customer. Recurring or non-recurring???)
c) or SOPs? (if services rendered are for up front one-time work, say contractual, that is not based upon volume schedule, i.e. non-recurring)
d) a) or c), but not b)
e) only b), not a) nor c)
On another note, in the case of a two tier distribution channel, a customer may not only be a customer but also a provider of something, in which case, it would depend upon the type of services rendered to determine whether these are part of the COGs, or are SOPs, or are discounts, right?
I don't think the SEC has made clear rules in the case of the two-tier channel, where the customer isn't only a customer, but has two roles where SEC's financial rules/guidelines seem to conflict themselves.
One more thought, warrants can't be issued from any SOPs, right? Sounds like it could be key (from SEC's standpoint) to use SOPs, rather than warrants, for any one-time upfront services rendered??
RE: "Brcm LOST 700MM in fiscal 2000 according to Hoover's. I don't know is this is inclusive or exclusive of the restated earnings."
I don't own BRCM, but I'm curious: when they restate their earnings, what stock price would they use? I imagine they use the strike price listed in the stock contract, not the market price at the quarter's end?
Regards,
Amy J |
