More fundamental data on BRCM for all who are considering investing in this company:
– BRCM liabilities increased by nearly $100,000,0000 during the first 6 months of this year alone. Had BRCM paid its bills similar to 12/31/2001 levels, cash would have declined by $104,691,000.
– On February 7, 2001, BRCM CEO Dr. Henry T. Nicholas told investors and analysts at a BofA conference, "We are experiencing very favorable growth, and very favorable growth in operating profits." On January 23, 2002, after BRCM reported a more than $2.7 BILLION loss for FY 2001 – it’s largest ever loss – Nichols proclaimed, "Once again Broadcom delivered strong quarterly results."
– In an "Enronesque" fashion, BRCM has thus far this year conveniently excluded more than a QUARTER BILLION DOLLARS in expenses to narrow a nearly $300 million loss into a more palatable $38.7 million loss. BRCM excluded $2,656,234,000 in expenses in 2001 – greater than ALL its revenues from 1997 to 2001 – narrowing a more than $2.7 BILLION loss to just a little over an $85 MILLION loss. In 2000, this "pro-forma" chicanery magically converted a nearly $588 million LOSS into a more than a $242 million PROFIT.
– No fewer than 28 law firms are now pursuing class action claims and other litigation against BRCM fraud and accounting abuses.
– BRCM best ever earnings were only $0.36 per share, back in 1999. Cumulatively, however, the company has had absolutely no earnings since 1997, as it has lost an aggregate of $3,733,418,000 during this period – more than twice the GDP of the United States Virgin Islands. Still, "investors" as of the close Friday have placed a more than $5.4 BILLION price tag on this company, paying over 55 times its 1999 earnings – earnings likely never to be seen again.
– Over the past 5 years, insiders unloaded nearly $2 BILLION in BRCM stock. In the first 5 months of this year alone, insiders dumped 870,000 more shares.
– Contempt for shareholders is epitomized in the BRCM corporate charter by way of the creation of Class B shares (majority owned by insiders) with superior 10 to 1 voting rights over Class A shares.
– In January 2000, BRCM directors increased the authorized shares of Class A stock from 400,000,000 to 800,000,000 shares, and the Class B stock from 200,000,000 to 400,000,000 shares. Even if all the Class A shares were issued, BRCM directors can control the company with as little as 40,000,001 Class B shares, shares which can be freely issued at present without any shareholder approval whatsoever.
– Even though BRCM presently trades at a 92.8% "discount" from its all time high of $273.63, not even one insider has been willing to purchase even a single share of BRCM (other than the exercise of options – at shareholder expense).
Fundamental rules of investing: Invest in companies that are (or at some point will be) profitable. Because any company that does not make a profit will eventually go out of business! It is as simple as that!
A company such as BRCM that relies so much on pro-forma nonesense, one has to be very careful.
If you buy $100,000,000 worth of equipment with a 5-year life, according to GAAP, you incur a $20,000,000 per year expense. With "pro-forma" this often does not show, but where'd the $100,000,000 come from? As Warren Buffet put it, who I think knows just a little more than the vast majority of tech investors judging from his personal fortune, "the money doesn't come from the tooth fairy."
Let's say a company buys a competitor with assets worth $75,000,000 for $350,000,000. $275,000,000 is goodwill. If management adopts the new subjective FAS No. 142 and decides there's no impairment to goodwill, no expense shows up, but where'd the $350,000,000 come from? And since we all know how honest management is, why bother taking any expense? However, the company they acquired is shut down, out of business, and the management decides to be honest and write down the goodwill. It's a legitimate expense on GAAP, because they paid for something they used up, but on "pro-forma" it doesn't show up. Meanwhile, because the competition is gone, the company generates more sales, but THAT revenue is not excluded from the "pro-forma" statement. A basic principle in accounting is the "matching principle," meaning revenues must be matched with expenses as appropriate. So called "pro-forma" results violate this very basic principle, and BRCM investors (and in general most tech investors - including yours truly) have thus far paid a heavy price, but I have a strong feeling the worst is yet to come.
And just becuase BRCM has not gone out of business yet, doesn't mean it won't. It is really that simple: Any business that doesn't make money WILL eventually and invevitably go out business regardless of its superior or great products.
At best what would happen is the company will be acquired at pennies on a dollar, and the parent company will hopefully be able to turn its superior products into money making instruments. Regretfully though, the share holders of the company being acquired are the ones that get screwed. Cases of this are many. Informix, and Shiva are perfect examples. Informix was bought out by IBM, and Shiva by Intel. Those who were badly screwed were the long term suffering Informix and Shiva shareholders. |
