Control Environment Review: QUALCOMM Incorporated ("QCOM"), February 8, 2002
Analyst with QCOM Coverage: Brad. brad@schilit.com
CFRA examined QCOM's proxy statement and 10-K for the year ended September
2001, as well as the Company's 10-Q for the quarter ended December 2001. We
found that the Company has recorded revenue in exchange for non-cash
consideration and that the Company has accepted non-cash consideration for
receivables removed from QCOM's balance sheet. We also found a potential
conflict of interest between the Board of Directors and the Company's
auditor, familial relationships among the Company's executive officers, and
seemingly generous option grants during a year of poor corporate results.
Since the first quarter of 2001, QCOM has permitted early stage companies to
pay for part of their license fees due to QCOM by issuing equity in such
ventures to QCOM rather than in the form of a cash payment. Under this
program, QCOM recorded $11 million in revenue during fiscal 2001 based on
such equity consideration. In addition, the Company accepted such equity in
satisfaction of $9 million of receivables which the Company removed from its
balance sheet. The number of licensees reported to be participating in this
program rose from 6 to 7 during the September quarter.
The Chairman of the Audit Committee, who also sits on the Compensation
Committee, was formerly a partner for Coopers & Lybrand, predecessor to the
Company's audit firm, PricewaterhouseCoopers. CFRA notes that QCOM's COO
and CFO also worked for Coopers & Lybrand. We further note that
PricewaterhouseCoopers received $2.1 million last year for non-audit
services on top of $515K for audit fees.
Aside from the Chairman and CEO, the other seven listed executive officers
include the 38-year-old son of the Chairman and CEO and the 35-year-old son
of the Chairman and CEO.
Options last year, when operating income was only $7 million and the Company
posted a net loss, amounted to an estimated $15.1 million for the Chairman
and CEO, and an aggregate of $50.9 for the other four top officers.
Have a nice weekend,
Dr. Howard M. Schilit, CPA
301 984 1001 x105
howard@schilit.com
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