David, re: NOK 1.7 B euro payment accounting, and >>
”Keitel's original guidance of 7 to 13 cents on Q4 EPS provides a guide to this split, even though we now won't see that in Q4. As I've commented before, that EPS adder translates into $170 to $315 million.
Since that's much less than what NOK owed for 5 past quarters (let alone 6 now), it's always been my view that it was a somewhat arbitrary division by Keitel. Ergo, it's highly unlikely that the settlement agreement provides any precise split of the payment into the two parts, because if it did, they would likely have little wiggle room on the accounting front.”
Thanks for your interesting analysis.
It is a puzzle, and you may well be correct in your interpretation, but I continue to question that Keitel will **not** book the unpaid NOK royalty for the 5 past quarters in Q4FY08 as an accrual on the income statement, even though payment won’t actually be received until Q1FY09. A Q4 accrual would appear to be the correct (Kosher) accounting treatment from my financial analysis days, although I’m not an accountant.
Secondly, creative accounting does happen, but there are many rules that govern proper accounting treatment and as such I doubt the amount for the royalty due and unpaid thru Q4FY08 was “arbitrarily” determined.
One would think the royalty rate agreed to in the new license would apply to both 1) unpaid amounts for sales thru Q4FY08 and, 2) for sales during FY09 and beyond.
It would be to QCOM’s (& QCOM longs) advantage for EPS comparison purposes to book the income in FY09, but I don’t believe that meets the “smell test”, and given the Q conservative ways (& Sarbox) I don’t believe Keitel would stray too far from accepted principles / become to “creative”. Also, is not "a" NOK delta is baked into the analyst’s estimates for Q4, and not booking that income in Q4 would be reported as a big miss & who knows how that would be spun and what the market reaction would be.
Any accounts / CPA’s out there? |
