John:
While I agreed with your earlier observation that, thus far at least, Qualcomm's lifetime retained earnings of $384 million represents a very small return on either shareholders paid in equity ($4.862 billion) or lifetime revenues ($17 billion), I think you're way off with this latest set of numbers:
Can I quantify what I'm talking about? Yes. I can be very specific.
Between October 1, 1999 and September 30, 2000 (FY 00) Qualcomm issued 102,288 million shares. During a period when the average daily closing price per share was $94.87
Between October 1, 2000 and September 30, 2001 (FY 01) Qualcomm issued another 15,638 million shares. Average price $66.67
None of these figures includes the secondary offering that was placed in FY '99.
A quick scribble with a pencil shows a fair market value of these printed certificates of $10,656 Millions. Yet they recorded only $3,112 Millions in Paid In Capital. The other $7,544 Millions never appeared on the balance sheet by a trick of the accountant's pencil. It just vanished because it left the company as soon as it was received.
At least this time, "a quick scribble with a pencil" is not "specific" enough. You are assuming that Qualcomm actually received the amounts you estimated from the "average daily closing price per share", which, as Pete as already pointed out for the stock options issued, is simply not the case.
The proxy statement filed with the SEC and mailed to shareholders in Dec 2001 contains (Page A-20) a detailed table showing the precise amounts received by the company for shares issued in FY's 1999, 2000, and 2001. For FY 2000, this table shows the following:
Number of Shares Paid-in Capital
Balance at 9/30/99 646,363,000 $ 2,587,899,000
Exercise of Stock Options 22,101,000 $ 109,825,000
Tax Benefit from Ex. Of Options $ 217,846,000
Issued for Employee Stock Purchase
& Executive Retirement Plans 749,000 $ 31,186,000
Issued for Business Acquisitions 5,815,000 $ 1,036,940,000
Issued for Conversion of Trust
Convertible Preferred Securities 72,623,000 $ 644,722,000
Balance at 9/30/00 747,651,000 $ 4,653,818,000
So the "average price" received by Qualcomm for the 101,288,000 shares issued in FY 2000 (you overstated this by 1 million shares, an honest error I would guess <g>) works out as follows for each category:
(1) Paid by employees for their stock options - $4.97/share, for which a significant tax benefit was also received. You may argue, as many do, that stock option compensation is an "operating expense" and should appear as such on the income statement, but as long as GAAP and IRS rules allow this practice, it would be foolish of the company to pass on the obvious tax benefit. Would there still be such stock option incentive plans if there were no tax benefit to the company? I would guess so, but we won't find out until the accounting/tax rules change.
(2) Paid under stock purchase plan by employees and execs - $41.64/share, representing a 15% discount to the "lower of the fair market value on the first or last day of each 6 month offering period."
(3) Snaptrack acquisition in March 2000 - $178.32/share. This was accounted for as a "purchase acquisition", and so "current as of 3/2000 market value" $$ appear for the shares issued, even though Qualcomm received the assets of Snaptrack and not $$ in the corporate piggy bank. Again you can take issue with this practice, but it remains on the books at the price paid at the time. Since this purchased technology is being incorporated in Qualcomm's ASIC products (GPS-1 position location capability), it arguably is a fairly valued asset.
(4) Received for shares issued in exchange for Trust convertible securities (due 2/14/2012) - $8.88/share. These convertibles were issued as part of a private placement in February 1997 for which the company originally received $660 million. The company had the right to convert these into common stock after March 4, 2000, which they did. There's a section in the proxy statement dealing with these securities if you want to get additional details.
I could list the corresponding numbers for FY 2001 (which are mostly in category (1) above), but you can just as easily look them up. I haven't dug through the numbers for Q1 FY02 that you posted, but since you again use the daily closing share price to get the "$$ received", I would bet that the difference is again due to the fact that the price paid by employees for shares issued for options and pursuant to the discounted stock purchase plan was considerably less than the share trading price you cite.
The point of this rather long post is that your statement that:
The other $7,544 Millions never appeared on the balance sheet by a trick of the accountant's pencil. It just vanished because it left the company as soon as it was received.
is just plain wrong. Nothing "vanished", and there were no "tricks".
Now you can have at some of these accounting practices as much as you like, but to imply that Qualcomm management somehow disposed of $7.5 billion of hard earned and paid in shareholder $$, and further by accounting tricks made them vanish from the financial statements, casts unnecessary doubt not only on the integrity of Qualcomm's management, but also on the integrity and value of your earlier posts - which by the way I regard as a valuable contribution, and one that I trust you'll continue to make.
David T. |
