SAN DIEGO -- February 8, 2002 -- Qualcomm Incorporated (Nasdaq: QCOM) today responded to a report by the Center for Research and Analysis (CFRA) in order to address misimpressions that may have been created by the CFRA report.
With regard to accounting for non-cash consideration in exchange for licenses and receivables, the Company has previously disclosed and properly accounted for under Generally Accepted Accounting Principles (GAAP) the value of equity received in exchange for licenses from early-stage companies. Of the $20 million received in fiscal 2001 in the form of equity for licenses and receivables, revenues of approximately $7.0 million were included in revenue in fiscal 2001 compared to the Company's consolidated revenues of $2.7 billion for that year. Such transactions are recorded as revenue under APB 29 and SAB 101. In the Company's 10-K report filed in November 9, 2001, the Company disclosed:
"In December 2000, we announced a new CDMA license program designed to allow selected early stage companies to issue equity to us as a means of paying part of the license fees payable under our CDMA license agreements. We record license fee revenues based on the fair value of the equity instruments received, if determinable. The measurement date for determination of fair value is the earlier of the date on which the parties establish a commitment to perform or the date at which the performance is complete. The evaluation procedures used to determined fair value include, but are not limited to, examining the current market price for the shares if the licensee is publicly traded, examining recent rounds of financing and the licensee's business plan if not publicly traded, and performing other due diligence procedures. This program will not affect the licensees' obligations to pay royalties under their CDMA license agreements. The amount of cash consideration and the timing of revenue recognition varies depending on the terms of each agreement. During fiscal year 2001, we received $11 million in equity consideration for new or expanded licenses. In addition, we accepted $9 million in equity in satisfaction of cash license fee receivables during fiscal year 2001. At September 30, 2001, seven licensees have participated in this program."
Similar disclosure was provided in each of the Company's 10-Q filings throughout 2001. Consistent with U.S. GAAP, the Company is required to recognize the fair value of licenses exchanged for equity. The Company reviews recorded fair values every quarter.
With respect to the statement concerning the past employment of the chairman of the audit committee, Duane Nelles, and the chief operating and financial officer, Tony Thornley, with Coopers&Lybrand, a predecessor to PriceWaterhouseCoopers (PWC), Qualcomm's independent auditor since its founding in 1986, the Company noted that it is vigilant with respect to any potential conflicts of interest and believes that its practices are consistent with industry standards and best practices for corporate governance. Mr. Nelles retired as a partner at Coopers&Lybrand in 1986 and joined Qualcomm's board of directors in 1988, and Mr. Thornley left Coopers&Lybrand 25 years ago and was employed at Nortel Networks for 16 years prior to his joining Qualcomm in 1994. In both cases, the individuals left Coopers&Lybrand many years in advance of Coopers&Lybrand's merger with Price Waterhouse in July 1998.
With respect to non-audit fees paid to PWC, the engagement of outside accounting firms is reviewed and approved by the independent directors of the audit committee, and the fees paid are commensurate with the services rendered. The Company also engages other leading professional accounting firms for a range of services. The total fees paid to all outside accounting firms in fiscal 2001 were approximately $3.5 million, including $2.6 million paid to PWC. Audit fees included in this amount were $515,000 and non-audit related services consisted primarily of tax services and due diligence incurred in connection with investment opportunities.
With respect to compensation of officers, the Company noted that all compensation decisions, including stock option grants, relating to executive officers of the Company are made by the Compensation Committee of the Board of Directors made up entirely of independent directors. The decisions of this Committee are made based upon a thorough evaluation of external data related to comparable companies based upon industry and size as well as individual and corporate performance.
Qualcomm Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and services based on the Company's CDMA digital technology. The Company's business areas include CDMA chipsets and system software; technology licensing; the Binary Runtime Environment for Wireless™ (BREW™) applications platform; QChat push-to-talk technology; Eudora® e-mail software; digital cinema systems; and satellite-based systems including portions of the Globalstar™ system and wireless fleet management systems, OmniTRACS® and OmniExpress®. Qualcomm owns patents that are essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by standards-setting bodies worldwide. Qualcomm has licensed its essential CDMA patent portfolio to more than 100 telecommunications equipment manufacturers worldwide. Headquartered in San Diego, Calif., Qualcomm is included in theS&P500 Index and is a 2001 FORTUNE 500® company traded on The Nasdaq Stock Market® under the ticker symbol QCOM.