Qualcomm 2002 Annual Report Download - page 45

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thereby possibly requiring impairment charges in the future. When assessing a
publicly-traded investment for an other-than-temporary decline in value, we consider
such factors as, among other things, how significant the decline in value is as a
percentage of the original cost, how long the market value of the investment has been
less than its original cost, the performance of the investee’s stock price in relation to
the stock price of its competitors within the industry and the market in general and
analyst recommendations. We also review the financial statements of the investee to
determine if the investee is experiencing financial difficulties.
We hold minority strategic investments in private companies whose values are dif-
ficult to determine. We record impairment charges when we believe an investment
has experienced a decline that is other than temporary. The determination that a
decline is other than temporary is subjective and influenced by many factors. Future
adverse changes in market conditions or poor operating results of investees could
result in losses or an inability to recover the carrying value of the investments, there-
by possibly requiring impairment charges in the future. When assessing investments
in private companies for an other-than temporary decline in value, we consider such
factors as, among other things, the share price from the investee’s latest financing
round, the performance of the investee in relation to its own operating targets and its
business plan, the investee’s revenue and cost trends, the liquidity and cash position,
including its cash burn rate and market acceptance of the investee’s products and
services. From time to time, we may consider third party evaluations, valuation
reports or advice from investment banks. We also consider new products/services
that the investee may have forthcoming, any significant news that has been released
specific to the investee or the investee’s competitors and/or industry and the outlook
of the overall industry in which the investee operates.
INCOME TAXES
Our income tax provision is based on calculations and assumptions that will be
subject to examination by the Internal Revenue Service and other tax authorities. We
regularly assess the potential outcomes of these examinations in determining the
adequacy of our provision for income taxes. Should the actual results differ from our
estimates, we would have to adjust the income tax provision in the period in which the
facts that give rise to the revision become known. Tax law and rate changes are reflected
in the income tax provision in the period in which such changes are enacted.
Since we believe it is more likely than not that deductions from future employee
stock option exercises will exceed future taxable income, we have provided a valua-
tion allowance through equity on substantially all of our net deferred tax assets. We
consider estimated future taxable income and on-going tax planning strategies in
assessing the need for the valuation allowance.
We can only use our capital losses and capital loss carrybacks or carryforwards to
offset capital gains. We have developed tax planning strategies to generate future
capital gains sufficient to offset the capital losses that we have incurred through fiscal 2002.
Any additional capital losses in future years may require us to set up a valuation
allowance for the deferred tax assets through our statement of operations if we are
unable to generate sufficient future capital gains to offset these additional capital
losses through our tax planning strategies.
We consider the operating earnings of non-United States subsidiaries to be indef-
initely invested outside the United States. No provision has been made for United
States federal and state, or foreign taxes that may result from future remittances of
undistributed earnings of foreign subsidiaries. Should we have to repatriate foreign
earnings, we would have to adjust the income tax provision in the period in which the
facts that give rise to the revision become known.
LITIGATION
We are currently involved in certain legal proceedings. We estimate the range
of liability related to pending litigation where the amount and range of loss can be
estimated. We record our best estimate of a loss when the loss is considered probable.
Where a liability is probable and there is a range of estimated loss, we record the
minimum estimated liability related to the claim. As additional information becomes
available, we assess the potential liability related to our pending litigation and revise
our estimates. Revisions in our estimates of the potential liability could materially
impact our results of operations.
STRATEGIC INVESTMENTS AND FINANCING
Our QSI segment makes strategic investments to promote the worldwide adoption
of CDMA products and services for wireless voice and Internet data communications.
In general, we enter into strategic relationships with CDMA carriers and developers
of innovative technologies or products for the wireless communications industry. As
part of the agreement to sell our infrastructure equipment business to Ericsson in
1999, we have provided equipment financing to customers of Ericsson on a shared
basis with respect to Ericsson’s sale of CDMA infrastructure in Brazil, Mexico and
elsewhere. Our QSI segment selects and manages strategic investments in early
stage companies and, from time to time, venture funds or incubators, to support the
adoption of CDMA and use of the wireless Internet. Most of our strategic investments
entail a high degree of risk and will not become liquid until more than one year from
the date of investment, if at all. To the extent such investments become liquid and
meet strategic objectives, we attempt to make regular periodic sales that are recog-
nized in investment (expense) income. We may reduce or suspend the planned sale of
these investments if and when market conditions decline. We regularly monitor and
evaluate the realizable value of our investments in both marketable and private secu-
rities. If events and circumstances indicate that a decline in the value of these assets
has occurred and is other than temporary, we will record a charge to investment
QUALCOMM 2002 ANNUAL REPORT