Qualcomm 2002 Annual Report Download - page 55

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FUTURE ACCOUNTING REQUIREMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141 (FAS 141), “Business Combinations,” and
No. 142 (FAS 142), “Goodwill and Other Intangible Assets.” FAS 141 supersedes
Accounting Principles Board Opinion (APB) No. 16, “Business Combinations.” The
provisions of FAS 141 (1) require that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001, (2) provide specific criteria for
the initial recognition and measurement of intangible assets apart from goodwill, and
(3) require that unamortized negative goodwill be written off immediately as an
extraordinary gain instead of being deferred and amortized. FAS 141 also requires
that, upon adoption of FAS 142, we reclassify the carrying amounts of certain intan-
gible assets into or out of goodwill, based on certain criteria. FAS 142 supersedes
APB 17, “Intangible Assets,” and is effective for fiscal years beginning after December
15, 2001. FAS 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their initial recognition. The provisions of FAS 142 (1) prohibit
the amortization of goodwill and indefinite-lived intangible assets, (2) require that
goodwill and indefinite-lived intangible assets be tested annually for impairment (and
in interim periods if certain events occur indicating that the carrying value of goodwill
and/or indefinite-lived intangible assets may be impaired), (3) require that reporting
units be identified for the purpose of assessing potential impairments of goodwill,
and (4) remove the forty-year limitation on the amortization period of intangible
assets that have finite lives.
FAS 142 requires that goodwill be tested at least annually for impairment using a
two-step process. The first step (Step 1) is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year. However,
a company has six months from the date of adoption to complete this step. The sec-
ond step of the goodwill impairment test measures the amount of the impairment
loss (measured as of the beginning of the year of adoption), if any, and must be com-
pleted by the end of fiscal 2003. Any impairment loss resulting from the transitional
impairment tests would be reflected as the cumulative effect of a change in account-
ing principle in the first quarter 2003.
We will adopt the provisions of FAS 142 in our first quarter of fiscal 2003. We have
determined our reporting units and the amounts of goodwill, intangible assets, other
assets and liabilities allocable to those reporting units and have completed our Step
1 analysis. Based on our Step 1 analysis, the adoption of FAS 142 does not have a
material impact on our financial position. We will no longer record goodwill amortiza-
tion starting in fiscal 2003. We recorded $248 million, $244 million and $141 million in
goodwill amortization expense during fiscal 2002, 2001 and 2000, respectively.
In August 2001, the FASB issued FAS 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” FAS 144 replaces FAS 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.”
The FASB issued FAS 144 to establish a single accounting model, based on the frame-
work established in FAS 121, as FAS 121 did not address the accounting for a segment
of a business accounted for as a discontinued operation under APB 30, “Reporting
The Results of Operations — Reporting The Effects of Disposal of a Segment of a
Business, and Extraordinary Unusual and Infrequently Occurring Events and
Transactions.” FAS 144 also resolves significant implementation issues related to FAS
121. Companies are required to adopt FAS 144 for fiscal years beginning after
December 15, 2001, but early adoption is permitted. We will adopt FAS 144 as of the
beginning of fiscal 2003. We do not expect the adoption of FAS 144 to have a material
impact on our operating results and financial position.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Market Risk. We have fixed income securities consisting of cash
equivalents and investments in marketable debt securities. During fiscal 2002, we
invested $300 million in diversified portfolios of non-investment grade securities
managed by institutional portfolio managers, which are subject to a higher degree of
default risk than our investment grade fixed income portfolios. A portion of these
bonds are designated as trading securities. Changes in the general level of United
States interest rates can affect the principal values and yields of fixed income invest-
ments. (See Note 2 to the Consolidated Financial Statements for information about
investments in marketable debt securities.)
Finance receivables bear interest at both fixed and variable rates (see Note 3 to the
Consolidated Financial Statements for information about finance receivables).
Interest earned on certain finance receivables is at variable interest rates and is
affected by changes in the general level of United States interest rates and/or LIBOR.
Fair values will vary as interest rates change.
We have other notes receivable from third parties included in other assets. These
facilities bear interest at variable rates. Interest earned on credit facilities included in
other assets is affected by changes in the LIBOR index rate, and fair value will vary as
interest rates change.
The following table provides information about our financial instruments that are
sensitive to changes in interest rates. For our fixed income investment portfolio,
finance receivables and credit facilities in other assets, the table presents principal
cash flows and related weighted-average yield at cost and contractual interest rates
for fixed income securities and finance receivables or other credit facilities, respectively,
by expected maturity dates. Additionally, we have assumed that our fixed income secu-
rities are similar enough to aggregate those securities for presentation purposes.
QUALCOMM 2002 ANNUAL REPORT