Qualcomm 2002 Annual Report Download - page 62

NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
QUALCOMM Incorporated (the Company or QUALCOMM), a Delaware corporation,
develops, designs, manufactures and markets digital wireless telecommunications
products and services based on its Code Division Multiple Access (CDMA) technology.
The Company licenses its CDMA technology and receives license fees and ongoing roy-
alty payments on the sale of equipment by domestic and international wireless
telecommunications equipment suppliers.
The Company is also a leading developer and supplier of CDMA-based integrated
circuits and system software for wireless voice and data communications and global
positioning system products. These products provide customers with advanced wire-
less technology, enhanced component integration and interoperability, and reduced
time to market. The Company provides integrated circuits and system software to
many of the world’s leading wireless handset and infrastructure manufacturers.
The Company provides satellite and terrestrial-based two-way data messaging
and position reporting services for transportation companies, private fleets and heavy
equipment fleets. The Company designs, manufactures and distributes products and
provides services for its satellite-based and terrestrial-based mobile communica-
tions systems throughout parts of the world. Transportation companies, private fleets
and heavy equipment fleets use the Company’s products to communicate with drivers,
monitor vehicle location, provide automated driver logs and fuel tax reporting and
provide customer service. The Company also integrates the mobile data with opera-
tions software, such as dispatch, payroll and accounting, so end-users can manage
their information and operations.
The Company provides the BREW (Binary Runtime Environment for Wireless)
product and services to network operators, handset manufacturers and application
developers with the systems and support for developing and delivering wireless appli-
cations and services. The BREW product and services include the BREW SDK (software
development kit) for developers, the BREW applications platform (i.e. software
programs) and interface tools for device manufacturers, and the BREW Distribution
System that enables network operators to get applications from developers to market
and coordinate the billing and payment process. The BREW platform is an application
execution environment that provides an open, standard platform for wireless devices,
which means that BREW can be made to interface with many software applications,
including those developed by others outside of the Company.
PRINCIPLES OF CONSOLIDATION
The Company’s consolidated financial statements include the assets, liabilities
and operating results of majority-owned subsidiaries and other subsidiaries con-
trolled by the Company. The ownership of the other interest holders of consolidated
subsidiaries is reflected as minority interest. All significant intercompany accounts
and transactions have been eliminated.
FINANCIAL STATEMENT PREPARATION
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts and the disclosure of contingent
amounts in the Company’s financial statements and the accompanying notes. Actual
results could differ from those estimates. Certain prior year amounts have been
reclassified to conform to the current year presentation.
FISCAL YEAR
The Company operates and reports using a 52-53 week fiscal year ending on the
last Sunday in September. As a result, the fiscal years ended September 30, 2002,
2001, and 2000 include 52 weeks, 53 weeks, and 52 weeks, respectively. For presen-
tation purposes, the Company presents its fiscal years as ending on September 30.
REVENUE RECOGNITION
The Company derives revenue principally from royalties, from sales of integrated
circuit products, from services and related hardware sales, from software develop-
ment and related services, and from license fees for intellectual property. The timing
of revenue recognition and the amount of revenue actually recognized in each case
depends upon a variety of factors, including the specific terms of each arrangement
and the nature of the Company’s deliverables and obligations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial
Statements” which the Company adopted in the fourth quarter of fiscal 2001 and
applied retroactively to the first quarter of fiscal 2001. The Company recorded a
$147 million loss, net of taxes of $98 million, as the cumulative effect of the account-
ing change as of the beginning of fiscal 2001 to reflect the deferral of revenue and
expenses related to future periods. The Company recognized $66 million and $95 million
during fiscal 2002 and 2001, respectively, in income before income taxes and accounting
changes related to revenue and expense that was recognized in prior years. The
Company continues to monitor developments in Emerging Issues Task Force discus-
sions of Issue 00-21, “Accounting for Revenue Arrangements with Multiple
Deliverables” and Issue 02-G, “Recognition of Revenue from Licensing Arrangements
on Intellectual Property,” to determine what, if any, impact a final consensus may
have on the Company’s revenue recognition policy.
The unaudited pro forma effect of the adoption of SAB 101 on the Company’s
fiscal 2000 results of operations, assuming SAB 101 had been adopted in that year, is
as follows (in thousands, except per share data):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS