Qualcomm 2005 Annual Report Download - page 62
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Please find page 62 of the 2005 Qualcomm annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Notes to Consolidated Financial Statements continued
58 qualcomm 2005
Revenues from international customers were approximately 82%,
79% and 77% of total consolidated revenues in fi scal 2005, 2004
and 2003, respectively.
Cost of Equipment and Services Revenues
Cost of equipment and services revenues is primarily comprised of
the cost of equipment revenues, the cost of messaging services rev-
enues and the cost of development and other services revenues. Cost
of equipment revenues consists of the cost of equipment sold and
sustaining engineering costs, including personnel and related costs.
Cost of messaging services revenues consists principally of satellite
transponder costs, network operations expenses, including personnel
and related costs, depreciation, and airtime charges by telecommu-
nications operators. Cost of development and other services revenues
primarily includes personnel costs and related expenses.
Research and Development
Costs incurred in research and development activities are expensed
as incurred, except certain software development costs capitalized
after technological feasibility of the software is established.
Shipping and Handling Costs
Costs incurred for shipping and handling are included in cost of reve-
nues at the time the related revenue is recognized. Amounts billed to
a customer for shipping and handling are reported as revenue.
Income Taxes
The asset and liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the
tax bases of assets and liabilities. Tax law and rate changes are
refl ected in income in the period such changes are enacted. The
Company records a valuation allowance to reduce the deferred tax
assets to the amount that is more likely than not to be realized.
The Company’s income tax returns are based on calculations and
assumptions that are subject to examination by the Internal Revenue
Service and other tax authorities. While the Company believes it has
appropriate support for the positions taken on its tax returns, the
Company regularly assesses the potential outcomes of these exami-
nations and any future examinations for the current or prior years in
determining the adequacy of its provision for income taxes. As part
of its assessment of potential adjustments to its tax returns, the
Company increases its current tax liability to the extent an adjust-
ment would result in a cash tax payment or decreases its deferred
tax assets to the extent an adjustment would not result in a cash
tax payment. The Company continually assesses the likelihood and
amount of potential adjustments and adjusts the income tax pro-
vision, the current tax liability and deferred taxes in the period in
which the facts that give rise to a revision become known.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash
equivalents are comprised of money market funds, certifi cates of
deposit, commercial paper and government agencies’ securities. The
carrying amounts approximate fair value due to the short maturities
of these instruments.
Marketable Securities
Management determines the appropriate classifi cation of marketable
securities at the time of purchase and reevaluates such designation
as of each balance sheet date. Held-to-maturity securities are carried
at amortized cost, which approximates fair value. Available-for-sale
securities are stated at fair value as determined by the most recently
traded price of each security at the balance sheet date. The net unre-
alized gains or losses on available-for-sale securities are reported as
a component of comprehensive income (loss), net of tax. The specifi c
identifi cation method is used to compute the realized gains and
losses on debt and equity securities.
The Company regularly monitors and evaluates the realizable value
of its marketable securities. When assessing marketable securities
for other-than-temporary declines in value, the Company considers
such factors as, among other things, how signifi cant 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 per-
formance of the investee’s stock price in relation to the stock price
of its competitors within the industry and the market in general,
analyst recommendations, any news that has been released specifi c
to the investee and the outlook for the overall industry in which the
investee operates. The Company also reviews the fi nancial state-
ments of the investee to determine if the investee is experiencing
fi nancial diffi culties and considers new products/services that the
investee may have forthcoming that will improve its operating results.
If events and circumstances indicate that a decline in the value of
these assets has occurred and is other-than-temporary, the Company
records a charge to investment income (expense).
Allowances for Doubtful Accounts
The Company maintains allowances for doubtful accounts for esti-
mated losses resulting from the inability of the Company’s customers
to make required payments. The Company considers the following
factors when determining if collection of a fee is reasonably assured:
customer credit-worthiness, past transaction history with the cus-
tomer, current economic industry trends and changes in customer
payment terms. If the Company has no previous experience with the
customer, the Company typically obtains reports from various credit
organizations to ensure that the customer has a history of paying its
creditors. The Company may also request fi nancial information,
including fi nancial statements or other documents (e.g., bank
statements) to ensure that the customer has the means of making
payment. If these factors do not indicate collection is reasonably
assured, revenue is deferred until collection becomes reasonably
assured, which is generally upon receipt of cash. If the fi nancial con-
dition of the Company’s customers were to deteriorate, adversely
affecting their ability to make payments, additional allowances
would be required.
Inventories
Inventories are valued at the lower of cost or market (replacement
cost, not to exceed net realizable value) using the fi rst-in, fi rst-out
method. Recoverability of inventory is assessed based on review
of committed purchase orders from customers, as well as purchase
commitment projections provided by customers, among other things.