Qualcomm 2005 Annual Report Download - page 63
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Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated
or amortized using the straight-line method over their estimated
useful lives. Buildings and building improvements are depreciated
over 30 years and 15 years, respectively. Leasehold improvements
are amortized over the shorter of their estimated useful lives or the
remaining term of the related lease. Other property, plant and equip-
ment have useful lives ranging from 2 to 15 years. Direct external and
internal costs of developing software for internal use are capitalized
subsequent to the preliminary stage of development. Maintenance,
repairs, and minor renewals and betterments are charged to expense
as incurred.
Upon the retirement or disposition of property, plant and equipment,
the related cost and accumulated depreciation or amortization are
removed, and a gain or loss is recorded.
Investments in Other Entities
The Company makes strategic investments in companies that have
developed or are developing innovative wireless data applications
and wireless operators that promote the worldwide deployment of
CDMA systems. Investments in corporate entities with less than
a 20% voting interest are generally accounted for under the cost
method. The Company uses the equity method to account for invest-
ments in corporate entities, including limited liability corporations
that do not maintain specifi c ownership accounts, in which it has a
voting interest of 20% to 50% and other than minor to 50% owner-
ship interests in partnerships and limited liability corporations that
do maintain specifi c ownership accounts, or in which it otherwise
has the ability to exercise signifi cant infl uence. Under the equity
method, the investment is originally recorded at cost and adjusted
to recognize the Company’s share of net earnings or losses of the
investee, limited to the extent of the Company’s investment in and
advances to the investee and fi nancial guarantees on behalf of the
investee that create additional basis. The Company’s equity in net
earnings or losses of its investees are recorded one month in arrears
to facilitate the timely inclusion of such equity in net earnings or
losses in the Company’s consolidated fi nancial statements.
The Company regularly monitors and evaluates the realizable value
of its investments. When assessing an investment for an other-than-
temporary decline in value, the Company considers such factors as,
among other things, the share price from the investee’s latest
fi nancing round, the performance of the investee in relation to its own
operating targets and its business plan, the investee’s revenue and
cost trends, as well as liquidity and cash position, including its cash
burn rate, market acceptance of the investee’s products/services as
well as any new products or services that may be forthcoming, any
signifi cant news that has been released specifi c to the investee or
the investee’s competitors and/or industry, and the outlook for the
overall industry in which the investee operates. From time to time,
the Company may consider third-party evaluations, valuation reports
or advice from investment banks. If events and circumstances indi-
cate 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).
Derivatives
The Company holds warrants to purchase equity interests in cer-
tain other companies related to its strategic investment activities.
These warrants are not held for trading or hedging purposes. Certain
of these warrants are recorded at fair value. Changes in fair value
are recorded in investment income (expense) as gains (losses) on
derivative instruments. Warrants that do not have contractual net
settlement provisions are recorded at cost. The recorded values of
the warrants in other current assets were $1 million and $4 million
at September 25, 2005 and September 26, 2004, respectively.
The Company may enter into foreign currency forward and option
contracts to hedge certain foreign currency transactions and probable
anticipated foreign currency transactions. Gains and losses arising
from foreign currency forward and option contracts that are not
designated as hedging instruments are recorded in investment income
(expense) as gains (losses) on derivative instruments. Gains and losses
arising from the effective portion of foreign currency forward and
option contracts that are designated as cash-fl ow hedging instruments
are recorded in accumulated other comprehensive income as gains
(losses) on derivative instruments. The amounts are subsequently
reclassifi ed into revenues in the same period in which the underlying
transactions affect the Company’s earnings. The Company had no
outstanding forward contracts at September 25, 2005 and the value
of the Company’s foreign currency forward contracts was insignifi cant
at September 26, 2004. The value of the Company’s foreign currency
option contracts recorded in other current assets was $16 million at
September 25, 2005, of which all were designated as cash-fl ow
hedging instruments. The Company had no foreign currency option
contracts outstanding at September 26, 2004.
In connection with its stock repurchase program, the Company may
sell put options that require the Company to repurchase shares of its
common stock at fi xed prices. In fi scal 2005 and 2004, the premiums
received from put options were recorded as other current liabilities in
accordance with Statement of Financial Standards No. 150 (FAS 150),
“Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity.” Changes in the fair value of put options
are recorded in investment income (expense) as gains (losses) on
derivative instruments. The value of the put options recorded in other
current liabilities was $7 million at September 25, 2005. The Company
had no put options outstanding at September 26, 2004. In fi scal 2003,
the $7 million in premiums received from put options were recorded
as paid-in capital in accordance with EITF Issue No. 00-19, “Accounting
for Derivative Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock,” which was subsequently amended by FAS 150.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price and related costs
over the value assigned to the net tangible and identifi able intangible
assets of businesses acquired. Goodwill is tested annually for impair-
ment and in interim periods if certain events occur indicating that the
carrying value of goodwill may be impaired. The Company completed
its annual testing for fi scal 2005, 2004 and 2003 and determined
that its recorded goodwill was not impaired.