Qualcomm 2006 Annual Report Download - page 55

qualcomm 2006 41
news specic to the investee or the investee’s competitors and/
or industry and the outlook of the overall industry in which the
investee operates. In the event our judgments change as to other-
than-temporary declines in value, we may record an impairment loss,
which could have an adverse impact on our results of operations.
During scal 2006 and 2005, we recorded $4 million and $1 million,
respectively, in other-than-temporary losses on our investments in
private companies. Such losses were not signicant in scal 2004.
Share-Based Payments. We grant options to purchase our common
stock to our employees and directors under our stock option plans.
Eligible employees can also purchase shares of our common stock
at 85% of the lower of the fair market value on the rst or the last
day of each six-month offering period under our employee stock
purchase plans. The benets provided under these plans are share-
based payments subject to the provisions of revised Statement of
Financial Accounting Standards No. 123 (FAS 123R), “Share-Based
Payment.” Effective September 26, 2005, we use the fair value
method to apply the provisions of FAS 123R with a modied pro-
spective application. FAS 123R provides for certain changes to the
method for estimating the value of share-based compensation.
The valuation provisions of FAS 123R apply to new awards and to
awards that are outstanding on the effective date, which are sub-
sequently modied or cancelled. Under the modied prospective
application method, prior periods are not revised for comparative
purposes. Share-based compensation expense recognized under
FAS 123R for scal 2006 was $495 million. At September 24, 2006,
total unrecognized estimated compensation expense related to
non-vested stock options granted prior to that date was $1.2 billion,
which is expected to be recognized over a weighted-average period
of 1.7 years. Net stock options, after forfeitures and cancellations,
granted during scal 2006 represented 1.9% of outstanding shares
as of the beginning of the scal period. Total stock options granted
during scal 2006 represented 2.1% of outstanding shares as of
the end of the scal period.
Upon adoption of FAS 123R, we began estimating the value of
stock option awards on the date of grant using a lattice binomial
option-pricing model (binomial model). Prior to the adoption of
FAS 123R, the value of all share-based awards was estimated on
the date of grant using the Black-Scholes option-pricing model
(Black-Scholes model) for the pro forma information required to
be disclosed under FAS 123. The determination of the fair value of
share-based payment awards on the date of grant using an option-
pricing model is affected by our stock price as well as assumptions
regarding a number of complex and subjective variables. These
variables include, but are not limited to, our expected stock price
volatility over the term of the awards, actual and projected
employee stock option exercise behaviors, risk-free interest
rate and expected dividends.
If these estimates or their related assumptions change in the future,
we may be required to record an impairment charge on all or a por-
tion of our goodwill and intangible assets. Furthermore, we cannot
predict the occurrence of future impairment-triggering events nor
the impact such events might have on our reported asset values.
Future events could cause us to conclude that impairment indicators
exist and that goodwill or other intangible assets associated with
our acquired businesses are impaired. Any resulting impairment
loss could have an adverse impact on our results of operations.
We hold minority investments in publicly-traded companies whose
share prices may be highly volatile. These investments, which are
recorded at fair value with increases or decreases generally recorded
through stockholders’ equity as other comprehensive income or loss,
totaled $1.3 billion at September 24, 2006. 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 inuenced 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, 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 signi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 performance of the investee’s stock price in relation to the stock
price of its competitors within the industry, the market in general
and analyst recommendations. We also review the nancial state-
ments of the investee to determine if the investee is experiencing
nancial difculties. In the event our judgments change as to other-
than-temporary declines in value, we may record an impairment loss,
which could have an adverse impact on our results of operations.
During scal 2006, 2005 and 2004, we recorded $15 million,
$12 million and $12 million, respectively, in other-than-temporary
losses on our minority investments in publicly-traded companies.
We hold minority strategic investments in private companies
whose values are difcult to determine. These investments totaled
$94 million at September 24, 2006. 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 inuenced 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, thereby 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 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, the investee’s liquidity
and cash position, including its cash burn rate, and market accep-
tance 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 signicant