Qualcomm 2006 Annual Report Download - page 75

qualcomm 2006 61
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, certi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 classi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 unrealized gains or losses on
available-for-sale securities are reported as a component of
comprehensive income (loss), net of tax. The specic identi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 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 and the market in
general, analyst recommendations, any news that has been released
specic to the investee and the outlook for the overall industry in
which the investee operates. The Company also reviews the nancial
statements of the investee to determine if the investee is experi-
encing nancial difculties and considers new products/services
that the investee may have forthcoming that will improve its oper-
ating results. If events and circumstances indicate that a decline
in the value of these assets has occurred and is other than tempo-
rary, the Company records a charge to investment income (expense).
Allowances for Doubtful Accounts
The Company maintains allowances for doubtful accounts for
estimated 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 customer, 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 nancial information, including nancial statements
or other documents (e.g. bank statements) to ensure that the cus-
tomer 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 nancial condition of the Company’s customers
were to deteriorate, adversely affecting their ability to make pay-
ments, additional allowances would be required.
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
equipment and services revenues at the time the related revenue
is recognized. Amounts billed to a customer for shipping and han-
dling 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
re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 examinations by tax authorities 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 adjustment 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 adjust-
ments and adjusts the income tax provision, the current tax liability
and deferred taxes in the period in which the facts that give rise
to a revision become known.
Due to the adoption of the revised Statement of Financial
Accounting Standards No. 123, “Share-Based Payment” (FAS 123R)
beginning September 26, 2005, the Company recognizes windfall
tax benets associated with the exercise of stock options directly
to stockholders’ equity only when realized. Accordingly, deferred
tax assets are not recognized for net operating loss carryforwards
resulting from windfall tax benets occurring from September 26,
2005 onward. A windfall tax benet occurs when the actual tax
benet realized by the Company upon an employee’s disposition
of a share-based award exceeds the deferred tax asset, if any,
associated with the award that the Company had recorded. When
assessing whether a tax benet relating to share-based compen-
sation has been realized, the Company follows the tax law ordering
method, under which current year share-based compensation
deductions are assumed to be utilized before net operating loss
carryforwards and other tax attributes.