Qualcomm 2006 Annual Report Download - page 76

62 qualcomm 2006
Notes to Consolidated Financial Statements continued
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 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 signicant news that has been released
speci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 invest-
ment banks. 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).
Derivatives
The Company may enter into foreign currency forward and option
contracts to hedge certain foreign currency transactions and prob-
able anticipated foreign currency transactions. Gains and losses
arising from changes in the fair values of 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-ow hedging instruments are recorded in
accumulated other comprehensive income as gains (losses) on
derivative instruments, net of tax. The amounts are subsequently
reclassi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 24, 2006 and
September 25, 2005. The value of the Company’s foreign currency
option contracts recorded in other current assets was $1 million
and $16 million at September 24, 2006 and September 25, 2005,
respectively, and the value recorded in other current liabilities was
$3 million at September 24, 2006, all of which were designated as
cash-ow hedging instruments.
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 xed prices. The premiums received
from put options are recorded as other current liabilities. 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 $19
million and $7 million at September 24, 2006 and September 25,
2005, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price and related costs
over the value assigned to the net tangible and identiable intan-
gible assets of businesses acquired. Goodwill is tested annually for
impairment 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 scal 2006, 2005 and 2004 and
determined that its recorded goodwill was not impaired.
Inventories
Inventories are valued at the lower of cost or market (replacement
cost, not to exceed net realizable value) using the rst-in, 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.
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
equipment 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.
Leased property meeting certain capital lease criteria is capitalized,
and the net present value of the related lease payments is recorded
as a liability. Amortization of capital leased assets is recorded
using the straight-line method over the shorter of the estimated
useful lives or the lease terms. 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 cost method is also used to account for investments
that are not in-substance common stock. The Company uses the
equity method to account for investments in common stock or
in-substance common stock of corporate entities, including limited
liability corporations that do not maintain specic ownership
accounts, in which it has a voting interest of 20% to 50% or in
which it otherwise has the ability to exercise signicant inuence,
and in partnerships and limited liability corporations that do main-
tain specic ownership accounts in which it has other than minor
to 50% ownership interests. Under the equity method, the invest-
ment 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 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 facili-
tate the timely inclusion of such equity in net earnings or losses
in the Company’s consolidated nancial statements.