Qualcomm 2006 Annual Report Download - page 77

qualcomm 2006 63
Share-Based Payments
On September 26, 2005, the Company adopted FAS 123R. Under
FAS 123R, share-based compensation cost is measured at the grant
date, based on the estimated fair value of the award, and is recog-
nized as expense over the employee’s requisite service period. The
Company has no awards with market or performance conditions.
The Company adopted the provisions of FAS 123R using a modied
prospective application. Accordingly, prior periods have not been
revised for comparative purposes. The valuation provisions of
FAS 123R apply to new awards and to awards that are outstanding
on the effective date, which are subsequently modied or cancelled.
Estimated compensation expense for awards outstanding at the
effective date will be recognized over the remaining service period
using the compensation cost calculated for pro forma disclosure
purposes under FASB Statement No. 123, “Accounting for Stock-
Based Compensation” (FAS 123).
On November 10, 2005, the FASB issued FASB Staff Position
No. FAS 123(R)-3, “Transition Election Related to Accounting for
Tax Effects of Share-Based Payment Awards.” The Company has
elected to adopt the alternative transition method provided in this
FASB Staff Position for calculating the tax effects of share-based
compensation pursuant to FAS 123R. The alternative transition
method includes a simplied method to establish the beginning
balance of the additional paid-in capital pool (APIC pool) related
to the tax effects of employee share-based compensation, which
is available to absorb tax deciencies which could be recognized
subsequent to the adoption of FAS 123R.
Share-Based Compensation Information under FAS 123R. Upon
adoption of FAS 123R, the Company also changed its method of
valuation for stock options granted beginning in scal 2006 to
a lattice binomial option-pricing model (binomial model) from the
Black-Scholes option-pricing model (Black-Scholes model) which
was previously used for the Company’s pro forma information
required under FAS 123. The Company’s employee stock options
have various restrictions that reduce option value, including
vesting provisions and restrictions on transfer and hedging, among
others, and are often exercised prior to their contractual maturity.
Binomial models have evolved such that the currently available
models are more capable of incorporating the features of the
Company’s employee stock options than closed-form models such
as the Black-Scholes model.
The weighted-average estimated fair value of employee stock
options granted during scal 2006 was $15.73 per share using the
binomial model with the following weighted-average assumptions
(annualized percentages) for scal 2006:
Volatility 30.7%
Risk-free interest rate 4.6%
Dividend yield 1.0%
Post-vesting forfeiture rate 6.0%
Suboptimal exercise factor 1.7
Software development costs are capitalized when a product’s
technological feasibility has been established through the date
a product is available for general release to customers. Software
development costs are amortized on a straight-line basis over the
estimated economic life of the software, ranging from less than
one year to three years, taking into account such factors as the
effects of obsolescence, technological advances and competition.
The weighted-average amortization period for capitalized soft-
ware was three years and one year at September 24, 2006 and
September 25, 2005, respectively. Other intangible assets are
amortized on a straight-line basis over their useful lives, ranging
from less than one year to 28 years.
Weighted-average amortization periods for nite-lived intangible
assets, by class, were as follows:
Sept. 24, Sept. 25,
2006 2005
Wireless licenses 15 years 15 years
Marketing-related 19 years 18 years
Technology-based 15 years 9 years
Customer-related 7 years 7 years
Other 28 years 28 years
Total intangible assets 15 years 13 years
Changes in the weighted-average amortization periods of technology-
based intangible assets from scal 2005 to 2006 resulted from
additions to intangible assets related to acquisitions (Note 11).
Valuation of Long-Lived and Intangible Assets
The Company assesses potential impairments to its long-lived
assets when there is evidence that events or changes in circum-
stances indicate that the carrying amount of an asset may not be
recovered. An impairment loss is recognized when the carrying
amount of the long-lived asset is not recoverable and exceeds its
fair value. The carrying amount of a long-lived asset is not recover-
able if it exceeds the sum of the undiscounted cash ows expected
to result from the use and eventual disposition of the asset. Any
required impairment loss is measured as the amount by which the
carrying amount of a long-lived asset exceeds its fair value and is
recorded as a reduction in the carrying value of the related asset
and a charge to operating results.
Litigation
The Company is currently involved in certain legal proceedings.
The Company estimates the range of liability related to pending
litigation where the amount and range of loss can be reasonably
estimated. The Company records its best estimate of a loss when
the loss is considered probable. Where a liability is probable and
there is a range of estimated loss with no best estimate in the range,
the Company records the minimum estimated liability related to the
claim. As additional information becomes available, the Company
assesses the potential liability related to the Company’s pending
litigation and revises its estimates.