Qualcomm 2002 Annual Report Download - page 44

based on estimates, we adjust revenues for the period in which the reports are
received. Revenues from sales of our CDMA-based integrated circuits are recognized
at the time of shipment, or when title and risk of loss passes to the customer, if later.
Revenues and expenses from sales of certain satellite and terrestrial-based two-way
data messaging and position reporting hardware and related software products are
recognized ratably over the shorter of the estimated useful life of the hardware prod-
uct or the expected messaging service period, which is typically five years, as the
messaging service is considered integral to the functionality of the hardware and
software. Revenues from providing services are recorded when earned. Revenues
from long-term contracts are generally recognized using the percentage-of-completion
method of accounting, based on costs incurred compared with total estimated costs.
The percentage-of-completion method relies on estimates of total contract revenue
and costs. Revenues and profit are subject to revisions as the contract progresses to
completion. Revisions in profit estimates are charged or credited to income in the
period in which the facts that give rise to the revision become known. If actual con-
tract costs are greater than expected, reduction of contract profit would be required.
Billings on uncompleted contracts in excess of incurred cost and accrued profits are
classified as unearned revenue. Estimated contract losses are recognized when
determined. If substantive uncertainty related to customer acceptance exists or the
contract’s duration is relatively short, we use the completed-contract method.
Revenues from software license fees are recognized when all of the following cri-
teria are met: the written agreement is executed; the software is delivered; the
license fee is fixed and determinable; collectibility of the license fee is probable; and
if applicable, when vendor-specific objective evidence exists to allocate the total
license fee to elements of multiple-element arrangements, including post-contract
customer support. When contracts contain multiple elements wherein vendor-
specific objective evidence exists for all undelivered elements, we recognize revenue
for the delivered elements and defer revenue for the undelivered elements until the
remaining obligations have been satisfied. If vendor-specific objective evidence does
not exist for all undelivered elements, revenue for the delivered and undelivered
elements is deferred until remaining obligations have been satisfied, or if the only
undelivered element is post-contract customer support, revenue is recognized ratably
over the support period. Significant judgments and estimates are made in connection
with the recognition of software license revenue, including assessments of collectibil-
ity and the fair values of deliverable elements. The amount or timing of our software
license revenue may differ as a result of changes in these judgments or estimates.
ALLOWANCES FOR DOUBTFUL ACCOUNTS
We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. We consider 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 we have no previous
experience with the customer, we typically obtain reports from various credit organi-
zations to ensure that the customer has a history of paying its creditors. We may also
request financial information, including financial statements or other documents
(e.g., bank statements) to ensure that the customer has the means of making pay-
ment. 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 financial condition of our customers were to deteriorate,
adversely affecting their ability to make payments, additional allowances would
be required.
We also maintain allowances for doubtful accounts for estimated losses resulting
from the inability of entities we have financed to make required payments. We evaluate
the adequacy of allowances for doubtful finance and note receivables based on analyses
of the financed entities’ credit-worthiness, current economic trends or market conditions,
review of the entities’ current and projected financial and operational information,
and consideration of the fair value of collateral to be received, if applicable. From time
to time, we may consider third party evaluations, valuation reports or advice from
investment banks. If the financial condition of the financed entities were to deterio-
rate, adversely affecting their ability to make payments, additional allowances would
be required.
VALUATION OF INTANGIBLE ASSETS AND INVESTMENTS
Our business acquisitions typically result in goodwill and other intangible assets,
and the recorded values of those assets may become impaired in the future. The
determination of the value of such intangible assets requires management to make
estimates and assumptions that affect our consolidated financial statements. We
assess potential impairments to intangible assets when there is evidence that events
or changes in circumstances indicate that the carrying amount of an asset may not
be recovered. Our judgments regarding the existence of impairment indicators and
future cash flows related to intangible assets are based on operational performance
of our acquired businesses, market conditions and other factors. Future events could
cause us to conclude that impairment indicators exist and that goodwill associated
with our acquired businesses is impaired. Any resulting impairment loss could have
an adverse impact on our results of operations.
We hold minority strategic investments in publicly-traded companies whose share
prices may be highly volatile. 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 influenced 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,
MANAGEMENT’S DISCUSSION AND ANALYSIS continued