Qualcomm 2002 Annual Report Download - page 63

QUALCOMM 2002 ANNUAL REPORT PAGE 61
(Unaudited) 2000*
Net income $595,116
Basic earnings per common share $ 0.83
Diluted earnings per common share $ 0.75
* As adjusted (Note 13)
The Company licenses rights to use its intellectual property portfolio, which
includes patent rights to use cdmaOne, CDMA2000, CDMA2000 1X, CDMA2000 1xEV-DO,
TD-SCDMA and WCDMA technologies. Licensees typically pay a non-refundable
license fee and on-going royalties on their sales of products incorporating the
Company’s intellectual property. License fees are generally recognized over the
estimated period of future benefit to the average licensee, typically five to seven years.
The Company generally recognizes royalty revenue as earned when reasonable esti-
mates of such amounts can be made. Certain royalty revenues are accrued based on
estimates prior to the reporting of such revenues by the licensees. Estimates of royalty
revenues are based on analyses of historical royalty data by licensee, the relationship
between the timing of the Company’s sales of integrated circuits to its licensees and its
licensees’ sales of CDMA phones and infrastructure equipment, average sales price
forecasts, and current market and economic trends. When the Company’s licensees
report royalties for which the Company accrued revenues based on estimates, the
Company adjusts revenues for the period in which the reports are received.
Revenues from sales of the Company’s CDMA-based integrated circuits are recog-
nized 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 product
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
contract 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, the Company uses 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 appli-
cable, 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, the Company recognizes revenue for the
delivered elements and defers 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 collectibility and the
fair value of deliverable elements. The amount or timing of the Company’s software
license revenue may differ as a result of changes in these judgments or estimates.
Unearned revenue consists primarily of fees related to software products and other
intellectual property for which delivery is not yet complete and to hardware products
sales contracted with a continuing service obligation. Unearned revenue attributable
to hardware product sales with a continuing service obligation is recognized ratably
over the shorter of the estimated useful life of the hardware product or the expected
service period, which is typically five years.
CONCENTRATIONS
A significant portion of the Company’s revenues are concentrated with a limited
number of customers as the worldwide market for wireless telephone systems and
products is dominated by a small number of large corporations and government agen-
cies. During fiscal 2002 and 2001, sales to two South Korean customers and one
Japanese customer by the QCT, QTL and other nonreportable segments (Note 12)
comprised 41% and 37% of consolidated revenues, respectively. During fiscal 2000,
sales to one South Korean customer by the QCT and QTL segments comprised 11% of
consolidated revenues. At September 30, 2002 and 2001, accounts receivable from two
South Korean customers comprised 23% and 25% of net receivables, respectively.
Revenues from international customers were approximately 70%, 65% and 47% of
total revenues in fiscal 2002, 2001 and 2000, respectively.
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.