Qualcomm 2002 Annual Report Download - page 64

SHIPPING AND HANDLING COSTS
Costs incurred for shipping and handling are included in cost of revenues at the
time the related revenue is recognized. Amounts billed to a customer for shipping and
handling are reported as revenue.
INCOME TAXES
The asset and liability approach is used to recognize deferred tax assets and lia-
bilities 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 reflected 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.
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, certificates 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 classification 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 unre-
alized gains or losses on available-for-sale securities are reported as a component of
comprehensive income (loss), net of tax, unless the Company provides a valuation
allowance against the tax benefit or liability resulting from the loss or gain. The spe-
cific identification 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 mar-
ketable securities. When assessing marketable securities for other-than-temporary
declines in value, the Company considers such factors as, among other things, how
significant 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 specific to the investee and the outlook for the overall industry in which
the investee operates. The Company also reviews the financial statements of the
investee to determine if the investee is experiencing financial difficulties and considers
new products/services that the investee may have forthcoming that will improve its
operating results. If events and circumstances indicate that a decline in the value of
these assets has occurred and is other than temporary, the Company records a
charge to investment (expense) income.
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 cus-
tomer has a history of paying its creditors. The Company 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 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 financial condition
of the Company’s customers were to deteriorate, adversely affecting their ability to
make payments, additional allowances would be required.
The Company also maintains allowances for doubtful accounts for estimated losses
resulting from the inability of entities it has financed to make required payments. The
Company evaluates the adequacy of allowances for doubtful finance and note receiv-
ables 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, the Company may consider third party evaluations,
valuation reports or advice from investment banks. If the financial condition of the
financed entities were to deteriorate, adversely affecting their ability to make pay-
ments, additional allowances would be required.
INVENTORIES
Inventories are valued at the lower of cost or market (replacement cost, not
to exceed net realizable value) using the first-in, first-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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued