Qualcomm 2004 Annual Report Download - page 49

QUALCOMM 45
Cost of Equipment and Services. Cost of equipment and services revenues for fiscal 2003 was $1,268 million, compared to $954 million for
fiscal 2002. Cost of equipment and services revenues as a percentage of equipment and services revenues was 44% for fiscal 2003, compared
to 46% for fiscal 2002. The margin percentage improvement in fiscal 2003 compared to fiscal 2002 was primarily due to the increase in QCT
revenues as a percentage of total equipment and services revenues, resulting in increased QCT margin relative to the total.
Research and Development Expenses. For fiscal 2003, research and development expenses were $523 million or 14% of revenues, compared
to $452 million or 16% of revenues for fiscal 2002. The dollar increase in research and development expenses was primarily due to an $84 mil-
lion increase in costs primarily related to increased engineering resources for integrated circuit products and other initiatives to support multimedia
applications, high-speed wireless Internet access and multimode, multiband, multinetwork products, including CDMA2000 1X/1xEV-DO/1xEV-DV,
GSM/GPRS/EDGE, WLAN, WCDMA and radioOne technologies, partially offset by an $11 million reduction in research and development efforts
supporting the QGOV division of the QWI segment and a $3 million reduction of support efforts related to the Globalstar business.
Selling, General and Administrative Expenses. For fiscal 2003, selling, general and administrative expenses were $471 million or 12% of
revenues, compared to $401 million or 14% of revenues for fiscal 2002. The dollar increase was primarily due to a $27 million increase in
employee-related expenses, a $12 million increase in depreciation and amortization expense, a $6 million increase in professional fees, primarily
patent administration and outside services, and a $6 million increase related to international marketing and support efforts.
Amortization of Goodwill and Other Acquisition Related Intangible Assets. For fiscal 2003, amortization of goodwill and other acquisition
related intangible assets was $8 million, compared to $259 million for fiscal 2002. Starting in fiscal 2003, we no longer record goodwill amorti-
zation as a result of the adoption of Statement of Financial Accounting Standards No. 142. Amortization charges were primarily related to the
acquisition of SnapTrack in March 2000.
Asset Impairment and Related Charges. For fiscal 2003, asset impairment and related charges were $34 million, compared to less than $1 million
of such charges in fiscal 2002. During fiscal 2003, we recorded a $34 million impairment loss on our wireless licenses in Australia due to devel-
opments that affected potential strategic alternatives for using the spectrum. The impairment loss recognized was the difference between the
assets’ carrying values and their estimated fair values.
Other Operating Income. For fiscal 2003, other operating income was $30 million, compared to other operating expense of $9 million in fiscal
2002. Other operating income during fiscal 2003 resulted from $47 million of other income related to the transfer of portions of the FCC auction
discount voucher’s value to two wireless operators, offset by a $16 million charge related to the write down of notes receivable from an early
stage CDMA wireless operator and an early stage media company. Other operating expenses during fiscal 2002 resulted from the write down
of a note receivable from an early stage CDMA wireless operator.
Net Investment Income (Expense). Net investment expense was $8 million for fiscal 2003, compared to $218 million for fiscal 2002. The change
was primarily comprised as follows (in millions):
Years Ended September 30,
2003* 2002* Change
Interest income:
QSI $ 45 $ 26 $ 19
Corporate and other segments 113 102 11
Interest expense (2) (1) (1)
Net realized gains on investments:
QSI 63 2 61
Corporate 17 — 17
Other-than-temporary losses on marketable securities (100) (206) 106
Other-than-temporary losses on other investments (28) (25) (3)
Losses on derivative instruments (3) (58) 55
Minority interest in income of consolidated subsidiaries — (1) 1
Equity in losses of investees (113) (57) (56)
$ (8) $(218) $210
*As adjusted for discontinued operations.
The increase in interest income on corporate cash and marketable securities was a result of higher average cash and marketable securities
balances, partially offset by the impact of lower interest rates earned on these balances. The increase in QSI interest income was primarily the
result of $23 million of deferred interest income recorded as a result of a prepayment on Pegaso debt facilities in fiscal 2003. The net realized
gains on investments during fiscal 2003 primarily related to the sale of a portion of our investment in United Online. The other-than-temporary
losses on marketable securities during fiscal 2003 primarily related to an $81 million impairment of our investment in a wireless operator in South
Korea and a $16 million impairment of our investment in a provider of semiconductor packaging, test and distribution services. The other-than-
temporarylosses on marketable securities during fiscal 2002 primarily related to $162 million and $18 million in losses on our investments in