Qualcomm 2004 Annual Report Download - page 61

QUALCOMM 57
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
The Company
QUALCOMM Incorporated (the Company or QUALCOMM), a Delaware corporation, develops, designs, manufactures and markets digital wireless
telecommunications products and services based on its Code Division Multiple Access (CDMA) technology. The Company is a leading developer
and supplier of CDMA-based integrated circuits and system software for wireless voice and data communications, multimedia functions and
global positioning system products to wireless device and infrastructure manufacturers. The Company grants licenses to use portions of its
intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of CDMA products,
and receives license fees as well as ongoing royalties based on sales by licensees of wireless telecommunications equipment products incor-
porating its CDMA technologies. The Company provides satellite and terrestrial-based two-way data messaging and position reporting services
for transportation companies, private fleets, construction equipment fleets and other enterprise companies. The Company provides the BREW
(Binary Runtime Environment for Wireless) product and services to network operators, handset manufacturers and application developers and
support for developing and delivering over-the-air wireless applications and services. The Company also makes strategic investments to promote
the worldwide adoptions of CDMA products and services for wireless voice and Internet data communications.
Principles of Consolidation
The Company’s consolidated financial statements include the assets, liabilities and operating results of majority-owned subsidiaries and other
subsidiaries controlled by the Company. The ownership of the other interest holders of consolidated subsidiaries is reflected as minority interest
and is not significant. All significant intercompany accounts and transactions have been eliminated. The Company’s foreign subsidiaries are
included in the consolidated financial statements one month in arrears to facilitate the timely inclusion of such entities in the Company’s con-
solidated financial statements.
The Company deconsolidated the Vésper Operating Companies during the first quarter of fiscal 2004 as a result of their sale in December 2003
and TowerCo during the second quarter of fiscal 2004 as a result of its sale in March 2004 (Note 11). Results of operations and cash flows
related to the Vésper Operating Companies and TowerCo are presented as discontinued operations. The Company’s statements of operations
and cash flows for all prior periods have been adjusted to present the discontinued operations. The balance sheet as of September 28, 2003
was not adjusted to present assets and liabilities related to discontinued operations separately.
Effective as of the beginning of the second quarter of fiscal 2004, the Company adopted the revised interpretation of Financial Accounting
Standards Board(FASB) Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” (FIN 46-R). FIN 46-R requires that certain
variable interest entities be consolidated by the primarybeneficiary of the entity if the equity investors in the entity do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated
financial supportfrom other parties. The Company does not have any investments in entities it believes are variable interest entities for which
the Company is the primarybeneficiary.
Financial Statement Preparation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’s financial
statements and the accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to
conform to the current year presentation.
Fiscal Year
The Company operates and reports using a 52-week fiscal year ending on the last Sunday in September. The fiscal years ended September 30,
2004, 2003 and 2002 each include 52 weeks. For presentation purposes, the Company presents its fiscal years as ending on September 30.
Revenue Recognition
The Company derives revenue principally from sales of integrated circuit products, from royalties for its intellectual property, from messaging
and other services and related hardware sales, from software development and related services, and from license fees for intellectual property.
The timing of revenue recognition and the amount of revenue actually recognized in each case depends upon a variety of factors, including the
specific terms of each arrangement and the nature of the Company’s deliverables and obligations. The development stage of the Company’s
customers’ products do not affect the timing or amount of revenue recognized.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition
in Financial Statements” (later revised as Staff Accounting Bulletin No. 104) which the Company adopted in the fourth quarter of fiscal 2001 and
applied retroactively to the first quarter of fiscal 2001. The Company recorded a $147 million loss, net of taxes of $98 million, as the cumulative
effect of the accounting change as of the beginning of fiscal 2001 to reflect the deferral of revenues and expenses related to future periods. The
amortization of revenue that was deferred as of the beginning of fiscal 2001 is expected to continue to be amortized with a declining impact
through fiscal 2007. The Company recognized $30 million, $44 million and $66 million during fiscal 2004, 2003 and 2002, respectively,in
operating income related to revenues and expenses that were recognized in prior years.
In November 2002, the Emerging Issues Task Force (EITF) issued Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple
Deliverables” which the Company adopted in the fourth quarter of fiscal 2003. This issue addresses determination of whether an arrangement
involving more than one deliverable contains more than one unit of accounting and how arrangement consideration should be measured and
allocated to the separate units of accounting. Beginning with the adoption of SAB 101 until the fourth quarter of fiscal 2003, the Company
recognized revenues and expenses from sales of certain satellite and terrestrial-based two-way data messaging and position reporting hardware
Notes to Consolidated Financial Statements