Qualcomm 2004 Annual Report Download - page 64

QUALCOMM 60
Notes to Consolidated Financial Statements continued
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.
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 liabilities 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 unrealized gains or
losses on available-for-sale securities are reported as a component of comprehensive income (loss), net of tax. The specific 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 marketable 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 income (expense).
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 customer
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’scustomers wereto 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 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, the Company may
consider thirdparty 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 payments, 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 projec-
tions 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 improvements aredepreciated over 30 years and 15 years, respectively. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the remaining term of the related lease. Other property, plant and equipment have useful lives ranging
from two to 15 years. Direct external and internal costs of developing software for internal use are capitalized subsequent to the preliminary
stage of development. Maintenance, repairs, and minor renewals and betterments are charged to expense as incurred.