Qualcomm 2004 Annual Report Download - page 65

Upon the retirement or disposition of property, plant and equipment, the related cost and accumulated depreciation or amortization are removed
and the gain or loss is recorded.
Other Investments
Investments in Other Entities. The Company makes strategic investments in companies that have developed or are developing innovative
wireless data applications and wireless operators that promote the worldwide deployment of CDMA systems. Investments in corporate entities
with less than a 20% voting interest are generally accounted for under the cost method. The Company uses the equity method to account for
investments in corporate entities, including limited liability corporations that do not maintain specific ownership accounts, in which it has a voting
interest of 20% to 50% and other than minor to 50% ownership interests in partnerships and limited liability corporations that do maintain
specific ownership accounts, or in which it otherwise has the ability to exercise significant influence. Under the equity method, the investment
is originally recorded at cost and adjusted to recognize the Company’s share of net earnings or losses of the investee, limited to the extent of
the Company’s investment in and advances to the investee and financial guarantees on behalf of the investee that create additional basis.
The Company regularly monitors and evaluates the realizable value of its investments. When assessing an investment for an other-than-temporary
decline in value, the Company considers such factors as, among other things, the share price from the investee’s latest financing round, the
performance of the investee in relation to its own operating targets and its business plan, the investee’s revenue and cost trends, as well as
liquidity and cash position, including its cash burn rate, market acceptance of the investee’s products/services as well as any new products
or services that may be forthcoming, any significant news that has been released specific to the investee or the investee’s competitors and/or
industry, and the outlook for the overall industry in which the investee operates. From time to time, the Company may consider third party
evaluations, valuation reports or advice from investment banks. 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).
Derivatives. The Company holds warrants to purchase equity interests in certain other companies related to its strategic investment activities.
The Company’swarrants are not held for trading purposes. Certain of the Company’s warrants are recorded at fair value. Changes in fair value
are recorded in investment income (expense) as gains (losses) on derivative instruments because the warrants do not meet the requirements
for hedge accounting. Warrants that do not have contractual net settlement provisions are recorded at cost.
The Company enters into foreign currency forward and option contracts to hedge certain foreign currency transactions and probable anticipated
foreign currency transactions. Gains and losses arising from foreign currency forward and option contracts that are not designated as hedging
instruments are recorded in investment income (expense) as gains (losses) on derivative instruments. Gains and losses arising from the effective
portion of foreign currency forward and option contracts that are designated as cash-flow hedging instruments are recorded in accumulated other
comprehensive income (loss) as gains (losses) on derivative instruments until the underlying transaction affects the Company’s earnings. The value
of the Company’sforeign currency forward contracts was insignificant at September 30, 2004. The Company had no foreign currency option con-
tracts outstanding at September 30, 2004. The Company had no foreign currency forwardor option contracts outstanding at September 30, 2003.
At September 30, 2004 and 2003, the recorded value of the Company’s derivative instruments totaled $4 million and $2 million, respectively,
and none of the Company’s derivatives were designated as hedges. The Company’s derivative instruments are included in other assets.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of
businesses acquired. Effective as of the beginning of fiscal 2003, the Company fully adopted Statement of Financial Accounting Standards No. 141
(FAS 141), “Business Combinations,” and Statement of Financial Accounting Standards No. 142 (FAS 142), “Goodwill and Other Intangible
Assets.” The provisions of FAS 141 (1) require that the purchase method of accounting be used for all business combinations initiated after
June 30, 2001, (2) provide specific criteria for the initial recognition and measurement of intangible assets apart from goodwill, and (3) require
that unamortized negative goodwill be written offimmediately as an extraordinarygain instead of being deferred and amortized. FAS 141 also
requires that, upon adoption of FAS 142, the Company reclassify the carrying amounts of certain intangible assets into or out of goodwill, based
on certain criteria. Upon the adoption of FAS 142, the Company reclassified approximately $2 million of certain intangible assets into goodwill.
FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. The provisions of FAS 142
(1) prohibit the amortization of goodwill and indefinite-lived intangible assets, (2) require that goodwill and indefinite-lived intangible assets be
tested annually for impairment (and in interim periods if certain events occur indicating that the carrying value of goodwill and/or indefinite-lived
intangible assets may be impaired), (3) require that reporting units be identified for the purpose of assessing potential impairments of goodwill,
and (4) remove the forty-year limitation on the amortization period of intangible assets that have finite lives. The Company completed its transi-
tional testing for goodwill impairment upon adoption of FAS 142 and its annual testing for fiscal 2004 and 2003 and determined that its recorded
goodwill was not impaired.
Starting in fiscal 2003, the Company no longer records goodwill amortization. Goodwill is tested annually for impairment and in interim periods if
certain events occur indicating that the carrying value of goodwill may be impaired. Software development costs are capitalized when a product’s
technological feasibility has been established through the date a product is available for general release to customers. Software development
costs are amortized on a straight-line basis over the estimated economic life of the software, ranging from less than one year to four years,
taking into account such factors as the effects of obsolescence, technological advances and competition. The weighted-average amortization
period for capitalized software was one year at both September 30, 2004 and 2003. Other intangible assets are amortized on a straight-line
basis over their useful lives, ranging from three to 28 years.
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