Qualcomm 2004 Annual Report Download - page 72

QUALCOMM 68
Notes to Consolidated Financial Statements continued
At September 30, 2004 and 2003, buildings and improvements and leasehold improvements with a net book value of $38 million and $66 million,
respectively, including accumulated depreciation and amortization of $27 million and $52 million, respectively, were leased to third parties or
held for lease to third parties. Future minimum rental income on facilities leased to others in each of the next five years from fiscal 2005 to 2009
are $10 million, $9 million, $9 million, $7 million and $1 million, respectively.
Intangible Assets
Starting in fiscal 2003, the Company no longer records goodwill amortization (Note 1). The Company’s reportable segment assets do not include
goodwill (Note 10). The Company allocates goodwill to its reporting units for annual testing purposes. Goodwill was allocable to reporting units
included in the Company’s reportable segments at September 30, 2004 as follows: $268 million in QUALCOMM CDMA Technologies, $73 million
in QUALCOMM Technology Licensing and $15 million in QUALCOMM Wireless & Internet.
The components of purchased intangible assets, which are included in other assets, were as follows (in millions):
September 30,
2004 2003
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
Wireless licenses $ 77 $(11) $174 $ (8)
Marketing-related 21 (8) 21 (7)
Technology-based 77 (37) 36 (27)
Customer-related 15 (12) 17 (16)
Other 7 (1) 8 (1)
Total intangible assets $197 $(69) $256 $(59)
The gross carrying values of wireless licenses, customer-related intangible assets and marketing-related intangible assets were reduced by
$105 million, $5 million and $1 million, respectively,from September 30, 2003 as a result of discontinued operations (Note 11). During fiscal
2003, the Company recorded a $34 million impairment loss in its QUALCOMM Strategic Initiatives segment on its wireless licenses in Australia
due to developments 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.
All of the Company’spurchased intangible assets other than goodwill aresubject to amortization. Amortization expense from continuing opera-
tions for fiscal 2004, 2003 and 2002 was $17 million, $18 million and $14 million, respectively. Amortization expense related to these intangible
assets is expected to be $14 million in fiscal 2005, $14 million in fiscal 2006, $13 million in fiscal 2007, $9 million in fiscal 2008 and $8 million
in fiscal 2009.
Capitalized software development costs, which are included in other assets, were $44 million and $36 million at September 30, 2004 and 2003,
respectively.Accumulated amortization on capitalized software was $39 million and $26 million at September 30, 2004 and 2003, respectively.
Amortization expense from continuing operations related to capitalized software for fiscal 2004, 2003 and 2002 was $13 million, $12 million
and $10 million, respectively.
NOTE 4. INVESTMENTS IN OTHER ENTITIES
Inquam Limited
The Company has invested $200 million in the convertible preferred shares of Inquam Limited (Inquam) for an approximate 42% ownership
interest in Inquam. Inquam owns, develops and manages wireless communications systems, either directly or indirectly, with the intent of deploy-
ing CDMA-based technology, primarily in Europe. Starting in the third quarter of fiscal 2003, the Company and another investor (the Other Investor)
also extended $117 million in bridge loan financings to Inquam, including $31 million in bridge loan funding put in place during fiscal 2004. The
Company funded its approximate $58 million shareof these bridge loans and had no remaining funding commitment at September 30, 2004.
Inquam is a variable interest entity. The Company does not consolidate Inquam because it is not the primary beneficiary. The Company uses
the equity method to account for its investment in Inquam. The Company recorded $59 million, $99 million and $45 million in equity in losses
of Inquam during fiscal 2004, 2003 and 2002, respectively. At September 30, 2004 and 2003, the Company’s equity and debt investments in
Inquam totaled $42 million and $68 million, net of equity in losses, respectively. The carrying amount of the Company’s investment in Inquam
exceeded its underlying equity in the net assets of Inquam by $8 million and $9 million, at September 30, 2004 and 2003, respectively.
On September 22, 2003, the Company agreed, along with the Other Investor, to guarantee the payment of amounts due by Inquam under a
bank credit agreement. During fiscal 2004, the Company and the Other Investor agreed to extend the guarantee and increase the maximum
amount subject to the guarantee to $55 million. The Company’smaximum liability under the guarantee is limited to an amount equal to 50%
of the amounts outstanding under Inquam’scredit agreement, up to a maximum of approximately $28 million. Amounts outstanding under the
bank credit agreement totaled $53 million as of September 30, 2004. The guarantee expires on November 30, 2004 when the bank credit