Qualcomm 2004 Annual Report Download - page 74

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QUALCOMM 70
Notes to Consolidated Financial Statements continued
environment could adversely affect the value of the Company’s investment in the investee. There can be no assurance that the investees will
be successful in their efforts.
NOTE 5. INVESTMENT INCOME (EXPENSE)
Investment income (expense) for the years ended September 30 was comprised as follows (in millions):
2004 2003* 2002*
Interest income $175 $ 158 $ 128
Interest expense (2) (2) (1)
Net realized gains on marketable securities 88 73 12
Net realized gains (losses) on other investments — 7 (10)
Other-than-temporary losses on marketable securities (12) (100) (206)
Other-than-temporary losses on other investments — (28) (25)
Gains (losses) on derivative instruments 7 (3) (58)
Minority interest in income of consolidated subsidiaries — — (1)
Equity in losses of investees (72) (113) (57)
$184 $ (8) $(218)
*As adjusted (Note 11).
During fiscal 2004 and 2003, management determined that declines in the market value of the Company’s investment in Korea Telecom
Freetel Co., Ltd. (KTF), a wireless operator in South Korea, were other than temporary. In reaching this conclusion, the decline in stock value
as a percentage of the original cost and the length of time in which the market value of the investment had been below its original cost were
considered. As a result, the Company recorded $10 million and $81 million in other-than-temporarylosses on marketable securities in fiscal
2004 and 2003, respectively.The Company holds 4,416,000 common shares of KTF as of September 30, 2004. The fair value of the common
shares was $72 million at September 30, 2004.
During fiscal 2002, management determined that declines in the market values of the Company’s investments in Leap Wireless International, Inc.
(Leap Wireless) were other than temporary when those values declined significantly due to unfavorable business developments. Subsequently,
Leap Wireless filed for Chapter 11 bankruptcy protection in April 2003. The Company recorded $180 million in other-than-temporary losses on
marketable securities related to its debt and equity investments in Leap Wireless during fiscal 2002. The Company also recorded $59 million
in losses related to changes in the fair values of Leap Wireless derivative instruments for fiscal 2002. In fiscal 2004, Leap Wireless emerged
from bankruptcy. As a result, the Company received a distribution comprised of $19 million in cash and $16 million in equity in Leap Wireless
in exchange for its debt investments, and the Company recorded $34 million in net realized gains on marketable securities in fiscal 2004. The
Company’s equity and derivative instruments in Leap Wireless were cancelled without consideration. The fair value of the Company’s new equity
investment in Leap Wireless was $14 million at September 30, 2004.
NOTE 6. INCOME TAXES
The components of the income tax provision for the years ended September 30 were as follows (in millions):
2004 2003 2002
Current provision:
Federal $115 $299 $ 5
State 60 57 7
Foreign 157 119 86
332 475 98
Deferred provision:
Federal 227 45 (3)
State 29 16 2
256 61 (1)
$588 $536 $97
The components of earnings from continuing operations before income taxes for the years ended September 30 were as follows (in millions):
2004 2003 2002
United States $1,571 $1,163 $453
Foreign 742 402 169
Earnings from continuing operations before income taxes $2,313 $1,565 $622