Qualcomm 2005 Annual Report Download - page 43
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other-than-temporary is subjective and infl uenced by many factors.
Future adverse changes in market conditions or poor operating
results of investees could result in losses or an inability to recover
the carrying value of the investments, thereby possibly requiring
impairment charges in the future. When assessing a publicly-traded
investment for an other-than-temporary decline in value, we consider
such factors as, among other things, how signifi cant 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 per-
formance of the investee’s stock price in relation to the stock price
of its competitors within the industry and the market in general and
analyst recommendations. We also review the fi nancial statements
of the investee to determine if the investee is experiencing fi nancial
diffi culties. In the event our judgments change as to other-than-
temporary declines in value, we may record an impairment loss which
could have an adverse impact on our results of operations. During
fi scal 2005, 2004 and 2003, we recorded $12 million, $12 million
and $100 million, respectively, in other-than-temporary losses on
our minority investments in publicly-traded companies.
We hold minority strategic investments in private companies whose
values are diffi cult to determine. These investments totaled $122
million at September 25, 2005. We record impairment charges
when we believe an investment has experienced a decline that is
other-than-temporary. The determination that a decline is other-
than-temporary is subjective and infl uenced by many factors. Future
adverse changes in market conditions or poor operating results of
investees could result in losses or an inability to recover the carrying
value of the investments, thereby possibly requiring impairment
charges in the future. When assessing investments in private compa-
nies for an other-than-temporary decline in value, we consider such
factors as, among other things, the share price from the investee’s
latest fi nancing round, the performance of the investee in relation to
its own operating targets and its business plan, the investee’s reve-
nue and cost trends, the liquidity and cash position, including its cash
burn rate and market acceptance of the investee’s products and
services. From time to time, we may consider third-party evaluations,
valuation reports or advice from investment banks. We also consider
new products/services that the investee may have forthcoming, any
signifi cant news that has been released specifi c to the investee or
the investee’s competitors and/or industry and the outlook of the
overall industry in which the investee operates. In the event our
judgments change as to other-than-temporary declines in value,
we may record an impairment loss which could have an adverse
impact on our results of operations. During fi scal 2005 and 2003,
we recorded $1 million and $28 million, respectively, in other-than-
temporary losses on our investments in private companies. Such
losses were not signifi cant in fi scal 2004.
Income Taxes. Our income tax returns are based on calculations and
assumptions that are subject to examination by the Internal Revenue
Service and other tax authorities. While we believe we have appropri-
ate support for the positions taken on our tax returns, we regularly
assess the potential outcomes of these examinations and any future
examinations for the current or prior years in determining the ade-
quacy of our provision for income taxes. As part of our assessment
of potential adjustments to our tax returns, we increase our current
tax liability to the extent an adjustment would result in a cash tax
payment or decrease our deferred tax assets to the extent an
adjustment would not result in a cash tax payment. We continually
assess the likelihood and amount of potential adjustments and adjust
the income tax provision, the current tax liability and deferred taxes
in the period in which the facts that give rise to a revision become
known. Although we believe that the estimates and assumptions
supporting our assessments are reasonable, adjustments could
be materially different from those which are refl ected in historical
income tax provisions and recorded assets and liabilities.
We regularly review our deferred tax assets for recoverability and
establish a valuation allowance based on historical taxable income,
projected future taxable income, the expected timing of the reversals
of existing temporary differences and the implementation of tax-
planning strategies. As of September 25, 2005, gross deferred tax
assets were $937 million. If we are unable to generate suffi cient
future taxable income in certain tax jurisdictions, or if there is a
material change in the actual effective tax rates or time period
within which the underlying temporary differences become taxable or
deductible, we could be required to increase our valuation allowance
against our deferred tax assets which could result in an increase in
our effective tax rate and an adverse impact on operating results.
As of September 25, 2005, we had gross deferred tax assets of
$301 million related to capital loss carryforwards. We can only use
capital losses to offset capital gains. Based upon our assessments
of projected future capital gains and losses and related tax planning
strategies, we expect that our future capital gains will not be suffi -
cient to utilize all the capital losses that we have incurred through
fi scal 2005. Therefore, we have provided a valuation allowance in
the amount of $62 million for the portion of capital losses we do
not expect to utilize. Adjustments to our valuation allowance based
on changes to our forecast of capital losses and capital gains are
refl ected in the period the change is made.
We consider the operating earnings of certain non-United States
subsidiaries to be indefi nitely invested outside the United States.
No provision has been made for United States federal and state,
or foreign taxes that may result from future remittances of undis-
tributed earnings of foreign subsidiaries, the cumulative amount
of which is approximately $1.2 billion as of September 25, 2005.
Should we repatriate foreign earnings, we would have to adjust the
income tax provision in the period in which the decision to repatri-
ate earnings of foreign subsidiaries is made. On October 22, 2004,
the American Jobs Creation Act of 2004 (the Jobs Creation Act)
was signed into law. The Jobs Creation Act created a temporary
incentive for corporations in the United States to repatriate accu-
mulated income earned abroad by providing an 85 percent dividends
received deduction for certain dividends from controlled foreign
corporations. In the fourth quarter of fi scal 2005, we repatriated
approximately $0.5 billion of foreign earnings qualifying under the
Jobs Creation Act and recorded a related expense of approximately
$35 million for federal and state income tax liabilities. The distribu-
tion does not change our intention to indefi nitely reinvest earnings
of certain foreign subsidiaries outside the United States.