Qualcomm 2005 Annual Report Download - page 64
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Please find page 64 of the 2005 Qualcomm annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Notes to Consolidated Financial Statements continued
60 qualcomm 2005
Software development costs are capitalized when a product’s techno-
logical 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 25, 2005 and September 26, 2004. Other intangible
assets are amortized on a straight-line basis over their useful lives,
ranging from less than one year to 28 years.
Weighted-average amortization periods for fi nite lived intangible
assets, by class, were as follows:
Sept. 25, Sept. 26,
2005 2004
Wireless licenses 15 years 15 years
Marketing-related 18 years 17 years
Technology-based 9 years 11 years
Customer-related 7 years 8 years
Other 28 years 28 years
Total intangible assets 13 years 14 years
Changes in the weighted-average amortization periods from fi scal
2004 to 2005 resulted from additions to intangible assets related
to acquisitions (Note 11).
Valuation of Long-Lived and Intangible Assets
The Company assesses potential impairments to its long-lived assets
when there is evidence that events or changes in circumstances indi-
cate that the carrying amount of an asset may not be recovered. An
impairment loss is recognized when the carrying amount of the long-
lived asset is not recoverable and exceeds its fair value. The carrying
amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash fl ows expected to result from the use and
eventual disposition of the asset. Any required impairment loss is
measured as the amount by which the carrying amount of a long-lived
asset exceeds its fair value and is recorded as a reduction in the
carrying value of the related asset and a charge to operating results.
Litigation
The Company is currently involved in certain legal proceedings. The
Company estimates the range of liability related to pending litigation
where the amount and range of loss can be estimated. The Company
records its best estimate of a loss when the loss is considered prob-
able. Where a liability is probable and there is a range of estimated
loss with no best estimate in the range, the Company records the mini-
mum estimated liability related to the claim. As additional information
becomes available, the Company assesses the potential liability
related to the Company’s pending litigation and revises its estimates.
Share-Based Compensation
The Company records compensation expense for employee stock
options based upon their intrinsic value on the date of grant pursuant
to Accounting Principles Board Opinion 25 (APB 25), “Accounting
for Stock Issued to Employees.” Because the Company establishes
the exercise price based on the fair market value of the Company’s
stock at the date of grant, the stock options have no intrinsic value
upon grant, and therefore no expense is recorded. Each quarter,
the Company reports the potential dilutive impact of share-based
payments in its diluted earnings per common share using the treasury-
stock method. Out-of-the-money stock options (i.e., the average stock
price during the period is below the strike price of the stock option)
are not included in diluted earnings per common share as their effect
is anti-dilutive.
As required under Financial Accounting Standards Board Statement
No. 123 (FAS 123), “Accounting for Stock-Based Compensation,” and
Statement of Financial Accounting Standards No. 148 (FAS 148),
“Accounting for Stock-Based Compensation—Transition and
Disclosure,” the pro forma effects of share-based payments on net
income and earnings per common share have been estimated at the
date of grant using the Black-Scholes option-pricing model based on
the following assumptions:
Stock Option Plans
2005 2004 2003
Risk-free interest rate 3.9% 3.8% 3.2%
Volatility 36.5% 53.2% 58.0%
Dividend yield 0.8% 0.6% 0.2%
Expected life (years) 6.0 6.0 6.0
Purchase Plans
2005 2004 2003
Risk-free interest rate 2.9% 1.1% 1.0%
Volatility 29.8% 33.3% 41.1%
Dividend yield 0.9% 0.7% 0.3%
Expected life (years) 0.5 0.5 0.5
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no restrictions
and are fully transferable and negotiable in a free trading market.
This model does not consider the employment, transfer or vesting
restrictions that are inherent in the Company’s employee stock
options or purchase rights granted pursuant to the Employee Stock
Purchase Plans. Use of an option valuation model, as required by
FAS 123, includes highly subjective assumptions based on long-term
predictions, including the expected stock price volatility and average
life of each stock option grant. Because the Company’s share-based
payments have characteristics signifi cantly different from those of
freely traded options, and because changes in the subjective input
assumptions can materially affect the Company’s estimate of the
fair values, in the Company’s opinion, existing valuation models may
not be reliable single measures of the fair values of the Company’s
share-based payments. The Black-Scholes weighted average esti-
mated fair values of stock options granted during fi scal 2005, 2004
and 2003 were $14.80, $13.92 and $9.67 per share, respectively.
The Black-Scholes weighted average estimated fair values of pur-
chase rights granted pursuant to the Employee Stock Purchase Plans
during fi scal 2005, 2004 and 2003 were $8.76, $7.53 and $4.80 per
share, respectively.
For purposes of pro forma disclosures, the estimated fair value
of share-based payments is assumed to be amortized to expense
over their vesting periods. The pro forma effects of recognizing