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companies contemplated by the restructuring agreements. In addi-
tion, the Company and the Other Investor will have a put-call option
arrangement. Under this arrangement, the Other Investor will have
the right to buy the Company’s equity and debt investments in Inquam,
subject to certain conditions, by exercising its call option, which will
expire no later than May 14, 2008. The minimum purchase price will
be approximately $66 million. In the event that the Other Investor’s
call option expires, or in certain other circumstances prior to that
date, the Company will have the right to sell our equity and debt
investments in Inquam to the Other Investor at a minimum sales price
of $66 million. Such right will expire after six months. The Company
does not anticipate providing any further funding to Inquam or to the
Portugal companies.
Inquam’s summarized fi nancial information, derived from its unaudited
fi nancial statements, is as follows (in millions):
Sept. 25, Sept. 26,
2005 2004
Balance sheet:
Current assets $ 41 $ 40
Noncurrent assets 156 152
Total assets $197 $192
Current liabilities $ 60 $123
Noncurrent liabilities 273 132
Total liabilities $333 $255
Year Ended
Sept. 25, Sept. 26, Sept. 28,
2005 2004 2003
Income statement:
Net revenues $111 $ 88 $ 50
Gross profi t (loss) 53 35 (2)
Net loss $ (73) $(136) $(205)
Other
Other strategic equity investments as of September 25, 2005 and
September 26, 2004 totaled $96 million and $123 million, respectively,
including $40 million and $50 million, respectively, accounted for using
the cost method. Differences between the carrying amounts of certain
other strategic equity method investments and the Company’s under-
lying equity in the net assets of those investees were not signifi cant
at September 25, 2005 and September 26, 2004. At September 25,
2005, effective ownership interests in these investees ranged from
approximately 7% to 50%.
Funding commitments related to these investments totaled $13 million
at September 25, 2005, which the Company expects to fund through
fi scal 2009. Such commitments are subject to the investees meeting
certain conditions; actual equity funding may be in lesser amounts.
An investee’s failure to successfully develop and provide competitive
products and services due to lack of fi nancing, market demand or an
unfavorable economic environment could adversely affect the value
of the Company’s investment in the investee. There can be no assur-
ance that the investees will be successful in their efforts.
NOTE 5. INVESTMENT INCOME (EXPENSE)
Investment income (expense) was comprised as follows (in millions):
Year Ended
Sept. 25, Sept. 26, Sept. 28,
2005 2004 2003
Interest and dividend income $256 $175 $ 158
Interest expense (3) (2) (2)
Net realized gains on
marketable securities 167 88 73
Net realized gains on
other investments 12 — 7
Other-than-temporary losses
on marketable securities (13) (12) (100)
Other-than-temporary losses
on other investments (1) — (28)
Gains on derivative instruments 33 7 (3)
Equity in losses of investees (28) (72) (113)
$423 $184 $ (8)
The Company had various fi nancing arrangements, including a bridge
loan facility, an equipment loan facility, and interim and additional loan
facilities with a wholly owned subsidiary of Pegaso Telecomunicaciones,
S.A. de C.V., a CDMA wireless operator in Mexico (Pegaso). Pegaso
paid the loan facilities in full, including accrued interest, during fi scal
2003 and 2004. The Company recognized $12 million and $41 million
in interest income related to the Pegaso fi nancing arrangements
during fi scal 2004 and 2003, respectively.
NOTE 6. INCOME TAXES
The components of the income tax provision were as follows
(in millions):
Sept. 25, Sept. 26, Sept. 28,
2005 2004 2003
Current provision:
Federal $ 77 $115 $299
State 42 60 57
Foreign 140 157 119
259 332 475
Deferred provision (benefi t):
Federal 398 227 45
State 9 29 16
407 256 61
$666 $588 $536
The components of earnings from continuing operations before
income taxes were as follows (in millions):
Year Ended
Sept. 25, Sept. 26, Sept. 28,
2005 2004 2003
United States $1,570 $1,571 $1,163
Foreign 1,239 742 402
Earnings from continuing operations
before income taxes $2,809 $2,313 $1,565