Qualcomm 2014 Annual Report Download - page 66

QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Equivalents and Marketable Securities: With the exception of auction rate securities, the Company obtains pricing information from
quoted market prices, pricing vendors or quotes from brokers/dealers. The Company conducts reviews of its primary pricing vendors to
determine whether the inputs used in the vendor’s pricing processes are deemed to be observable. The fair value for interest-bearing securities
includes accrued interest.
The fair value of U.S. Treasury securities and government-related securities, corporate bonds and notes and common and preferred stock is
generally determined using standard observable inputs, including reported trades, quoted market prices, matrix pricing, benchmark yields,
broker/dealer quotes, issuer spreads, two-sided markets and/or benchmark securities.
The fair value of debt and equity funds is reported at published net asset values. The Company assesses the daily frequency and size of
transactions at published net asset values and/or the funds’ underlying holdings to determine whether fair value is based on observable or
unobservable inputs.
The fair value of highly rated mortgage- and asset-backed securities is derived from the use of matrix pricing (prices for similar securities)
or, in some cases, cash flow pricing models with observable inputs, such as contractual terms, maturity, credit rating and/or securitization
structure to determine the timing and amount of future cash flows. Certain mortgage- and asset-backed securities, principally those rated below
AAA, may require the use of significant unobservable inputs to estimate fair value, such as default likelihood, recovery rates and prepayment
speed.
The fair value of auction rate securities is estimated by the Company using a discounted cash flow model that incorporates transaction
details, such as contractual terms, maturity and timing and amount of future cash flows, as well as assumptions related to liquidity, default
likelihood and recovery, the future state of the auction rate market and credit valuation adjustments of market participants. Though most of the
securities held by the Company are pools of student loans guaranteed by the U.S. government, prepayment speeds and illiquidity discounts are
considered significant unobservable inputs. These additional inputs are generally unobservable, and therefore, auction rate securities are included
in Level 3.
Derivative Instruments: Derivative instruments that are traded on an exchange are valued using quoted market prices and are included in
Level 1. Derivative instruments that are not traded on an exchange are valued using conventional calculations/models that are primarily based on
observable inputs, such as foreign currency exchange rates, the Company’s stock price, volatilities and interest rates, and therefore, such
derivative instruments are included in Level 2.
Other Investments and Other Liabilities: Other investments and other liabilities included in Level 1 are comprised of the Company’s
deferred compensation plan liability and related assets, which consist of mutual funds classified as trading securities, and are included in other
assets.
Allowances for Doubtful Accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the
inability of the Company’s customers to make required payments. The Company considers the following factors when determining if collection
of required payments is reasonably assured: customer credit-worthiness, past transaction history with the customer, current economic industry
trends, changes in customer payment terms and bank credit-worthiness for letters of credit. If the Company has no previous experience with the
customer, the Company may request financial information, including financial statements or other documents to determine that the customer has
the means of making payment. The Company may also obtain reports from various credit organizations to determine that the customer has a
history of paying its creditors. If these factors do not indicate collection is reasonably assured, revenue is deferred as a reduction to accounts
receivable until collection becomes reasonably assured, which is generally upon receipt of cash. If the financial condition of the Company’s
customers was to deteriorate, adversely affecting their ability to make payments, additional allowances would be required.
Inventories. Inventories are valued at the lower of cost or market (replacement cost, not to exceed net realizable value) using the first-in,
first-out method. Recoverability of inventories is assessed based on review of committed purchase orders from customers, as well as purchase
commitment projections provided by customers, among other things.
Property, Plant and Equipment. Property, plant and equipment are recorded at cost and depreciated or amortized using the straight-line
method over their estimated useful lives. Upon the retirement or disposition of property, plant and equipment, the related cost and accumulated
depreciation or amortization are removed, and a gain or loss is recorded. Buildings and building improvements on owned land are depreciated
over 30 years and 15 years, respectively. Leasehold improvements and buildings on leased land are amortized over the shorter of their
estimated useful lives, not to exceed 15 and 30 years, respectively, or the remaining term of the related lease. Other property, plant and
equipment have useful lives ranging from 2 to 25 years. Leased property meeting certain capital lease criteria is capitalized, and the net present
value of the related lease payments is recorded as a liability. Amortization of assets under capital leases is recorded using the straight-line
method over the shorter of the estimated useful lives or the lease terms. Maintenance, repairs and minor renewals or betterments are charged to
expense as incurred. Interest expense related to the broadband wireless access (BWA) spectrum and related construction of the network
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