Exhibit 99.1
Item 9.01. Financial Statements and Supplementary Data
Index to Financial Statements
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Page |
Report of Independent Registered Public Accounting Firm |
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F-2 |
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Consolidated
Balance Sheets as of September 30, 2004 and 2003 |
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F-3 |
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Consolidated Statements of Operations for Fiscal Years Ended September 30, 2004, 2003, and 2002 |
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F-4 |
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Consolidated Statements of Cash Flows for Fiscal Years Ended September 30, 2004, 2003, and 2002 |
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F-5 |
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Consolidated Statements of Shareholders Equity for Fiscal Years Ended September 30, 2004, 2003, and 2002 |
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F-6 |
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Notes to Consolidated Financial Statements |
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F-7 |
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Schedule II Valuation and Qualifying Accounts |
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S-1 |
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F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of QUALCOMM Incorporated
In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of QUALCOMM Incorporated and its
subsidiaries (the Company) at September 30, 2004 and 2003, and the results of their operations
and their cash flows for each of the three years in the period ended September 30, 2004 in
conformity with accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the accompaning index presents
fairly, in all material respects, the information set forth therein when read in conjunction with
the related consolidated financial statements. Also, in our opinion, managements assessment,
included in the accompanying Managements Report on Internal Control Over Financial Reporting, that
the Company maintained effective internal control over financial reporting as of September 30, 2004
based on criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material
respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of September 30, 2004,
based on criteria established in Internal Control Integrated Framework issued by the COSO. The
Companys management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express opinions on (i) these financial statements and financial statement schedule; (ii)
managements assessment; and (iii) the effectiveness of the Companys internal control over
financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audit of financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, evaluating managements assessment,
testing and evaluating the design and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, during the year
ended September 30, 2003.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
November 2, 2004 , except for Note 10 which is as of August 19, 2005
F-2
QUALCOMM Incorporated
CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
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September 30, |
|
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2004 |
|
2003 |
ASSETS |
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Current assets: |
|
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|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,214 |
|
|
$ |
2,045 |
|
Marketable securities |
|
|
4,768 |
|
|
|
2,516 |
|
Accounts receivable, net |
|
|
581 |
|
|
|
484 |
|
Inventories |
|
|
154 |
|
|
|
110 |
|
Deferred tax assets |
|
|
409 |
|
|
|
612 |
|
Other current assets |
|
|
101 |
|
|
|
182 |
|
|
|
|
|
|
|
|
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|
Total current assets |
|
|
7,227 |
|
|
|
5,949 |
|
Marketable securities |
|
|
1,653 |
|
|
|
811 |
|
Property, plant and equipment, net |
|
|
675 |
|
|
|
622 |
|
Goodwill |
|
|
356 |
|
|
|
346 |
|
Deferred tax assets |
|
|
493 |
|
|
|
407 |
|
Other assets |
|
|
416 |
|
|
|
687 |
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|
|
|
|
|
|
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Total assets |
|
$ |
10,820 |
|
|
$ |
8,822 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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|
|
|
|
|
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Trade accounts payable |
|
$ |
286 |
|
|
$ |
195 |
|
Payroll and other benefits related liabilities |
|
|
194 |
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|
|
141 |
|
Unearned revenue |
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|
172 |
|
|
|
174 |
|
Current portion of long-term debt (Note 11) |
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|
103 |
|
Other current liabilities |
|
|
242 |
|
|
|
195 |
|
|
|
|
|
|
|
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Total current liabilities |
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|
894 |
|
|
|
808 |
|
Unearned revenue |
|
|
170 |
|
|
|
237 |
|
Long-term debt (Note 11) |
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|
|
|
|
|
123 |
|
Other liabilities |
|
|
92 |
|
|
|
56 |
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|
|
|
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Total liabilities |
|
|
1,156 |
|
|
|
1,224 |
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Commitments and contingencies (Notes 3, 4 and 9) |
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Stockholders equity: |
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Preferred stock, $0.0001 par value; issuable in series;
8 shares authorized; none outstanding at
September 30, 2004 and 2003 |
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Common stock, $0.0001 par value; 3,000 shares
authorized; 1,635 and 1,597 shares issued and
outstanding at September 30, 2004 and 2003 |
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Paid-in capital |
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|
6,940 |
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|
|
6,325 |
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Retained earnings |
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|
2,709 |
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|
1,297 |
|
Accumulated other comprehensive income (loss) |
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|
15 |
|
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|
(24 |
) |
|
|
|
|
|
|
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Total stockholders equity |
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|
9,664 |
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|
|
7,598 |
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|
|
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|
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Total liabilities and stockholders equity |
|
$ |
10,820 |
|
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$ |
8,822 |
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|
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See accompanying notes.
F-3
QUALCOMM Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
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Years Ended September 30, |
|
|
2004 |
|
2003* |
|
2002* |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and services |
|
$ |
3,514 |
|
|
$ |
2,862 |
|
|
$ |
2,080 |
|
Licensing and royalty fees |
|
|
1,366 |
|
|
|
985 |
|
|
|
835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,880 |
|
|
|
3,847 |
|
|
|
2,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment and services revenues |
|
|
1,484 |
|
|
|
1,268 |
|
|
|
954 |
|
Research and development |
|
|
720 |
|
|
|
523 |
|
|
|
452 |
|
Selling, general and administrative |
|
|
568 |
|
|
|
471 |
|
|
|
401 |
|
Amortization of goodwill and other
acquisition-related intangible assets (Note 1) |
|
|
5 |
|
|
|
8 |
|
|
|
259 |
|
Asset impairment charges |
|
|
|
|
|
|
34 |
|
|
|
|
|
Other |
|
|
(26 |
) |
|
|
(30 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,751 |
|
|
|
2,274 |
|
|
|
2,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
2,129 |
|
|
|
1,573 |
|
|
|
840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income (expense), net (Note 5) |
|
|
184 |
|
|
|
(8 |
) |
|
|
(218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
2,313 |
|
|
|
1,565 |
|
|
|
622 |
|
Income tax expense |
|
|
(588 |
) |
|
|
(536 |
) |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
1,725 |
|
|
|
1,029 |
|
|
|
525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations (Note 11): |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes |
|
|
(10 |
) |
|
|
(280 |
) |
|
|
(160 |
) |
Income tax benefit (expense) |
|
|
5 |
|
|
|
78 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(5 |
) |
|
|
(202 |
) |
|
|
(165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,720 |
|
|
$ |
827 |
|
|
$ |
360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share from continuing operations |
|
$ |
1.07 |
|
|
$ |
0.65 |
|
|
$ |
0.34 |
|
Basic loss per common share from discontinued operations |
|
|
(0.01 |
) |
|
|
(0.13 |
) |
|
|
(0.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
1.06 |
|
|
$ |
0.52 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share from continuing operations |
|
$ |
1.03 |
|
|
$ |
0.63 |
|
|
$ |
0.32 |
|
Diluted loss per common share from discontinued operations |
|
|
|
|
|
|
(0.12 |
) |
|
|
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
1.03 |
|
|
$ |
0.51 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
1,616 |
|
|
|
1,579 |
|
|
|
1,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
1,675 |
|
|
|
1,636 |
|
|
|
1,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share announced |
|
$ |
0.190 |
|
|
$ |
0.085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
QUALCOMM
Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30 |
|
|
2004 |
|
2003* |
|
2002* |
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1,725 |
|
|
$ |
1,029 |
|
|
$ |
525 |
|
Depreciation and amortization |
|
|
163 |
|
|
|
146 |
|
|
|
349 |
|
Asset impairment and related charges |
|
|
|
|
|
|
34 |
|
|
|
|
|
Net realized gains on marketable securities and other
investments |
|
|
(88 |
) |
|
|
(80 |
) |
|
|
(2 |
) |
(Gains) losses on derivative instruments |
|
|
(7 |
) |
|
|
3 |
|
|
|
58 |
|
Other-than-temporary losses on marketable securities and
other investments |
|
|
12 |
|
|
|
128 |
|
|
|
231 |
|
Equity in losses of investees |
|
|
72 |
|
|
|
113 |
|
|
|
57 |
|
Non-cash income tax expense |
|
|
419 |
|
|
|
411 |
|
|
|
8 |
|
Other non-cash charges |
|
|
35 |
|
|
|
13 |
|
|
|
(4 |
) |
Proceeds from (purchases of) trading securities |
|
|
|
|
|
|
2 |
|
|
|
(2 |
) |
Increase (decrease) in cash resulting from changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(93 |
) |
|
|
53 |
|
|
|
(1 |
) |
Inventories |
|
|
(50 |
) |
|
|
(23 |
) |
|
|
18 |
|
Other assets |
|
|
51 |
|
|
|
(12 |
) |
|
|
(9 |
) |
Trade accounts payable |
|
|
151 |
|
|
|
(24 |
) |
|
|
47 |
|
Payroll, benefits and other liabilities |
|
|
148 |
|
|
|
43 |
|
|
|
25 |
|
Unearned revenue |
|
|
(57 |
) |
|
|
(12 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2,481 |
|
|
|
1,824 |
|
|
|
1,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(332 |
) |
|
|
(202 |
) |
|
|
(127 |
) |
Purchases of available-for-sale securities |
|
|
(8,372 |
) |
|
|
(4,484 |
) |
|
|
(1,754 |
) |
Proceeds from sale of available-for-sale securities |
|
|
5,026 |
|
|
|
3,183 |
|
|
|
1,050 |
|
Purchases of held-to-maturity securities |
|
|
(184 |
) |
|
|
(355 |
) |
|
|
(189 |
) |
Maturities of held-to-maturity securities |
|
|
401 |
|
|
|
257 |
|
|
|
257 |
|
Issuance of finance receivables |
|
|
(1 |
) |
|
|
(150 |
) |
|
|
(141 |
) |
Collection of finance receivables |
|
|
196 |
|
|
|
813 |
|
|
|
8 |
|
Issuance of notes receivable |
|
|
(37 |
) |
|
|
(28 |
) |
|
|
(4 |
) |
Collection of notes receivable |
|
|
38 |
|
|
|
4 |
|
|
|
16 |
|
Other investments and acquisitions |
|
|
(70 |
) |
|
|
(37 |
) |
|
|
(199 |
) |
Other items, net |
|
|
9 |
|
|
|
7 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(3,326 |
) |
|
|
(992 |
) |
|
|
(1,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
330 |
|
|
|
191 |
|
|
|
119 |
|
Repurchase and retirement of common stock |
|
|
|
|
|
|
(166 |
) |
|
|
(6 |
) |
Proceeds from put options |
|
|
5 |
|
|
|
7 |
|
|
|
|
|
Dividends paid |
|
|
(308 |
) |
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
27 |
|
|
|
(103 |
) |
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by discontinued operations |
|
|
(13 |
) |
|
|
(89 |
) |
|
|
(300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
(2 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(831 |
) |
|
|
638 |
|
|
|
18 |
|
Cash and cash equivalents at beginning of year |
|
|
2,045 |
|
|
|
1,407 |
|
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
1,214 |
|
|
$ |
2,045 |
|
|
$ |
1,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
QUALCOMM Incorporated
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Total |
|
|
Common Stock |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Stockholders |
|
|
Shares |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Equity |
Balance at September 30, 2001 |
|
|
1,527 |
|
|
$ |
4,792 |
|
|
$ |
245 |
|
|
$ |
(224 |
) |
|
$ |
4,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
360 |
|
|
|
|
|
|
|
360 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
(15 |
) |
Unrealized net losses on securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86 |
) |
|
|
(86 |
) |
Reclassification adjustment for net realized gains included
in net income, net of income taxes of $1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
(12 |
) |
Reclassification adjustment for other-than-temporary
losses on marketable securities included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206 |
|
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
29 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
81 |
|
Tax benefit from exercise of stock options |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Issuance for Employee Stock Purchase and Executive
Retirement Plans |
|
|
2 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
38 |
|
Repurchase and retirement of common stock |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
(6 |
) |
Stock-based compensation expense |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2002 |
|
|
1,557 |
|
|
|
4,918 |
|
|
|
605 |
|
|
|
(131 |
) |
|
|
5,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
827 |
|
|
|
|
|
|
|
827 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
Unrealized net gains on securities, net of income taxes of $45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
69 |
|
Reclassification adjustment for net realized gains included
in net income, net of income taxes of $27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
(41 |
) |
Reclassification adjustment for other-than-temporary
losses on marketable securities included in net income,
net of income taxes of $18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
47 |
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
153 |
|
Tax benefit from exercise of stock options |
|
|
|
|
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
267 |
|
Issuance for Employee Stock Purchase and Executive
Retirement Plans |
|
|
3 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
38 |
|
Reversal of the valuation allowance on certain deferred
tax assets (Note 6) |
|
|
|
|
|
|
1,106 |
|
|
|
|
|
|
|
|
|
|
|
1,106 |
|
Repurchase and retirement of common stock |
|
|
(10 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|
(158 |
) |
Dividends |
|
|
|
|
|
|
|
|
|
|
(135 |
) |
|
|
|
|
|
|
(135 |
) |
Stock-based compensation expense |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2003 |
|
|
1,597 |
|
|
|
6,325 |
|
|
|
1,297 |
|
|
|
(24 |
) |
|
|
7,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
1,720 |
|
|
|
|
|
|
|
1,720 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
56 |
|
Unrealized net gains on securities, net of income taxes of $20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
29 |
|
Reclassification adjustment for net realized gains included
in net income, net of income taxes of $35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53 |
) |
|
|
(53 |
) |
Reclassification adjustment for other-than-temporary
losses on marketable securities included in net income,
net of income taxes of $5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
36 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
284 |
|
Tax benefit from exercise of stock options |
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
285 |
|
Issuance for Employee Stock Purchase and Executive
Retirement Plans |
|
|
2 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
46 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
(308 |
) |
|
|
|
|
|
|
(308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2004 |
|
|
1,635 |
|
|
$ |
6,940 |
|
|
$ |
2,709 |
|
|
$ |
15 |
|
|
$ |
9,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-6
Note
1. The Company and its Significant Accounting Policies
The Company
QUALCOMM Incorporated (the Company or QUALCOMM), a Delaware corporation, develops, designs,
manufactures and markets digital wireless telecommunications products and services based on its
Code Division Multiple Access (CDMA) technology. The Company is a leading developer and supplier of
CDMA-based integrated circuits and system software for wireless voice and data communications,
multimedia functions and global positioning system products to wireless device and infrastructure
manufacturers. The Company grants licenses to use portions of its intellectual property portfolio,
which includes certain patent rights essential to and/or useful in the manufacture and sale of CDMA
products, and receives license fees as well as ongoing royalties based on sales by licensees of
wireless telecommunications equipment products incorporating its CDMA technologies. The Company
provides satellite and terrestrial-based two-way data messaging and position reporting services for
transportation companies, private fleets, construction equipment fleets and other enterprise
companies. The Company provides the BREW (Binary Runtime Environment for Wireless) product and
services to network operators, handset manufacturers and application developers and support for
developing and delivering over-the-air wireless applications and services. The Company also makes
strategic investments to promote the worldwide adoptions of CDMA products and services for wireless
voice and Internet data communications.
Principles of Consolidation
The Companys consolidated financial statements include the assets, liabilities and operating
results of majority-owned subsidiaries and other subsidiaries controlled by the Company. The
ownership of the other interest holders of consolidated subsidiaries is reflected as minority
interest and is not significant. All significant intercompany accounts and transactions have been
eliminated. The Companys foreign subsidiaries are included in the consolidated financial
statements one month in arrears to facilitate the timely inclusion of such entities in the
Companys consolidated financial statements.
The Company deconsolidated the Vésper Operating Companies during the first quarter of fiscal
2004 as a result of their sale in December 2003 and TowerCo during the second quarter of fiscal
2004 as a result of its sale in March 2004 (Note 11). Results of operations and cash flows related
to the Vésper Operating Companies and TowerCo are presented as discontinued operations. The
Companys statements of operations and cash flows for all prior periods have been adjusted to
present the discontinued operations. The balance sheet as of September 28, 2003 was not adjusted to
present assets and liabilities related to discontinued operations separately.
Effective as of the beginning of the second quarter of fiscal 2004, the Company adopted the
revised interpretation of Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN
46), Consolidation of Variable Interest Entities, (FIN 46-R). FIN 46-R requires that certain
variable interest entities be consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The Company does not have any investments in
entities it believes are variable interest entities for which the Company is the primary
beneficiary.
Financial Statement Preparation
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts and the disclosure of contingent amounts in the Companys financial statements and
the accompanying notes. Actual results could differ from those estimates. Certain prior year
amounts have been reclassified to conform to the current year presentation.
Fiscal Year
The Company operates and reports using a 52-week fiscal year ending on the last Sunday in
September. The fiscal years ended September 30, 2004, 2003 and 2002 each include 52 weeks. For
presentation purposes, the Company presents its fiscal years as ending on September 30.
Revenue Recognition
The Company derives revenue principally from sales of integrated circuit products, from
royalties for its intellectual property, from messaging and other services and related hardware
sales, from software development and related services, and from license fees for intellectual
property. The timing of revenue recognition and the amount of revenue actually recognized in each
case depends upon a variety of factors, including the specific terms of each
F-7
arrangement and the nature of the Companys deliverables and obligations. The development
stage of the Companys customers products do not affect the timing or amount of revenue
recognized.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements (later revised as Staff
Accounting Bulletin No. 104) which the Company adopted in the fourth quarter of fiscal 2001 and
applied retroactively to the first quarter of fiscal 2001. The Company recorded a $147 million
loss, net of taxes of $98 million, as the cumulative effect of the accounting change as of the
beginning of fiscal 2001 to reflect the deferral of revenues and expenses related to future
periods. The amortization of revenue that was deferred as of the beginning of fiscal 2001 is
expected to continue to be amortized with a declining impact through fiscal 2007. The Company
recognized $30 million, $44 million and $66 million during fiscal 2004, 2003 and 2002,
respectively, in operating income related to revenues and expenses that were recognized in prior
years.
In November 2002, the Emerging Issues Task Force (EITF) issued Issue No. 00-21, Accounting
for Revenue Arrangements with Multiple Deliverables which the Company adopted in the fourth
quarter of fiscal 2003. This issue addresses determination of whether an arrangement involving more
than one deliverable contains more than one unit of accounting and how arrangement consideration
should be measured and allocated to the separate units of accounting. Beginning with the adoption
of SAB 101 until the fourth quarter of fiscal 2003, the Company recognized revenues and expenses
from sales of certain satellite and terrestrial-based two-way data messaging and position reporting
hardware and related software products by its QWBS division (Note 10) ratably over the shorter of
the estimated useful life of the hardware product or the expected messaging service period, which
is typically five years. SAB 101 required the ratable recognition of these sales because the
messaging service was considered integral to the functionality of the hardware and software. EITF
Issue No. 00-21 does not require the deferral of revenue when an undelivered element is considered
integral to the functionality of a delivered element and otherwise requires separate unit
accounting in multiple element arrangements. Given that the Company meets the criteria stipulated
in EITF Issue No. 00-21, the sale of the hardware is accounted for as a unit of accounting separate
from the future service to be provided by the Company. Accordingly, the Company began recognizing
revenues allocated to the hardware using the residual method, and related expenses from such sales,
starting in the fourth quarter of fiscal 2003 at the time of shipment, or when title and risk of
loss pass to the customer and other criteria for revenue recognition are met, if later, instead of
amortizing the related revenue over a future period. The Company elected to adopt EITF Issue No.
00-21 prospectively for revenue arrangements entered into after the third quarter of fiscal 2003,
rather than reporting the change in accounting as a cumulative-effect adjustment. The amortization
of QWBS equipment revenue that was deferred in the periods prior to the adoption of EITF Issue No.
00-21 will continue with a declining impact through fiscal 2008. QWBS amortized $76 million and $23
million in revenue related to such prior period equipment sales in fiscal 2004 and during the
fourth quarter of fiscal 2003, respectively. Deferred revenues and expenses related to the
historical QWBS sales that will continue to be amortized in future periods were $106 million and
$62 million, respectively, at September 30, 2004. Gross margin related to these prior sales is
expected to be recognized as follows: $24 million in fiscal 2005, $13 million in fiscal 2006, $6
million in fiscal 2007 and $1 million in fiscal 2008.
The Company licenses rights to use portions of its intellectual property portfolio, which
includes certain patent rights essential to and/or useful in the manufacture and sale of CDMA
(including, without limitation, cdmaOne, CDMA2000, 1X/1xEV-DO/1xEV-DV, TD-SCDMA and WCDMA)
products. Licensees typically pay a nonrefundable license fee in one or more installments and
ongoing royalties based on their sales of products incorporating or using the Companys licensed
intellectual property. License fees are recognized over the estimated period of future benefit to
the average licensee, typically five to seven years. The Company earns royalties on such licensed
CDMA products sold worldwide by its licensees at the time that the licensees sales occur. The
Companys licensees, however, do not report and pay royalties owed for sales in any given quarter
until after the conclusion of that quarter, and, in some instances, although royalties are reported
quarterly, payment is on a semi-annual basis. During the periods preceding the fourth quarter of
fiscal 2004, the Company estimated and recorded the royalty revenues earned for sales by certain
licensees (the Estimated Licensees) in the quarter in which such sales occurred, but only when
reasonable estimates of such amounts could be made. Not all royalties earned were estimated.
Royalties for licensees for which the Company had minimal reporting history and certain licensees
that did not incorporate the Companys integrated circuit products into their own products were
recorded one quarter in arrears, i.e. in the quarter in which the royalties were reported to the
Company by those licensees. Estimates of royalty revenues for the Estimated Licensees were based on
analyses of the Companys sales of integrated circuits to Estimated Licensees, historical royalty
data for Estimated Licensee, an estimate of the time between the Companys
F-8
sales of integrated circuits to Estimated Licensees and Estimated Licensees sales of CDMA
products, average sales price forecasts, estimates of inventory levels and current market and
economic trends. Once royalty reports were received from the Estimated Licensees, the variance
between such reports and the estimate was recorded as royalty revenue in the quarter in which the
reports were received, i.e. in most cases, the quarter subsequent to the quarter in which the
estimated royalties were recorded as revenue.
The following table summarizes royalty related data for fiscal 2004, 2003 and 2002 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
Estimate recorded for the fourth quarter of the prior year
(Prior Year Fourth Quarter) for Estimated Licensees |
|
$ |
151 |
|
|
$ |
150 |
|
|
$ |
122 |
|
Royalties
reported in first quarter of the current year by Estimated Licensees for the Prior Year Fourth Quarter |
|
|
208 |
|
|
|
167 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior Year Fourth Quarter variance included in current year |
|
|
57 |
|
|
|
17 |
|
|
|
24 |
|
Other royalties reported in current year |
|
|
1,084 |
|
|
|
670 |
|
|
|
551 |
|
Estimate recorded for the fourth quarter of the current
year for Estimated Licensees |
|
|
|
|
|
|
151 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current year royalty revenues from external licensees |
|
$ |
1,141 |
|
|
$ |
838 |
|
|
$ |
725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For example, for fiscal 2003, the Company estimated royalties of $151 million from the
Estimated Licensees for the fourth quarter of fiscal 2003. The actual royalties reported to the
Company by the Estimated Licensees, on a one quarter lag basis, during the first quarter of fiscal
2004 were $208 million. The variance of $57 million was recorded in royalty revenues in the first
quarter of fiscal 2004. Therefore, total royalty revenues from licensees for fiscal 2004 of $1,141
million included: 1) the prior year fourth quarter variance of $57 million and 2) other royalties
reported by licensees during fiscal 2004 of $1,084 million. The Company did not estimate royalty
revenues for the fourth quarter of fiscal 2004 due to a change in the Companys ability to estimate
royalties.
Starting in the fourth quarter of fiscal 2004, the Company determined that, due to recent
escalating business trends, the Company no longer has the ability to reliably estimate royalty
revenues from certain licensees. These escalating trends include the commercial launches and global
expansion of WCDMA networks, changes in market share among licensees due to increased global
competition and increased variability in the integrated circuit and finished product inventories of
licensees. Accordingly, the Company did not estimate royalty revenues earned in the fourth quarter
of fiscal 2004. Starting in the fourth quarter of fiscal 2004, the Company began recognizing
revenues solely based on royalties reported by licensees during the quarter. The change in the
timing of recognizing royalty revenue was made prospectively and had the initial one-time effect of
reducing royalty revenues recorded in the fourth quarter of fiscal 2004. Royalties reported by the
Companys licensees were $151 million higher than royalty revenues from external licensees recorded
in fiscal 2004 because $151 million in royalties that were reported in the first quarter of fiscal
2004 had been estimated and recorded as revenue in the fourth quarter of fiscal 2003. To facilitate
an understanding of the impact of the change, the following table compares royalty revenues
recorded as revenue in fiscal 2004, 2003 and 2002 to royalties reported by the Companys licensees
during those same periods (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
Royalty revenues from external licensees, as recorded in the
Companys consolidated statements of operations |
|
$ |
1,141 |
|
|
$ |
838 |
|
|
$ |
725 |
|
Estimate recorded for the fourth quarter of the prior year for
Estimated Licensees* |
|
|
151 |
|
|
|
150 |
|
|
|
122 |
|
Estimate recorded at end of the current year for Estimated Licensees |
|
|
|
|
|
|
(151 |
) |
|
|
(150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total royalties reported by external licensees during the
current year |
|
$ |
1,292 |
|
|
$ |
837 |
|
|
$ |
697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Recorded as revenue in the prior year, but reported by
licensees during the current year. |
The table above illustrates that the difference between royalties reported by external
licensees and royalty revenues from external licensees recorded in the Companys consolidated
statements of operations has equaled the difference between the estimate for Estimated Licensees at
the end of the current year and the estimate for Estimated Licensees at the end of the prior year.
F-9
Revenues from sales of the Companys CDMA-based integrated circuits are recognized at the time
of shipment, or when title and risk of loss pass to the customer and other criteria for revenue
recognition are met, if later. Revenues from providing services are recorded when earned.
Revenues from long-term contracts are generally recognized using the percentage-of-completion
efforts-expended method of accounting, based on costs incurred compared with total estimated costs.
The percentage-of-completion method relies on estimates of total contract revenue and costs.
Revenue and profit are subject to revisions as the contract progresses to completion. Revisions in
profit estimates are charged or credited to income in the period in which the facts that give rise
to the revision become known. If actual contract costs are greater than expected, reduction of
contract profit would be required. Billings on uncompleted contracts in excess of incurred cost and
accrued profit are classified as unearned revenue. Estimated contract losses are recognized when
determined. If substantive uncertainty related to customer acceptance exists or the contracts
duration is relatively short, the Company uses the completed-contract method.
The Company provides both perpetual and renewable time-based software licenses. Revenues from
software license fees are recognized when all of the following criteria are met: the written
agreement is executed; the software is delivered; the license fee is fixed and determinable;
collectibility of the license fee is probable; and if applicable, when vendor-specific objective
evidence exists to allocate the total license fee to elements of multiple-element arrangements,
including post-contract customer support. When contracts contain multiple elements wherein
vendor-specific objective evidence exists for all undelivered elements, the Company recognizes
revenue for the delivered elements and defers revenue for the fair value of the undelivered
elements until the remaining obligations have been satisfied. If vendor-specific objective evidence
does not exist for all undelivered elements, revenue for the delivered and undelivered elements is
deferred until remaining obligations have been satisfied, or if the only undelivered element is
post-contract customer support and vendor specific objective evidence of the fair value of
post-contract customer support does not exist, revenue from the entire arrangement is recognized
ratably over the support period. Judgments and estimates are made in connection with the
recognition of software license revenue, which may include assessments of collectibility, the fair
value of deliverable elements and the implied support period. The amount or timing of the Companys
software license revenue may differ as a result of changes in these judgments or estimates.
The Company records reductions to revenue for customer incentive programs, including special
pricing agreements and other volume-related rebate programs. Such reductions to revenue are
estimates, which are based on a number of factors, including our assumptions related to historical
and projected customer sales volumes and the contractual provisions of the customer agreements.
Unearned revenue consists primarily of fees related to software products and license fees for
intellectual property for which delivery is not yet complete and to hardware products sales with a
continuing service obligation.
Concentrations
A significant portion of the Companys revenues is concentrated with a limited number of
customers as the worldwide market for wireless telecommunications products is dominated by a small
number of large corporations. Revenues from Samsung, LG Electronics and Motorola, customers of the
Companys QCT, QTL, QWI and other nonreportable segments, comprised 15%, 15% and 10% of total
consolidated revenues, respectively, in fiscal 2004, as compared to 17%, 13% and 13% of total
consolidated revenues, respectively, in fiscal 2003. Revenues from Samsung, Kyocera and LG
Electronics, customers of the Companys QCT, QTL, QWI and other nonreportable segments, comprised
16%, 14% and 12% of total consolidated revenues, respectively, in fiscal 2002. Aggregated accounts
receivable from Samsung, LG Electronics and Motorola comprised 51% and 48% of gross accounts
receivable at September 30, 2004 and 2003, respectively.
Revenues from international customers were approximately 79%, 77% and 69% of total
consolidated revenues in fiscal 2004, 2003 and 2002, respectively.
Cost of equipment and services revenues
Cost of equipment and services revenues is primarily comprised of the cost of equipment
revenues, the cost of messaging services revenues and the cost of development and other services
revenues. Cost of equipment revenues
consists of the cost of equipment sold and sustaining engineering costs, including personnel
and related costs. Cost of messaging services revenues consists principally of satellite
transponder costs, network operations expenses, including personnel and related costs,
depreciation, and airtime charges by telecommunications operators. Cost of development and other
services revenues primarily includes personnel costs and related expenses.
F-10
Research and Development
Costs incurred in research and development activities are expensed as incurred, except certain
software development costs capitalized after technological feasibility of the software is
established.
Shipping and Handling Costs
Costs incurred for shipping and handling are included in cost of revenues at the time the
related revenue is recognized. Amounts billed to a customer for shipping and handling are reported
as revenue.
Income Taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the carrying amounts and the
tax bases of assets and liabilities. Tax law and rate changes are reflected in income in the period
such changes are enacted. The Company records a valuation allowance to reduce the deferred tax
assets to the amount that is more likely than not to be realized.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months
or less to be cash equivalents. Cash equivalents are comprised of money market funds, certificates
of deposit, commercial paper and government agencies securities. The carrying amounts approximate
fair value due to the short maturities of these instruments.
Marketable Securities
Management determines the appropriate classification of marketable securities at the time of
purchase and reevaluates such designation as of each balance sheet date. Held-to-maturity
securities are carried at amortized cost, which approximates fair value. Available-for-sale
securities are stated at fair value as determined by the most recently traded price of each
security at the balance sheet date. The net unrealized gains or losses on available-for-sale
securities are reported as a component of comprehensive income (loss), net of tax. The specific
identification method is used to compute the realized gains and losses on debt and equity
securities.
The Company regularly monitors and evaluates the realizable value of its marketable
securities. When assessing marketable securities for other-than-temporary declines in value, the
Company considers such factors as, among other things, how significant 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 performance of the investees stock price in relation to the stock price of its
competitors within the industry and the market in general, analyst recommendations, any news that
has been released specific to the investee and the outlook for the overall industry in which the
investee operates. The Company also reviews the financial statements of the investee to determine
if the investee is experiencing financial difficulties and considers new products/services that the
investee may have forthcoming that will improve its operating results. If events and circumstances
indicate that a decline in the value of these assets has occurred and is other than temporary, the
Company records a charge to investment income (expense).
Allowances for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the
inability of the Companys customers to make required payments. The Company considers the following
factors when determining if collection of a fee is reasonably assured: customer credit-worthiness,
past transaction history with the customer, current economic industry trends and changes in
customer payment terms. If the Company has no previous experience with the customer, the Company
typically obtains reports from various credit organizations to ensure that the customer has a
history of paying its creditors. The Company may also request financial information, including
financial statements or other documents (e.g., bank statements) to ensure that the customer has the
means of making payment. If these factors do not indicate collection is reasonably assured, revenue
is deferred until collection becomes reasonably assured, which is generally upon receipt of cash.
If the financial condition of the Companys customers were to deteriorate, adversely affecting
their ability to make payments, additional allowances would be required.
The Company also maintains allowances for doubtful accounts for estimated losses resulting
from the inability of entities it has financed to make required payments. The Company evaluates the
adequacy of allowances for doubtful finance and note receivables based on analyses of the financed
entities credit-worthiness, current economic trends or market conditions, review of the entities
current and projected financial and operational information, and
F-11
consideration of the fair value of
collateral to be received, if applicable. From time to time, the Company may consider third party
evaluations, valuation reports or advice from investment banks. If the financial condition of the
financed entities were 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 inventory 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. Buildings and building improvements are
depreciated over 30 years and 15 years, respectively. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the remaining term of the related lease. Other property,
plant and equipment have useful lives ranging from two to 15 years. Direct external and internal
costs of developing software for internal use are capitalized subsequent to the preliminary stage
of development. Maintenance, repairs, and minor renewals and betterments are charged to expense as
incurred.
Upon the retirement or disposition of property, plant and equipment, the related cost and
accumulated depreciation or amortization are removed and the gain or loss is recorded.
Other Investments
Investments in Other Entities
The Company makes strategic investments in companies that have developed or are developing
innovative wireless data applications and wireless operators that promote the worldwide deployment
of CDMA systems. Investments in corporate entities with less than a 20% voting interest are
generally accounted for under the cost method. The Company uses the equity method to account for
investments in corporate entities, including limited liability corporations that do not maintain
specific ownership accounts, in which it has a voting interest of 20% to 50% and other than minor
to 50% ownership interests in partnerships and limited liability corporations that do maintain
specific ownership accounts, or in which it otherwise has the ability to exercise significant
influence. Under the equity method, the investment is originally recorded at cost and adjusted to
recognize the Companys share of net earnings or losses of the investee, limited to the extent of
the Companys investment in and advances to the investee and financial guarantees on behalf of the
investee that create additional basis.
The Company regularly monitors and evaluates the realizable value of its investments. When
assessing an investment for an other-than-temporary decline in value, the Company considers such
factors as, among other things, the share price from the investees latest financing round, the
performance of the investee in relation to its own operating targets and its business plan, the
investees revenue and cost trends, as well as liquidity and cash position, including its cash burn
rate, market acceptance of the investees products/services as well as any new products or services
that may be forthcoming, any significant news that has been released specific to the investee or
the investees competitors and/or industry, and the outlook for the overall industry in which the
investee operates. From time to time, the Company may consider third party evaluations, valuation
reports or advice from investment banks. If events and circumstances indicate that a decline in the
value of these assets has occurred and is other than temporary, the Company records a charge to
investment income (expense).
Derivatives
The Company holds warrants to purchase equity interests in certain other companies related to
its strategic investment activities. The Companys warrants are not held for trading purposes.
Certain of the Companys warrants are recorded at fair value. Changes in fair value are recorded in
investment income (expense) as gains (losses) on derivative instruments because the warrants do not
meet the requirements for hedge accounting. Warrants that do not have contractual net settlement
provisions are recorded at cost.
The Company enters into foreign currency forward and option contracts to hedge certain foreign
currency transactions and probable anticipated foreign currency transactions. Gains and losses
arising from foreign currency forward and option contracts that are not designated as hedging
instruments are recorded in investment income (expense) as gains (losses) on derivative
instruments. Gains and losses arising from the effective portion of foreign currency forward and
option contracts that are designated as cash-flow hedging instruments are recorded in
F-12
accumulated other comprehensive income (loss) as gains (losses) on derivative instruments until the underlying
transaction affects the Companys earnings. The value of the Companys foreign currency forward
contracts was insignificant at September 30, 2004. The Company had no foreign currency option
contracts outstanding at September 30, 2004. The Company had no foreign currency forward or option
contracts outstanding at September 30, 2003.
At September 30, 2004 and 2003, the recorded value of the Companys derivative instruments
totaled $4 million and $2 million, respectively, and none of the Companys derivatives were
designated as hedges. The Companys derivative instruments are included in other assets.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price and related costs over the value assigned to
the net tangible and identifiable intangible assets of businesses acquired. Effective as of the
beginning of fiscal 2003, the Company fully adopted Statement of Financial Accounting Standards No.
141 (FAS 141), Business Combinations, and Statement of Financial Accounting Standards No. 142
(FAS 142), Goodwill and Other Intangible Assets. The provisions of FAS 141 (1) require that the
purchase method of accounting be used for all business combinations initiated after June 30, 2001,
(2) provide specific criteria for the initial recognition and measurement of intangible assets
apart from goodwill, and (3) require that unamortized negative goodwill be written off immediately
as an extraordinary gain instead of being deferred and amortized. FAS 141 also requires that, upon
adoption of FAS 142, the Company reclassify the carrying amounts of certain intangible assets into
or out of goodwill, based on certain criteria. Upon the adoption of FAS 142, the Company
reclassified approximately $2 million of certain intangible assets into goodwill.
FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to
their initial recognition. The provisions of FAS 142 (1) prohibit the amortization of goodwill and
indefinite-lived intangible assets, (2) require that goodwill and indefinite-lived intangible
assets be tested annually for impairment (and in interim periods if certain events occur indicating
that the carrying value of goodwill and/or indefinite-lived intangible assets may be impaired), (3)
require that reporting units be identified for the purpose of assessing potential impairments of
goodwill, and (4) remove the forty-year limitation on the amortization period of intangible assets
that have finite lives. The Company completed its transitional testing for goodwill impairment upon
adoption of FAS 142 and its annual testing for fiscal 2004 and 2003 and determined that its
recorded goodwill was not impaired.
Starting in fiscal 2003, the Company no longer records goodwill amortization. Goodwill is
tested annually for impairment and in interim periods if certain events occur indicating that the
carrying value of goodwill may be impaired. Software development costs are capitalized when a
products technological 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 30, 2004 and 2003. Other intangible assets are amortized on a straight-line basis over
their useful lives, ranging from three to 28 years.
Weighted-average amortization periods for finite lived intangible assets, by class, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2004 |
|
2003 |
Wireless licenses |
|
15 years |
|
15 years |
Marketing-related |
|
17 years |
|
19 years |
Technology-based |
|
11 years |
|
4 years |
Customer-related |
|
8 years |
|
10 years |
Other |
|
28 years |
|
25 years |
Total intangible assets |
|
14 years |
|
15 years |
Changes in the weighted-average amortization periods from fiscal 2003 to 2004 resulted from
changes associated with additions and dispositions of intangible assets. Dispositions primarily
resulted from discontinued operations (Note 11).
F-13
The results of operations and earnings per common share for fiscal 2002, assuming FAS 142 had
been adopted at the beginning of fiscal 2002, are as follows (in millions, except per share data):
|
|
|
|
|
|
|
2002 |
Reported net income |
|
$ |
360 |
|
Goodwill amortization |
|
|
249 |
|
|
|
|
|
|
Adjusted net income |
|
$ |
609 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
Basic as reported |
|
$ |
0.23 |
|
|
|
|
|
|
Basic as adjusted |
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported |
|
$ |
0.22 |
|
|
|
|
|
|
Diluted as adjusted |
|
$ |
0.38 |
|
|
|
|
|
|
Valuation of Long-Lived and Intangible Assets
The Company adopted Statement of Financial Accounting Standards No. 144 (FAS 144), Accounting
for the Impairment or Disposal of Long-Lived Assets as of the beginning of fiscal 2003. The
adoption of this accounting standard did not have a material impact on the Companys operating
results and financial position. The Company assesses potential impairments to its long-lived assets
when there is evidence that events or changes in circumstances indicate 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 flows 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 probable.
Where a liability is probable and there is a range of estimated loss with no best estimate in the
range, the Company records the minimum estimated liability related to the claim. As additional
information becomes available, the Company assesses the potential liability related to the
Companys pending litigation and revises its estimates.
Guarantees and Product Warranties
In the normal course of business, the Company may provide guarantees to other parties. Upon
issuance of a guarantee, the Company recognizes a liability for the fair value of the obligation it
assumes under that guarantee, as required. At September 30, 2004, liabilities related to guarantees
were approximately $1 million. At September 30, 2003, liabilities related to guarantees were not
significant.
Estimated future warranty obligations related to certain products are provided by charges to
operations in the period in which the related revenue is recognized. The Company establishes a
reserve for warranty obligations based on its historical warranty experience. Warranty obligations
were $2 million and $4 million at September 30, 2004 and 2003, respectively, and changes in the
obligations were not significant during fiscal 2004, 2003 or 2002.
Stock-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 Companys 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 stock options 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.
F-14
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 stock-based compensation 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUALCOMM |
|
Employee Stock |
|
|
Stock Option Plans |
|
Purchase Plans |
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
Risk-free interest rate |
|
|
3.8 |
% |
|
|
3.2 |
% |
|
|
4.4 |
% |
|
|
1.1 |
% |
|
|
1.0 |
% |
|
|
2.3 |
% |
Volatility |
|
|
53.2 |
% |
|
|
58.0 |
% |
|
|
58.0 |
% |
|
|
33.3 |
% |
|
|
41.1 |
% |
|
|
69.0 |
% |
Dividend yield |
|
|
0.6 |
% |
|
|
0.2 |
% |
|
|
0.0 |
% |
|
|
0.7 |
% |
|
|
0.3 |
% |
|
|
0.0 |
% |
Expected life (years) |
|
|
6.0 |
|
|
|
6.0 |
|
|
|
6.0 |
|
|
|
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. The Black-Scholes model does not consider the employment, transfer or vesting
restrictions that are inherent in the Companys employee stock options. 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 Companys employee stock options have characteristics significantly different
from those of freely traded options, and because changes in the subjective input assumptions can
materially affect the Companys estimate of the fair value of those stock options, in the Companys
opinion, existing valuation models, including Black-Scholes, are not reliable single measures and
may misstate the fair value of the Companys employee stock options. The Black-Scholes weighted
average estimated fair values of stock options granted during fiscal 2004, 2003 and 2002 were
$13.82, $9.67 and $14.10 per share, respectively. The Black-Scholes weighted average estimated fair
values of purchase rights granted pursuant to the Employee Stock Purchase Plans during fiscal 2004,
2003 and 2002 were $6.24, $4.80 and $7.28 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value of stock options is assumed to
be amortized to expense over the stock options vesting periods. The pro forma effects of
recognizing compensation expense under the fair value method on net income and net earnings per
common share for the years ended September 30 were as follows (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
Net income, as reported |
|
$ |
1,720 |
|
|
$ |
827 |
|
|
$ |
360 |
|
Add: Stock-based employee compensation expense included
in reported net income, net of related tax benefits |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Deduct: Stock-based employee compensation expense
determined under the fair value based method for all
awards, net of related tax effects |
|
|
(281 |
) |
|
|
(260 |
) |
|
|
(235 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
1,439 |
|
|
$ |
568 |
|
|
$ |
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
1.06 |
|
|
$ |
0.52 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma |
|
$ |
0.89 |
|
|
$ |
0.36 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported |
|
$ |
1.03 |
|
|
$ |
0.51 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma |
|
$ |
0.86 |
|
|
$ |
0.35 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
Foreign subsidiaries operating in a local currency environment use the local currency as the
functional currency. Assets and liabilities are translated to United States dollars at the exchange
rate in effect at the balance sheet date; revenues, expenses, gains and losses are translated at
rates of exchange that approximate the rates in effect at the transaction date. Resulting
translation gains or losses are recognized as a component of other comprehensive income
F-15
(loss). The functional currency of the Companys foreign investees that do not use local currencies is the
United States dollar. Where the United States dollar is the functional currency, the monetary
assets and liabilities are translated into United States dollars at the exchange rate in effect at
the balance sheet date. Revenues, expenses, gains and losses associated with the monetary assets
and liabilities are translated at the rates of exchange that approximate the rates in effect at the
transaction date. Non-monetary assets and liabilities and related elements of revenues, expenses,
gains and losses are translated at historical rates. Resulting translation gains or losses of these
foreign investees are recognized in the statements of operations.
During fiscal 2004, net foreign currency transaction gains included in the Companys statement
of operations were $1 million. During fiscal 2003 and 2002, net foreign currency transaction gains
and losses included in the Companys statements of operations were insignificant.
Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner sources, including
foreign currency translation adjustments and unrealized gains and losses on marketable securities.
The Company presents comprehensive income in its consolidated statements of stockholders equity.
The reclassification adjustment for other-than-temporary losses on marketable securities
results from the recognition of unrealized losses in the statement of operations due to declines in
the market prices of those securities deemed to be other than temporary. The reclassification
adjustment for net realized gains results from the recognition of the net realized gains in the
statement of operations when the marketable securities are sold.
Components of accumulated other comprehensive income (loss) consisted of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2004 |
|
2003 |
Foreign currency translation |
|
$ |
(27 |
) |
|
$ |
(83 |
) |
Unrealized gains on marketable
securities, net of income taxes |
|
|
42 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15 |
|
|
$ |
(24 |
) |
|
|
|
|
|
|
|
|
|
Stock Split
On July 13, 2004, the Company announced a two-for-one stock split in the form of a stock
dividend. Stock was distributed on August 13, 2004 to stockholders of record as of July 23, 2004.
Stockholders equity has been restated to give retroactive recognition to the stock split for all
periods presented by reclassifying the par value of the additional shares arising from the split from paid-in-capital to common stock. All references
in the financial statements and notes to number of shares and per share amounts reflect the stock
split.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the weighted average
number of common shares outstanding during the reporting period. Diluted earnings per common share
is computed by dividing net income by the combination of dilutive common share equivalents,
comprised of shares issuable under the Companys stock-based compensation plans and shares subject
to written put options, and the weighted average number of common shares outstanding during the
reporting period. The incremental dilutive common share equivalents, calculated using the treasury
stock method, for fiscal 2004, 2003 and 2002 were approximately 58,686,000, 56,338,000 and
76,883,000, respectively.
Employee stock options to purchase approximately 40,221,000, 86,540,000 and 81,690,000 shares
of common stock during fiscal 2004, 2003 and 2002, respectively, were outstanding but not included
in the computation of diluted earnings per common share because the option exercise price was
greater than the average market price of the common stock, and therefore, the effect on dilutive
earnings per common share would have been anti-dilutive. Put options outstanding during fiscal 2004
to purchase 3,000,000 shares of common stock were not included in the earnings per common share
computation for fiscal 2004 because the put options exercise prices were less than the average
market price of the common stock while they were outstanding, and therefore, the effect on diluted
earnings per common share would be anti-dilutive (Note 7).
F-16
Future Accounting Requirements
In June 2004, the FASB issued EITF Issue No. 02-14, Whether an Investor Should Apply the
Equity Method of Accounting to Investments Other Than Common Stock. EITF Issue No. 02-14 addresses
whether the equity method of accounting applies when an investor does not have an investment in
voting common stock of an investee but exercises significant influence through other means. EITF
Issue No. 02-14 states that an investor should only apply the equity method of accounting when it
has investments in either common stock or in-substance common stock of a corporation, provided that
the investor has the ability to exercise significant influence over the operating and financial
policies of the investee. The accounting provisions of EITF Issue No. 02-14 are effective for the
first quarter of fiscal 2005. The Company is in the process of determining the effect, if any, the
adoption of EITF Issue No. 02-14 will have on its financial statements.
In March 2004, the FASB issued EITF Issue No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments which provides new guidance for assessing
impairment losses on debt and equity investments. Additionally, EITF Issue No. 03-1 includes new
disclosure requirements for investments that are deemed to be temporarily impaired. In September
2004, the FASB delayed the accounting provisions of EITF Issue No. 03-1; however, the disclosure
requirements remain effective and have been adopted for the Companys year ended September 30,
2004. The Company will evaluate the effect, if any, of EITF Issue No. 03-1 when final guidance is
released.
Note 2. Marketable Securities
Marketable securities were comprised as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
Noncurrent |
|
|
September 30, |
|
September 30, |
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
$ |
|
|
|
$ |
5 |
|
|
$ |
|
|
|
$ |
|
|
U.S. Treasury and federal agency securities |
|
|
|
|
|
|
1 |
|
|
|
70 |
|
|
|
130 |
|
Corporate bonds and notes |
|
|
10 |
|
|
|
161 |
|
|
|
60 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
167 |
|
|
|
130 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agency securities |
|
|
520 |
|
|
|
696 |
|
|
|
|
|
|
|
|
|
Foreign government bonds |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes |
|
|
2,062 |
|
|
|
1,118 |
|
|
|
3 |
|
|
|
22 |
|
Mortgage and asset-backed securities |
|
|
2,056 |
|
|
|
486 |
|
|
|
|
|
|
|
|
|
Non-investment grade debt securities |
|
|
|
|
|
|
39 |
|
|
|
571 |
|
|
|
459 |
|
Equity mutual funds |
|
|
|
|
|
|
|
|
|
|
296 |
|
|
|
|
|
Equity securities |
|
|
112 |
|
|
|
10 |
|
|
|
653 |
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,758 |
|
|
|
2,349 |
|
|
|
1,523 |
|
|
|
611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,768 |
|
|
$ |
2,516 |
|
|
$ |
1,653 |
|
|
$ |
811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2004, the contractual maturities of debt securities were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years to Maturity |
|
No Single |
|
|
|
|
|
|
Less than |
|
One to |
|
Five to |
|
Greater than |
|
Maturity |
|
|
|
|
|
|
One Year |
|
Five Years |
|
Ten Years |
|
Ten Years |
|
Date |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity |
|
$ |
10 |
|
|
$ |
130 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
140 |
|
Available-for-sale |
|
|
826 |
|
|
|
1,820 |
|
|
|
495 |
|
|
|
25 |
|
|
|
2,054 |
|
|
|
5,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
836 |
|
|
$ |
1,950 |
|
|
$ |
495 |
|
|
$ |
25 |
|
|
$ |
2,054 |
|
|
$ |
5,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities with no single maturity date include mortgage- and asset-backed securities.
F-17
Available-for-sale securities were comprised as follows at September 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
Unrealized Gains |
|
Unrealized Losses |
|
Fair Value |
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
1,003 |
|
|
$ |
77 |
|
|
$ |
(19 |
) |
|
$ |
1,061 |
|
Debt securities |
|
|
5,208 |
|
|
|
27 |
|
|
|
(15 |
) |
|
$ |
5,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,211 |
|
|
$ |
104 |
|
|
$ |
(34 |
) |
|
$ |
6,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
104 |
|
|
$ |
37 |
|
|
$ |
(1 |
) |
|
$ |
140 |
|
Debt securities |
|
|
2,758 |
|
|
|
69 |
|
|
|
(7 |
) |
|
|
2,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,862 |
|
|
$ |
106 |
|
|
$ |
(8 |
) |
|
$ |
2,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of held-to-maturity debt securities at September 30, 2004 and 2003
approximate cost.
For the years ended September 30, 2004, 2003 and 2002, the Company recorded realized gains and
losses on sales of available-for-sale marketable securities as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Realized |
|
Realized |
|
Net Realized |
|
|
Gains |
|
Losses |
|
Gains |
2004 |
|
$ |
105 |
|
|
$ |
(17 |
) |
|
$ |
88 |
|
2003 |
|
|
82 |
|
|
|
(13 |
) |
|
|
69 |
|
2002 |
|
|
23 |
|
|
|
(11 |
) |
|
|
12 |
|
The following table shows the gross unrealized losses and fair values of the Companys
investments in individual securities that have been in a continuous unrealized loss position deemed
to be temporary for less than 12 months, aggregated by investment category, at September 30, 2004
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Fair Value |
|
Losses |
U.S. Treasury and federal agency securities |
|
$ |
309 |
|
|
$ |
(1 |
) |
Corporate bonds and notes |
|
|
1,261 |
|
|
|
(4 |
) |
Mortgage and asset-backed securities |
|
|
559 |
|
|
|
(2 |
) |
Non-investment grade debt securities |
|
|
108 |
|
|
|
(7 |
) |
Equity mutual funds |
|
|
296 |
|
|
|
(7 |
) |
Equity securities |
|
|
196 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,729 |
|
|
$ |
(34 |
) |
|
|
|
|
|
|
|
|
|
At September 30, 2004, the Company did not have any investments in individual securities
that have been in a continuous unrealized loss position deemed to be temporary for more than 12
months.
Investment Grade Debt Securities. The Companys investments in investment grade debt
securities consist primarily of investments in certificates of deposit, U.S. Treasury and federal
agency securities, foreign government bonds, mortgage and asset-backed securities and corporate
bonds and notes. The unrealized losses on the Companys investments in investment grade debt
securities were caused by interest rate increases. Due to the fact that the decline in market value
is attributable to changes in interest rates and not credit quality, and because the severity and
duration of the unrealized losses were not significant, the Company considered these unrealized
losses to be temporary at September 30, 2004.
Non-Investment Grade Debt Securities. The Companys investments in non-investment grade debt
securities consist primarily of investments in corporate bonds. The unrealized losses on the
Companys investment in non-investment grade debt securities were caused by credit quality and
industry or company specific events. Because the severity and duration of the unrealized losses
were not significant, the Company considered these unrealized losses to be temporary at September
30, 2004.
Marketable Equity Securities. The Companys investments in marketable equity securities
consist primarily of investments in common stock of large companies and equity mutual funds. The
unrealized losses on the Companys
F-18
investment in marketable equity securities were caused by overall equity market
volatility and industry specific events. The duration and severity of the unrealized losses in
relation to the carrying amounts of the individual investments were consistent with typical equity
market volatility. Current market forecasts support a recovery of fair value up to (or beyond) the
cost of the investment within a reasonable period of time. Accordingly, the Company considered
these unrealized losses to be temporary at September 30, 2004.
Note 3. Composition of Certain Financial Statement Captions
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2004 |
|
2003 |
|
|
(In millions) |
Trade, net of allowance for doubtful accounts
of $5 and $12, respectively |
|
$ |
529 |
|
|
$ |
461 |
|
Long-term contracts: |
|
|
|
|
|
|
|
|
Billed |
|
|
11 |
|
|
|
10 |
|
Unbilled |
|
|
3 |
|
|
|
7 |
|
Other |
|
|
38 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
581 |
|
|
$ |
484 |
|
|
|
|
|
|
|
|
|
|
Unbilled receivables represent costs and profits recorded in excess of amounts billable
pursuant to contract provisions and are expected to be realized within one year.
Net accounts receivable were reduced by $22 million from September 30, 2003 as a result of
discontinued operations (Note 11).
Finance Receivables
Finance receivables, which are included in other assets, result from arrangements in which the
Company has agreed to provide its customers or certain CDMA customers of Telefonaktiebolaget LM
Ericsson (Ericsson) with long-term interest bearing debt financing for the purchase of equipment
and/or services. Finance receivables were comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2004 |
|
2003 |
|
|
(In millions) |
Finance receivables |
|
$ |
3 |
|
|
$ |
205 |
|
Allowances |
|
|
(1 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
187 |
|
Current maturities, net |
|
|
2 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Noncurrent finance receivables, net |
|
$ |
|
|
|
$ |
182 |
|
|
|
|
|
|
|
|
|
|
At September 30, 2004 and 2003, the fair value of finance receivables approximated $2
million and $198 million, respectively. The fair value of finance receivables is estimated by
discounting the future cash flows using current interest rates at which similar financing would be
provided to similar customers for the same remaining maturities.
The Company had various financing arrangements, including a bridge loan facility, an equipment
loan facility, and interim and additional interim loan facilities, with Pegaso Comunicaciones y
Sistemas S.A. de C.V., a wholly owned subsidiary of Pegaso Telecomunicaciones, S.A. de C.V., a CDMA
wireless operator in Mexico (collectively referred to as Pegaso). On September 10, 2002, Telefónica
Móviles (Telefónica) acquired a 65% controlling interest in Pegaso. On October 10, 2002, Pegaso
paid $82 million in full satisfaction of the interim and additional interim loans. On November 8,
2002, Pegaso paid $435 million in full satisfaction of the bridge loan facility. The Company
used approximately $139 million of the bridge loan proceeds to purchase outstanding vendor
debt owed by Pegaso to other lenders. On June 13, 2003, Pegaso prepaid $281 million of the
equipment loan facility, including accrued interest, in accordance with certain terms of the
equipment loan facility. On December 15, 2003, Pegaso prepaid $193 million, including accrued
interest, in full satisfaction of the equipment loan facility. The Company recognized
F-19
$12 million, $41 million and $9 million in interest income related to the Pegaso financing arrangements during
fiscal 2004, 2003 and 2002, respectively, including $10 million and $23 million of deferred
interest income recorded as a result of the prepayments in fiscal 2004 and 2003, respectively.
A long-term financing commitment for $346 million under an arrangement with Ericsson expired
on November 6, 2003. At September 30, 2004, the Company has a remaining commitment to extend up to
$118 million in long-term financing to certain CDMA customers of Ericsson. The funding of this
commitment, if it occurs, is not subject to a fixed expiration date and is subject to the CDMA
customers meeting conditions prescribed in the financing arrangement and, in certain cases, to
Ericsson also financing a portion of such sales and services. Financing under this arrangement is
generally collateralized by the related equipment. The commitment represents the maximum amount to
be financed; actual financing may be in lesser amounts.
Inventories
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2004 |
|
2003 |
|
|
(In millions) |
Raw materials |
|
$ |
20 |
|
|
$ |
18 |
|
Work-in-process |
|
|
3 |
|
|
|
3 |
|
Finished goods |
|
|
131 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
154 |
|
|
$ |
110 |
|
|
|
|
|
|
|
|
|
|
Inventories were reduced by $8 million from September 30, 2003 as a result of
discontinued operations (Note 11).
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2004 |
|
2003 |
|
|
(In millions) |
Land |
|
$ |
47 |
|
|
$ |
47 |
|
Buildings and improvements |
|
|
413 |
|
|
|
338 |
|
Computer equipment |
|
|
430 |
|
|
|
379 |
|
Machinery and equipment |
|
|
413 |
|
|
|
449 |
|
Furniture and office equipment |
|
|
24 |
|
|
|
22 |
|
Leasehold improvements |
|
|
54 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,381 |
|
|
|
1,278 |
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
and amortization |
|
|
(706 |
) |
|
|
(656 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
675 |
|
|
$ |
622 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense from continuing operations related to property,
plant and equipment for fiscal 2004, 2003 and 2002 was $133 million, $117 million and $93 million,
respectively. The gross and net carrying values of property, plant and equipment were reduced by
$170 million and $103 million, respectively, from September 30, 2003 as a result of discontinued
operations (Note 11).
At September 30, 2004 and 2003, buildings and improvements and leasehold improvements with a
net book value of $38 million and $66 million, respectively, including accumulated depreciation and
amortization of $27
million and $52 million, respectively, were leased to third parties or held for lease to third
parties. Future minimum rental income on facilities leased to others in each of the next five years
from fiscal 2005 to 2009 are $10 million, $9 million, $9 million, $7 million and $1 million,
respectively.
Intangible Assets
Starting in fiscal 2003, the Company no longer records goodwill amortization (Note 1). The
Companys reportable segment assets do not include goodwill (Note 10). The Company allocates
goodwill to its reporting units for annual testing purposes. Goodwill was allocable to reporting
units included in the Companys reportable
F-20
segments at September 30, 2004 as follows: $268 million
in QUALCOMM CDMA Technologies, $73 million in QUALCOMM Technology Licensing and $15 million in
QUALCOMM Wireless & Internet.
The components of purchased intangible assets, which are included in other assets, were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2004 |
|
2003 |
|
|
Gross Carrying |
|
Accumulated |
|
Gross Carrying |
|
Accumulated |
|
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
Wireless licenses |
|
$ |
77 |
|
|
$ |
(11 |
) |
|
$ |
174 |
|
|
$ |
(8 |
) |
Marketing-related |
|
|
21 |
|
|
|
(8 |
) |
|
|
21 |
|
|
|
(7 |
) |
Technology-based |
|
|
77 |
|
|
|
(37 |
) |
|
|
36 |
|
|
|
(27 |
) |
Customer-related |
|
|
15 |
|
|
|
(12 |
) |
|
|
17 |
|
|
|
(16 |
) |
Other |
|
|
7 |
|
|
|
(1 |
) |
|
|
8 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
197 |
|
|
$ |
(69 |
) |
|
$ |
256 |
|
|
$ |
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying values of wireless licenses, customer-related intangible assets and
marketing-related intangible assets were reduced by $105 million, $5 million and $1 million,
respectively, from September 30, 2003 as a result of discontinued operations (Note 11). During
fiscal 2003, the Company recorded a $34 million impairment loss in its QUALCOMM Strategic
Initiatives segment on its wireless licenses in Australia due to developments that affected
potential strategic alternatives for using the spectrum. The impairment loss recognized was the
difference between the assets carrying values and their estimated fair values.
All of the Companys purchased intangible assets other than goodwill are subject to
amortization. Amortization expense from continuing operations for fiscal 2004, 2003 and 2002 was
$17 million, $18 million and $14 million, respectively. Amortization expense related to these
intangible assets is expected to be $14 million in fiscal 2005, $14 million in fiscal 2006, $13
million in fiscal 2007, $9 million in fiscal 2008 and $8 million in fiscal 2009.
Capitalized software development costs, which are included in other assets, were $44 million
and $36 million at September 30, 2004 and 2003, respectively. Accumulated amortization on
capitalized software was $39 million and $26 million at September 30, 2004 and 2003, respectively.
Amortization expense from continuing operations related to capitalized software for fiscal 2004,
2003 and 2002 was $13 million, $12 million and $10 million, respectively.
Note 4. Investments in Other Entities
Inquam Limited
The Company has invested $200 million in the convertible preferred shares of Inquam Limited
(Inquam) for an approximate 42% ownership interest in Inquam. Inquam owns, develops and manages
wireless communications systems, either directly or indirectly, with the intent of deploying
CDMA-based technology, primarily in Europe. Starting in the third quarter of fiscal 2003, the
Company and another investor (the Other Investor) also extended $117 million in bridge loan
financings to Inquam, including $31 million in bridge loan funding put in place during
fiscal 2004. The Company funded its approximate $58 million share of these bridge loans and
had no remaining funding commitment at September 30, 2004. Inquam is a variable interest entity.
The Company does not consolidate Inquam because it is not the primary beneficiary. The Company uses
the equity method to account for its investment in Inquam. The Company recorded $59 million, $99
million and $45 million in equity in losses of Inquam during fiscal 2004, 2003 and 2002,
respectively. At September 30, 2004 and 2003, the Companys equity and debt investments in Inquam
totaled $42 million and $68 million, net of equity in losses, respectively. The carrying amount of
the Companys investment in Inquam exceeded its underlying equity in the net assets of Inquam by $8
million and $9 million, at September 30, 2004 and 2003, respectively.
On September 22, 2003, the Company agreed, along with the Other Investor, to guarantee the
payment of amounts due by Inquam under a bank credit agreement. During fiscal 2004, the Company and
the Other Investor agreed to extend the guarantee and increase the maximum amount subject to the
guarantee to $55 million. The Companys maximum liability under the guarantee is limited to an
amount equal to 50% of the amounts outstanding under Inquams credit agreement, up to a maximum of
approximately $28 million. Amounts outstanding under the bank credit agreement totaled $53 million
as of September 30, 2004. The guarantee expires on November 30, 2004 when the bank credit facility
matures. Inquam is currently working with the bank and other potential lenders to
F-21
secure long-term take out financing to repay the existing loan on the maturity date. It is possible that the
Company and the Other Investor may provide additional guarantees in connection with such take out
financing.
During the first quarter of fiscal 2005, the Company and the Other Investor committed to fund
an additional $2 million each. While the Company has no other obligations to provide funding to
Inquam, the Company continues to have active discussions with Inquam and the Other Investor
concerning the necessary funding for all or a part of Inquams business plan, potential
restructuring and investment by other parties. While the Company may provide some additional
funding and/or credit support in furtherance of Inquams business plan, the amount and form of such
support is unknown, and none will be provided without commensurate support or consideration being
provided by the Other Investor.
Inquams summarized financial information, derived from its unaudited financial statements, is
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2004 |
|
2003 |
Balance sheet: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
40 |
|
|
$ |
45 |
|
Noncurrent assets |
|
|
152 |
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
192 |
|
|
$ |
218 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
123 |
|
|
$ |
98 |
|
Noncurrent liabilities |
|
|
132 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
255 |
|
|
$ |
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
2004 |
|
2003 |
|
2002 |
Income statement: |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
88 |
|
|
$ |
50 |
|
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
35 |
|
|
|
(2 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(136 |
) |
|
$ |
(205 |
) |
|
$ |
(104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Other strategic equity investments as of September 30, 2004 and 2003 totaled $123 million and
$87 million, respectively, including $50 million and $33 million, respectively, accounted for using
the cost method. Differences between the carrying amounts of certain other strategic equity method
investments and the Companys underlying equity in the net assets of those investees, consisting of
acquisition related goodwill and intangible assets accounted
for in accordance with FAS 142, were not significant at September 30, 2004 and 2003. At
September 30, 2004, effective ownership interests in these investees ranged from less than 1% to
50%.
Summarized financial information regarding the Companys principal equity method investments,
excluding Inquam, derived from their unaudited financial statements, follows. These investments are
primarily noncontrolling interests in early stage companies and venture funds. Information is
presented in the aggregate, and net loss is generally presented from the acquisition date (in
millions):
F-22
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2004 |
|
2003 |
Current assets |
|
$ |
100 |
|
|
$ |
82 |
|
Noncurrent assets |
|
|
236 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
336 |
|
|
$ |
123 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
21 |
|
|
$ |
|
|
Noncurrent liabilities |
|
|
86 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
107 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
2004 |
|
2003 |
|
2002 |
Income statement: |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
5 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loss |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(38 |
) |
|
$ |
(41 |
) |
|
$ |
(64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding commitments related to these investments total $19 million at September 30, 2004,
which the Company expects to fund through fiscal 2009. Such commitments are subject to the
investees meeting certain conditions; actual equity funding may be in lesser amounts. An investees
failure to successfully develop and provide competitive products and services due to lack of
financing, market demand or an unfavorable economic environment could adversely affect the value of
the Companys 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 Companys 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-temporary losses 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 Companys
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
F-23
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 Companys equity and derivative instruments in Leap
Wireless were cancelled without consideration. The fair value of the Companys 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of the expected statutory federal income tax provision
to the Companys actual income tax provision for the years ended September 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
Expected income tax provision at federal
statutory tax rate |
|
$ |
809 |
|
|
$ |
548 |
|
|
$ |
218 |
|
State income tax provision, net of federal
benefit |
|
|
91 |
|
|
|
61 |
|
|
|
32 |
|
Goodwill amortization |
|
|
|
|
|
|
|
|
|
|
97 |
|
Other permanent differences |
|
|
|
|
|
|
8 |
|
|
|
5 |
|
Foreign income taxed at other than U.S. rates |
|
|
(215 |
) |
|
|
(59 |
) |
|
|
(37 |
) |
Valuation allowance |
|
|
(44 |
) |
|
|
|
|
|
|
(189 |
) |
Tax credits |
|
|
(49 |
) |
|
|
(32 |
) |
|
|
(26 |
) |
Other |
|
|
(4 |
) |
|
|
10 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual income tax provision |
|
$ |
588 |
|
|
$ |
536 |
|
|
$ |
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not provide for United States income taxes and foreign withholding taxes
on a cumulative total of approximately $1.5 billion of undistributed earnings from certain
non-United States subsidiaries permanently invested outside the United States. Should the Company
repatriate foreign earnings, the Company would have to adjust the income tax provision in the
period management determined that the Company would repatriate the earnings. The Company is
currently studying the impact of the one-time favorable foreign dividend provisions enacted on
October 22, 2004, as part of the American Jobs Creation Act of 2004, and may decide to repatriate
future earnings of some of its foreign subsidiaries. However, the decision to repatriate would
relate solely to future earnings to be generated after the date such decision was made.
F-24
At September 30, 2004 and 2003, the Company had net deferred tax assets as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
Accrued liabilities, reserves and other |
|
$ |
139 |
|
|
$ |
599 |
|
Deferred revenues |
|
|
133 |
|
|
|
172 |
|
Unrealized losses on marketable securities |
|
|
5 |
|
|
|
|
|
Unused net operating losses |
|
|
|
|
|
|
309 |
|
Capital loss carryover |
|
|
249 |
|
|
|
150 |
|
Tax credits |
|
|
454 |
|
|
|
345 |
|
Unrealized losses on investments |
|
|
169 |
|
|
|
228 |
|
|
|
|
|
|
|
|
|
|
Total gross deferred assets |
|
|
1,149 |
|
|
|
1,803 |
|
Valuation allowance |
|
|
(139 |
) |
|
|
(660 |
) |
|
|
|
|
|
|
|
|
|
Total net deferred assets |
|
|
1,010 |
|
|
|
1,143 |
|
|
|
|
|
|
|
|
|
|
Purchased intangible assets |
|
|
(8 |
) |
|
|
(2 |
) |
Deferred contract costs |
|
|
(26 |
) |
|
|
(43 |
) |
Unrealized gains on marketable securities |
|
|
(33 |
) |
|
|
(39 |
) |
Other basis differences |
|
|
(43 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
Total deferred liabilities |
|
$ |
(110 |
) |
|
$ |
(125 |
) |
|
|
|
|
|
|
|
|
|
Gross deferred tax assets and valuation allowance each decreased by $495 million from
September 30, 2003, primarily as a result of discontinued operations (Note 11), with no net effect
on net deferred tax assets.
The Company reversed approximately $1.1 billion of its valuation allowance on substantially
all of its United States deferred tax assets during fiscal 2003 as a credit to stockholders
equity. The Company believes it, more likely than not, will have sufficient taxable income after
stock option related deductions to utilize its net deferred tax assets. As of September 30, 2004,
the Company has provided a valuation allowance on net capital losses in the amount of $139 million.
This valuation allowance reflects the uncertainty surrounding the Companys ability to generate
sufficient capital gains to utilize all capital losses.
At September 30, 2004, the Company had unused federal and state income tax credits of $658
million and $78 million, respectively, generally expiring from 2005 through 2024. The Company does
not expect these credits to expire unused.
Cash amounts paid for income taxes, net of refunds received, were $127 million, $125 million
and $89 million for fiscal 2004, 2003 and 2002, respectively. The income taxes paid primarily
relate to foreign withholding taxes.
Note 7. Capital Stock
Preferred Stock
The Company has 8,000,000 shares of preferred stock authorized for issuance in one or more
series, at a par value of $0.0001 per share. In conjunction with the distribution of preferred
share purchase rights, 1,500,000 shares of preferred stock are designated as Series A Junior
Participating Preferred Stock and reserved such shares for issuance upon exercise of the preferred
share purchase rights. At September 30, 2004 and 2003, no shares of preferred stock were
outstanding.
Preferred Share Purchase Rights Plan
The Company has a Preferred Share Purchase Rights Plan (Rights Plan) to protect stockholders
rights in the event of a proposed takeover of the Company. Under the Rights Plan, the Company
declared a dividend of one preferred share purchase right (a Right) for each share of the Companys
common stock outstanding. Pursuant to the Rights Plan, each Right entitles the registered holder to
purchase from the Company a one one-hundredth share of Series A Junior Participating Preferred
Stock, $0.0001 par value per share, subject to adjustment for subsequent stock splits, at a
purchase price of $250. In November 1999, the Rights Plan was amended to provide that the purchase
price be set at $400. The Rights are exercisable only if a person or group (an Acquiring Person)
acquires beneficial ownership of 15% or more of the Companys outstanding shares of common stock.
Upon exercise, holders, other than an Acquiring Person, will have the right, subject to
termination, to receive the Companys common stock or other securities, cash or other assets having
a market value, as defined, equal to twice such
F-25
purchase price. The Rights, which expire on
September 25, 2005, are redeemable in whole, but not in part, at the Companys option at any time
for a price of $0.005 per Right.
Stock Repurchase Program
On February 10, 2003, the Company authorized the expenditure of up to $1 billion to repurchase
shares of the Companys common stock over a two-year period. During fiscal 2003, the Company bought
9,830,000 shares at a net aggregate cost of $158 million. While the Company did not repurchase any
of the Companys common stock under this program during fiscal 2004, the Company continues to
evaluate repurchases under this program. At September 30, 2004, $834 million remains authorized for
repurchases under the program. Repurchased shares are retired upon repurchase.
In connection with the Companys stock repurchase program, the Company sold put options under
three separate contracts with independent third parties during fiscal 2004 that may have required
the Company to purchase 3,000,000 shares of its common stock upon exercise. The Company accounted
for the written put options in accordance with Statement of Financial Standards No. 150 (FAS 150),
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
In the event the put options were exercised, the contracts required that the options be physically
settled in cash. The Company determined that the put options should be classified as liabilities in
accordance with FAS 150. As such, the Company recorded the $5 million in premiums received as
additions to other current liabilities, and changes in the fair values of the put options were
recognized in the Companys statement of operations. The Company repurchased all of the put options
during fiscal 2004. The net gain recorded in investment income related to the put options,
including premiums received, during fiscal 2004 was $5 million.
During fiscal 2003, the Company sold put options under three separate contracts with
independent third parties that required the Company to purchase 3,000,000 shares of its common
stock upon exercise. All of these put options expired unexercised. The Company classified the put
options as permanent equity in accordance with Emerging Issues Task Force Issue No. 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock, which was subsequently amended by FAS 150. As such, the Company recorded the
$7 million in premiums received as paid-in capital.
Dividends
On February 11, 2003, the Company announced its first common stock dividend of $0.025 per
share. On July 16, 2003, the Company announced an increase in its quarterly dividend from $0.025 to
$0.035 per share on common stock. On March 2, 2004, the Company announced an increase in its
quarterly dividend from $0.035 to $0.050 per share on common stock. On July 13, 2004, the Company
announced an increase in its quarterly dividend from $0.050 to $0.070 per share on common stock.
Cash dividends announced in fiscal 2004 and 2003 were as follows (in millions, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
|
Per Share |
|
Total |
|
Per Share |
|
Total |
First quarter |
|
$ |
0.070 |
|
|
$ |
112 |
|
|
$ |
|
|
|
$ |
|
|
Second quarter |
|
|
0.050 |
|
|
|
81 |
|
|
|
0.025 |
|
|
|
39 |
|
Third quarter |
|
|
|
|
|
|
|
|
|
|
0.025 |
|
|
|
40 |
|
Fourth quarter |
|
|
0.070 |
|
|
|
114 |
|
|
|
0.035 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
0.190 |
|
|
$ |
307 |
|
|
$ |
0.085 |
|
|
$ |
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Employee Benefit Plans
Employee Savings and Retirement Plan
The Company has a 401(k) plan that allows eligible employees to contribute up to 50% of their
eligible compensation, subject to annual limits. The Company matches a portion of the employee
contributions and may, at its discretion, make additional contributions based upon earnings. The
Companys contribution expense for fiscal 2004, 2003 and 2002 was $21 million, $20 million and $20
million, respectively.
Stock Option Plans
The Company may grant options to selected employees, directors and consultants to the Company
to purchase shares of the Companys common stock at a price not less than the fair market value of
the stock at the date of grant.
F-26
The 2001 Stock Option Plan (the 2001 Plan) was adopted and replaced
the 1991 Stock Option Plan (the 1991 Plan), which expired in August 2001. Options granted under the
1991 Plan remain outstanding until exercised or cancelled. The shares reserved under the 2001 Plan
were equal to the number of shares available for future grant under the 1991 Plan on the date the
2001 Plan was approved by the Companys stockholders. At that date, approximately 101,083,000
shares were available for future grants under the 2001 Plan. In fiscal 2004, the Company reserved
another 64,000,000 shares for future grants under the 2001 Plan. The Company may terminate the 2001
Plan at any time. The 2001 Plan provides for the grant of both incentive stock options and
non-qualified stock options. Generally, options outstanding vest over periods not exceeding six
years and are exercisable for up to 10 years from the grant date. At September 30, 2004, options
for approximately 120,860,000 shares under both plans were exercisable at prices ranging from $1.40
to $86.19 per share for an aggregate exercise price of $2.1 billion.
The Company has adopted the 2001 Non-Employee Directors Stock Option Plan (the 2001
Directors Plan), which replaced the 1998 Non-Employee Directors Stock Option Plan (the 1998
Directors Plan). Options granted under the 1998 Directors Plan remain outstanding until exercised
or cancelled. The shares reserved under the 2001 Directors Plan are equal to the number of shares
available for future grant under the 1998 Directors Plan on the date the 2001 Directors Plan was
approved by the Companys stockholders. At that date, 4,100,000 shares were available for future
grants under the 2001 Directors Plan. The Company may terminate the 2001 Directors Plan at any
time. This plan provides for non-qualified stock options to be granted to non-employee directors at
fair market value, vesting over periods not exceeding five years and are exercisable for up to 10
years from the grant date. At September 30, 2004, options for approximately 3,232,000 shares under
both plans were exercisable at prices ranging from $2.91 to $66.50 per share for an aggregate
exercise price of $30 million.
A summary of stock option transactions for the plans follows (number of shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
Options Outstanding |
|
|
Shares |
|
|
|
Exercise Price Per Share |
|
|
Available |
|
Number |
|
|
|
|
|
Weighted |
|
|
for Grant |
|
of Shares |
|
Range |
|
Average |
Balance at September 30, 2001 |
|
|
95,778 |
|
|
|
216,350 |
|
|
$0.01 to $86.19 |
|
|
$ |
11.10 |
|
Plan shares expired |
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
(53,050 |
) |
|
|
53,050 |
|
|
|
12.81 to 30.02 |
|
|
|
24.35 |
|
Options cancelled |
|
|
6,202 |
|
|
|
(6,202 |
) |
|
|
0.51 to 70.81 |
|
|
|
25.40 |
|
Options exercised |
|
|
|
|
|
|
(28,650 |
) |
|
|
0.01 to 25.91 |
|
|
|
2.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2002 |
|
|
48,868 |
|
|
|
234,548 |
|
|
$0.07 to $86.19 |
|
|
$ |
14.73 |
|
Plan shares expired |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
(33,664 |
) |
|
|
33,664 |
|
|
|
14.55 to 22.87 |
|
|
|
17.42 |
|
Options cancelled |
|
|
8,546 |
|
|
|
(8,546 |
) |
|
|
0.79 to 73.94 |
|
|
|
24.15 |
|
Options exercised |
|
|
|
|
|
|
(46,694 |
) |
|
|
0.15 to 19.57 |
|
|
|
3.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2003 |
|
|
23,746 |
|
|
|
212,972 |
|
|
$0.07 to $86.19 |
|
|
$ |
17.28 |
|
Additional shares reserved |
|
|
64,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
(31,252 |
) |
|
|
31,252 |
|
|
|
21.50 to 40.40 |
|
|
|
27.19 |
|
Options cancelled |
|
|
4,420 |
|
|
|
(4,420 |
) |
|
|
2.30 to 70.00 |
|
|
|
28.15 |
|
Options exercised |
|
|
|
|
|
|
(36,220 |
) |
|
|
0.14 to 37.34 |
|
|
|
7.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2004 |
|
|
60,914 |
|
|
|
203,584 |
|
|
$0.07 to $86.19 |
|
|
$ |
20.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
Information about fixed stock options outstanding at September 30, 2004 follows (number
of shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Contractual |
|
Average |
|
|
|
|
|
Average |
Range of |
|
Number |
|
Life |
|
Exercise |
|
Number |
|
Exercise |
Exercise Prices |
|
of Shares |
|
(In Years) |
|
Price |
|
of Shares |
|
Price |
$0.07 to $3.37 |
|
|
28,449 |
|
|
|
2.11 |
|
|
$ |
2.59 |
|
|
|
28,424 |
|
|
$ |
2.59 |
|
$3.38 to $9.63 |
|
|
31,466 |
|
|
|
3.71 |
|
|
|
4.43 |
|
|
|
31,454 |
|
|
|
4.43 |
|
$11.92 to $17.47 |
|
|
28,412 |
|
|
|
7.99 |
|
|
|
16.33 |
|
|
|
9,952 |
|
|
|
16.13 |
|
$17.48 to $22.44 |
|
|
31,812 |
|
|
|
8.54 |
|
|
|
20.44 |
|
|
|
8,056 |
|
|
|
19.70 |
|
$22.77 to $29.21 |
|
|
36,792 |
|
|
|
6.97 |
|
|
|
27.18 |
|
|
|
20,331 |
|
|
|
27.05 |
|
$29.31 to $34.80 |
|
|
27,319 |
|
|
|
7.75 |
|
|
|
33.36 |
|
|
|
10,887 |
|
|
|
33.77 |
|
$34.88 to $86.19 |
|
|
19,334 |
|
|
|
5.88 |
|
|
|
45.64 |
|
|
|
15,546 |
|
|
|
46.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,584 |
|
|
|
6.18 |
|
|
$ |
20.25 |
|
|
|
124,650 |
|
|
$ |
17.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were approximately 129,990,000 options exercisable with a weighted average exercise
price of $13.42 per share at September 30, 2003. There were approximately 137,876,000 options
exercisable with a weighted average exercise price of $8.97 per share at September 30, 2002.
Information about stock options outstanding at September 30, 2004 with exercise prices less
than or above $38.25 per share, the closing price at September 30, 2004, follows (number of shares
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
Unexercisable |
|
Total |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
Number |
|
Exercise |
|
Number |
|
Exercise |
|
Number |
|
Exercise |
Stock Options |
|
of Shares |
|
Price |
|
of Shares |
|
Price |
|
of Shares |
|
Price |
Less than $38.25 |
|
|
109,448 |
|
|
$ |
13.36 |
|
|
|
75,967 |
|
|
$ |
23.94 |
|
|
|
185,415 |
|
|
$ |
17.70 |
|
Above $38.25 |
|
|
15,202 |
|
|
|
46.53 |
|
|
|
2,967 |
|
|
|
44.81 |
|
|
|
18,169 |
|
|
|
46.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total outstanding |
|
|
124,650 |
|
|
$ |
17.41 |
|
|
|
78,934 |
|
|
$ |
24.73 |
|
|
|
203,584 |
|
|
$ |
20.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plans
The Company has two employee stock purchase plans for all eligible employees to purchase
shares of common stock at 85% of the lower of the fair market value on the first or the last day of
each six-month offering period. Employees may authorize the Company to withhold up to 15% of their
compensation during any offering period, subject to certain limitations. The 2001 Employee Stock
Purchase Plan authorizes up to approximately 24,309,000 shares to be granted. The 1996
Non-Qualified Employee Stock Purchase Plan authorizes up to 400,000 shares to be granted. During
fiscal 2004, 2003 and 2002, shares totaling approximately 2,205,000, 2,744,000 and 2,300,000 were
issued under the plans at an average price of $18.60, $13.20 and $15.73 per share, respectively. At
September 30, 2004, approximately 17,232,000 shares were reserved for future issuance.
Executive Retirement Plans
The Company has voluntary retirement plans that allow eligible executives to defer up to 100%
of their income on a pre-tax basis. On a quarterly basis, the Company matches up to 10% of the
participants deferral in Company common stock based on the then-current market price, to be
distributed to the participant upon eligible retirement. The income deferred and the Company match
held in trust are unsecured and subject to the claims of general creditors of the Company. Company
contributions begin vesting based on certain minimum participation or service requirements, and are
fully vested at age 65. Participants who terminate employment forfeit their unvested shares. All
shares forfeited are used to reduce the Companys future matching contributions. The plans
authorize up to 1,600,000 shares to be allocated to participants at any time. During fiscal 2004,
2003 and 2002, approximately
F-28
108,000, 89,000 and 88,000 shares, respectively, were allocated under
the plans. The Company recorded $5 million, $2 million and $2 million in compensation expense
during fiscal 2004, 2003 and 2002, respectively, related to its net matching contributions to the
plans. At September 30, 2004, approximately 331,000 shares were reserved for future allocation.
Note 9. Commitments and Contingencies
Litigation
Schwartz, et al v. QUALCOMM: In fiscal 2001, 87 former QUALCOMM employees filed a lawsuit
against the Company in the District Court for Boulder County, Colorado, alleging claims for
intentional misrepresentation, nondisclosure and concealment, violation of C.R.S. Section 8-2-104
(obtaining workers by misrepresentation), breach of contract, breach of the implied covenant of
good faith and fair dealing, promissory estoppel, negligent misrepresentation, unjust enrichment,
violation of California Labor Code Section 970, violation of California Civil Code Sections
1709-1710, rescission, violation of California Business & Professions Code Section 17200 and
violation of California Civil Code Section 1575. The complaint seeks economic, emotional distress
and punitive damages and unspecified amounts of interest. On November 29, 2001, the Court granted
the Companys motion to dismiss 17 of the plaintiffs from the lawsuit. Subsequently, the Court
dismissed three other plaintiffs from the lawsuit. On November 18, 2002, the Court granted the
Companys motion to dismiss 61 of the remaining 67 plaintiffs from the lawsuit. The Company
subsequently resolved the matters with the remaining plaintiffs. Those plaintiffs whose claims were
dismissed have appealed. Oral argument on the appeal occurred on October 26, 2004, and no decision
has been received.
Hanig et al. v. QUALCOMM, Boesel, et al v. QUALCOMM, Stone v. QUALCOMM, Ortiz et al v.
QUALCOMM, Shannon et al. v. QUALCOMM, Deshon et al v. QUALCOMM, Earnhart et al. v. QUALCOMM: These
cases, the first of which was filed in fiscal 2001, were filed in San Diego County Superior Court
by over 100 former employees, alleging claims for declaratory relief, breach of contract,
intentional/negligent fraud, concealment, rescission, specific performance, work, labor and
services, breach of the implied covenant of good faith and fair dealing, violation of California
Business & Professions Code Section 17200 and unjust enrichment, claiming that they were entitled
to full vesting of unvested stock options as a result of the sale of the Companys infrastructure
business to Ericsson in 1999. The Company has answered the complaints, which have been
consolidated, and discovery is ongoing. On July 16, 2004, the Court granted the Companys summary
adjudication motion, dismissing plaintiffs breach of contract claims.
Durante, et al v. QUALCOMM: On February 2, 2000, three former QUALCOMM employees filed a
putative class action against the Company, ostensibly on behalf of themselves and those former
employees of the Company
whose employment was terminated in April 1999. Virtually all of the purported class of
plaintiffs received severance packages at the time of the termination of their employment, in
exchange for a release of claims, other than federal age discrimination claims, against the
Company. The complaint was filed in California Superior Court in and for the County of Los Angeles
and purports to state 10 causes of action including breach of contract, age discrimination,
violation of Labor Code Section 200, violation of Labor Code Section 970, unfair business
practices, intentional infliction of emotional distress, unjust enrichment, breach of the covenant
of good faith and fair dealing, declaratory relief and undue influence. The complaint seeks an
order accelerating all unvested stock options for the members of the class, plus economic and
liquidated damages of an unspecified amount. On June 27, 2000, the case was ordered transferred
from Los Angeles County Superior Court to San Diego County Superior Court. On July 3, 2000, the
Company removed the case to the United States District Court for the Southern District of
California, and discovery commenced. On May 29, 2001, the Court dismissed all plaintiffs claims
except for claims arising under the federal Age Discrimination in Employment Act. On July 16, 2001,
the Court granted conditional class certification on the remaining claims, to be revisited by the
Court at the end of the discovery period. On April 15, 2003, the Court granted the Companys
summary judgment motions as to all remaining class members disparate impact claims. On June 18,
2003, the Court ordered decertification of the class and dismissed the remaining claims of the
opt-in plaintiffs without prejudice. Plaintiffs have filed an appeal. On June 20, 2003, 76 of the
opt-in plaintiffs filed an action in Federal District Court for the Southern District of
California, alleging violations of the Age Discrimination in Employment Act as a result of their
layoffs in 1999. To date, the complaint has not been served.
Zoltar Satellite Alarm Systems, Inc. v. QUALCOMM, Inc. and SnapTrack, Inc.: On March 30, 2001,
Zoltar Satellite Alarm Systems, Inc. (Zoltar) filed suit against QUALCOMM and SnapTrack, Inc.
(SnapTrack), a QUALCOMM wholly-owned subsidiary, in the United States District Court for the
Northern District of California seeking damages and injunctive relief and alleging infringement of
three patents. On August 27, 2001, Zoltar filed an
F-29
amended complaint adding Sprint Corp. as a named defendant and narrowing certain infringement claims against QUALCOMM and SnapTrack. Since then,
Zoltar has dismissed Sprint Corp. as a defendant. Trial of this matter commenced on February 24,
2004. On March 25, 2004, the jury reached a unanimous verdict of no infringement in favor of the
Company and SnapTrack on six of the seven patent claims asserted by Zoltar. On July 26, 2004, the
Court found no infringement on the remaining patent claim asserted by Zoltar and entered a judgment
in favor of the Company and SnapTrack on Zoltars complaint and awarded the Company and SnapTrack
their costs of suit. Zoltar has noticed an appeal and the Company and SnapTrack have filed a
responsive notice.
Texas Instruments Incorporated v. QUALCOMM Incorporated: On July 25, 2003, the Company filed
an action in Delaware Superior Court against Texas Instruments Incorporated for breach of a patent
portfolio license agreement between the parties, seeking damages and other relief. On September 23,
2003, Texas Instruments filed an action in Delaware Chancery Court against the Company alleging
breach of the same agreement, seeking damages and other relief. The Company has since dismissed its
case in Superior Court and refiled its claims as part of the action in the Chancery Court. In a
written order dated July 14, 2004, the Court granted QUALCOMMs summary judgment motion, dismissing
all of Texas Instruments claims against QUALCOMM. In addition, the Court ruled that Texas
Instruments had breached the patent portfolio license agreement, though the breach was
non-material, and therefore Texas Instruments license under the agreement would not be forfeited.
The Court held a one-day bench trial on August 16, 2004, on the Companys claim that Texas
Instruments breached the agreement between the parties by pursuing the claims previously dismissed
by the Court. Although the Court had already found that the claims brought by Texas Instruments
were barred by the agreement, the Court declined to find that bringing the claims constituted a
breach of the agreement by Texas Instruments and, therefore, found against the Company on the sole
remaining claim in the case. On October 22, 2004, the Company filed a notice of appeal.
QUALCOMM Incorporated v. Conexant Systems, Inc. and Skyworks Solutions Inc.: On October 8,
2002, the Company filed an action in the United States District Court for the Southern District of
California against Conexant and Skyworks alleging infringement of five patents and misappropriation
of trade secrets and seeking damages and injunctive relief. On December 4, 2003, Skyworks answered
and counterclaimed against QUALCOMM, alleging infringement of four patents and misappropriation of
trade secrets and seeking damages and injunctive relief. On April 30, 2004, the Court granted the
Companys motion to dismiss defendants inequitable conduct affirmative defenses and counterclaims.
The Company filed an amended complaint on June 16, 2004, bringing the total number of the Companys
patents at issue to eight and maintaining the trade secret misappropriation claim. On July 16 and
20, 2004, Conexant and Skyworks answered the Companys amended complaint, reasserted claims based
on alleged trade secret misappropriation and patent infringement and Skyworks also asserted
counterclaims alleging violations of antitrust laws and unfair business practices. Conexant and
Skyworks seek damages and other forms of relief. On
September 21, 2004, the Company moved to stay the Skyworks antitrust and related
counterclaims. That motion is pending. The Company believes the counterclaims are without merit.
Claim construction hearings relating to the patents in the case are under way. Discovery in the
matter is continuing.
QUALCOMM Incorporated v. Maxim Integrated Products, Inc.: On December 2, 2002, the Company
filed an action in the United States District Court for the Southern District of California against
Maxim Integrated Products, Inc. (Maxim) alleging infringement of three patents and seeking damages
and injunctive relief. The Company has since amended the complaint, bringing the total number of
patents at issue to four. On May 5, 2004, the Court granted Maxims motion that no indirect
infringement arose in connection with defendants sales of certain products to certain licensees of
the Company. On June 21, 2004, the Court granted the Companys motion to stay all of Maxims
antitrust counterclaims and its patent misuse defense. On July 9, 2004, Maxim filed an Answer and
Counterclaims to the Companys Third Amended Complaint. Maxims amended counterclaims allege
violation of antitrust laws and unfair business practices and seek damages and other relief. The
Company believes the amended counterclaims are without merit and, if and when the Courts stay is
lifted, the Company will seek dismissal of those counterclaims as a matter of law. Claim
construction hearings relating to the patents in the case are under way. Discovery in the matter is
continuing.
Other: The Company has been named, along with many other manufacturers of wireless phones,
wireless operators and industry-related organizations, as a defendant in purported class action
lawsuits (In re Wireless Telephone Frequency Emissions Products Liability Litigation, United States
District Court for the District of Maryland), and in several individually filed actions, seeking
personal injury, economic and/or punitive damages arising out of its sale of cellular phones. On
March 5, 2003, the Court granted the defendants motions to dismiss five of the consolidated cases
(Pinney, Gimpleson, Gillian, Farina and Naquin) on the grounds that the claims were preempted by
federal law. On April 2, 2003, the plaintiffs filed a notice of appeal of this order and the
Courts order
F-30
denying remand. All remaining cases filed against the Company allege personal injury
as a result of their use of a wireless telephone. Those cases have been remanded to the Washington,
D.C. Superior Court. The courts that have reviewed similar claims against other companies to date
have held that there was insufficient scientific basis for the plaintiffs claims in those cases.
Although there can be no assurance that unfavorable outcomes in any of the foregoing matters
would not have a material adverse effect on the Companys operating results, liquidity or financial
position, the Company believes the claims are without merit and will vigorously defend the actions.
The Company has not recorded any accrual for contingent liability associated with the legal
proceedings described above based on the Companys belief that a liability, while possible, is not
probable. Further, any possible range of loss cannot be estimated at this time. The Company is
engaged in numerous other legal actions arising in the ordinary course of its business and believes
that the ultimate outcome of these actions will not have a material adverse effect on its operating
results, liquidity or financial position.
Operating Leases
The Company leases certain of its facilities and equipment under noncancelable operating
leases, with terms ranging from 2 to 10 years and with provisions for cost-of-living increases.
Rental expense for fiscal 2004, 2003 and 2002 was $31 million, $34 million and $42 million,
respectively. Future minimum lease payments in each of the next five years from fiscal 2005 through
2009 are $45 million, $32 million, $20 million, $7 million and $4 million, respectively, and $3
million thereafter.
Purchase Obligations
The Company has agreements with suppliers and other parties to purchase inventory, other goods
and services and long-lived assets and estimates its noncancelable obligations under these
agreements to be approximately $885 million in fiscal 2005, $58 million in fiscal 2006, $2 million
in fiscal 2007, $2 million in fiscal 2008 and $2 million in fiscal 2009. Of these amounts,
commitments to purchase integrated circuit product inventories comprised $717 million in fiscal
2005 and $39 million in fiscal 2006.
Letters of Credit and Other Financial Commitments
In addition to the financing commitments to Ericsson (Note 3) and the Inquam guarantee
commitment (Note 4), the Company had $1 million of letters of credit outstanding as of September
30, 2004, none of which were collateralized.
Note 10. Segment Information
The Company is organized on the basis of products and services. The Company aggregates three
of its divisions into the QUALCOMM Wireless & Internet segment. Reportable segments are as follows:
|
|
|
QUALCOMM CDMA Technologies (QCT) develops and supplies CDMA-based integrated
circuits and system software for wireless voice and data communications, multimedia
functions and global positioning systems products; |
|
|
|
|
QUALCOMM Technology Licensing (QTL) grants licenses to use portions of the
Companys intellectual property portfolio, which includes certain patent rights
essential to or useful in the manufacture and sale of CDMA products, and collects
license fees and royalties in partial consideration for such licenses; |
|
|
|
|
QUALCOMM Wireless & Internet (QWI) comprised of: |
|
o |
|
QUALCOMM Internet Services (QIS) provides technology to support
and accelerate the convergence of the wireless data market, including its BREW
product and services, QChat and QPoint; |
|
|
o |
|
QUALCOMM Government Technologies (QGOV) formerly QUALCOMM
Digital Media, provides development, hardware and analytical expertise to United
States government agencies involving wireless communications technologies.
Through June 2004, the QGOV division also provided services for the Digital
Cinema business, which the Company is no longer pursuing; and |
F-31
|
o |
|
QUALCOMM Wireless Business Solutions (QWBS) provides satellite
and terrestrial-based two-way data messaging and position reporting services to
transportation companies, private fleets, construction equipment fleets and
other enterprise companies. |
|
|
|
QUALCOMM Strategic Initiatives (QSI) manages the Companys strategic investment
activities. QSI makes strategic investments to promote the worldwide adoption of CDMA
products and services, including MediaFLO USA, Inc. (MediaFLO USA), the Companys
wholly-owned wireless multimedia operator subsidiary. |
As a result of the disposition of the remaining operations and assets related to the Vésper
Operating Companies and TowerCo (Note 11), consolidated investees of QSI, the Company determined
that the results of operations related to the Vésper Operating Companies and TowerCo should be
presented as discontinued operations. QSI revenues and EBT for all prior periods have been adjusted
to reflect the reclassification of revenues and EBT related to these consolidated investees to
discontinued operations.
During the second quarter of fiscal 2004, the Company reorganized its wholly-owned subsidiary
SnapTrack, a developer of wireless position location technology. The Company previously presented
all of the revenues and operating results of SnapTrack in the QCT segment. As a result of the
reorganization of SnapTrack, revenues and operating results related to SnapTracks server software
business (software for computer servers that allows operators to offer location-based services and
applications) became part of the QIS division in the QWI segment. Revenues and operating results
related to SnapTracks client business (the gpsOne hybrid assisted global positioning system
wireless location technology that is embedded with the integrated circuit products) remain with the
QCT segment. Prior period segment information has been adjusted to conform to the new segment
presentation.
Effective as of the beginning of fiscal 2005, the Company presents the operating results of
its wireless multimedia operator subsidiary, MediaFLO USA, Inc., in the QSI segment. The
development expenses related to the wireless multimedia operator business were included in
reconciling items through the end of fiscal 2004. Also effective as of the beginning of fiscal
2005, the Company presents the revenues and operating results of a QWI division that develops and
sells test tools to support the design, development, testing and deployment of infrastructure and
subscriber products into the QCT segment. Prior period information below has been adjusted to
conform to the fiscal 2005 segment presentation.
The Company evaluates the performance of its segments based on earnings (loss) before income
taxes (EBT) from continuing operations, excluding certain impairment and other charges that are not
allocated to the segments for management reporting purposes. EBT includes the allocation of certain
corporate expenses to the segments,
including depreciation and amortization expense related to unallocated corporate assets.
Segment data includes intersegment revenues. All segment data in the tables below are reclassified
for the changes discussed above.
The table below presents revenues, EBT and total assets for reportable segments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling |
|
|
|
|
QCT* |
|
QTL |
|
QWI* |
|
QSI* |
|
Items* |
|
Total* |
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
3,111 |
|
|
$ |
1,331 |
|
|
$ |
571 |
|
|
$ |
|
|
|
$ |
(133 |
) |
|
$ |
4,880 |
|
EBT |
|
|
1,048 |
|
|
|
1,195 |
|
|
|
19 |
|
|
|
(31 |
) |
|
|
82 |
|
|
|
2,313 |
|
Total assets |
|
|
564 |
|
|
|
8 |
|
|
|
117 |
|
|
|
400 |
|
|
|
9,731 |
|
|
|
10,820 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
2,428 |
|
|
$ |
1,000 |
|
|
$ |
484 |
|
|
$ |
1 |
|
|
$ |
(66 |
) |
|
$ |
3,847 |
|
EBT |
|
|
805 |
|
|
|
897 |
|
|
|
15 |
|
|
|
(168 |
) |
|
|
16 |
|
|
|
1,565 |
|
Total assets |
|
|
311 |
|
|
|
155 |
|
|
|
92 |
|
|
|
839 |
|
|
|
7,425 |
|
|
|
8,822 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
1,589 |
|
|
$ |
847 |
|
|
$ |
445 |
|
|
$ |
2 |
|
|
$ |
32 |
|
|
$ |
2,915 |
|
EBT |
|
|
437 |
|
|
|
756 |
|
|
|
(5 |
) |
|
|
(346 |
) |
|
|
(220 |
) |
|
|
622 |
|
Total assets |
|
|
295 |
|
|
|
169 |
|
|
|
103 |
|
|
|
1,755 |
|
|
|
4,184 |
|
|
|
6,506 |
|
QSI assets included $106 million, $116 million and $203 million related to investments in
equity method investees at September 30, 2004, 2003 and 2002, respectively.
F-32
Revenues from each of the Companys divisions aggregated into the QWI reportable segment for
the years ended September 30 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QWBS |
|
QGOV |
|
QIS* |
|
|
|
|
2004 |
|
$ |
414 |
|
|
$ |
41 |
|
|
$ |
116 |
|
2003 |
|
$ |
356 |
|
|
$ |
49 |
|
|
$ |
79 |
|
2002 |
|
$ |
338 |
|
|
$ |
39 |
|
|
$ |
68 |
|
Other reconciling items for the years ended September 30 were comprised as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003* |
|
2002* |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of intersegment revenue |
|
$ |
(153 |
) |
|
$ |
(122 |
) |
|
$ |
(85 |
) |
Other products |
|
|
20 |
|
|
|
56 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items |
|
$ |
(133 |
) |
|
$ |
(66 |
) |
|
$ |
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated amortization of goodwill and other
acquisition-related intangible assets |
|
$ |
(3 |
) |
|
$ |
(7 |
) |
|
$ |
(258 |
) |
Unallocated research and development expenses |
|
|
(23 |
) |
|
|
(36 |
) |
|
|
(23 |
) |
Unallocated selling, general, and administrative
expenses |
|
|
(38 |
) |
|
|
(38 |
) |
|
|
(13 |
) |
EBT from other products |
|
|
(39 |
) |
|
|
(20 |
) |
|
|
(7 |
) |
Unallocated investment income, net |
|
|
192 |
|
|
|
125 |
|
|
|
89 |
|
Intracompany eliminations |
|
|
(7 |
) |
|
|
(8 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items |
|
$ |
82 |
|
|
$ |
16 |
|
|
$ |
(220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Generally, revenues between segments are based on prevailing market rates for
substantially similar products and services or an approximation thereof. Certain charges are
allocated to the corporate functional department in the Companys management reports based on the
decision that those charges should not be used to evaluate the segments operating performance.
Unallocated charges include amortization of acquisition-related intangible assets, research and
development expenses and marketing expenses related to the development of the CDMA market that were
not deemed to be directly related to the businesses of the segments.
Specified items included in segment EBT for years ended September 30 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QCT* |
|
QTL |
|
QWI* |
|
QSI* |
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
3,107 |
|
|
$ |
1,200 |
|
|
$ |
553 |
|
|
$ |
|
|
Intersegment revenues |
|
|
4 |
|
|
|
131 |
|
|
|
18 |
|
|
|
|
|
Interest income |
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
|
14 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
2,423 |
|
|
$ |
898 |
|
|
$ |
469 |
|
|
$ |
1 |
|
Intersegment revenues |
|
|
5 |
|
|
|
102 |
|
|
|
15 |
|
|
|
|
|
Interest income |
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
|
45 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
1,585 |
|
|
$ |
780 |
|
|
$ |
431 |
|
|
$ |
2 |
|
Intersegment revenues |
|
|
4 |
|
|
|
67 |
|
|
|
14 |
|
|
|
|
|
Interest income |
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
26 |
|
F-33
Effectively all equity in losses of investees (Note 5) were recorded in QSI in fiscal
2004, 2003 and 2002. Effectively all interest expense (Note 5) was recorded as corporate expense in
reconciling items in fiscal 2004, 2003 and 2002.
The Company distinguishes revenues from external customers by geographic areas based on
customer location. Sales information by geographic area for the years ended September 30 was as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003* |
|
2002* |
United States |
|
$ |
1,016 |
|
|
$ |
875 |
|
|
$ |
914 |
|
South Korea |
|
|
2,091 |
|
|
|
1,724 |
|
|
|
1,134 |
|
Japan |
|
|
877 |
|
|
|
586 |
|
|
|
534 |
|
China |
|
|
260 |
|
|
|
311 |
|
|
|
74 |
|
Brazil |
|
|
31 |
|
|
|
36 |
|
|
|
22 |
|
Other foreign |
|
|
605 |
|
|
|
315 |
|
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,880 |
|
|
$ |
3,847 |
|
|
$ |
2,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* As adjusted (Note 11).
Segment assets are comprised of accounts receivable, finance receivables and inventory
for QCT, QTL and QWI. The QSI segment assets include marketable securities, accounts receivable,
finance receivables, notes receivable, other investments and assets of consolidated investees. The
QSI segment assets at September 30, 2003 and 2002 included $265 million and $391 million,
respectively, in assets related to discontinued operations (Note 11). Total segment assets differ
from total assets on a consolidated basis as a result of unallocated corporate assets primarily
comprised of cash, cash equivalents, marketable securities, property, plant and equipment, and
goodwill. The net book value of long-lived assets located outside of the United States was $21
million, $117 million and $251 million at September 30, 2004, 2003 and 2002, respectively.
Long-lived assets located outside of the United States were primarily in Brazil at September 20,
2003 and 2002 related to discontinued operations (Note 11).
Note 11. Discontinued Operations in the QSI Segment
In fiscal 1999, the Company acquired ownership interests in Vésper São Paulo S.A. and Vésper
S.A. (the Vésper Operating Companies). The Vésper Operating Companies were formed by a consortium
of investors to provide fixed wireless and wireline telephone services in the northern, northeast
and eastern regions of Brazil and in the state of São Paulo. In November 2001, the Company
consummated a series of transactions resulting in an overall financial restructuring of the Vésper
Operating Companies, which resulted in its holding direct and indirect controlling ownership
interests in the Vésper Operating Companies. As a result, the Vésper Operating Companies were
consolidated in the Companys QSI segment.
On December 2, 2003 (the Closing Date), Embratel Participações S.A. (Embratel) acquired the
Companys direct and indirect ownership interests in the Vésper Operating Companies (the Embratel
sale transaction) for no consideration. The Vésper Operating Companies existing communication
towers and related interests in tower site property leases (Vésper Towers) were not included in the
Embratel sale transaction, and as such, the Company effectively retained, through a new
wholly-owned subsidiary (TowerCo), ownership and control of the Vésper Towers. The Vésper Towers
had a net book value of approximately $5 million on the Closing Date. Concurrent with the closing,
the Vésper Operating Companies entered into a 10-year agreement (renewable at the Vésper Operating
Companies option for up to two successive 5-year terms) whereby the Vésper Operating Companies
would pay a monthly fee to the Company for use of aerial and ground space on the tower sites. The
Company provided approximately $6 million to fund operations of the Vésper Operating Companies
during the first quarter of fiscal 2004 prior to their sale and additionally provided approximately
$39 million in aggregate funding to or for the benefit of the Vésper Operating Companies on or
before the Closing Date to facilitate the Embratel sale transaction. Such funding enabled the
Vésper Operating Companies to completely extinguish their existing local bank debt (at an agreed
discount) to allow the Company to retain ownership of the Vésper Towers free and clear of any local
bank security interest. The major classes of assets and liabilities sold in the Embratel sale
transaction included: $25 million in accounts receivable, $5 million in inventory, $24 million in
other current assets, $95 million in property, plant and equipment, $6 million in other assets, $52
million in accounts payable, $5 million in payroll and other benefits related liabilities, $6
million in unearned revenue, $1 million in other current liabilities, $14 million in long-term debt
and $3 million in other liabilities. The Company realized a net loss of $52 million on the Embratel
sale transaction during the first quarter of fiscal 2004, including a $74 million loss on the net
assets sold to Embratel and
F-34
a $46 million loss related to the recognition of cumulative foreign
currency translation losses previously included in stockholders equity, partially offset by $68
million in gains related to the extinguishment of local bank debt and the settlement of other
liabilities.
On November 19, 2002, the Company won bids to acquire personal mobile service (SMP) licenses
in certain regions of Brazil. Approximately $8 million of the approximate $82 million purchase
price for the SMP licenses was paid in December 2002. The remaining Brazilian real-denominated
obligation was financed by the Brazilian government at an interest rate of 12% per annum, plus an
adjustment for inflation. These SMP licenses were not included in the Embratel sale transaction. In
December 2003, the Company initiated a waiver and return of the SMP licenses to Anatel, the
telecommunications regulatory agency in Brazil. In February 2004, the waiver and return of the SMP
licenses was approved by Anatel, and the license debt was extinguished. The Company realized a net
gain of $19 million as a result of the removal of the $104 million SMP licenses and the related
$123 million debt and accrued interest during the second quarter of fiscal 2004.
On March 2, 2004, the Company sold TowerCo to Embratel in a separately negotiated transaction
(the TowerCo sale transaction) for $45 million in cash. TowerCos assets were primarily comprised
of $5 million in property, plant and equipment. The Company realized a net gain of $40 million on
the TowerCo sale transaction during the second quarter of fiscal 2004. As a result of the
disposition of the remaining operations and assets related to the Vésper Operating Companies, the
Company determined that the results of operations and cash flows related to the Vésper Operating
Companies, including the results related to TowerCo and the SMP licenses and the gains and losses
realized on the Embratel and TowerCo sales transactions, should be presented as discontinued
operations in its consolidated statements of operations and cash flows. The Companys statements of
operations and cash flows for all prior periods have been adjusted to present the discontinued
operations. At September 30, 2004, the Company had no remaining assets or liabilities related to
the Vésper Operating Companies, TowerCo or the SMP licenses recorded on its consolidated balance
sheet.
Revenues of $36 million, $123 million and $125 million were reported in the loss from
discontinued operations during fiscal 2004, 2003 and 2002, respectively. Pro forma results for
fiscal 2002, assuming the acquisition of the Vésper Operating Companies had been made at the
beginning of fiscal 2002, are not presented because they would not differ materially from reported
results.
Note 12. Auction Discount Voucher
The Company was awarded a $125 million Auction Discount Voucher (ADV) by the Federal
Communications Commission (FCC) in June 2000 as the result of a legal ruling. The ADV is fully
transferable and may, subject to certain conditions, be used in whole or in part by any entity in
any FCC spectrum auction over a period of three years, including those in which the Company is not
a participant. During November 2002, the FCC amended the terms of the ADV to allow the Company to
use the ADV to satisfy existing FCC debt of other companies. The FCC agreed to extend the ADV
twice, most recently in June 2004. The ADV was scheduled to expire in September 2004, but the
Company used the remaining ADV prior to its expiration.
The Company used approximately $77 million of the ADVs value prior to fiscal 2004. During
fiscal 2004, the Company recorded $4 million in other operating income and $4 million in selling,
general and administrative expenses in the QSI segment for cooperative marketing expenses incurred,
with no effect on net income, related to an arrangement under which a portion of the ADV was
transferred to a wireless operator prior to fiscal 2004.
During fiscal 2004, the Company transferred approximately $18 million of the ADVs value to a
wireless operator for approximately $17 million in cash. As a result of this transfer, the Company
recorded an additional $17 million in other operating income in the QSI segment during fiscal 2004.
The Company recorded $47 million in other income in the QSI segment during fiscal 2003 related to
transfers of the ADVs value to wireless operators.
The Company also used approximately $30 million of the ADV during fiscal 2004 as final payment
for wireless licenses granted in fiscal 2004 in which the Company was the highest bidder in a FCC
auction held during fiscal 2003. On a cumulative basis, the Company used $38 million of the ADV as
payment for these wireless licenses, for which the Company had no cost basis at September 30, 2004.
The ADV had no remaining value at September 30, 2004.
Note 13. Subsequent Events
In October 2004, the Company completed the acquisition of the approximate 86% of the
outstanding capital stock of Iridigm Display Corporation, a privately held display technology
company, that it did not already own for
approximately $160 million in cash and the exchange of
stock options with an aggregate estimated fair value of approximately $17 million. Also in October
2004, the Company completed the acquisition of Trigenix Limited, a privately held mobile user
interface company, for approximately $33 million in cash.
F-35
Note 14. Summarized Quarterly Data (Unaudited)
The following financial information reflects all normal recurring adjustments that are, in the
opinion of management, necessary for a fair statement of the results of the interim periods.
The table below presents quarterly data for the years ended September 30, 2004 and 2003 (in
millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter* |
|
2nd Quarter |
|
3rd Quarter |
|
4th Quarter (3) |
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (1) |
|
$ |
1,207 |
|
|
$ |
1,216 |
|
|
$ |
1,341 |
|
|
$ |
1,118 |
|
Operating income (1)
|
|
|
568 |
|
|
|
577 |
|
|
|
622 |
|
|
|
362 |
|
Income from continuing operations (1)
|
|
|
411 |
|
|
|
441 |
|
|
|
486 |
|
|
|
387 |
|
Net income (1) |
|
|
352 |
|
|
|
488 |
|
|
|
486 |
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share from continuing
operations (2) |
|
$ |
0.26 |
|
|
$ |
0.27 |
|
|
$ |
0.30 |
|
|
$ |
0.24 |
|
Basic net earnings per common share (2) |
|
$ |
0.22 |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share from continuing
operations (2) |
|
$ |
0.25 |
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
$ |
0.23 |
|
Diluted net earnings per common share (2) |
|
$ |
0.21 |
|
|
$ |
0.29 |
|
|
$ |
0.29 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (1) |
|
$ |
1,068 |
|
|
$ |
1,017 |
|
|
$ |
892 |
|
|
$ |
871 |
|
Operating income (1) |
|
|
485 |
|
|
|
421 |
|
|
|
348 |
|
|
|
319 |
|
Income from continuing operations (1)
|
|
|
276 |
|
|
|
258 |
|
|
|
241 |
|
|
|
255 |
|
Net income (1) |
|
|
241 |
|
|
|
103 |
|
|
|
192 |
|
|
|
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share from continuing
operations (2) |
|
$ |
0.18 |
|
|
$ |
0.16 |
|
|
$ |
0.15 |
|
|
$ |
0.16 |
|
Basic net earnings per common share (2) |
|
$ |
0.15 |
|
|
$ |
0.07 |
|
|
$ |
0.12 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share from continuing
operations (2) |
|
$ |
0.17 |
|
|
$ |
0.16 |
|
|
$ |
0.15 |
|
|
$ |
0.15 |
|
Diluted net earnings per common share (2) |
|
$ |
0.15 |
|
|
$ |
0.06 |
|
|
$ |
0.12 |
|
|
$ |
0.18 |
|
|
|
|
* As adjusted (Note 11). |
|
(1) |
|
Revenues, operating income, income from continuing operations and net income are rounded to
millions each quarter. Therefore, the sum of the quarterly amounts may not equal the annual
amounts reported. |
|
(2) |
|
Earnings per share are computed independently for each quarter and the full year based upon
respective average shares outstanding. Therefore, the sum of the quarterly earnings per share
amounts may not equal the annual amounts reported. |
|
(3) |
|
Prior to the fourth quarter of fiscal 2004, the Company recorded royalty revenues from
certain licensees based on estimates of royalties during the period they were earned. Starting
in the fourth quarter of fiscal 2004, the Company began recognizing royalty revenues solely
based on royalties reported by licensees during the quarter (Note 1). The change in the timing
of recognizing royalty revenue was made prospectively and had the initial one-time effect of
reducing royalty revenues recorded in the fourth quarter of fiscal 2004. |
F-36
SCHEDULE II
QUALCOMM INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Charged) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
Credited to |
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Beginning of |
|
Costs and |
|
|
|
|
|
|
|
|
|
End of |
|
|
Period(A) |
|
Expenses |
|
Deductions |
|
Other |
|
Period(A) |
Year ended September 30, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trade receivables |
|
$ |
(16 |
) |
|
$ |
(42 |
) |
|
$ |
82 |
|
|
$ |
(46) |
(B) |
|
$ |
(22 |
) |
finance receivables |
|
|
(704 |
) |
|
|
(190 |
) |
|
|
843 |
|
|
|
|
|
|
|
(51 |
) |
notes receivable |
|
|
(155 |
) |
|
|
(19 |
) |
|
|
133 |
|
|
|
|
|
|
|
(41 |
) |
Inventory reserves |
|
|
(77 |
) |
|
|
(10 |
) |
|
|
9 |
|
|
|
|
|
|
|
(78 |
) |
Valuation allowance on deferred tax assets |
|
|
(1,228 |
) |
|
|
145 |
|
|
|
|
|
|
|
(440) |
(C) |
|
|
(1,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,180 |
) |
|
$ |
(116 |
) |
|
$ |
1,067 |
|
|
$ |
(486 |
) |
|
$ |
(1,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trade receivables |
|
$ |
(22 |
) |
|
$ |
(14 |
) |
|
$ |
24 |
|
|
|
|
|
|
$ |
(12 |
) |
finance receivables |
|
|
(51 |
) |
|
|
32 |
|
|
|
1 |
|
|
|
|
|
|
|
(18 |
) |
notes receivable |
|
|
(41 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
(69 |
) |
Inventory reserves |
|
|
(78 |
) |
|
|
(4 |
) |
|
|
12 |
|
|
|
|
|
|
|
(70 |
) |
Valuation allowance on deferred tax assets |
|
|
(1,523 |
) |
|
|
(253 |
) |
|
|
10 |
|
|
|
1,106 |
(D) |
|
|
(660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,715 |
) |
|
$ |
(267 |
) |
|
$ |
47 |
|
|
$ |
1,106 |
|
|
$ |
(829 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trade receivables |
|
$ |
(12 |
) |
|
$ |
(3 |
) |
|
$ |
8 |
|
|
$ |
2 |
(E) |
|
$ |
(5 |
) |
finance receivables |
|
|
(18 |
) |
|
|
10 |
|
|
|
7 |
|
|
|
|
|
|
|
(1 |
) |
notes receivable |
|
|
(69 |
) |
|
|
(30 |
) |
|
|
53 |
|
|
|
|
|
|
|
(46 |
) |
Inventory reserves |
|
|
(70 |
) |
|
|
7 |
|
|
|
13 |
|
|
|
|
|
|
|
(50 |
) |
Valuation allowance on deferred tax assets |
|
|
(660 |
) |
|
|
27 |
|
|
|
20 |
|
|
|
474 |
(E) |
|
|
(139 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(829 |
) |
|
$ |
11 |
|
|
$ |
101 |
|
|
$ |
476 |
|
|
$ |
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The Companys fiscal year ends on the last Sunday of September. |
|
(B) |
|
Of this amount, $55 million related to the acquisition of the Vésper Operating
Companies (see Note 11 of the Consolidated Financial Statements), offset by an increase of
$9 million related to translation adjustments due to changes in foreign currency rates
primarily attributable to the Vésper Operating Companies. |
|
(C) |
|
Of this amount, $330 million related to acquisition of the Vésper Operating Companies
(see Note 11 of the Consolidated Financial Statements) and $154 million was charged to
paid-in capital, offset by a $44 million reduction recorded as a component of comprehensive
loss related to the Companys temporary losses on marketable securities. |
|
(D) |
|
This amount related to the reversal of the Companys valuation allowance on
substantially all of its United States deferred tax assets during fiscal 2003 as a credit
to stockholders equity. |
|
(E) |
|
This amount related to the disposition of the Vésper Operating Companies (See Note 11
of the Consolidated Financial Statements). |
S-1