Composition of Certain Financial Statement Items |
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| Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Composition of Certain Financial Statement Items | Composition of Certain Financial Statement Items
Accounts receivable at September 27, 2020 included $1.3 billion, excluding the impact of foreign withholding taxes, from Huawei related to the remaining amounts due under the settlement agreement and estimated royalties for sales made in the September 2020 quarter. In July 2020, we entered into a settlement agreement with Huawei to resolve our prior dispute related to the license agreement that expired on December 31, 2019. We also entered into a new long-term, global patent license agreement that applies to sales of certain wireless products by Huawei beginning on January 1, 2020. Amounts due under the settlement agreement are to be paid in installments by the end of June 2021 in accordance with an agreed upon payment schedule. In the fourth quarter of fiscal 2020, Huawei paid the first installment under the settlement agreement and the royalties due for the March 2020 and June 2020 quarters under the new global patent license agreement.
Significant evaluation and judgment were required in determining the appropriate accounting for the settlement agreement and new global patent license agreement with Huawei. We considered, among other items, Huawei’s commitment to perform under such agreements (including Huawei’s intent and ability to pay amounts due), Huawei’s performance to date under the agreements (including timely payments made), Huawei’s current and projected financial condition (including the
impact of enacted national security protection policies by the U.S. government on Huawei’s business) and certain contractual protections that we obtained under these agreements.
Based on this evaluation, we concluded that the revenue recognition criteria were met, and we recorded revenues of $1.8 billion in the fourth quarter of fiscal 2020 related to the full amount due from Huawei under the settlement agreement and amounts paid for the March 2020 and June 2020 quarters under the new global patent license agreement. In addition, QTL results for the fourth quarter of fiscal 2020 included estimated royalties due from Huawei for sales made in the September 2020 quarter under the new global patent license agreement.
Although we believe that the judgments supporting our assessment are reasonable based on facts and factors currently known, our judgments, including those discussed in the preceding paragraph, as it relates to future events are inherently uncertain and actual results and outcomes may differ from the results and outcomes currently anticipated.
Depreciation and amortization expense related to property, plant and equipment for fiscal 2020, 2019 and 2018 was $772 million, $674 million and $776 million, respectively.
Goodwill and Other Intangible Assets. We allocate goodwill to our reporting units for impairment testing purposes. The following table presents the goodwill allocated to our reportable and nonreportable segments, as described in Note 8, as well as the changes in the carrying amounts of goodwill during fiscal 2020 and 2019 (in millions):
(1)In fiscal 2020, changes in goodwill resulted from certain foreign currency translation adjustments. In fiscal 2019, changes in goodwill amounts resulted from the sale of our mobile health nonreportable segment, foreign currency translation and purchase accounting adjustments.
(2)Cumulative goodwill impairments were $812 million at both September 27, 2020 and September 29, 2019.
The components of other intangible assets, net were as follows (in millions):
All of these intangible assets are subject to amortization and the amortization expense related to these intangible assets was $621 million, $727 million and $785 million for fiscal 2020, 2019 and 2018, respectively. Amortization expense related to these intangible assets is expected to be $519 million, $422 million, $295 million, $136 million and $111 million for each of the five years from fiscal 2021 through 2025, respectively, and $170 million thereafter. At September 27, 2020 and September 29, 2019, all acquired in-process research and development projects were completed and are being amortized over their useful lives.
Equity Method and Non-marketable Equity Investments. The carrying values of our equity method and non-marketable equity investments are recorded in other noncurrent assets and were as follows (in millions):
Beginning in the second quarter of fiscal 2020, the rapid, global spread of COVID-19 and associated containment and mitigation measures have negatively impacted the condition of economies and financial markets globally, which has negatively impacted certain companies in which we hold non-marketable equity investments, including those accounted for under the equity method and, to a lesser extent, non-marketable debt securities. Since the second quarter of fiscal 2020, significant evaluation and judgments were required in determining if the negative effects of COVID-19 indicated that such investments were impaired, and if so, the extent of such impairment. This included, among other items: (i) assessing the business impacts that COVID-19 had, and we currently expect to have in the future, on our investees, including taking into consideration the investee’s industry and geographic location and the impact to its customers, suppliers and employees, as applicable, (ii) evaluating the investees’ ability to respond to the impacts of COVID-19, including any significant deterioration in the investee’s financial condition and cash flows, as well as assessing liquidity and/or going concern risks and (iii) considering any appreciation in fair value that has not been recognized in the carrying values of such investments. Based on this evaluation, certain of our investments were impaired and written down to their estimated fair values in fiscal 2020 (a significant portion of which related to the full impairment of our investment in OneWeb, who filed for bankruptcy in the second quarter of fiscal 2020). Although we believe that our judgments supporting our impairment assessments are reasonable (which rely on information reasonably available to us), the COVID-19 pandemic makes it challenging for us and our investees to estimate the future performance of our investees’ businesses. As circumstances change and/or new information becomes available, we may be required to record additional impairments in subsequent periods.
Revenues from certain services contracts with OneWeb were $36 million, $152 million and $100 million in fiscal 2020, 2019 and 2018, respectively.
During fiscal 2019, non-marketable debt and equity securities (non-cash consideration) with an aggregate estimated fair value of $98 million were received related to a development contract with OneWeb that was recognized as revenues in fiscal 2019. In addition, during fiscal 2019, non-marketable equity securities (non-cash consideration) with an estimated fair value of $53 million were received in connection with the sale of certain assets as part of the Cost Plan that concluded in fiscal 2019.
Accumulated Other Comprehensive Income. Changes in the components of accumulated other comprehensive income, net of income taxes, in stockholders’ equity during fiscal 2020 were as follows (in millions):
Reclassifications from accumulated other comprehensive income related to derivative instruments were $16 million during fiscal 2020 and negligible for all other periods presented, and were recorded in revenues, cost of revenues, research and development expenses and selling, general and administrative expenses. Reclassifications from accumulated other comprehensive income in fiscal 2019 included adjustments of $51 million to the opening retained earnings balance as a result of the adoption of new accounting guidance in 2019 related to financial instruments and hedge instruments. Other reclassifications from accumulated other comprehensive income related to available-for-sale securities and foreign currency translation adjustments were negligible for all periods presented.
Revenues. We disaggregate our revenues by segment (Note 8), by type of product and services (as presented on our consolidated statement of operations) and, for our QCT segment by revenue stream, which is based on industry segment or application in which our products are sold (as presented below). In certain cases, the determination of QCT revenues by industry segment or application requires the use of certain assumptions. Substantially all of QCT’s revenues consist of equipment revenues that are recognized at a point in time, and substantially all of QTL’s revenues represent licensing revenues that are recognized over time and are principally from royalties generated through our licensees’ sales of mobile handsets. QCT revenue streams were as follows (in millions):
(1) Includes all revenues from sales of RFFE integrated circuit products (substantially all of which are used in handsets).
(2) Internet of Things (IoT) revenues primarily include products sold for use in cellular and non-cellular connected devices within the following industry segments or applications: consumer, computing, industrial, fixed wireless broadband, voice and music and wireless networking.
Revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were $1.5 billion for fiscal 2020, and primarily related to licensing revenues recognized in the fourth quarter of fiscal 2020 (a portion of which was attributable to fiscal 2020) resulting from the settlement with Huawei, and to a lesser extent, QTL royalty revenues recognized related to devices sold in prior periods (including adjustments to prior period royalty estimates, in part based on actual reporting of royalties by our licensees) and certain QCT customer incentives. Revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were $4.1 billion for fiscal 2019 and primarily related to licensing revenues recognized in the third quarter of fiscal 2019 (a portion of which was attributable to fiscal 2019) resulting from the settlement with Apple and its contract manufacturers in April 2019.
Unearned revenues (which are considered contract liabilities) consist primarily of license fees for intellectual property with continuing performance obligations. In fiscal 2020 and fiscal 2019, we recognized revenues of $540 million and $481 million, respectively, that were recorded as unearned revenues at September 29, 2019 and October 1, 2018, respectively.
Remaining performance obligations, substantially all of which are included in unearned revenues, represent the aggregate amount of the transaction price of certain customer contracts yet to be recognized as revenues as of the end of the reporting period and exclude revenues related to (a) contracts that have an original expected duration of one year or less and (b) sales-based royalties (i.e., future royalty revenues) pursuant to our license agreements. Our remaining performance obligations are primarily comprised of certain customer contracts for which QTL received license fees upfront. At September 27, 2020, we had $1.4 billion of remaining performance obligations, of which $581 million, $493 million, $234 million, $64 million and $26 million is expected to be recognized as revenues for each of the subsequent five years from fiscal 2021 through 2025, respectively, with no amounts expected thereafter.
Share-based Compensation Expense. Total share-based compensation expense, related to all of our share-based awards, was comprised as follows (in millions):
Other Income, Costs and Expenses. Other expenses in fiscal 2020 consisted of $28 million in gains related to a favorable legal settlement.
Other expenses in fiscal 2019 consisted of a $275 million charge related to a fine imposed by the European Commission (EC) related to the Icera complaint (2019 EC fine) (Note 7) and $213 million in net charges related to our Cost Plan that concluded in fiscal 2019, partially offset by a $43 million gain due to the partial recovery of a fine imposed in 2009 resulting from our appeal of the Korea Fair Trade Commission (KFTC) decision and a $31 million gain related to a favorable legal settlement.
Other expenses in fiscal 2018 consisted of a $2.0 billion charge related to a fee paid in connection with the termination of our purchase agreement to acquire NXP Semiconductors N.V., a $1.2 billion charge for the fine imposed by the EC related to an investigation (2018 EC fine) (Note 7) and $629 million in restructuring and restructuring-related charges related to our Cost Plan, partially offset by a $676 million benefit related to the settlement of the Taiwan Fair Trade Commission (TFTC) investigation.
Total restructuring and restructuring-related charges related to the Cost Plan were as follows (in millions):
(1)During fiscal 2018, we recorded restructuring and restructuring-related charges of $629 million in other expenses and charges of $58 million in investment and other income, net.
(2)Restructuring-related charges primarily related to asset impairment charges in fiscal 2019 and 2018 and also included a $52 million net gain in fiscal 2019 from the sale of certain assets related to wireless electric vehicle charging applications and the sale of our mobile health nonreportable segment, as well as a $41 million gain in fiscal 2018 resulting from fair value adjustments of certain contingent consideration related to a business combination.
(3)Restructuring charges primarily consisted of severance and consulting costs in fiscal 2019 and 2018, which were payable in cash.
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