Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation

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Basis of Presentation
 6 Months Ended
Mar. 25, 2012
Notes to Financial Statements [Abstract]  
Note 1 - Basis of Presentation
Note 1 - Basis of Presentation
Financial Statement Preparation. These condensed consolidated financial statements have been prepared by QUALCOMM Incorporated (collectively with its subsidiaries, the Company or Qualcomm) in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the interim data includes all normal recurring adjustments necessary for a fair statement of the results for the interim periods. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2011. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. The Company operates and reports using a 52-53 week fiscal year ending on the last Sunday in September. The three-month and six-month periods ended both March 25, 2012 and March 27, 2011 included 13 weeks and 26 weeks, respectively.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’s condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Certain prior period amounts have been adjusted to reflect the presentation of the FLO TV business as discontinued operations (Note 8).
Earnings Per Common Share. Basic earnings per common share is computed by dividing net income attributable to Qualcomm by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income attributable to Qualcomm by the combination of dilutive common share equivalents, comprised of shares issuable under the Company’s share-based compensation plans and shares subject to written put options, and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an award, if any, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the estimated tax benefits that would be recorded in paid-in capital, if any, when an award is settled are assumed to be used to repurchase shares in the current period. The incremental dilutive common share equivalents, calculated using the treasury stock method, for the three months and six months ended March 25, 2012 were 44,100,000 and 40,576,000, respectively. The incremental dilutive common share equivalents, calculated using the treasury stock method, for the three months and six months ended March 27, 2011 were 34,955,000 and 30,231,000, respectively.
Employee stock options to purchase approximately 504,000 and 2,488,000 shares of common stock during the three months and six months ended March 25, 2012, respectively, and employee stock options to purchase approximately 5,881,000 and 33,336,000 shares of common stock during the three months and six months ended March 27, 2011, respectively, were outstanding but not included in the calculation of diluted earnings per common share because the effect would be anti-dilutive. Put options outstanding during the three months and six months ended March 25, 2012 to purchase 11,800,000 shares of common stock, respectively, were not included in the earnings per common share computation 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 5). In addition, 733,000 and 704,000 shares of other common stock equivalents outstanding during the three months and six months ended March 25, 2012, respectively, and 78,000 and 60,000 shares of other common stock equivalents outstanding during the three months and six months ended March 27, 2011, respectively, were not included in the computation of diluted earnings per common share because either the effect would be anti-dilutive or certain performance conditions were not satisfied at the end of the period.
Comprehensive Income. Total comprehensive income attributable to Qualcomm consisted of the following (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 25,
2012
 
March 27,
2011
 
March 25,
2012
 
March 27,
2011
Net income
$
2,199

 
$
995

 
$
3,594

 
$
2,164

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation
16

 
8

 
(12
)
 
13

Noncredit other-than-temporary impairment losses and subsequent changes in fair value related to certain available-for-sale debt securities, net of income taxes
3

 
(6
)
 
4

 
(10
)
Net unrealized gains on other available-for-sale securities and derivative instruments, net of income taxes
320

 
90

 
495

 
221

Reclassification of net realized gains on available-for-sale securities and derivative instruments included in net income, net of income taxes
(40
)
 
(49
)
 
(57
)
 
(125
)
Reclassification of other-than-temporary losses on available-for-sale securities included in net income, net of income taxes
16

 
2

 
25

 
6

Total other comprehensive income
315

 
45

 
455

 
105

Total comprehensive income
2,514

 
1,040

 
4,049

 
2,269

Comprehensive loss attributable to noncontrolling interests
30

 
4

 
38

 
4

Comprehensive income attributable to Qualcomm
$
2,544

 
$
1,044

 
$
4,087

 
$
2,273


Components of accumulated other comprehensive income in Qualcomm stockholders’ equity consisted of the following (in millions):
 
March 25,
2012
 
September 25,
2011
Noncredit other-than-temporary impairment losses and subsequent changes in fair value related to certain available-for-sale debt securities, net of income taxes
$
29

 
$
27

Net unrealized gains on other available-for-sale securities, net of income taxes
866

 
427

Net unrealized gains (losses) on derivative instruments, net of income taxes
11

 
(15
)
Foreign currency translation
(97
)
 
(86
)
 
$
809

 
$
353


At March 25, 2012 and September 25, 2011, accumulated other comprehensive income included $10 million and $13 million, respectively, of other-than-temporary losses on certain available-for-sale debt securities related to factors other than credit, net of income taxes.
Share-Based Compensation. Total estimated share-based compensation expense, related to all of the Company’s share-based awards, was comprised as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 25,
2012
 
March 27, 2011*
 
March 25,
2012
 
March 27, 2011*
Cost of equipment and services revenues
$
17

 
$
17

 
$
36

 
$
30

Research and development
126

 
97

 
253

 
182

Selling, general and administrative
97

 
85

 
198

 
155

Continuing operations
240

 
199

 
487

 
367

Related income tax benefit
(56
)
 
(55
)
 
(109
)
 
(109
)
Continuing operations, net of income taxes
184

 
144

 
378

 
258

Discontinued operations
—

 
3

 
—

 
6

Related income tax benefit
—

 
(1
)
 
—

 
(2
)
Discontinued operations, net of income taxes
—

 
2

 
—

 
4

 
$
184

 
$
146

 
$
378

 
$
262

*As adjusted for discontinued operations (Note 8)
The Company recorded $82 million and $38 million in share-based compensation expense during the six months ended March 25, 2012 and March 27, 2011, respectively, related to share-based awards granted during those periods. In addition, for the six months ended March 25, 2012 and March 27, 2011, $98 million and $132 million, respectively, were reclassified to reduce net cash provided by operating activities with an offsetting increase in net cash provided by financing activities to reflect the incremental tax benefit from stock options exercised in those periods.
At March 25, 2012, total unrecognized compensation costs related to non-vested stock options and restricted stock units granted prior to that date were $441 million and $1.0 billion, respectively, which are expected to be recognized over weighted-average periods of 1.6 years and 2.1 years, respectively. Net share-based awards, after forfeitures and cancellations, granted during the six months ended March 25, 2012 and March 27, 2011 represented 0.5% and 0.3%, respectively, of outstanding shares as of the beginning of each fiscal period. Total share-based awards granted during the six months ended March 25, 2012 and March 27, 2011 represented 0.6% and 0.5%, respectively, of outstanding shares as of the end of each fiscal period.