Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation

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Basis of Presentation
 9 Months Ended
Jun. 26, 2011
Notes to Financial Statements [Abstract]  
Note 1 - Basis of Presentation
Note 1 - Basis of Presentation
     Financial Statement Preparation. The accompanying interim condensed consolidated financial statements have been prepared by QUALCOMM Incorporated (collectively with its subsidiaries, the Company or QUALCOMM), without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair presentation of its consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States. The condensed consolidated balance sheet at September 26, 2010 was derived from the audited financial statements at that date but may not include all disclosures required by accounting principles generally accepted in the United States. The Company operates and reports using a 52-53 week fiscal year ending on the last Sunday in September. The three-month and nine-month periods ended June 26, 2011 and June 27, 2010 included 13 weeks and 39 weeks, respectively.
     In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, which are only normal and recurring, necessary for a fair statement of results of operations, financial position and cash flows. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 2010. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.
     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 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 10).      
     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 nine months ended June 26, 2011 were 35,820,000 and 32,094,000, respectively. The incremental dilutive common share equivalents, calculated using the treasury stock method, for the three months and nine months ended June 27, 2010 were 13,039,000 and 16,303,000, respectively.
     Employee stock options to purchase approximately 4,492,000 and 23,721,000 shares of common stock during the three months and nine months ended June 26, 2011, respectively, and employee stock options to purchase approximately 163,146,000 and 145,464,000 shares of common stock during the three months and nine months ended June 27, 2010, were outstanding but not included in the computation of diluted earnings per common share because the effect would be anti-dilutive. In addition, 2,891,000 and 1,146,000 shares of other share-based payment awards during the three months and nine months ended June 26, 2011, respectively, and 574,000 and 314,000 shares of other common stock equivalents during the three months and nine months ended June 27, 2010, respectively, were outstanding but not included in the computation of diluted earnings per common share because the effect would be anti-dilutive.
Comprehensive Income. Total comprehensive income consisted of the following (in millions):
 
Three Months Ended
 
Nine Months Ended
 
June 26,
2011
 
June 27,
2010
 
June 26,
2011
 
June 27,
2010
Net income
$
1,029

 
$
767

 
$
3,194

 
$
2,382

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation
—

 
(56
)
 
13

 
(58
)
Noncredit other-than-temporary impairment losses and subsequent changes in fair value related to certain marketable debt securities, net of income taxes
(2
)
 
(7
)
 
(12
)
 
13

Net unrealized gains (losses) on other marketable securities and derivative instruments, net of income taxes
(7
)
 
(180
)
 
215

 
151

Reclassification of net realized gains on marketable securities and derivative instruments included in net income, net of income taxes
(45
)
 
(64
)
 
(179
)
 
(228
)
Reclassification of other-than-temporary losses on marketable securities included in net income, net of income taxes
3

 
16

 
10

 
63

Total other comprehensive (loss) income
(51
)
 
(291
)
 
47

 
(59
)
Total comprehensive income
978

 
476

 
3,241

 
2,323

Comprehensive loss attributable to noncontrolling interests
6

 
—

 
10

 
—

Comprehensive income attributable to QUALCOMM
$
984

 
$
476

 
$
3,251

 
$
2,323

Components of accumulated other comprehensive income consisted of the following (in millions):
 
June 26,
2011
 
September 26,
2010
Noncredit other-than-temporary impairment losses and subsequent changes in fair value related to certain marketable debt securities, net of income taxes
$
36

 
$
62

Net unrealized gains on marketable securities, net of income taxes
779

 
723

Net unrealized losses on derivative instruments, net of income taxes
(4
)
 
(8
)
Foreign currency translation
(67
)
 
(80
)
 
$
744

 
$
697


At June 26, 2011, accumulated other comprehensive income included $14 million of other-than-temporary losses on marketable debt securities related to factors other than credit, net of income taxes.
     Share-Based Payments. Total share-based compensation expense, net of income taxes was as follows (in millions):
 
Three Months Ended
 
Nine Months Ended
 
June 26,
2011
 
June 27, 2010*
 
June 26,
2011
 
June 27, 2010*
Cost of equipment and services revenues
$
14

 
$
10

 
$
44

 
$
30

Research and development
95

 
72

 
277

 
216

Selling, general and administrative
84

 
63

 
240

 
195

Continuing operations
193

 
145

 
561

 
441

Related income tax benefit
(46
)
 
(37
)
 
(155
)
 
(127
)
Continuing operations, net of income taxes
147

 
108

 
406

 
314

Discontinued operations
1

 
4

 
7

 
12

Related income tax benefit
(1
)
 
(1
)
 
(3
)
 
(4
)
Discontinued operations, net of income taxes
—

 
3

 
4

 
8

 
$
147

 
$
111

 
$
410

 
$
322


*As adjusted for discontinued operations (Note 10)
The Company recorded $95 million and $73 million in share-based compensation expense during the nine months ended June 26, 2011 and June 27, 2010, respectively, related to share-based awards granted during those periods. In addition, for the nine months ended June 26, 2011 and June 27, 2010, $167 million and $34 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 June 26, 2011, total unrecognized compensation costs related to non-vested stock options and restricted stock units granted prior to that date were $714 million and $732 million, respectively, which are each expected to be recognized over a weighted-average period of 2.2 years and 2.5 years, respectively. Net share-based awards, after forfeitures and cancellations, granted during the nine months ended June 26, 2011 and June 27, 2010 represented 0.7% and 1.3%, respectively, of outstanding shares as of the beginning of each fiscal period. Total share-based awards granted during the nine months ended June 26, 2011 and June 27, 2010 represented 0.5% and 1.8%, respectively, of outstanding shares as of the end of each fishcal period.
During the three months ended June 26, 2011, the Company assumed a total of approximately 9,564,000 outstanding share-based payment awards under various incentive plans as a result of the acquisition of Atheros (Note 12).