Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation

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Basis of Presentation
 9 Months Ended
Jun. 30, 2013
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 30, 2012. 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. Each of the three-month and nine-month periods ended June 30, 2013 and June 24, 2012 included 13 weeks and 39 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 year amounts have been reclassified to conform to the current year presentation.
Deconsolidation of the BWA Subsidiaries. In fiscal 2010, the Company established subsidiaries in India to operate a wireless network using Broadband Wireless Access (BWA) spectrum (the BWA subsidiaries). In June 2012, Bharti Airtel Limited (Bharti), an Indian wireless network operator, purchased shares in the BWA subsidiaries that were held by two third-party Indian investors, and the BWA subsidiaries issued additional equity interests to Bharti for $85 million, reducing the Company’s ownership interest in each of the BWA subsidiaries to 51%. The Company’s agreement with Bharti provides that Bharti’s ownership interest will increase over time to 100% by December 2014 if certain conditions are met. On June 25, 2013, the BWA subsidiaries issued additional equity interests to Bharti for $11 million, further reducing the Company’s ownership interests to 49%, and redeemed all of the outstanding debentures using funding provided by Bharti through a subordinated note (Note 6). Also, Bharti gained additional power over significant activities through certain leadership changes. These events resulted in a change in control of the BWA subsidiaries and therefore, the BWA subsidiaries were deconsolidated from the Company’s financial statements. Prior to the deconsolidation, the assets and liabilities of the BWA subsidiaries were classified as held for sale.
As a result of the deconsolidation, the Company recognized a gain in net investment income of $22 million measured as the difference between (a) the net fair values of the retained noncontrolling investment and the Company’s guarantee of the former BWA subsidiaries’ bank loans (Note 6) and (b) the carrying values of the former BWA subsidiaries’ net assets, including cumulative translation losses and noncontrolling interests. Total assets and total liabilities were reduced by $1.0 billion and $999 million, respectively. Such assets and liabilities consisted primarily of wireless spectrum, network-related assets and loan obligations. The deconsolidation of these amounts represented a noncash investing and noncash financing transaction and was not reflected in the statement of cash flows for the nine months ended June 30, 2013. The fair value of the Company’s retained noncontrolling investment of $50 million was determined by applying a discounted cash flow valuation model to the estimated cash proceeds that the Company expects to receive upon the sale of its shares to Bharti.
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 is 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 for future service that the Company has not yet recognized, if any, and the estimated tax benefits that would be recorded in paid-in capital when an award is settled, if any, 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 and nine months ended June 30, 2013 were 37,927,000 and 40,132,000, respectively. The incremental dilutive common share equivalents, calculated using the treasury stock method, for the three and nine months ended June 24, 2012 were 42,531,000 and 41,228,000, respectively.
Employee stock options to purchase approximately 328,000 and 433,000 shares of common stock during the three and nine months ended June 30, 2013, respectively, and employee stock options to purchase approximately 597,000 and 1,858,000 shares of common stock during the three and nine months ended June 24, 2012, respectively, were outstanding but not included in the calculation of diluted earnings per common share because the effect would be anti-dilutive. At June 24, 2012, one put option remained outstanding, which gave the holder the right to sell 4,000,000 shares of common stock to the Company. No put options were outstanding during the three and nine months ended June 30, 2013. In addition, other common stock equivalents of 392,000 and 156,000 shares outstanding during the three and nine months ended June 30, 2013, respectively, and 5,892,000 and 2,433,000 shares outstanding during the three and nine months ended June 24, 2012, respectively, were not included in the computation of diluted earnings per common share because the effect would be anti-dilutive.
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
 
Nine Months Ended
 
June 30,
2013
 
June 24,
2012
 
June 30,
2013
 
June 24,
2012
Cost of equipment and services revenues
$
18

 
$
19

 
$
55

 
$
55

Research and development
166

 
141

 
479

 
394

Selling, general and administrative
96

 
104

 
297

 
302

Continuing operations
280

 
264

 
831

 
751

Related income tax benefit
(58
)
 
(54
)
 
(169
)
 
(163
)
Continuing operations, net of income taxes
222

 
210

 
662

 
588

Discontinued operations, net of income taxes
—

 
—

 
—

 
1

 
$
222

 
$
210

 
$
662

 
$
589

The Company recorded $152 million and $169 million in share-based compensation expense during the nine months ended June 30, 2013 and June 24, 2012, respectively, related to share-based awards granted during those periods.
At June 30, 2013, total unrecognized compensation costs related to non-vested stock options and restricted stock units granted prior to that date were $94 million and $1.4 billion, respectively, which are expected to be recognized over weighted-average periods of 0.7 and 2.0 years, respectively. During the nine months ended June 30, 2013 and June 24, 2012, net share-based awards granted, after forfeitures and cancellations, represented 0.7% and 0.9%, respectively, of outstanding shares as of the beginning of each fiscal period, and total share-based awards granted represented 0.8% and 1.0%, respectively, of outstanding shares as of the end of each fiscal period.