UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________________
FORM 10-Q
_____________________
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to
Commission File Number 0-19528
QUALCOMM Incorporated
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
95-3685934
(I.R.S. Employer
Identification No.)
 
 
 
5775 Morehouse Dr., San Diego, California
(Address of principal executive offices)
 
92121-1714
(Zip Code)
(858) 587-1121
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on April 18, 2011, was as follows:
Class
 
Number of Shares
Common Stock, $0.0001 per share par value
 
1,669,532,005
 
 
 
 
 
 

1

 

INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

PART I. FINANCIAL INFORMATION
 
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
 
March 27,
2011
 
September 26,
2010
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
6,367
 
 
$
3,547
 
Marketable securities
6,658
 
 
6,732
 
Accounts receivable, net
715
 
 
730
 
Inventories
606
 
 
528
 
Deferred tax assets
330
 
 
321
 
Other current assets
174
 
 
275
 
Total current assets
14,850
 
 
12,133
 
Marketable securities
9,081
 
 
8,123
 
Deferred tax assets
1,917
 
 
1,922
 
Assets held for sale
746
 
 
 
Property, plant and equipment, net
2,114
 
 
2,373
 
Goodwill
1,417
 
 
1,488
 
Other intangible assets, net
2,174
 
 
3,022
 
Other assets
1,525
 
 
1,511
 
Total assets
$
33,824
 
 
$
30,572
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Trade accounts payable
$
666
 
 
$
764
 
Payroll and other benefits related liabilities
558
 
 
467
 
Unearned revenues
518
 
 
623
 
Loans payable
1,100
 
 
1,086
 
Income taxes payable
69
 
 
1,443
 
Other current liabilities
1,474
 
 
1,085
 
Total current liabilities
4,385
 
 
5,468
 
Unearned revenues
3,733
 
 
3,485
 
Other liabilities
705
 
 
761
 
Total liabilities
8,823
 
 
9,714
 
 
 
 
 
Commitments and contingencies (Note 8)
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 QUALCOMM Incorporated (QUALCOMM) stockholders' equity:
 
 
 
Preferred stock, $0.0001 par value; issuable in series; 8 shares authorized; none outstanding at
 
 
 
March 27, 2011 and September 26, 2010
 
 
 
Common stock, $0.0001 par value; 6,000 shares authorized; 1,666 and 1,612 shares issued and
 
 
 
outstanding at March 27, 2011 and September 26, 2010, respectively
 
 
 
Paid-in capital
9,325
 
 
6,856
 
Retained earnings
14,840
 
 
13,305
 
Accumulated other comprehensive income
802
 
 
697
 
Total QUALCOMM stockholders' equity
24,967
 
 
20,858
 
 Noncontrolling interests (Note 7)
34
 
 
 
Total stockholders’ equity
25,001
 
 
20,858
 
Total liabilities and stockholders’ equity
$
33,824
 
 
$
30,572
 
 
See Accompanying Notes to Condensed Consolidated Financial Statements.

3

QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
March 27,
2011
 
March 28,
2010
 
March 27,
2011
 
March 28,
2010
Revenues:
 
 
 
 
 
 
 
Equipment and services
$
2,044
 
 
$
1,595
 
 
$
4,257
 
 
$
3,257
 
Licensing and royalty fees
1,831
 
 
1,068
 
 
2,965
 
 
2,076
 
Total revenues
3,875
 
 
2,663
 
 
7,222
 
 
5,333
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Cost of equipment and services revenues
1,363
 
 
809
 
 
2,493
 
 
1,624
 
Research and development
740
 
 
648
 
 
1,411
 
 
1,244
 
Selling, general and administrative
585
 
 
430
 
 
1,022
 
 
810
 
Goodwill impairment (Note 11)
114
 
 
 
 
114
 
 
 
Total operating expenses
2,802
 
 
1,887
 
 
5,040
 
 
3,678
 
 
 
 
 
 
 
 
 
Operating income
1,073
 
 
776
 
 
2,182
 
 
1,655
 
 
 
 
 
 
 
 
 
Investment income, net (Note 5)
185
 
 
189
 
 
404
 
 
361
 
Income before income taxes
1,258
 
 
965
 
 
2,586
 
 
2,016
 
Income tax expense
(263
)
 
(191
)
 
(422
)
 
(401
)
Net income
995
 
 
774
 
 
2,164
 
 
1,615
 
Net loss attributable to the noncontrolling interests (Note 7)
4
 
 
 
 
4
 
 
 
Net income attributable to QUALCOMM
$
999
 
 
$
774
 
 
$
2,168
 
 
$
1,615
 
 
 
 
 
 
 
 
 
Earnings per common share attributable to QUALCOMM:
 
 
 
 
 
 
 
Basic earnings per common share
$
0.60
 
 
$
0.47
 
 
$
1.32
 
 
$
0.97
 
Diluted earnings per common share
$
0.59
 
 
$
0.46
 
 
$
1.30
 
 
$
0.96
 
 
 
 
 
 
 
 
 
Shares used in per share calculations:
 
 
 
 
 
 
 
Basic
1,654
 
 
1,662
 
 
1,639
 
 
1,667
 
Diluted
1,689
 
 
1,678
 
 
1,669
 
 
1,685
 
 
 
 
 
 
 
 
 
Dividends per share announced
$
0.19
 
 
$
0.17
 
 
$
0.38
 
 
$
0.34
 
 
See Accompanying Notes to Condensed Consolidated Financial Statements.

4

QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Six Months Ended
 
March 27,
2011
 
March 28,
2010
Operating Activities:
 
 
 
Net income
$
2,164
 
 
$
1,615
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
635
 
 
329
 
Goodwill impairment
114
 
 
 
Revenues related to non-monetary exchanges
(62
)
 
(68
)
Income tax provision less than income tax payments
(1,334
)
 
(6
)
Non-cash portion of share-based compensation expense
375
 
 
304
 
Incremental tax benefit from stock options exercised
(132
)
 
(31
)
Net realized gains on marketable securities and other investments
(231
)
 
(182
)
Net impairment losses on marketable securities and other investments
16
 
 
73
 
Other items, net
19
 
 
(4
)
Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable, net
23
 
 
35
 
Inventories
(81
)
 
52
 
Other assets
(19
)
 
(70
)
Trade accounts payable
(145
)
 
(81
)
Payroll, benefits and other liabilities
269
 
 
(239
)
Unearned revenues
205
 
 
305
 
Net cash provided by operating activities
1,816
 
 
2,032
 
Investing Activities:
 
 
 
Capital expenditures
(181
)
 
(196
)
Purchases of available-for-sale securities
(5,845
)
 
(4,480
)
Proceeds from sale of available-for-sale securities
5,467
 
 
4,241
 
Cash received for partial settlement of investment receivables
18
 
 
33
 
Other investments and acquisitions, net of cash acquired
(89
)
 
(28
)
Other items, net
5
 
 
3
 
Net cash used by investing activities
(625
)
 
(427
)
Financing Activities:
 
 
 
Borrowing under loans payable
1,260
 
 
 
Repayment of loans payable
(1,260
)
 
 
Proceeds from issuance of common stock
2,024
 
 
484
 
Proceeds from issuance of subsidiary shares to noncontrolling interests (Note 7)
62
 
 
 
Incremental tax benefit from stock options exercised
132
 
 
31
 
Repurchase and retirement of common stock
 
 
(1,715
)
Dividends paid
(625
)
 
(563
)
Change in obligation under securities lending
30
 
 
 
Other items, net
(4
)
 
(1
)
Net cash provided (used) by financing activities
1,619
 
 
(1,764
)
Effect of exchange rate changes on cash
10
 
 
(5
)
Net increase (decrease) in cash and cash equivalents
2,820
 
 
(164
)
Cash and cash equivalents at beginning of period
3,547
 
 
2,717
 
Cash and cash equivalents at end of period
$
6,367
 
 
$
2,553
 
 
See Accompanying Notes to Condensed Consolidated Financial Statements.

5

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
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 six-month periods ended March 27, 2011 and March 28, 2010 included 13 weeks and 26 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.      
     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 27, 2011 were 34,955,000 and 30,231,000, respectively. The incremental dilutive common share equivalents, calculated using the treasury stock method, for the three months and six months ended March 28, 2010 were 16,227,000 and 17,935,000, respectively.
     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, and employee stock options to purchase approximately 151,396,000 and 136,623,000 shares of common stock during the three months and six months ended March 28, 2010, were outstanding but not included in the computation of diluted earnings per common share because the effect would be anti-dilutive. In addition, 78,000 and 60,000 shares of other common stock equivalents during the three months and six months ended March 27, 2011, respectively, and 3,900 and 184,000 shares of other common stock equivalents during the three months and six months ended March 28, 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):

6

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

 
Three Months Ended
 
Six Months Ended
 
March 27,
2011
 
March 28,
2010
 
March 27,
2011
 
March 28,
2010
Net income
$
995
 
 
$
774
 
 
$
2,164
 
 
$
1,615
 
Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation
8
 
 
(10
)
 
13
 
 
(2
)
Noncredit other-than-temporary impairment losses and subsequent changes in fair value related to certain marketable debt securities, net of income taxes
(6
)
 
12
 
 
(10
)
 
20
 
Net unrealized gains on other marketable securities and derivative instruments, net of income taxes
90
 
 
162
 
 
221
 
 
331
 
Reclassification of net realized gains on marketable securities and derivative instruments included in net income, net of income taxes
(49
)
 
(103
)
 
(125
)
 
(164
)
Reclassification of other-than-temporary losses on marketable securities included in net income, net of income taxes
2
 
 
15
 
 
6
 
 
47
 
Total other comprehensive income
45
 
 
76
 
 
105
 
 
232
 
Total comprehensive income
1,040
 
 
850
 
 
2,269
 
 
1,847
 
Comprehensive loss attributable to noncontrolling interests
4
 
 
 
 
4
 
 
 
Comprehensive income attributable to QUALCOMM
$
1,044
 
 
$
850
 
 
$
2,273
 
 
$
1,847
 
Components of accumulated other comprehensive income consisted of the following (in millions):
 
March 27,
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
$
46
 
 
$
62
 
Net unrealized gains on marketable securities, net of income taxes
829
 
 
723
 
Net unrealized losses on derivative instruments, net of income taxes
(6
)
 
(8
)
Foreign currency translation
(67
)
 
(80
)
 
$
802
 
 
$
697
 
At March 27, 2011, accumulated other comprehensive income included $18 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 was as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 27,
2011
 
March 28,
2010
 
March 27,
2011
 
March 28,
2010
Cost of equipment and services revenues
$
17
 
 
$
10
 
 
$
30
 
 
$
21
 
Research and development
98
 
 
75
 
 
184
 
 
147
 
Selling, general and administrative
87
 
 
69
 
 
159
 
 
137
 
Share-based compensation expense before income taxes
202
 
 
154
 
 
373
 
 
305
 
Related income tax benefit
(56
)
 
(56
)
 
(111
)
 
(93
)
Share-based compensation expense, net of income taxes
$
146
 
 
$
98
 
 
$
262
 
 
$
212
 
The Company recorded $38 million in share-based compensation expense during both of the six months ended March 27, 2011 and March 28, 2010, related to share-based awards granted during those periods. In addition, for the six months ended March 27, 2011 and March 28, 2010, $132 million and $31 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 27, 2011, total unrecognized compensation costs related to non-vested stock options and restricted stock units granted prior to that date were $833 million and $395 million, respectively, which are each expected to be recognized over a weighted-average period of 2.4 years. Net share-based awards, after forfeitures and cancellations, granted during the six months ended March 27, 2011 and March 28, 2010 represented 0.3% and 1.1%, respectively, of outstanding shares as of the

7

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

beginning of each fiscal period. Total share-based awards granted during the six months ended March 27, 2011 and March 28, 2010 represented 0.5% and 1.4%, respectively, of outstanding shares as of the end of each fiscal period.
     
Note 2 — Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.
Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument.
Level 3 includes financial instruments for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including the Company’s own assumptions.
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at March 27, 2011 (in millions):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
2,061
 
 
$
3,732
 
 
$
 
 
$
5,793
 
Marketable securities
 
 
 
 
 
 
 
U.S. Treasury securities and government-related securities
205
 
 
347
 
 
 
 
552
 
Corporate bonds and notes
 
 
5,751
 
 
 
 
5,751
 
Mortgage- and asset-backed securities
 
 
624
 
 
6
 
 
630
 
Auction rate securities
 
 
 
 
125
 
 
125
 
Non-investment-grade debt securities
 
 
3,527
 
 
11
 
 
3,538
 
Common and preferred stock
1,189
 
 
736
 
 
 
 
1,925
 
Equity mutual and exchange-traded funds
1,003
 
 
 
 
 
 
1,003
 
Debt mutual funds
1,730
 
 
485
 
 
 
 
2,215
 
Total marketable securities
4,127
 
 
11,470
 
 
142
 
 
15,739
 
Derivative instruments
 
 
5
 
 
 
 
5
 
Other investments (1)
163
 
 
 
 
 
 
163
 
Total assets measured at fair value
$
6,351
 
 
$
15,207
 
 
$
142
 
 
$
21,700
 
Liabilities
 
 
 
 
 
 
 
Derivative instruments
$
 
 
$
17
 
 
$
 
 
$
17
 
Other liabilities (1)
163
 
 
 
 
8
 
 
171
 
Total liabilities measured at fair value
$
163
 
 
$
17
 
 
$
8
 
 
$
188
 
______________________________
(1) Primarily comprised of the Company’s deferred compensation plan liability and related assets which are invested in mutual funds.
 
Marketable Securities. With the exception of auction rate securities, the Company obtains pricing information from quoted market prices, pricing vendors or quotes from brokers/dealers. The Company conducts reviews of its primary pricing vendors

8

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

to determine whether the inputs used in the vendor's pricing processes are deemed to be observable.
The fair value of other government-related securities and investment- and non-investment-grade corporate bonds and notes is generally determined using standard observable inputs, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers.
The fair value of debt mutual funds is determined based on published net asset values. The Company assesses the daily frequency and size of transactions at published net asset values to determine whether fair value is based on observable or unobservable inputs.
The fair value of mortgage- and asset-backed securities is derived from the use of matrix pricing or cash flow pricing models in which inputs are observable, including contractual terms, maturity, prepayment speeds, credit rating and securitization structure, to determine the timing and amount of future cash flows. Certain mortgage- and asset-backed securities, principally those that are rated below AAA, require use of significant unobservable inputs to estimate fair value, such as default likelihood, recovery rates and prepayment speed.
The fair value of auction rate securities is estimated by the Company using a discounted cash flow model that incorporates transaction details such as contractual terms, maturity and timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of market participants. Though the vast majority of the securities held by the Company are pools of student loans guaranteed by the U.S. government, prepayment speeds and illiquidity discounts are considered significant unobservable inputs. Therefore, auction rate securities are included in Level 3.
Derivative Instruments. Derivative instruments include foreign currency option and forward contracts to manage foreign exchange risk for certain foreign currency transactions and certain balances denominated in a foreign currency. Derivative instruments are valued using standard calculations/models that are primarily based on observable inputs, including foreign currency exchange rates, volatilities and interest rates. Therefore, derivative instruments are included in Level 2.
Other Liabilities. Other liabilities include put rights held by third parties representing interests in certain of the Company's subsidiaries (Note 7). These put rights are valued using standard models that are primarily based on unobservable inputs, including volatilities. Therefore, these put rights are included in Level 3.
Activity between Levels of the Fair Value Hierarchy. There were no significant transfers between Level 1 and Level 2 during the six months ended March 27, 2011 or March 28, 2010. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. The following table includes the activity for marketable securities and other liabilities classified within Level 3 of the valuation hierarchy (in millions):
 
Six Months Ended March 27, 2011
 
Auction Rate
Securities
 
Other Marketable
Securities
 
Other Liabilities
Beginning balance of Level 3
$
126
 
 
$
18
 
 
$
 
Total realized and unrealized gains:
 
 
 
 
 
Included in investment gains, net
 
 
1
 
 
 
Included in other comprehensive income
2
 
 
 
 
 
Issuances
 
 
 
 
8
 
Settlements
(3
)
 
(3
)
 
 
Transfers into Level 3
 
 
1
 
 
 
Ending balance of Level 3
$
125
 
 
$
17
 
 
$
8
 

9

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

 
Six Months Ended March 28, 2010
 
Auction Rate
Securities
 
Other Marketable
Securities
Beginning balance of Level 3
$
174
 
 
$
31
 
Total realized and unrealized (losses) gains:
 
 
 
Included in investment gains, net
 
 
2
 
Included in other comprehensive income
7
 
 
 
Settlements
(5
)
 
(10
)
Transfers into Level 3
 
 
4
 
Ending balance of Level 3
$
176
 
 
$
27
 
The Company's policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal month in which the actual event or change in circumstances that caused the transfer occurs. Transfers into Level 3 during the six months ended March 27, 2011 and March 28, 2010 primarily consisted of debt securities with significant inputs that became unobservable as a result of an increased likelihood of a shortfall in contractual cash flows or a significant downgrade in the credit ratings.
Nonrecurring Fair Value Measurements. The Company measures certain assets at fair value on a nonrecurring basis. These assets include cost- and equity-method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property, plant and equipment and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. During the six months ended March 27, 2011, goodwill with a carrying amount of $154 million was written down to its implied fair value of $40 million, resulting in an impairment charge of $114 million (Note 11). The implied fair value was based on significant unobservable inputs, and as a result, the fair value measurement was classified as Level 3. During the six months ended March 27, 2011 and March 28, 2010, the Company did not have any other significant assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
 
Note 3 — Marketable Securities
Marketable securities were comprised as follows (in millions):
 
Current
 
Noncurrent
 
March 27,
2011
 
September 26,
2010
 
March 27,
2011
 
September 26,
2010
Available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities and government-related securities
$
548
 
 
$
650
 
 
$
4
 
 
$
4
 
Corporate bonds and notes
3,688
 
 
3,504
 
 
2,063
 
 
1,495
 
Mortgage- and asset-backed securities
545
 
 
629
 
 
85
 
 
38
 
Auction rate securities
 
 
 
 
125
 
 
126
 
Non-investment-grade debt securities
20
 
 
21
 
 
3,518
 
 
3,344
 
Common and preferred stock
127
 
 
52
 
 
1,798
 
 
1,670
 
Equity mutual and exchange-traded funds
 
 
 
 
1,003
 
 
979
 
Debt mutual funds
1,730
 
 
1,476
 
 
 
 
 
Total available-for-sale
6,658
 
 
6,332
 
 
8,596
 
 
7,656
 
Fair value option:
 
 
 
 
 
 
 
Debt mutual fund
 
 
 
 
485
 
 
467
 
Time deposits
 
 
400
 
 
 
 
 
Total marketable securities
$
6,658
 
 
$
6,732
 
 
$
9,081
 
 
$
8,123
 
In fiscal 2010, the Company made an investment in a debt mutual fund for which the Company elected the fair value option. The investment would have otherwise been recorded using the equity method. The debt mutual fund has no single maturity date. At March 27, 2011, the Company had an effective ownership interest in the debt mutual fund of 18.4%. Changes

10

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

in fair value associated with this investment are recognized in net investment income. The Company believes that recording the investment at fair value and reporting the investment as a marketable security is preferable to applying the equity method because the Company is able to redeem its shares at net asset value, which is determined daily. At September 26, 2010, marketable securities included $400 million of time deposits that matured in December 2010.
At March 27, 2011, the contractual maturities of available-for-sale debt securities were as follows (in millions):
Years to Maturity
 
 
 
 
Less Than
One Year
 
One to
Five Years
 
Five to
Ten Years
 
Greater Than
Ten Years
 
No Single
Maturity
Date
 
Total
$
1,261
 
 
$
4,406
 
 
$
2,059
 
 
$
974
 
 
$
3,626
 
 
$
12,326
 
Securities with no single maturity date included mortgage- and asset-backed securities, auction rate securities, non-investment-grade debt securities and debt mutual funds.
The Company recorded realized gains and losses on sales of available-for-sale marketable securities as follows (in millions):
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains
For the three months ended
 
 
 
 
 
March 27, 2011
$
95
 
 
$
(6
)
 
$
89
 
March 28, 2010
86
 
 
(6
)
 
80
 
For the six months ended
 
 
 
 
 
March 27, 2011
$
223
 
 
$
(11
)
 
$
212
 
March 28, 2010
194
 
 
(12
)
 
182
 
Available-for-sale securities were comprised as follows (in millions):
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
March 27, 2011
 
 
 
 
 
 
 
Equity securities
$
2,364
 
 
$
574
 
 
$
(10
)
 
$
2,928
 
Debt securities
11,876
 
 
464
 
 
(14
)
 
12,326
 
 
$
14,240
 
 
$
1,038
 
 
$
(24
)
 
$
15,254
 
September 26, 2010
 
 
 
 
 
 
 
Equity securities
$
2,309
 
 
$
403
 
 
$
(11
)
 
$
2,701
 
Debt securities
10,795
 
 
512
 
 
(20
)
 
11,287
 
 
$
13,104
 
 
$
915
 
 
$
(31
)
 
$
13,988
 
The following table shows the gross unrealized losses and fair values of the Company’s investments in individual securities that have been in a continuous unrealized loss position deemed to be temporary for less than 12 months and for more than 12 months, aggregated by investment category (in millions):

11

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

 
March 27, 2011
 
Less than 12 months
 
More than 12 months
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Corporate bonds and notes
$
1,262
 
 
$
(5
)
 
$
43
 
 
$
 
Mortgage- and asset-backed securities
139
 
 
(1
)
 
4
 
 
 
Auction rate securities
 
 
 
 
125
 
 
(2
)
Non-investment-grade debt securities
334
 
 
(3
)
 
28
 
 
(2
)
Common and preferred stock
206
 
 
(10
)
 
4
 
 
 
Debt mutual funds
525
 
 
(1
)
 
 
 
 
 
$
2,466
 
 
$
(20
)
 
$
204
 
 
$
(4
)
 
 
September 26, 2010
 
Less than 12 months
 
More than 12 months
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Corporate bonds and notes
$
425
 
 
$
(1
)
 
$
23
 
 
$
 
Auction rate securities
 
 
 
 
126
 
 
(4
)
Non-investment-grade debt securities
296
 
 
(7
)
 
90
 
 
(8
)
Common and preferred stock
133
 
 
(10
)
 
3
 
 
 
Equity mutual and exchange-traded funds
277
 
 
(1
)
 
 
 
 
 
$
1,131
 
 
$
(19
)
 
$
242
 
 
$
(12
)
At March 27, 2011, the Company concluded that the unrealized losses were temporary. Further, for common and preferred stock with unrealized losses, the Company has the ability and the intent to hold such securities until they recover, which is expected to be within a reasonable period of time. For debt securities with unrealized losses, the Company does not have the intent to sell, nor is it more likely than not that the Company will be required to sell, such securities before recovery or maturity.
The following table shows the activity for the credit loss portion of other-than-temporary impairments on debt securities held by the Company (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 27,
2011
 
March 28,
2010
 
March 27,
2011
 
March 28,
2010
Beginning balance of credit losses
$
89
 
 
$
143
 
 
$
109
 
 
$
170
 
Credit losses recognized on securities previously impaired
(30
)
 
 
 
(40
)
 
 
Credit losses recognized on securities previously not impaired
 
 
 
 
 
 
1
 
Reductions in credit losses related to securities sold
(5
)
 
(6
)
 
(12
)
 
(18
)
Accretion of credit losses due to an increase in cash flows expected to be collected
(2
)
 
(3
)
 
(5
)
 
(19
)
Ending balance of credit losses
$
52
 
 
$
134
 
 
$
52
 
 
$
134
 
 
Note 4 — Composition of Certain Financial Statement Items
     Accounts Receivable.

12

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

 
March 27,
2011
 
September 26,
2010
 
(In millions)
Trade, net of allowances for doubtful accounts of $2 and $3, respectively
$
668
 
 
$
697
 
Long-term contracts
31
 
 
25
 
Other
16
 
 
8
 
 
$
715
 
 
$
730
 
     Inventories.
 
March 27,
2011
 
September 26,
2010
 
(In millions)
Raw materials
$
21
 
 
$
15
 
Work-in-process
305
 
 
284
 
Finished goods
280
 
 
229
 
 
$
606
 
 
$
528
 
     Other Current Liabilities.
 
March 27,
2011
 
September 26,
2010
 
(In millions)
Customer-related liabilities, including incentives, rebates and other reserves
$
775
 
 
$
574
 
Current portion of payable to Broadcom for litigation settlement
170
 
 
170
 
Payable for unsettled securities trades
193
 
 
80
 
Other
336
 
 
261
 
 
$
1,474
 
 
$
1,085
 
 
Note 5 — Investment Income, Net
 
Three Months Ended
 
Six Months Ended
 
March 27,
2011
 
March 28,
2010
 
March 27,
2011
 
March 28,
2010
 
(In millions)
Interest and dividend income
$
126
 
 
$
129
 
 
$
256
 
 
$
274
 
Interest expense
(34
)
 
(7
)
 
(62
)
 
(16
)
Net realized gains on marketable securities
102
 
 
80
 
 
231
 
 
182
 
Impairment losses on marketable securities
(4
)
 
(15
)
 
(11
)
 
(67
)
Impairment losses on other investments
(1
)
 
(1
)
 
(5
)
 
(6
)
Gains (losses) on derivative instruments
 
 
3
 
 
 
 
(1
)
Equity in losses of investees
(4
)
 
 
 
(5
)
 
(5
)
 
$
185
 
 
$
189
 
 
$
404
 
 
$
361
 
 
Note 6 — Income Taxes
The Company estimates its annual effective income tax rate to be approximately 17% for fiscal 2011, compared to the 20% effective income tax rate for fiscal 2010. During the first quarter of fiscal 2011, the United States government extended the federal research and development tax credit to include qualified research expenditures paid or incurred after December 31, 2009 and before January 1, 2012. The Company recorded a tax benefit of $32 million related to fiscal 2010 in the first quarter of fiscal 2011 for the retroactive extension of this credit. The annual effective tax rate for fiscal 2010 included tax expense of approximately $137 million that arose because certain deferred revenue was taxable in fiscal 2010, but the resulting deferred tax asset will reverse in future years when the Company's state tax rate will be lower as a result of California tax legislation

13

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

enacted in 2009.
The estimated annual effective tax rate for fiscal 2011 of 17% is less than the United States federal statutory rate primarily due to benefits of approximately 21% related to foreign earnings taxed at less than the United States federal rate and benefits of approximately 2% related to the research and development tax credit, partially offset by state taxes of approximately 5%. The prior fiscal year rate was lower than the United States federal statutory rate primarily due to benefits related to foreign earnings taxed at less than the United States federal rate, partially offset by state taxes and tax expense related to the valuation of deferred tax assets to reflect changes in California law.
 
QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

Note 7 — Stockholders’ Equity
Changes in stockholders’ equity for the six months ended March 27, 2011 were as follows (in millions):
 
QUALCOMM Stockholders' Equity
 
Noncontrolling Interests
 
Total Stockholders' Equity
Balance at September 26, 2010
$
20,858
 
 
$
 
 
$
20,858
 
Issuance of subsidiary shares to noncontrolling interests
16
 
 
38
 
 
54
 
Net income (loss)
2,168
 
 
(4
)
 
2,164
 
Other comprehensive income
105
 
 
 
 
105
 
Common stock issued under employee benefit plans
1,988
 
 
 
 
1,988
 
Share-based compensation
396
 
 
 
 
396
 
Tax benefit from exercise of stock options
79
 
 
 
 
79
 
Dividends
(633
)
 
 
 
(633
)
Other
(10
)
 
 
 
(10
)
Balance at March 27, 2011
$
24,967
 
 
$
34
 
 
$
25,001
 
 
Noncontrolling Interests. In June 2010, the Company won a 20 MHz slot of Broadband Wireless Access (BWA) spectrum in four telecom circles in India as a result of the completion of the BWA spectrum auction. The Company expects that licenses to operate wireless networks on this spectrum will be assigned to the Company in the third quarter of fiscal 2011 with an initial license period of 20 years. At March 27, 2011 and September 26, 2010, the Company had a $1.1 billion advance payment included in noncurrent other assets related to this spectrum. The Company will amortize the spectrum licenses over the remaining license period commencing upon the commercial launch of wireless services in India, which is expected to occur within five years of the assignment date. The Company’s goal is to attract one or more operator partners into a venture (or ventures) for construction of an LTE network in compliance with the Indian government’s rollout requirement for the BWA spectrum and then to exit the venture(s). The manner and timing of such exit will be dependent upon a number of factors, such as market conditions and regulatory considerations, among others.
During the second quarter of fiscal 2011, in connection with the India BWA spectrum purchase, certain of the Company's subsidiaries in India issued noncontrolling interests to two third-party Indian investors for $62 million, such that the Company now holds a 74% interest in each of those subsidiaries, the maximum interest permitted under applicable Indian Foreign Direct Investment regulations. In addition, the third parties representing the noncontrolling interests in the subsidiaries hold put rights that provide them with options to sell their ownership interests in the subsidiaries to QUALCOMM Incorporated or its nominee (subject to applicable regulatory approvals) after July 29, 2014, or earlier if certain events occur, at a price equal to their original capital contribution. The aggregate fair value of these put rights, which are accounted for as freestanding financial instruments classified in other liabilities, was $8 million at March 27, 2011.
Stock Repurchase Program. The Company did not repurchase any shares during the three and six months ended March 27, 2011. During the three and six months ended March 28, 2010, the Company repurchased and retired 43,871,000 shares of the Company’s common stock for $1.7 billion. At March 27, 2011, approximately $1.7 billion remained authorized for repurchase under the Company’s stock repurchase program. The stock repurchase program has no expiration date.
Dividends. On March 8, 2011 the Company announced an increase in its quarterly cash dividend per share of common stock from $0.19 to $0.215, which is effective for dividends payable after March 25, 2011. On April 7, 2011, the Company announced a cash dividend of $0.215 per share on the Company’s common stock, payable on June 24, 2011 to stockholders of record as of May 27, 2011. During the six months ended March 27, 2011 and March 28, 2010, dividends charged to retained

14

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

earnings were as follows (in millions, except per share data):
 
2011
 
2010
 
Per Share
 
Total
 
Per Share
 
Total
First Quarter
$
0.19
 
 
$
314
 
 
$
0.17
 
 
$
284
 
Second Quarter
0.19
 
 
319
 
 
0.17
 
 
279
 
 
$
0.38
 
 
$
633
 
 
$
0.34
 
 
$
563
 
 
Note 8 — Commitments and Contingencies
Litigation. Tessera, Inc. v. QUALCOMM Incorporated: On April 17, 2007, Tessera filed a patent infringement lawsuit in the United States District Court for the Eastern Division of Texas and a complaint with the United States International Trade Commission (ITC) pursuant to Section 337 of the Tariff Act of 1930 against the Company and other companies, alleging infringement of two patents. The District Court action is stayed pending resolution of the ITC proceeding, including all appeals. On May 20, 2009, the ITC issued a limited exclusion order and a cease and desist order, both of which were terminated when the patents expired on September 24, 2010. During the period of the exclusion order, the Company shifted supply of accused chips for the United States market to a licensed supplier of Tessera, and the Company continued to supply the United States market without interruption. On December 21, 2010, the U.S. Court of Appeals for the Federal Circuit issued a decision affirming the ITC’s orders, and on March 29, 2011, it declined to reconsider that decision. The Company may appeal to the U.S. Supreme Court. Once the stay is lifted, Tessera may continue to seek back damages in the district court, but it may not seek injunctive relief due to the expiration of the patents.
Korea Fair Trade Commission (KFTC) Complaint: On January 4, 2010, the KFTC issued a written decision, finding that the Company had violated South Korean law by offering certain discounts and rebates for purchases of its CDMA chips and for including in certain agreements language requiring the continued payment of royalties after all licensed patents have expired. The KFTC levied a fine, which the Company paid in the second quarter of fiscal 2010. The Company is appealing that decision in the Korean courts.
Japan Fair Trade Commission (JFTC) Complaint: The JFTC received unspecified complaints alleging that the Company’s business practices are, in some way, a violation of Japanese law. On September 29, 2009, the JFTC issued a cease and desist order concluding that the Company’s Japanese licensees were forced to cross-license patents to the Company on a royalty-free basis and were forced to accept a provision under which they agreed not to assert their essential patents against the Company’s other licensees who made a similar commitment in their license agreements with the Company. The cease and desist order seeks to require the Company to modify its existing license agreements with Japanese companies to eliminate these provisions while preserving the license of the Company’s patents to those companies. The Company disagrees with the conclusions that it forced its Japanese licensees to agree to any provision in the parties’ agreements and that those provisions violate the Japanese Antimonopoly Act. The Company has invoked its right under Japanese law to an administrative hearing before the JFTC. In February 2010, the Tokyo High Court granted the Company’s motion and issued a stay of the cease and desist order pending the administrative hearing before the JFTC. The JFTC has had seven hearing days to date, with an additional hearing day scheduled on April 26, 2011, and additional hearing days yet to be scheduled.
Icera Complaint to the European Commission: On June 7, 2010, the European Commission (the Commission) notified and provided the Company with a redacted copy of a complaint filed with the Commission by Icera, Inc. alleging that the Company has engaged in anticompetitive activity. The Company has been asked by the Commission to submit a preliminary response to the portions of the Complaint disclosed to it, and the Company submitted its response in July 2010. The Company will cooperate fully with the Commission.
Panasonic Arbitration: QUALCOMM and Panasonic Mobile Communications Co. Ltd. (Panasonic) have settled their dispute resulting in the dismissal of the arbitration that was previously filed by Panasonic on August 5, 2009 and amended on January 31, 2010, and as a result of the settlement, the Company is no longer deferring royalty revenue reported by Panasonic. Panasonic had alleged, among other things, that it did not owe royalties, or owed less royalties, to QUALCOMM on its WCDMA subscriber devices sold on or after December 21, 2008, that the Company breached the license agreement between the parties as well as certain commitments to standards setting organizations, and that the Company violated the Japanese Antimonopoly Act. The arbitration had been proceeding in phases. In the first phase of the arbitration, the arbitrator rejected Panasonic’s claims that the Company breached the license agreement.
Formal Order of Private Investigation: On September 8, 2010, the Company was notified by the Securities and Exchange Commission’s Los Angeles Regional office (SEC) of a formal order of private investigation. The Company understands that the

15

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of the Company’s Board of Directors and to the SEC. The audit committee completed an internal review with the assistance of independent counsel and independent forensic accountants. This internal review into the allegations and related accounting practices did not identify any errors in the Company's financial statements. The Company continues to cooperate with the SEC’s ongoing investigation.
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, and individually filed actions pending in federal court in Pennsylvania and Washington D.C. superior court, seeking monetary damages arising out of its sale of cellular phones.
While there can be no assurance of favorable outcomes, the Company believes the claims made by other parties in the foregoing matters are without merit and will vigorously defend the actions. The Company has not recorded any accrual for contingent liabilities associated with the legal proceedings described above based on the Company’s belief that liabilities, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time. The Company is engaged in numerous other legal actions not described above arising in the ordinary course of its business and, while there can be no assurance, believes that the ultimate outcome of these actions will not have a material adverse effect on its operating results, liquidity or financial position.
Litigation Settlement, Patent License and Other Related Items. On April 26, 2009, the Company entered into a Settlement and Patent License and Non-Assert Agreement with Broadcom. The Company agreed to pay Broadcom $891 million, of which $502 million was paid through March 27, 2011, and the remainder will be paid ratably through April 2013. The Company recorded a pre-tax charge of $783 million related to this agreement during fiscal 2009. At March 27, 2011, the carrying value of the liability was $376 million, which also approximated the fair value of the contractual liability net of imputed interest.
Loans Payable Related to India Spectrum Acquisition. In June 2010, in connection with the India BWA spectrum purchase, certain of the Company's subsidiaries in India entered into a loan agreement with multiple lenders that was denominated in Indian rupees. The loan had a fixed interest rate of 6.75% per year with interest payments due monthly and was payable in full in December 2010. On December 13, 2010, the loan was refinanced with new loan agreements that bear interest at an annual rate based on the highest rate among the bank lenders, which is reset quarterly, plus 0.25% (9.25% at March 27, 2011) with interest payments due monthly. The new loans are due and payable in full in December 2012. However, each lender has the right to demand prepayment of its portion of the outstanding loans on December 15, 2011 subject to sufficient prior written notice. As a result, the loans are classified as a component of current liabilities. The loans can be prepaid without penalty on certain dates and are guaranteed by QUALCOMM Incorporated and one of its subsidiaries. The loan agreements contain standard covenants, which, among other things, limit actions by the subsidiaries that are party to the loan agreements, including the incurrence of loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. At March 27, 2011, the aggregate carrying value of the loans was $1.1 billion, which approximated fair value.
Indemnifications. In general, the Company does not agree to indemnify its customers and licensees for losses sustained from infringement of third-party intellectual property. However, the Company is contingently liable under certain product sales, services, license and other agreements to indemnify certain customers against certain types of liability and/or damages arising from qualifying claims of patent infringement by products or services sold or provided by the Company. The Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by the Company. These indemnification arrangements are not initially measured and recognized at fair value because they are deemed to be similar to product warranties in that they relate to claims and/or other actions that could impair the ability of the Company’s direct or indirect customers to use the Company’s products or services. Accordingly, the Company records liabilities resulting from the arrangements when they are probable and can be reasonably estimated. Reimbursements under indemnification arrangements have not been material to the Company’s consolidated financial statements. The Company has not recorded any accrual for contingent liabilities at March 27, 2011 associated with these indemnification arrangements, other than negligible amounts for reimbursement of legal costs, based on the Company’s belief that additional liabilities, while possible, are not probable. Further, any possible range of loss cannot be estimated at this time.
Purchase Obligations. The Company has agreements with suppliers and other parties to purchase inventory, other goods and services and long-lived assets. Noncancelable obligations under these agreements at March 27, 2011 for the remainder of fiscal 2011 and for each of the subsequent four years from fiscal 2012 through 2015 were approximately $1.2 billion, $236 million, $29 million, $4 million and $33 million, respectively, and $24 million thereafter. Of these amounts, for the remainder

16

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

of fiscal 2011 and for fiscal 2012, commitments to purchase integrated circuit product inventories comprised $1.0 billion and $52 million, respectively.
Leases. The future minimum lease payments for all capital leases and operating leases at March 27, 2011 were as follows (in millions):
 
Capital
Leases
 
Operating
Leases
 
Total
Remainder of fiscal 2011
$
8
 
 
$
52
 
 
$
60
 
2012
16
 
 
72
 
 
88
 
2013
16
 
 
40
 
 
56
 
2014
16
 
 
29
 
 
45
 
2015
17
 
 
23
 
 
40
 
Thereafter
417
 
 
220
 
 
637
 
Total minimum lease payments
$
490
 
 
$
436
 
 
$
926
 
Deduct: Amounts representing interest
277
 
 
 
 
 
Present value of minimum lease payments
213
 
 
 
 
 
Deduct: Current portion of capital lease obligations
2
 
 
 
 
 
Long-term portion of capital lease obligations
$
211
 
 
 
 
 
The Company leases certain of its land, facilities and equipment under noncancelable operating leases, with terms ranging from less than one year to 35 years and with provisions in certain leases for cost-of-living increases. The Company leases certain property under capital lease agreements, primarily related to cell site leases that have an initial term of five to seven years with renewal options of up to five additional renewal periods. In determining the capital lease classification for the cell site leases upon commencement of each lease, the Company included all renewal options. As a result of the restructuring plan (Note 10), the Company does not intend to renew its existing site capital leases. As of March 27, 2011, the Company expects to write off $182 million of cell site capital lease assets (which are included in buildings and improvements in property, plant and equipment) and $210 million of its capital lease obligations (which are included in other liabilities) at the end of the current contractual lease terms related to lease renewal option periods thereafter. Any early terminations may impact the amounts that are written off.
 
QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

Note 9 — Segment Information
The Company is organized on the basis of products and services. The Company aggregates four of its divisions into the Qualcomm Wireless & Internet segment. Reportable segments are as follows:
Qualcomm CDMA Technologies (QCT) — develops and supplies CDMA- and OFDMA-based integrated circuits and system software for wireless voice and data communications, multimedia functions and global positioning system products;
Qualcomm Technology Licensing (QTL) — grants licenses or otherwise provides rights to use portions of the Company’s intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products, including, without limitation, products implementing cdmaOne, CDMA2000, WCDMA, CDMA TDD (including TD-SCDMA), GSM/GPRS/EDGE and/or OFDMA standards, and collects license fees and royalties in partial consideration for such licenses;
Qualcomm Wireless & Internet (QWI) — comprised of:
Qualcomm Internet Services (QIS) — provides content enablement services for the wireless industry and push-to-talk and other products and services for wireless network operators;
Qualcomm Government Technologies (QGOV) — provides development, hardware and analytical expertise to United States government agencies involving wireless communications technologies;
Qualcomm Enterprise Services (QES) — provides satellite- and terrestrial-based two-way wireless information and position reporting services to transportation and logistics companies and other enterprise companies with fleet vehicles; and
Firethorn — builds and manages software applications that enable certain mobile commerce services.

17

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

Qualcomm Strategic Initiatives (QSI) — consists of the Company’s strategic investment activities, including FLO TV Incorporated (FLO TV), the Company’s wholly-owned wireless multimedia operator subsidiary. The Company is executing on a restructuring plan under which the FLO TV business and network were shut down on March 27, 2011 (Note 10). QSI makes strategic investments that the Company believes will open new markets for CDMA and OFDMA technologies, support the design and introduction of new CDMA and OFDMA products or possess unique capabilities or technology. Many of these strategic investments are in early-stage companies and in wireless spectrum, such as the BWA spectrum won in the auction in India.
The Company evaluates the performance of its segments based on earnings (loss) before income taxes (EBT). EBT includes the allocation of certain corporate expenses to the segments, including depreciation and amortization expense related to unallocated corporate assets. Certain income and charges are not allocated to segments in the Company’s management reports because they are not considered in evaluating the segments’ operating performance. Unallocated income and charges include certain investment income (loss), certain share-based compensation and certain research and development expenses and marketing expenses that were deemed to be not directly related to the businesses of the segments. The table below presents revenues and EBT for reportable segments (in millions):
 
QCT
 
QTL
 
QWI
 
QSI
 
Reconciling
Items
 
Total
For the three months ended:
 
 
 
 
 
 
 
 
 
 
 
March 27, 2011
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
1,962
 
 
$
1,746
 
 
$
157
 
 
$
5
 
 
$
5
 
 
$
3,875
 
EBT
417
 
 
1,575
 
 
(135
)
 
(404
)
 
(195
)
 
1,258
 
March 28, 2010
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
1,537
 
 
$
974
 
 
$
152
 
 
$
2
 
 
$
(2
)
 
$
2,663
 
EBT
344
 
 
821
 
 
(1
)
 
(136
)
 
(63
)
 
965
 
 
 
 
 
 
 
 
 
 
 
 
 
For the six months ended:
 
 
 
 
 
 
 
 
 
 
 
March 27, 2011
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
4,078
 
 
$
2,803
 
 
$
329
 
 
$
5
 
 
$
7
 
 
$
7,222
 
EBT
1,057
 
 
2,467
 
 
(135
)
 
(563
)
 
(240
)
 
2,586
 
March 28, 2010
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
3,144
 
 
$
1,891
 
 
$
294
 
 
$
4
 
 
$
 
 
$
5,333
 
EBT
769
 
 
1,594
 
 
8
 
 
(243
)
 
(112
)
 
2,016
 
Reconciling items in the previous table were as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 27,
2011
 
March 28,
2010
 
March 27,
2011
 
March 28,
2010
Revenues
 
 
 
 
 
 
 
Elimination of intersegment revenues
$
(1
)
 
$
(5
)
 
$
(2
)
 
$
(7
)
Other nonreportable segments
6
 
 
3
 
 
9
 
 
7
 
 
$
5
 
 
$
(2
)
 
$
7
 
 
$
 
EBT
 
 
 
 
 
 
 
Unallocated cost of equipment and services revenues
$
(17
)
 
$
(10
)
 
$
(30
)
 
$
(21
)
Unallocated research and development expenses
(155
)
 
(117
)
 
(274
)
 
(205
)
Unallocated selling, general and administrative expenses
(164
)
 
(71
)
 
(251
)
 
(144
)
Unallocated investment income, net
216
 
 
187
 
 
461
 
 
365
 
Other nonreportable segments
(77
)
 
(51
)
 
(147
)
 
(105
)
Intersegment eliminations
2
 
 
(1
)
 
1
 
 
(2
)
 
$
(195
)
 
$
(63
)
 
$
(240
)
 
$
(112
)

18

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

During the three months and six months ended March 27, 2011, unallocated research and development expenses included $98 million and $184 million, respectively, and unallocated selling, general and administrative expenses included $87 million and $159 million, respectively, of share-based compensation expense. During the three months and six months ended March 28, 2010, unallocated research and development expenses included $75 million and $147 million, respectively, and unallocated selling, general and administrative expenses included $69 million and $137 million, respectively, of share-based compensation expense. Unallocated cost of equipment and services revenues was comprised entirely of share-based compensation expense.
Revenues from external customers and intersegment revenues were as follows (in millions):
 
QCT
 
QTL
 
QWI
 
QSI
For the three months ended:
 
 
 
 
 
 
 
March 27, 2011
 
 
 
 
 
 
 
Revenues from external customers
$
1,961
 
 
$
1,746
 
 
$
157
 
 
$
5
 
Intersegment revenues
1
 
 
 
 
 
 
 
March 28, 2010
 
 
 
 
 
 
 
Revenues from external customers
$
1,532
 
 
$
974
 
 
$
152
 
 
$
2
 
Intersegment revenues
5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the six months ended:
 
 
 
 
 
 
 
March 27, 2011
 
 
 
 
 
 
 
Revenues from external customers
$
4,076
 
 
$
2,803
 
 
$
329
 
 
$
5
 
Intersegment revenues
2
 
 
 
 
 
 
 
March 28, 2010
 
 
 
 
 
 
 
Revenues from external customers
$
3,137
 
 
$
1,891
 
 
$
294
 
 
$
4
 
Intersegment revenues
7
 
 
 
 
 
 
 
    
Segment assets are comprised of accounts receivable and inventories for all operating segments other than QSI. The QSI segment assets include certain marketable securities, notes receivable, spectrum licenses, other investments and all assets of QSI’s consolidated subsidiaries, including FLO TV. QSI segment assets related to the FLO TV business totaled $949 million and $1.3 billion at March 27, 2011 and September 26, 2010, respectively. Reconciling items for total assets included $437 million and $384 million at March 27, 2011 and September 26, 2010, respectively, of goodwill and other assets related to the Company’s QMT division, a nonreportable segment developing display technology for mobile devices and other applications. Total segment assets differ from total assets on a consolidated basis as a result of unallocated corporate assets primarily comprised of certain cash, cash equivalents, marketable securities, property, plant and equipment, deferred tax assets, goodwill, other intangible assets and assets of nonreportable segments. Segment assets and reconciling items were as follows (in millions):
 
March 27,
2011
 
September 26,
2010
QCT
$
1,130
 
 
$
1,085
 
QTL
26
 
 
28
 
QWI
149
 
 
129
 
QSI
2,597
 
 
2,745
 
Reconciling items
29,922
 
 
26,585
 
Total consolidated assets
$
33,824
 
 
$
30,572
 
 
Note 10 — Restructuring
On December 20, 2010, the Company agreed to sell substantially all of the Company’s 700 MHz spectrum for $1.9 billion, subject to the satisfaction of customary closing conditions, including approval by the U.S. Federal Communications Commission. The agreement follows the Company’s previously announced plan to restructure and evaluate strategic options related to the FLO TV business and network. Under the restructuring plan, the FLO TV business and network were shut down on March 27, 2011, and the Company is no longer pursuing the MediaFLO Technologies business. Restructuring activities

19

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

under this plan were initiated in the fourth quarter of fiscal 2010 and are expected to be substantially complete by the end of fiscal 2012 as the Company continues to negotiate the exit of certain contracts and removes certain of its equipment from the network sites. The spectrum was classified as held for sale at March 27, 2011. Although the Company will attempt to sell certain of the other FLO TV assets, these other assets were classified as held for use at March 27, 2011 because the held for sale criteria, under applicable accounting rules, were not met, and as a result, the FLO TV business was not considered a discontinued operation at March 27, 2011.
The Company estimates that it will incur future restructuring and restructuring-related charges associated with this plan of up to $65 million, which are primarily related to lease exit and other costs. Restructuring charges consist of lease exit costs, other contract termination costs and certain severance costs. Restructuring-related charges include all other charges associated with the execution of this plan and primarily consist of asset impairment and accelerated depreciation. The restructuring charges are recorded in the QSI segment, and the restructuring-related charges are recorded primarily in the QSI segment. The Company may also realize certain gains, primarily due to the potential release of liabilities associated with ongoing efforts to exit certain contracts, the amount of which cannot be reasonably estimated at this time. Future cash expenditures associated with this plan are expected to be in the range of $125 million to $175 million.
The Company recorded restructuring and restructuring-related costs as follows (in millions):
 
Three Months Ended March 27, 2011
 
Asset
Impairment and
Accelerated
Depreciation
 
Contract Termination
 
Other
 
Total
Restructuring charges
 
 
 
 
 
 
 
Cost of equipment and services revenues
$
 
 
$
8
 
 
$
(2
)
 
$
6
 
Selling, general and administrative
 
 
38
 
 
2
 
 
40
 
 
 
 
46
 
 
 
 
46
 
Restructuring-related charges
 
 
 
 
 
 
 
Cost of equipment and services revenues
254
 
 
 
 
 
 
254
 
Selling, general and administrative
7
 
 
 
 
5
 
 
12
 
 
261
 
 
 
 
5
 
 
266
 
 
$
261
 
 
$
46
 
 
$
5
 
 
$
312
 
 
 
Six Months Ended March 27, 2011
 
Asset
Impairment and
Accelerated
Depreciation
 
Contract Termination
 
Other
 
Total
Restructuring charges
 
 
 
 
 
 
 
Revenues
$
 
 
$
2
 
 
$
 
 
$
2
 
Cost of equipment and services revenues
 
 
9
 
 
8
 
 
17
 
Research and development
 
 
2
 
 
 
 
2
 
Selling, general and administrative
 
 
38
 
 
4
 
 
42
 
 
 
 
51
 
 
12
 
 
63
 
Restructuring-related charges
 
 
 
 
 
 
 
Cost of equipment and services revenues
287
 
 
 
 
 
 
287
 
Research and development
6
 
 
 
 
 
 
6
 
Selling, general and administrative
12
 
 
 
 
13
 
 
25
 
 
305
 
 
 
 
13
 
 
318
 
 
$
305
 
 
$
51
 
 
$
25
 
 
$
381
 
The following is a rollforward of the restructuring accrual since inception of the plan, which is reported as a component of

20

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

accrued expenses (in millions):
 
Balance at
September 26,
2010
 
Net Additions
 
Cash Payments
 
Balance at
March 27,
2011
Contract termination costs
$
 
 
$
51
 
 
$
(6
)
 
$
45
 
Other costs
 
 
12
 
 
(5
)
 
7
 
 
$
 
 
$
63
 
 
$
(11
)
 
$
52
 
 
Note 11 — Goodwill Impairment
         During the first quarter of fiscal 2011, the Firethorn division in the QWI segment introduced a new product application trademarked as SWAGG. The initial consumer adoption rate of SWAGG has fallen significantly short of the Company's expectations, and as a result, the Company revised its internal forecasts to reflect lower than expected demand and reduced the Firethorn cost structure. Based on these adverse changes, the Company performed a goodwill impairment test for the Firethorn division, which was determined to be a reporting unit for purposes of the goodwill impairment test. The goodwill impairment test is a two-step process. First, the Company estimated the fair value of the Firethorn reporting unit by considering both discounted future projected cash flows and prices of comparable businesses. The results of this analysis indicated that the carrying value of the reporting unit exceeded its fair value. Therefore, the Company measured the amount of impairment charge by determining the implied fair value of the goodwill as if the Firethorn reporting unit were being acquired in a business combination. The Company determined the fair value of the assets and the liabilities, primarily using a cost approach. Based on the results of the goodwill impairment test, the Company recorded a pre-tax goodwill impairment charge of $114 million in the second quarter of fiscal 2011. Subsequent to the impairment, $40 million of goodwill remains for the Firethorn reporting unit.
 
Note 12 — Acquisition
        On January 5, 2011, the Company announced that it had entered into a definitive agreement under which it intends to acquire Atheros Communications, Inc. for $45 per share in cash, which represented an enterprise value of approximately $3.1 billion on that date. The transaction has received approval of Atheros’ stockholders and certain foreign regulators, and the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, has expired. The completion of the transaction remains subject to the satisfaction of certain closing conditions, including an additional foreign regulatory approval. The Company expects the transaction to close in the third quarter of fiscal 2011.

21

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This information should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended September 26, 2010 contained in our 2010 Annual Report on Form 10-K.
In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled Risk Factors and elsewhere in this Quarterly Report.
Overview
Recent Developments
Revenues for the second quarter of fiscal 2011 were $3.9 billion, with net income of $999 million, which were impacted by the following key items:
We shipped approximately 118 million Mobile Station Modem (MSM) integrated circuits for CDMA- and OFDMA-based wireless devices, an increase of 27% compared to approximately 93 million MSM integrated circuits in the year ago quarter. (1) 
Total reported device sales were approximately $40.0 billion, an increase of approximately 44% compared to approximately $27.7 billion in the year ago quarter. (2)
We resolved two licensee disputes, and as a result, recorded revenues of $401 million related to prior quarters.
We are executing on a restructuring plan under which the FLO TV business and network were shut down, and we are no longer pursuing our MediaFLO Technologies business. We recorded restructuring and restructuring-related charges of $312 million in the second quarter of fiscal 2011.
During the first quarter of fiscal 2011, the Firethorn division in the QWI segment introduced a new product application trademarked as SWAGG. The initial consumer adoption of SWAGG has fallen significantly short of our expectation, and as a result, in the second quarter of fiscal 2011, we recorded impairment charges of $120 million, including $114 million in goodwill impairment.
Against this backdrop, the following recent developments occurred during the second quarter of fiscal 2011 with respect to key elements of our business or our industry:
Worldwide wireless subscriptions grew by approximately 3% to reach approximately 5.6 billion.(3) 
Worldwide 3G subscriptions (all CDMA-based) grew to approximately 1.3 billion, approximately 24% of total wireless subscriptions, including approximately 524 million CDMA2000 1X/1xEV-DO subscriptions and approximately 783 million WCDMA/HSPA/TD-SCDMA subscriptions. (3) 
In the handset market, CDMA-based unit shipments grew an estimated 38% over the prior year quarter, compared to an estimated increase of 16% across all wireless technologies. (4)
(1)
During the second quarter of fiscal 2011, some customers built devices that incorporated two MSMs. In such cases, which represent less than 1% of our gross volume, we count only one MSM in reporting the MSM shipments.
(2)
Total reported device sales is the sum of all reported sales in U.S. dollars (as reported to us by our licensees) of all licensed CDMA-based subscriber devices (including handsets, modules, modem cards and other subscriber devices) by our licensees during a particular period. Not all licensees report sales the same way (e.g., some licensees report sales net of permitted deductions, such as transportation, insurance and packing costs, while other licensees report sales and then identify the amount of permitted deductions in their reports), and the way in which licensees report such information may change from time to time.
(3)
According to Wireless Intelligence estimates as of April 18, 2011, for the quarter ending March 31, 2011. Wireless Intelligence estimates for CDMA2000 1X/1xEV-DO subscribers do not include Wireless Local Loop.
(4)
Based on current reports by Strategy Analytics, a global research and consulting firm, in their February 2011 Global Handset Market Share Update.
 
Our Business and Operating Segments
We design, manufacture, have manufactured on our behalf and market digital wireless telecommunications products and services based on our CDMA technology and other technologies. We derive revenues principally from sales of integrated circuit products, license fees and royalties for use of our intellectual property, messaging and other services and related hardware sales, software development and licensing and related services and software hosting services. Operating expenses primarily consist of cost of equipment and services, research and development and selling, general and administrative expenses.

22

We conduct business primarily through four reportable segments. These segments are: Qualcomm CDMA Technologies, or QCT; Qualcomm Technology Licensing, or QTL; Qualcomm Wireless & Internet, or QWI; and Qualcomm Strategic Initiatives, or QSI.
QCT is a leading developer and supplier of CDMA- and OFDMA-based integrated circuits and system software for wireless voice and data communications, multimedia functions and global positioning system products. QCT’s integrated circuit products and system software are used in wireless devices, particularly mobile phones, tablets, laptops, data modules, handheld wireless computers, data cards and infrastructure equipment. The integrated circuits for wireless devices include the Mobile Station Modem (MSM), Mobile Data Modem (MDM), Qualcomm Single Chip (QSC), Qualcomm Snapdragon (QSD), Radio Frequency (RF), Power Management (PM) and Bluetooth devices. The baseband integrated circuits (MSM, MDM, QSC and QSD) for wireless devices and system software perform voice and data communication, multimedia and global positioning functions, and our RF, PM and Bluetooth devices perform radio conversion between radio frequency and baseband signals, power management and peripheral connectivity. QCT’s system software enables the other device components to interface with the integrated circuit products and is the foundation software enabling manufacturers to develop devices utilizing the functionality within the integrated circuits. The infrastructure equipment integrated circuits and system software perform the core baseband CDMA modem functionality in the wireless operator’s base station equipment. QCT revenues comprised 51% and 58% of total consolidated revenues in the second quarter of fiscal 2011 and 2010, respectively, and 56% and 59% of total consolidated revenues for the first six months of fiscal 2011 and 2010, respectively.
QCT utilizes a fabless production business model, which means that we do not own or operate foundries for the production of silicon wafers from which our integrated circuits are made. Integrated circuits are die cut from silicon wafers that have completed the assembly and final test manufacturing processes. We rely on independent third-party suppliers to perform the manufacturing and assembly, and most of the testing, of our integrated circuits. Our suppliers are also responsible for the procurement of most of the raw materials used in the production of our integrated circuits. We employ both turnkey and two-stage manufacturing business models to purchase our integrated circuits. Turnkey is when our foundry suppliers are responsible for delivering fully assembled and tested integrated circuits. Under the two-stage manufacturing business model, we purchase die from semiconductor manufacturing foundries and contract with separate third-party manufacturers for back-end assembly and test services. We refer to this two-stage manufacturing business model as Integrated Fabless Manufacturing (IFM).
QTL grants licenses or otherwise provides rights to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products, including, without limitation, products implementing cdmaOne, CDMA2000, WCDMA, CDMA TDD (including TD-SCDMA), GSM/GPRS/EDGE and/or OFDMA standards and their derivatives. QTL receives license fees as well as ongoing royalties based on worldwide sales by licensees of products incorporating or using our intellectual property. License fees are fixed amounts paid in one or more installments. Ongoing royalties are generally based upon a percentage of the wholesale (i.e., licensee’s) selling price of licensed products, net of certain permissible deductions (e.g., certain shipping costs, packing costs, VAT, etc.). QTL revenues comprised 45% and 37% of total consolidated revenues in the second quarter of fiscal 2011 and 2010, respectively, and 39% and 35% of total consolidated revenues for the first six months of fiscal 2011 and 2010, respectively. The vast majority of such revenues were generated through our licensees’ sales of cdmaOne, CDMA2000 and WCDMA subscriber equipment products.
QWI, which includes Qualcomm Enterprise Services (QES), Qualcomm Internet Services (QIS), Qualcomm Government Technologies (QGOV) and Firethorn, generates revenues primarily through mobile information products and services and software and software development aimed at support and delivery of wireless applications. QES sells equipment, software and services used by transportation and other companies to connect wirelessly with their assets and workforce. Through March 2011, QES has shipped approximately 1,466,000 terrestrial-based and satellite-based mobile information units. QIS provides content enablement services for the wireless industry, including Brew, the Plaza suite and other services. QIS also provides QChat push-to-talk, QPoint and other products for wireless network operators. QGOV provides development, hardware and analytical expertise involving wireless communications technologies to United States government agencies. Firethorn builds and manages software applications that enable mobile commerce services. QWI revenues comprised 4% and 6% of total consolidated revenues in the second quarter of fiscal 2011 and 2010, and 5% and 6% of total consolidated revenues for the first six months of fiscal 2011 and 2010, respectively.
QSI consists of the Company’s strategic investment activities, including FLO TV Incorporated (FLO TV), our wholly-owned wireless multimedia operator subsidiary. QSI makes strategic investments that we believe will open new markets for CDMA- and OFDMA-based technologies, support the design and introduction of new CDMA and OFDMA products and services for wireless voice and internet data communications or possess unique capabilities or technology. Many of these strategic investments are in early-stage companies and in wireless spectrum, such as the BWA spectrum won in the auction in India. On December 20, 2010, we announced that we have agreed to sell substantially all of our 700 MHz spectrum for $1.9 billion, subject to the satisfaction of customary closing conditions, including approval by the U.S. Federal Communications Commission. The agreement follows our previously announced plan to restructure and evaluate strategic

23

options related to our FLO TV business and network. Under the restructuring plan, we shut down the FLO TV business and network in March 2011.
Nonreportable segments include: the Qualcomm MEMS Technologies division, which continues to develop an interferometric modulator (IMOD) display technology based on micro-electro-mechanical-system (MEMS) structure combined with thin film optics; and other product initiatives. The MediaFLO Technologies business is no longer being pursued.
 
Restructuring and Restructuring-Related Activities
We are executing on a restructuring plan under which the FLO TV business and network were shut down on March 27, 2011, and we are no longer pursuing our MediaFLO Technologies business. Restructuring activities were initiated in the fourth quarter of fiscal 2010 and are expected to be substantially complete by the end of fiscal 2012 as we continue to negotiate the exit of certain contracts and remove certain of our equipment from the network sites. The 700 MHz spectrum that we agreed to sell was classified as held for sale at March 27, 2011. Although we will attempt to sell certain of the other FLO TV assets, these other assets were classified as held for use at March 27, 2011 because the held for sale criteria, under applicable accounting rules, were not met, and as a result, the FLO TV business was not considered a discontinued operation at March 27, 2011.
We estimate that we will incur restructuring and restructuring-related charges associated with this plan of up to $65 million, which are primarily related to lease exit and other costs. Restructuring charges consist of lease exit costs, other contract termination costs and certain severance costs. Restructuring-related charges include all other charges associated with the execution of this plan and are expected to primarily consist of asset impairments and