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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
_____________________
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2020
OR
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 95-3685934
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
5775 Morehouse Dr., San Diego, California
 92121-1714
(Address of Principal Executive Offices)(Zip Code)
(858) 587-1121
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.0001 par value QCOMNasdaq Stock Market
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 12 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 90 days. Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No 
The number of shares outstanding of the registrant’s common stock was 1,128,265,865 at July 27, 2020.







QUALCOMM Incorporated
Form 10-Q
For the Quarter Ended June 28, 2020
Page







PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value amounts)
(Unaudited)
June 28,
2020
September 29,
2019
ASSETS
Current assets:  
Cash and cash equivalents$6,120  $11,839  
Marketable securities4,480  421  
Accounts receivable, net1,847  2,471  
Inventories2,343  1,400  
Other current assets768  634  
Total current assets15,558  16,765  
Deferred tax assets1,345  1,196  
Property, plant and equipment, net3,487  3,081  
Goodwill6,299  6,282  
Other intangible assets, net1,749  2,172  
Other assets3,890  3,461  
Total assets$32,328  $32,957  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Trade accounts payable$2,046  $1,368  
Payroll and other benefits related liabilities1,020  1,048  
Unearned revenues550  565  
Short-term debt500  2,496  
Other current liabilities3,798  3,458  
Total current liabilities7,914  8,935  
Unearned revenues864  1,160  
Income taxes payable1,872  2,088  
Long-term debt15,425  13,437  
Other liabilities2,947  2,428  
Total liabilities29,022  28,048  
Commitments and contingencies (Note 6)
Stockholders’ equity:  
Preferred stock, $0.0001 par value; 8 shares authorized; none outstanding
    
Common stock and paid-in capital, $0.0001 par value; 6,000 shares authorized; 1,128 and 1,145 shares issued and outstanding, respectively
113  343  
Retained earnings3,081  4,466  
Accumulated other comprehensive income112  100  
Total stockholders’ equity3,306  4,909  
Total liabilities and stockholders’ equity$32,328  $32,957  
See accompanying notes.
3






QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
 Three Months EndedNine Months Ended
June 28,
2020
June 30,
2019
June 28,
2020
June 30,
2019
Revenues:  
Equipment and services$3,794  $3,531  $11,376  $11,037  
Licensing1,099  6,104  3,809  8,422  
Total revenues4,893  9,635  15,185  19,459  
Costs and expenses:  
Cost of revenues2,080  2,114  6,489  6,481  
Research and development1,520  1,380  4,393  3,957  
Selling, general and administrative511  547  1,523  1,646  
Other  277  (23) 408  
Total costs and expenses4,111  4,318  12,382  12,492  
Operating income782  5,317  2,803  6,967  
Interest expense(143) (160) (436) (477) 
Investment and other income, net229  344  46  377  
Income before income taxes868  5,501  2,413  6,867  
Income tax expense(23) (3,352) (175) (2,987) 
Net income$845  $2,149  $2,238  $3,880  
Basic earnings per share$0.75  $1.77  $1.97  $3.20  
Diluted earnings per share$0.74  $1.75  $1.95  $3.17  
Shares used in per share calculations:  
Basic1,127  1,217  1,137  1,214  
Diluted1,139  1,231  1,150  1,224  
See accompanying notes.
4






QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months EndedNine Months Ended
June 28,
2020
June 30,
2019
June 28,
2020
June 30,
2019
Net income
$845  $2,149  $2,238  $3,880  
Other comprehensive income (loss), net of income taxes:
Foreign currency translation gains (losses)8  14  (5) (27) 
Net unrealized gains (losses) on available-for-sale securities22    17  (6) 
Net unrealized gains on derivative instruments30  6  2  23  
Other gains (losses)  4  7  (5) 
Certain reclassifications included in net income(3) (2) (9) (4) 
Total other comprehensive income (loss)57  22  12  (19) 
Comprehensive income$902  $2,171  $2,250  $3,861  
See accompanying notes.
5






QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended
June 28,
2020
June 30,
2019
Operating Activities:
Net income $2,238  $3,880  
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization expense1,054  1,051  
Income tax provision (less than) in excess of income tax payments(459) 2,206  
Non-cash portion of share-based compensation expense899  698  
Net gains on marketable securities and other investments(269) (340) 
Indefinite and long-lived asset impairment charges  203  
Impairment losses on other investments349  111  
Other items, net(108) (207) 
Changes in assets and liabilities:  
Accounts receivable, net622  1,451  
Inventories(938) (95) 
Other assets(139) 15  
Trade accounts payable745  (267) 
Payroll, benefits and other liabilities277  (2,534) 
Unearned revenues(198) (113) 
Net cash provided by operating activities4,073  6,059  
Investing Activities:  
Capital expenditures(1,059) (570) 
Purchases of debt and equity marketable securities(4,848)   
Proceeds from sales and maturities of debt and equity marketable securities1,011  174  
Acquisitions and other investments, net of cash acquired(159) (185) 
Other items, net130  112  
Net cash used by investing activities(4,925) (469) 
Financing Activities:
Proceeds from short-term debt2,286  4,808  
Repayment of short-term debt(2,285) (4,813) 
Proceeds from long-term debt1,989    
Repayment of long-term debt(2,000)   
Proceeds from issuance of common stock176  264  
Repurchases and retirements of common stock(2,450) (1,088) 
Dividends paid(2,148) (2,257) 
Payments of tax withholdings related to vesting of share-based awards(326) (225) 
Other items, net(113) (135) 
Net cash used by financing activities(4,871) (3,446) 
Effect of exchange rate changes on cash and cash equivalents4  2  
Net (decrease) increase in total cash and cash equivalents(5,719) 2,146  
Total cash and cash equivalents at beginning of period11,839  11,777  
Total cash and cash equivalents at end of period$6,120  $13,923  
See accompanying notes.
6






QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except per share data)
(Unaudited)
Three Months EndedNine Months Ended
June 28,
2020
June 30,
2019
June 28,
2020
June 30,
2019
Total stockholders’ equity, beginning balance
$3,045  $3,866  $4,909  $807  
Common stock and paid-in capital:
Balance at beginning of period
$  $384  $343  $  
Common stock issued under employee benefit plans and the related tax benefits
  85  171  262  
Repurchases and retirements of common stock
(110) (69) (1,042) (205) 
Share-based compensation
317  263  967  749  
Tax withholdings related to vesting of share-based payments
(94) (82) (326) (225) 
Balance at end of period
113  581  113  581  
Retained earnings:
Balance at beginning of period
2,990  3,309  4,466  542  
Cumulative effect of accounting changes      3,455  
Net income845  2,149  2,238  3,880  
Repurchases and retirements of common stock    (1,408) (883) 
Dividends(754) (771) (2,215) (2,307) 
Balance at end of period
3,081  4,687  3,081  4,687  
Accumulated other comprehensive income:
Balance at beginning of period
55  173  100  265  
Cumulative effect of accounting changes      (51) 
Other comprehensive income (loss)57  22  12  (19) 
Balance at end of period
112  195  112  195  
Total stockholders’ equity, ending balance$3,306  $5,463  $3,306  $5,463  
Dividends per share announced$0.65  $0.62  $1.89  $1.86  
See accompanying notes.
7


QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation and Significant Accounting Policies Update
Financial Statement Preparation. These condensed consolidated financial statements have been prepared 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 notes required by GAAP for complete financial statements. In the opinion of management, the interim financial information 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 our Annual Report on Form 10-K for our fiscal year ended September 29, 2019. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. We operate and report using a 52-53 week fiscal year ending on the last Sunday in September. Each of the three and nine months ended June 28, 2020 and June 30, 2019 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 our 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.
Recently Adopted Accounting Guidance.
Leases: In February 2016, the FASB issued new accounting guidance related to leases (ASC 842) that outlines a new comprehensive lease accounting model and requires expanded disclosures. Under the new accounting guidance, we are required to recognize right-of-use assets and corresponding lease liabilities on the consolidated balance sheet. We adopted ASC 842 in the first quarter of fiscal 2020 using the modified retrospective approach, with the cumulative effect of initial adoption recorded as an adjustment to our opening condensed consolidated balance sheet at September 30, 2019. We elected to not record leases with a term of 12 months or less on our consolidated balance sheet. In addition, we applied the package of practical expedients permitted under the transition guidance, which among other things, does not require reassessment of lease classification upon adoption. Prior period results have not been restated and continue to be reported in accordance with the accounting guidance in effect for those periods (ASC 840).
Upon adoption, we recorded $449 million of operating lease assets in other assets and $500 million of corresponding lease liabilities ($127 million recorded in other current liabilities and $373 million recorded in other liabilities). The difference between the operating lease assets and liabilities of $51 million primarily related to deferred rent liabilities that existed as of the date of adoption. Finance leases were not material for all periods presented. Adoption of the new accounting guidance did not have a material impact on our condensed consolidated statements of operations or cash flows.
Accounting Policy Update.
Leases: As a result of the adoption of ASC 842, we revised our lease accounting policy beginning in fiscal 2020 as follows.
Operating lease assets and liabilities are recognized for leases with lease terms greater than 12 months based on the present value of the future lease payments over the lease term at the commencement date. Operating leases are included in other assets, other current liabilities and other liabilities on our consolidated balance sheet. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such option. We account for substantially all lease and related non-lease components together as a single lease component. Operating lease expense is recognized on a straight-line basis over the lease term.
Recent Accounting Guidance Not Yet Adopted.
Financial Assets: In June 2016, the FASB issued new accounting guidance that changes the accounting for recognizing impairments of financial assets. Under the new accounting guidance, credit losses for financial assets held at amortized cost (such as accounts receivable) will be estimated based on expected losses rather than the current incurred loss impairment model. The new accounting guidance also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses, if any. The new accounting guidance generally requires the modified retrospective transition method, with the cumulative effect of applying the new accounting guidance recognized as an adjustment to opening retained earnings in the year of adoption, except for certain financial assets where the prospective transition method is required, such as available-for-sale debt
8


QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
securities for which an other-than-temporary impairment has been recorded. We will adopt the new accounting guidance in the first quarter of fiscal 2021, and the impact of this new accounting guidance will largely depend on the composition and credit quality of our investment portfolio and accounts receivable, as well as economic conditions, at the time of adoption. Based on facts and factors currently known by us, we do not expect the impact of adoption to be material to our consolidated financial statements.
Note 2. Composition of Certain Financial Statement Items
Accounts Receivable, net (in millions)
June 28,
2020
September 29,
2019
Trade, net of allowances for doubtful accounts $928  $1,046  
Unbilled907  1,411  
Other12  14  
$1,847  $2,471  
Inventories (in millions)
June 28,
2020
September 29,
2019
Raw materials$110  $77  
Work-in-process942  667  
Finished goods1,291  656  
$2,343  $1,400  
Equity Method and Non-marketable Equity Investments. The carrying values of our equity method and non-marketable equity investments are recorded in other noncurrent assets and were as follows (in millions):
June 28,
2020
September 29,
2019
Equity method investments$213  $343  
Non-marketable equity investments750  787  
$963  $1,130  
Beginning in the second quarter of fiscal 2020, the rapid, global spread of the recent coronavirus (COVID-19) pandemic and associated containment and mitigation measures have negatively impacted the condition of economies and financial markets globally, which has negatively impacted certain companies in which we hold non-marketable equity investments, including those accounted for under the equity method and, to a lesser extent, non-marketable debt securities. In the second and third quarters of fiscal 2020, significant evaluation and judgments were required in determining if the negative effects of COVID-19 indicated that such investments were impaired, and if so, the extent of such impairment. This included, among other items: (i) assessing the business impacts that COVID-19 had, and we currently expect to have in the future, on our investees, including taking into consideration the investee’s industry and geographic location and the impact to its customers, suppliers and employees, as applicable, (ii) evaluating the investees’ ability to respond to the impacts of COVID-19, including any significant deterioration in the investee’s financial condition and cash flows, as well as assessing liquidity and/or going concern risks and (iii) considering any appreciation in fair value that has not been recognized in the carrying values of such investments. Based on this evaluation, certain of our investments were impaired and written down to their estimated fair values in the second quarter of fiscal 2020 (a significant portion of which related to the full impairment of our investment in OneWeb (an equity method investee) who filed for bankruptcy in the second quarter of fiscal 2020) and, to a lesser extent, in the third quarter of fiscal 2020 (Note 8). Although we believe that our judgments supporting our impairment assessments are reasonable (which rely on information reasonably available to us), the COVID-19 pandemic makes it challenging for us and our investees to estimate the future performance of our investees’ businesses. As circumstances change and/or new information becomes available, we may be required to record additional impairments in subsequent periods.
Revenues. We disaggregate our revenues by segment (Note 7) and type of products and services (as presented on our condensed consolidated statement of operations), as we believe this best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. Substantially all of QCT’s (Qualcomm CDMA
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QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Technologies) revenues consist of equipment revenues that are recognized at a point in time, and substantially all of QTL’s (Qualcomm Technology Licensing) revenues represent licensing revenues that are recognized over time.
Revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were $141 million for the three months ended June 28, 2020, primarily related to certain QCT customer incentives and QTL royalty revenues recognized related to devices sold in prior periods (including adjustments to prior period royalty estimates, in part based on actual reporting of royalties by our licensees) and $258 million for the nine months ended June 30, 2019, primarily related to QTL royalty revenues recognized related to devices sold in prior periods (including adjustments to prior period royalty estimates, in part based on actual reporting of royalties by our licensees) and certain QCT customer incentives. Revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods in the three and nine months ended June 30, 2019 were $4.8 billion and $4.1 billion, respectively, and primarily related to licensing revenues of $4.7 billion recognized in the third quarter of fiscal 2019 (a portion of which was attributable to the first and second quarters of fiscal 2019) resulting from the settlement with Apple and its contract manufacturers in April 2019 (Note 7).
Unearned revenues (which are considered contract liabilities) consist primarily of license fees for intellectual property with continuing performance obligations. In the nine months ended June 28, 2020 and June 30, 2019, we recognized revenues of $424 million and $371 million, respectively, that were recorded as unearned revenues at September 29, 2019 and October 1, 2018, respectively.
Remaining performance obligations, substantially all of which are included in unearned revenues, represent the aggregate amount of the transaction price of certain customer contracts yet to be recognized as revenues as of the end of the reporting period and exclude revenues related to (a) contracts that have an original expected duration of one year or less and (b) sales-based royalties (i.e., future royalty revenues) pursuant to our license agreements. Our remaining performance obligations are primarily comprised of certain customer contracts for which QTL received license fees upfront. At June 28, 2020, we had $1.4 billion of remaining performance obligations, of which $180 million, $511 million, $462 million, $209 million and $51 million was expected to be recognized as revenues for the remainder of fiscal 2020 and each of the subsequent four years from fiscal 2021 through 2024, respectively, and $26 million thereafter.
Other Income, Costs and Expenses. Other income in the nine months ended June 28, 2020 consisted of a $23 million gain related to a favorable legal settlement.
Other expenses in the three months ended June 30, 2019 consisted of a $275 million charge resulting from a fine imposed by the European Commission (EC) related to the Icera complaint (2019 EC fine) and negligible net charges related to our Cost Plan that concluded in fiscal 2019. Other expenses in the nine months ended June 30, 2019 included $275 million related to the 2019 EC fine, $207 million in net restructuring and restructuring-related charges related to our Cost Plan, partially offset by a $43 million gain due to the partial recovery of a fine imposed in 2009 resulting from our appeal of the KFTC decision and a $31 million gain related to a favorable legal settlement.
Investment and Other Income, Net (in millions)
Three Months EndedNine Months Ended
June 28,
2020
June 30,
2019
June 28,
2020
June 30,
2019
Interest and dividend income$30  $80  $135  $224  
Net gains on marketable securities117  315  183  296  
Net gains on other investments48  6  84  47  
Net gains on deferred compensation plan assets57  12  16  10  
Impairment losses on other investments(12) (42) (349) (111) 
Net gains (losses) on derivative investments 1    2  (10) 
Equity in net losses of investees(6) (22) (21) (79) 
Net losses on foreign currency transactions(6) (5) (4)   
$229  $344  $46  $377  
Net gains (losses) on the revaluation of our deferred compensation plan assets are recorded in investment and other income, net and are not allocated to our segments. Corresponding offsetting amounts related to the revaluation of our deferred compensation plan liabilities are included in unallocated operating expenses (Note 7).
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QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Income Taxes
As of the third quarter of fiscal 2020, we estimated our annual effective income tax rate to be 9% for fiscal 2020, which excluded the effects of the agreements with Huawei signed in July 2020 (Note 10) and the U.S. Treasury Regulations that were issued in July 2020 as described below. Such estimated annual effective tax rate was lower than the U.S. federal statutory rate, primarily due to a significant portion of our income qualifying for preferential treatment as foreign-derived intangible income (FDII) at a 13% effective tax rate, benefits from our research and development tax credit and benefits from certain releases of our valuation allowance on capital losses. The effective tax rate of 3% for the third quarter of fiscal 2020 was lower than the estimated annual effective tax rate of 9% primarily due to benefits recorded in the third quarter of fiscal 2020, principally related to certain releases of our valuation allowance on capital losses, higher FDII deduction and foreign tax credit utilization. The effective tax rate for the third quarter of fiscal 2019 included a $2.5 billion tax expense due to the derecognition of a deferred tax asset as a result of an agreement with the Internal Revenue Service under which we forwent the federal tax basis step-up in certain distributed intellectual property.
In the fourth quarter of fiscal 2020, the United States Treasury Department issued final regulations on deductions for FDII. While we continue to evaluate the impact of these new regulations and the agreements reached with Huawei in July 2020, we currently expect our annual effective tax rate to increase from 9% to 11% for fiscal 2020. The United States Treasury Department is expected to finalize additional provisions of the 2017 Tax Cuts and Jobs Act, including certain foreign tax credit regulations, in the next several months. When finalized, these regulations may adversely affect our provision for income taxes, results of operations and/or cash flows.
Unrecognized tax benefits were $1.9 billion and $1.7 billion at June 28, 2020 and September 29, 2019, respectively, and primarily related to our refund claim of Korean withholding tax. If successful, the refund will result in a corresponding reduction in U.S. foreign tax credits. We expect that the total amount of unrecognized tax benefits at June 28, 2020 will increase in the next 12 months as licensees in Korea continue to withhold taxes on future payments due under their licensing agreements at a rate higher than we believe is owed; such increase is not expected to have a significant impact on our income tax provision.
Note 4. Capital Stock
Stock Repurchase Program. On July 26, 2018, we announced a stock repurchase program authorizing us to repurchase up to $30 billion of our common stock. In the third quarter of fiscal 2020, to maintain our financial liquidity position and flexibility, we suspended our stock repurchases, at least for the near-term, in light of COVID-19.
In the nine months ended June 28, 2020 and June 30, 2019, we repurchased and retired 30.9 million and 17.7 million shares for $2.5 billion and $1.1 billion, respectively, before commissions. To reflect share repurchases in the consolidated balance sheet, we (i) reduce common stock for the par value of the shares, (ii) reduce paid-in capital for the amount in excess of par to zero during the quarter in which the shares are repurchased and (iii) record the residual amount, if any, to retained earnings. At June 28, 2020, $4.6 billion remained authorized for repurchase under our stock repurchase program.
Dividends. On July 15, 2020, we announced a cash dividend of $0.65 per share on our common stock, payable on September 24, 2020 to stockholders of record as of the close of business on September 3, 2020.
Earnings Per Common Share. Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed by dividing net income by the combination of the weighted-average number of dilutive common share equivalents, comprised of shares issuable under our share-based compensation plans and shares subject to accelerated share repurchase agreements, if any, and the weighted-average number of common shares outstanding during the reporting period. The following table provides information about the diluted earnings per share calculation (in millions):
 Three Months EndedNine Months Ended
June 28,
2020
June 30,
2019
June 28,
2020
June 30,
2019
Dilutive common share equivalents included in diluted shares11.9  13.9  12.9  9.3  
Shares of common stock equivalents not included because the effect would be anti-dilutive or certain performance conditions were not satisfied at the end of the period2.7  0.7  1.0  9.9  
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QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Debt
Long-term Debt. In May 2020, we issued unsecured fixed-rate notes, consisting of $1.2 billion fixed-rate 2.15% notes and $800 million fixed-rate 3.25% notes (May 2020 Notes) that mature on May 20, 2030 and May 20, 2050, respectively. The proceeds from the May 2020 Notes, net of underwriting discounts and offering expenses, were used to repay the $250 million floating-rate and $1.75 billion fixed-rate notes that matured on May 20, 2020, which were classified as short-term debt at September 29, 2019. We are not subject to any financial covenants under the May 2020 Notes nor any covenants that would prohibit us from incurring additional indebtedness ranking equal to the notes, paying dividends, issuing securities or repurchasing securities issued by us or our subsidiaries. The May 2020 Notes are senior unsecured obligations and rank equally with our other senior debt from time to time outstanding. We may redeem the outstanding fixed-rate notes at any time in whole, or from time to time in part, at specified make-whole premiums as defined in the applicable note.
The following table provides a summary of our long-term debt:
June 28, 2020September 29, 2019
MaturitiesAmount
(in millions)
Effective RateMaturitiesAmount
(in millions)
Effective Rate
May 2015 Notes
2022 - 2045
$6,500  
2.62% - 4.73%
2020 - 2045
$8,500  
2.64% - 4.73%
May 2017 Notes
2023 - 2047
7,000  
1.55% - 4.46%
2023 - 2047
7,000  
2.70% - 4.47%
May 2020 Notes
2030 - 2050
2,000  
2.31% - 3.30%
  
Total principal15,500  15,500  
Unamortized discount, including debt issuance costs(91) (75) 
Hedge accounting fair value adjustments16  9  
Total long-term debt$15,425  $15,434  
Reported as:
Short-term debt$  $1,997  
Long-term debt15,425  13,437  
   Total$15,425  $15,434  
At September 29, 2019, we had outstanding interest rate swaps with an aggregate notional amount of $1.8 billion related to certain of our May 2015 Notes. During the second quarter of fiscal 2020, we terminated interest rate swaps related to our fixed-rate 3.00% notes due May 20, 2022 resulting in a deferred gain of $19 million, which is being amortized to interest expense over the remaining term of such notes. During the third quarter of fiscal 2020, the remaining interest rate swaps on our fixed-rate 2.25% notes due May 20, 2020 terminated upon maturity of the notes.
At June 28, 2020 and September 29, 2019, the aggregate fair value of our remaining outstanding principal floating- and fixed-rate notes, including the current portion of long-term debt, based on Level 2 inputs, was approximately $17.6 billion and $16.5 billion, respectively.
Commercial Paper Program. In the third quarter of fiscal 2020, we reduced the total amount available for issuance under our unsecured commercial paper program from $5.0 billion to $4.5 billion. At June 28, 2020 and September 29, 2019, we had $500 million and $499 million, respectively, of outstanding commercial paper recorded as short-term debt.
Revolving Credit Facility. We have an Amended and Restated Revolving Credit Facility (Revolving Credit Facility) that provides for unsecured revolving facility loans, swing line loans and letters of credit in an aggregate amount of up to $4.5 billion which expires on November 8, 2021. At June 28, 2020, no amounts were outstanding under the Revolving Credit Facility.
Note 6. Commitments and Contingencies
Legal and Regulatory Proceedings.
Consolidated Securities Class Action Lawsuit: On January 23, 2017 and January 26, 2017, securities class action complaints were filed by purported stockholders of us in the United States District Court for the Southern District of California against us and certain of our current and former officers and directors. The complaints alleged, among other things, that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, by
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QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
making false and misleading statements and omissions of material fact in connection with certain allegations that we are or were engaged in anticompetitive conduct. The complaints sought unspecified damages, interest, fees and costs. On May 4, 2017, the court consolidated the two actions and appointed lead plaintiffs. On July 3, 2017, the lead plaintiffs filed a consolidated amended complaint asserting the same basic theories of liability and requesting the same basic relief. On September 1, 2017, we filed a motion to dismiss the consolidated amended complaint. On March 18, 2019, the court denied our motion to dismiss the complaint. On January 15, 2020, we filed a motion for judgment on the pleadings. The court has not yet ruled on our motion. We believe the plaintiffs’ claims are without merit.
In re Qualcomm/Broadcom Merger Securities Litigation: On June 8, 2018 and June 26, 2018, securities class action complaints were filed by purported stockholders of us in the United States District Court for the Southern District of California against us and two of our current officers. The complaints alleged, among other things, that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, by failing to disclose that we had submitted a notice to the Committee on Foreign Investment in the United States (CFIUS) in January 2018. The complaints sought unspecified damages, interest, fees and costs. On January 22, 2019, the court appointed the lead plaintiff in the action. On March 18, 2019, the plaintiffs filed a consolidated complaint asserting the same basic theories of liability and requesting the same basic relief. On May 10, 2019, we filed a motion to dismiss the consolidated complaint, and on March 10, 2020, the court granted our motion. On May 11, 2020, the plaintiffs filed a second amended complaint, and on June 25, 2020, we filed a motion to dismiss that complaint. The court has not yet ruled on our motion. We believe the plaintiffs’ claims are without merit.
Consumer Class Action Lawsuit: Since January 18, 2017, a number of consumer class action complaints have been filed against us in the United States District Courts for the Southern and Northern Districts of California, each on behalf of a putative class of purchasers of cellular phones and other cellular devices. Currently, twenty-two such cases remained outstanding. In April 2017, the Judicial Panel on Multidistrict Litigation transferred the cases that had been filed in the Southern District of California to the Northern District of California. On May 15, 2017, the court entered an order appointing the plaintiffs’ co-lead counsel. On July 11, 2017, the plaintiffs filed a consolidated amended complaint alleging that we violated California and federal antitrust and unfair competition laws by, among other things, refusing to license standard-essential patents to our competitors, conditioning the supply of certain of our baseband chipsets on the purchaser first agreeing to license our entire patent portfolio, entering into exclusive deals with companies, including Apple Inc., and charging unreasonably high royalties that do not comply with our commitments to standard setting organizations. The complaint seeks unspecified damages and disgorgement and/or restitution, as well as an order that we be enjoined from further unlawful conduct. On August 11, 2017, we filed a motion to dismiss the consolidated amended complaint. On November 10, 2017, the court denied our motion, except to the extent that certain claims seek damages under the Sherman Antitrust Act. On July 5, 2018, the plaintiffs filed a motion for class certification, and the court granted that motion on September 27, 2018. On January 23, 2019, the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) granted us permission to appeal the court’s class certification order. On January 24, 2019, the court stayed the case pending our appeal. On December 2, 2019, a hearing on our appeal of the class certification order was held before the Ninth Circuit. The Ninth Circuit has not yet ruled on our appeal. We believe the plaintiffs’ claims are without merit. 
Canadian Consumer Class Action Lawsuits: Since November 9, 2017, eight consumer class action complaints have been filed against us in Canada (in the Ontario Superior Court of Justice, the Supreme Court of British Columbia and the Quebec Superior Court), each on behalf of a putative class of purchasers of cellular phones and other cellular devices, alleging various violations of Canadian competition and consumer protection laws. The claims are similar to those in the U.S. consumer class action complaints. The complaints seek unspecified damages. One of the complaints in the Supreme Court of British Columbia has since been discontinued by the plaintiffs. We have not yet answered the complaints. We expect the Ontario and British Columbia complaints will be consolidated into one proceeding in British Columbia with a class certification hearing no earlier than late 2020. Once the certification hearing is scheduled, we expect the court to set a timetable for the exchange of evidence and briefing. As to the complaint filed in Quebec, on April 15, 2019, the Quebec Superior Court held a class certification hearing, and on April 30, 2019, the court issued an order certifying a class. We are awaiting the court to set a timetable for pre-trial steps, including discovery, as well as the exchange of expert evidence. We do not expect the trial to occur before 2022. We believe the plaintiffs’ claims are without merit.
Korea Fair Trade Commission (KFTC) Investigation (2015): On March 17, 2015, the KFTC notified us that it was conducting an investigation of us relating to the Korean Monopoly Regulation and Fair Trade Act (MRFTA). On December 27, 2016, the KFTC announced that it had reached a decision in the investigation, finding that we violated provisions of the MRFTA. On January 22, 2017, we received the KFTC’s formal written decision, which found that the following conducts
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QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
violate the MRFTA: (i) refusing to license, or imposing restrictions on licenses for, cellular communications standard-essential patents with competing modem chipset makers; (ii) conditioning the supply of modem chipsets to handset suppliers on their execution and performance of license agreements with us; and (iii) coercing agreement terms including portfolio license terms, royalty terms and free cross-grant terms in executing patent license agreements with handset makers. The KFTC’s decision orders us to: (a) upon request by modem chipset companies, engage in good-faith negotiations for patent license agreements, without offering unjustifiable conditions, and if necessary submit to a determination of terms by an independent third party; (b) not demand that handset companies execute and perform under patent license agreements as a precondition for purchasing modem chipsets; (c) not demand unjustifiable conditions in our license agreements with handset companies, and upon request renegotiate existing patent license agreements; and (d) notify modem chipset companies and handset companies of the decision and order imposed on us and report to the KFTC new or amended agreements. According to the KFTC’s decision, the foregoing will apply to transactions between us and the following enterprises: (1) handset manufacturers headquartered in Korea and their affiliate companies; (2) enterprises that sell handsets in or to Korea and their affiliate companies; (3) enterprises that supply handsets to companies referred to in (2) above and the affiliate companies of such enterprises; (4) modem chipset manufacturers headquartered in Korea and their affiliate companies; and (5) enterprises that supply modem chipsets to companies referred to in (1), (2) or (3) above and the affiliate companies of such enterprises. The KFTC’s decision also imposed a fine of 1.03 trillion Korean won (approximately $927 million), which we paid on March 30, 2017.
We believe that our business practices do not violate the MRFTA. On February 21, 2017, we filed an action in the Seoul High Court to cancel the KFTC’s decision. The Seoul High Court held hearings concluding on August 14, 2019 and, on December 4, 2019, announced its judgment affirming certain portions of the KFTC’s decision and finding other portions of the KFTC’s decision unlawful. The Seoul High Court cancelled the KFTC’s remedial orders described in (c) above, and solely insofar as they correspond thereto, the Seoul High Court cancelled the KFTC’s remedial orders described in (d) above. The Seoul High Court dismissed the remainder of our action to cancel the KFTC’s decision. On December 19, 2019, we filed a notice of appeal to the Korea Supreme Court challenging those portions of the Seoul High Court decision that are not in our favor. The KFTC filed a notice of appeal to the Korea Supreme Court challenging the portions of the Seoul High Court decision that are not in its favor. Both we and the KFTC have filed briefs on the merits. The Korea Supreme Court has not yet ruled on our appeal or that of the KFTC.
Korea Fair Trade Commission (KFTC) Investigation (2020): On June 8, 2020, the KFTC informed us that it was conducting an investigation of us relating to the MRFTA. The KFTC has not provided a formal notice on the scope of their investigation, but we believe it concerns our business practices in connection with our sale of radio frequency front end (RFFE) components. We are responding to several Requests for Information. If a violation is found, a broad range of remedies is potentially available to the KFTC, including imposing a fine (of up to 3% of our sales in the relevant markets during the alleged period of violation) and/or injunctive relief prohibiting or restricting certain business practices. It is difficult to predict the outcome of this matter or what remedies, if any, may be imposed by the KFTC. We believe that our business practices do not violate the MRFTA.
Icera Complaint to the European Commission (EC): On June 7, 2010, the EC notified and provided us with a redacted copy of a complaint filed with the EC by Icera, Inc. (subsequently acquired by Nvidia Corporation) alleging that we were engaged in anticompetitive activity. On July 16, 2015, the EC announced that it had initiated formal proceedings in this matter. On July 18, 2019, the EC issued a decision confirming their preliminary view that between 2009 and 2011, we engaged in predatory pricing by selling certain baseband chipsets to two customers at prices below cost with the intention of hindering competition and imposed a fine of approximately 242 million euros. On October 1, 2019, we filed an appeal of the EC’s decision with the General Court of the European Union. The court has not yet ruled on our appeal. We believe that our business practices do not violate the European Union (EU) competition rules.
In the third quarter of fiscal 2019, we recorded a charge of $275 million to other expenses related to this EC fine. We provided a financial guarantee in the first quarter of fiscal 2020 to satisfy the obligation in lieu of cash payment while we appeal the EC’s decision. The fine is accruing interest at a rate of 1.50% per annum while it is outstanding. In the fourth quarter of fiscal 2019, we designated the liability as a hedge of our net investment in certain foreign subsidiaries, with gains and losses recorded in accumulated other comprehensive income as a component of the foreign currency translation adjustment. At June 28, 2020, the liability, including related foreign currency gains and accrued interest (which, to the extent they were not related to the net investment hedge, were recorded in investment and other income, net), was $275 million and included in other current liabilities.
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QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
European Commission (EC) Investigation: On October 15, 2014, the EC notified us that it was conducting an investigation of us relating to Articles 101 and/or 102 of the Treaty on the Functioning of the European Union (TFEU). On July 16, 2015, the EC announced that it had initiated formal proceedings in this matter. On January 24, 2018, the EC issued a decision finding that pursuant to an agreement with Apple Inc. we paid significant amounts to Apple on the condition that it exclusively use our baseband chipsets in its smartphones and tablets, reducing Apple’s incentives to source baseband chipsets from our competitors and harming competition and innovation for certain baseband chipsets, and imposed a fine of 997 million euros. On April 6, 2018, we filed an appeal of the EC’s decision with the General Court of the European Union. The court has not yet ruled on our appeal. We believe that our business practices do not violate the EU competition rules.
In the first quarter of fiscal 2018, we recorded a charge of $1.2 billion to other expenses related to this EC fine. We provided financial guarantees in the third quarter of fiscal 2018 to satisfy the obligation in lieu of cash payment while we appeal the EC’s decision. The fine is accruing interest at a rate of 1.50% per annum while it is outstanding. In the first quarter of fiscal 2019, we designated the liability as a hedge of our net investment in certain foreign subsidiaries, with gains and losses recorded in accumulated other comprehensive income as a component of the foreign currency translation adjustment. At June 28, 2020, the liability, including related foreign currency gains and accrued interest (which, to the extent they were not related to the net investment hedge, were recorded in investment and other income, net), was $1.2 billion and included in other current liabilities.
European Commission (EC) Investigation regarding Radio Frequency Front End (RFFE): On December 3, 2019, we received a Request for Information from the EC notifying us that it is investigating whether we engaged in anti-competitive behavior in the European Union (EU)/European Economic Area (EEA) by leveraging our market position in 5G baseband processors in the RFFE space. We have responded to the Request for Information. If a violation is found, a broad range of remedies is potentially available to the EC, including imposing a fine (of up to 10% of our annual revenues) and/or injunctive relief prohibiting or restricting certain business practices. It is difficult to predict the outcome of this matter or what remedies, if any, may be imposed by the EC. We believe that our business practices do not violate the EU competition rules.
United States Federal Trade Commission (FTC) v. QUALCOMM Incorporated: On September 17, 2014, the FTC notified us that it was conducting an investigation of us relating to Section 5 of the Federal Trade Commission Act (FTCA). On January 17, 2017, the FTC filed a complaint against us in the United States District Court for the Northern District of California alleging that we were engaged in anticompetitive conduct and unfair methods of competition in violation of Section 5 of the FTCA by conditioning the supply of cellular modem chipsets on the purchaser first agreeing to a license to our cellular standard-essential patents, paying incentives to purchasers of cellular modem chipsets to induce them to accept certain license terms, refusing to license our cellular standard-essential patents to our competitors and entering into alleged exclusive dealing arrangements with Apple Inc. The complaint sought a permanent injunction against our alleged violations of the FTCA and other unspecified ancillary equitable relief. On August 30, 2018, the FTC moved for partial summary judgment that our commitments to license our cellular standard-essential patents to the Alliance for Telecommunications Industry Solutions (ATIS) and the Telecommunications Industry Association (TIA) require us to make licenses available to rival sellers of cellular modem chipsets. On November 6, 2018, the court granted the FTC’s partial summary judgment motion. Trial was held January 4-29, 2019.
On May 21, 2019, the court issued an Order setting forth its Findings of Fact and Conclusions of Law. The court concluded that we had monopoly power in the CDMA and premium-tier Long Term Evolution (LTE) cellular modem chip markets, and that we had used that power in these two markets to engage in anticompetitive acts, including (1) using threats of lack of access to cellular modem chip supply to coerce OEMs to accept license terms that include unreasonably high royalty rates; (2) refusing to license our cellular standard-essential patents to competitors selling cellular modem chips; and (3) entering into exclusive dealing arrangements with OEMs that foreclosed our rivals. The court further found that the royalties we charge OEMs are unreasonably high and reflect the use of our monopoly power over CDMA and premium-tier LTE cellular modem chips rather than just the value of our patents. The court concluded that our unreasonably high royalties constitute an anticompetitive surcharge on cellular modem chips sold by our competitors, which increases the effective price of our competitors’ cellular modem chips, reduces their margins and results in exclusivity. The court also found that our practice of not licensing competitors’ cellular modem chips violated our commitments to certain standard-development organizations and a duty under the antitrust laws to license competing cellular modem chip makers and helped us maintain our royalties at unreasonably high levels. Finally, the court found that incentive funds entered into with certain OEMs further harmed competing cellular modem chip makers’ ability to undermine our monopoly position, prevented rivals from entering the market and restricted the sales of those competitors that do enter. The court concluded that the combined effect of our conduct, together with our monopoly power, harmed the competitive process.
15


QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The court imposed the following injunctive relief: (1) we must not condition the supply of cellular modem chips on a customer’s patent license status, and we must negotiate or renegotiate license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of cellular modem chip supply or associated technical support or access to software; (2) we must make exhaustive cellular standard-essential patent licenses available to cellular modem chip suppliers on fair, reasonable and non-discriminatory (FRAND) terms and submit, as necessary, to arbitral or judicial dispute resolution to determine such terms; (3) we may not enter into express or de facto exclusive dealing agreements for the supply of cellular modem chips; and (4) we may not interfere with the ability of any customer to communicate with a government agency about a potential law enforcement or regulatory matter. The court also ordered us to submit to compliance and monitoring procedures for a period of seven years and to report to the FTC on an annual basis regarding our compliance with the above remedies.
We disagree with the court’s conclusions, interpretation of the facts and application of the law. On May 31, 2019, we filed with the court a Notice of Appeal to the United States Court of Appeals for the Ninth Circuit (Ninth Circuit). On July 8, 2019, we filed a Motion for Partial Stay of Injunction Pending Appeal and a Consent Motion to Expedite Appeal in the Ninth Circuit. On August 23, 2019, the Ninth Circuit granted our Motion for Partial Stay. Thus, pending the resolution of the appeal in the Ninth Circuit or until further order of the Ninth Circuit, the portions of the court’s injunction requiring that we must (i) make exhaustive cellular standard-essential patent licenses available to cellular modem chip suppliers and (ii) not condition the supply of cellular modem chips on a customer’s patent license status and must negotiate or renegotiate license terms with customers are stayed. On July 10, 2019, the Ninth Circuit granted our Motion to Expedite Appeal. On February 13, 2020, the Ninth Circuit heard oral argument, but has not yet ruled on our appeal.
Contingent losses and other considerations: We will continue to vigorously defend ourselves in the foregoing matters. However, litigation and investigations are inherently uncertain, and we face difficulties in evaluating or estimating likely outcomes or ranges of possible loss in antitrust and trade regulation investigations in particular. Other than with respect to the EC fines, we have not recorded any accrual at June 28, 2020 for contingent losses associated with these matters based on our belief that losses, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time. The unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations, financial condition or cash flows. We are engaged in numerous other legal actions not described above arising in the ordinary course of our business and, while there can be no assurance, believe that the ultimate outcome of these other legal actions will not have a material adverse effect on our business, results of operations, financial condition or cash flows.
Indemnifications. We generally do not indemnify our customers, licensees and suppliers for losses sustained from infringement of third-party intellectual property rights. However, we are contingently liable under certain agreements to defend and/or indemnify certain customers, licensees and suppliers against certain types of liability and/or damages arising from the infringement of third-party intellectual property rights. Our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments made by us.
Claims and reimbursements under indemnification arrangements have not been material to our consolidated financial statements. At June 28, 2020, accruals for contingent liabilities associated with these indemnification arrangements were negligible. We have not recorded accruals for certain claims under indemnification arrangements based on our belief that additional liabilities, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time.
Operating Leases. We lease certain of our land, facilities and equipment under operating leases, with terms ranging from less than one year to 20 years, some of which include options to extend for up to 20 years. At June 28, 2020, other assets included $458 million of operating lease assets, with corresponding lease liabilities of $128 million recorded in other current liabilities and $374 million recorded in other liabilities.
Operating lease expense for the three and nine months ended June 28, 2020 was $45 million and $132 million, respectively, and $38 million and $110 million for the three and nine months ended June 30, 2019, respectively. Cash paid under our operating leases was $114 million for the nine months ended June 28, 2020. As of June 28, 2020, the weighted-average remaining lease term and weighted-average discount rate for operating leases were 6.0 years and 4%, respectively.
16


QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At June 28, 2020, future lease payments under our operating leases were as follows (in millions):
June 28,
2020
Remainder of fiscal 2020$38  
2021132  
2022112  
202368  
202449  
Thereafter178  
Total future lease payments577  
Imputed interest(75) 
Total lease liability balance$502  
At September 29, 2019, future minimum lease payments under our noncancelable operating leases under ASC 840 were as follows (in millions):
September 29,
2019
2020$138  
202197  
202266  
202331  
202418  
Thereafter35  
Total