Qualcomm 1999 Annual Report Download - page 57

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QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Purchase Plans
The Company has employee stock purchase plans for all eligible
employees to purchase shares of common stock at 85% of the lower of
the fair market value on the first or the last day of each six-month offer-
ing period. Employees may authorize the Company to withhold up to
15% of their compensation during any offering period, subject to certain
limitations. The 1991 Employee Stock Purchase Plan, as amended,
authorizes up to 8,400,000 shares to be granted no later than August
2001. The 1996 Non-Qualified Employee Stock Purchase Plan autho-
rizes up to 50,000 shares to be granted at anytime. During fiscal 1999,
1998 and 1997, shares totaling 1,193,000, 878,000 and 741,000 were
issued under the plans at an average price of $21.79, $22.07 and $16.89
per share, respectively. At September 30, 1999, 3,437,000 shares were
reserved for future issuance.
Executive Retirement Plans
The Company has voluntary retirement plans that allow eligible
executives to defer up to 100% of their income on a pretax basis. On a
quarterly basis, participants receive up to a 10% match of their deferral
in the Company’s common stock based on the then current market
price, to be issued to the participant upon eligible retirement. The
income deferred and the Company match are unsecured and subject to
the claims of general creditors of the Company. The plans authorize up
to 200,000 shares to be allocated to participants at anytime. During fis-
cal 1999, 1998 and 1997, approximately 55,000, 66,000 and 21,000 shares,
respectively, were allocated under the plans and the Company’s match-
ing contribution during fiscal 1999, 1998 and 1997 amounted to $1
million, $2 million and $1 million, respectively. At September 30, 1999,
45,000 shares were reserved for future allocation.
Accounting for Stock-Based Compensation
Pro forma information regarding net income and net earnings per
common share has been estimated at the date of grant using the Black-
Scholes option-pricing model based on the following assumptions:
Employee Stock
Stock Option Plans Purchase Plans
1999 1998 1997 1999 1998 1997
Risk-free interest rate 5.2% 5.5% 6.3% 4.7% 5.1% 5.1%
Volatility 51.0% 50.0% 50.0% 51.0% 50.0% 50.0%
Dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Expected life (years) 6.0 6.0 6.0 0.5 0.5 0.5
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting restric-
tions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company’s options have
characteristics significantly different than those of traded options, and
because changes in the subjective input assumptions can materially
affect the fair value estimate, in the opinion of management, the exist-
ing models do not necessarily provide a reliable single measure of the
fair value of its options. The weighted average estimated fair values of
stock options granted during fiscal years 1999, 1998 and 1997 were
$28.56, $15.88 and $13.19 per share, respectively. The weighted average
estimated fair values of shares granted under the Employee Stock
Purchase Plans during fiscal years 1999, 1998 and 1997 were $11.18,
$7.95 and $6.79, respectively.
For purposes of pro forma disclosures, the estimated fair value of
the options is assumed to be amortized to expense over the options’
vesting period. The Company’s pro forma information for the years
ended September 30 are as follows (in thousands, except for net earn-
ings per share):
1999 1998 1997
As reported Pro forma As reported Pro forma As reported Pro forma
Net income $ 200,879 $ 149,100 $ 108,532 $ 57,747 $ 91,934 $ 73,197
Net earnings
per common
share:
Basic $ 1.35 $ 1.00 $ 0.78 $ 0.42 $ 0.68 $ 0.54
Diluted $ 1.24 $ 0.92 $ 0.73 $ 0.39 $ 0.64 $ 0.51
Pro forma net income for fiscal 1997 includes the recognition of the
tax benefit relating to fiscal 1997 pro forma compensation expense and
the recognition of the previously unrecognized fiscal 1996 tax benefit.
Pro forma net income for fiscal 1998 includes tax effected pro forma
compensation expense of $8 million related to the modification of
options in connection with the Leap Wireless Spin-off. The effects on
pro forma disclosures of applying the fair value method are not likely to
be representative of the effects on pro forma disclosures of future years
because the fair value method is applicable only to options granted
subsequent to September 30, 1995.
INVESTMENTS IN OTHER ENTITIES
QUALCOMM Personal Electronics
In fiscal 1994, a subsidiary of the Company and a subsidiary of Sony
Electronics Inc. (“Sony Electronics”) entered into a joint venture gen-
eral partnership, QPE, to manufacture CDMA consumer equipment for
cellular, PCS and other wireless applications. The Company owns 51%
of the joint venture and consolidates QPE in its financial statements.
Sony Electronics’ 49% general partnership share in QPE is presented as
a minority interest in the Company’s financial statements.
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