Qualcomm 2005 Annual Report Download - page 65
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compensation expense under the fair value method on net income
and net earnings per common share were as follows (in millions,
except for earnings per common share):
Year Ended
Sept. 25, Sept. 26, Sept. 28,
2005 2004 2003
Net income, as reported $2,143 $1,720 $ 827
Add: Share-based employee
compensation expense included
in reported net income, net of
related tax benefi ts 2 — 1
Deduct: Share-based employee
compensation expense
determined under the fair value
based method for all awards,
net of related tax effects (305) (281) (260)
Pro forma net income $1,840 $1,439 $ 568
Earnings per common share:
Basic—as reported $ 1.31 $ 1.06 $ 0.52
Basic—pro forma $ 1.12 $ 0.89 $ 0.36
Diluted—as reported $ 1.26 $ 1.03 $ 0.51
Diluted—pro forma $ 1.09 $ 0.86 $ 0.35
Foreign Currency
Foreign subsidiaries operating in a local currency environment use
the local currency as the functional currency. Assets and liabilities
are translated to United States dollars at the exchange rate in effect
at the balance sheet date; revenues, expenses, gains and losses are
translated at rates of exchange that approximate the rates in effect
at the transaction date. Resulting translation gains or losses are
recognized as a component of other comprehensive income. The
functional currency of the Company’s foreign investees that do not
use local currencies is the United States dollar. Where the United
States dollar is the functional currency, the monetary assets and lia-
bilities are translated into United States dollars at the exchange rate
in effect at the balance sheet date. Revenues, expenses, gains and
losses associated with the monetary assets and liabilities are trans-
lated at the rates of exchange that approximate the rates in effect at
the transaction date. Non-monetary assets and liabilities and related
elements of revenues, expenses, gains and losses are translated at
historical rates. Resulting translation gains or losses of these foreign
investees are recognized in the statements of operations.
During fi scal 2005, net foreign currency transaction gains included
in the Company’s statement of operations were $1 million. During
fi scal 2004, net foreign currency transaction losses included in the
Company’s statements of operations were $1 million. During fi scal
2003, net foreign currency transaction gains and losses included in
the Company’s statements of operations were insignifi cant.
Comprehensive Income
Comprehensive income is defi ned as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources, including foreign currency
translation adjustments and unrealized gains and losses on market-
able securities. The Company presents comprehensive income in its
consolidated statements of stockholders’ equity.
The reclassifi cation adjustment for other-than-temporary losses
on marketable securities results from the recognition of unrealized
losses in the statement of operations due to declines in the market
prices of those securities deemed to be other-than-temporary. The
reclassifi cation adjustment for net realized gains results from the
recognition of the net realized gains in the statement of operations
when the marketable securities are sold.
Components of accumulated other comprehensive income consisted
of the following (in millions):
Sept. 25, Sept. 26,
2005 2004
Foreign currency translation $(22) $(27)
Unrealized gains on marketable securities,
net of income taxes 60 42
$ 38 $ 15
Stock Split
On July 13, 2004, the Company announced a two-for-one stock split
in the form of a stock dividend. Stock was distributed on August 13,
2004 to stockholders of record as of July 23, 2004. Stockholders’
equity has been restated to give retroactive recognition to the stock
split for all periods presented by reclassifying the par value of the
additional shares arising from the split from paid-in capital to common
stock. All references in the fi nancial statements and notes to number
of shares and per share amounts refl ect the stock split.
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 common share is
computed by dividing net income 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. The incremental
dilutive common share equivalents, calculated using the treasury
stock method, for fi scal 2005, 2004 and 2003 were approximately
56,127,000, 58,686,000 and 56,338,000, respectively.
Employee stock options to purchase approximately 33,660,000,
40,221,000 and 86,540,000 shares of common stock during fi scal
2005, 2004 and 2003, respectively, were outstanding but not
included in the computation of diluted earnings per common share
because the option exercise price was greater than the average mar-
ket price of the common stock, and therefore, the effect on dilutive
earnings per common share would be anti-dilutive. Put options out-
standing during fi scal 2005 and 2004 to purchase a weighted-average
of 13,000,000 and 3,000,000 shares of common stock, respectively,
were not included in the earnings per common share computation for
fi scal 2005 and 2004 because the put options’ exercise prices were
less than the average market price of the common stock while they
were outstanding, and therefore, the effect on diluted earnings per
common share would be anti-dilutive (Note 7).