Qualcomm 2006 Annual Report Download - page 79

qualcomm 2006 65
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. Dilutive common
share equivalents include the dilutive effect of in-the-money shares,
which is calculated based on the average share price for each period
using the treasury stock method. Under the treasury stock method,
the exercise price of a share, the amount of compensation cost,
if any, for future service that the Company has not yet recognized,
and the amount of estimated tax benets that would be recorded
in paid-in capital, if any, when the share is exercised 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 scal 2006, 2005 and 2004 were approximately
51,835,000, 56,127,000 and 58,686,000, respectively.
Employee stock options to purchase approximately 54,541,000,
33,660,000 and 40,221,000 shares of common stock during
scal 2006, 2005 and 2004, respectively, were outstanding but
not included in the computation of diluted earnings per common
share because the effect on dilutive earnings per share would be
anti-dilutive. Put options outstanding during 2005 and 2004 to
purchase a weighted-average 13,000,000 and 3,000,000 shares
of common stock, respectively, were not included in the earnings
per common share computation for 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 there-
fore, the effect on diluted earnings per common share would be
anti-dilutive (Note 7).
Future Accounting Requirements
In July 2006, the FASB issued FASB Interpretation No. 48
(FIN 48) “Accounting for Uncertainty in Income Taxes” which
prescribes a recognition threshold and measurement process
for recording in the nancial statements uncertain tax positions
taken or expected to be taken in a tax return. Additionally, FIN 48
provides guidance on the derecognition, classication, accounting
in interim periods and disclosure requirements for uncertain tax
positions. The accounting provisions of FIN 48 will be effective
for the Company beginning October 1, 2007. The cumulative effect
of initially adopting FIN 48 will be recorded as an adjustment
to opening retained earnings in the year of adoption and will be
presented separately. Only tax positions that meet the more likely
than not recognition threshold at the effective date may be recog-
nized upon adoption of FIN 48. The Company is in the process
of determining the effect, if any, the adoption of FIN 48 will have
on its consolidated nancial statements.
For purposes of pro forma disclosures under FAS 123, the estimated
fair value of share-based payments is assumed to be amortized to
expense over the vesting periods. The pro forma effects of recog-
nizing estimated compensation expense under the fair value method
on net income and earnings per common share were as follows (in
millions, except per share data):
Year Ended
Sept. 25, Sept. 26,
2005 2004
Net income, as reported $2,143 $1,720
Add: Share-based employee compensation
expense included in reported net income,
net of related tax benets 2 —
Deduct: Share-based employee
compensation expense determined
under the fair value based method for
all awards, net of related tax effects (305) (281)
Pro forma net income $1,840 $1,439
Earnings per common share:
Basic—as reported $ 1.31 $ 1.06
Basic—pro forma $ 1.12 $ 0.89
Diluted—as reported $ 1.26 $ 1.03
Diluted—pro forma $ 1.09 $ 0.86
Foreign Currency
Foreign subsidiaries operating in a local currency environment use
the local currency as the functional currency. Resulting translation
gains or losses are recognized as a component of other compre-
hensive income. Where the United States dollar is the functional
currency, resulting translation gains or losses are recognized
in the statements of operations. During both scal 2006 and 2005,
net foreign currency transaction gains included in the Company’s
statement of operations were $1 million. During scal 2004, net
foreign currency transaction losses included in the Company’s
consolidated statements of operations were $1 million.
Comprehensive Income
Comprehensive income is de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 marketable securities. The Company presents comprehensive
income in its consolidated statements of stockholders’ equity.
The reclassication adjustment for net realized gains results from
the recognition of the net realized gains in the statement of opera-
tions when marketable securities are sold or derivative instruments
are settled.
Components of accumulated other comprehensive income consisted
of the following (in millions):
Sept. 24, Sept. 25,
2006 2005
Unrealized gains on marketable securities and
derivative instruments, net of income taxes $ 87 $ 60
Foreign currency translation (23) (22)
$ 64 $ 38