Qualcomm 2011 Annual Report Download - page 39

significant judgment. For example, the income approach generally requires assumptions related to the appropriate business model to be used to
estimate cash flows, total addressable market, pricing and share forecasts, competition, technology obsolescence, future tax rates and discount
rates. Our estimate of the fair value of certain assets, or our conclusion that the value of certain assets is not reliably estimable, may differ
materially from that determined by others who use different assumptions or utilize different business models. New information may arise in the
future that affects our fair value estimates and could result in adjustments to our estimates in the future, which could have an adverse impact on
our results of operations.
Goodwill and other indefinite-lived intangible assets are tested annually for impairment and in interim periods if certain events occur
indicating that the carrying amounts may be impaired. Long-lived assets, such as property and equipment and intangible assets subject to
amortization, are reviewed for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an
asset or asset group may not be recoverable. Our judgments regarding the existence of impairment indicators and future cash flows related to
goodwill and other intangible assets are based on operational performance of our businesses, market conditions and other factors. Although there
are inherent uncertainties in this assessment process, the estimates and assumptions we use, including estimates of future cash flows, volumes,
market penetration and discount rates, are consistent with our internal planning. If these estimates or their related assumptions change in the
future, we may be required to record an impairment charge on all or a portion of our goodwill and other intangible assets. Furthermore, we
cannot predict the occurrence of future impairment-triggering events nor the impact such events might have on our reported asset values. Future
events could cause us to conclude that impairment indicators exist and that goodwill or other intangible assets associated with our acquired
businesses are impaired. Any resulting impairment loss could have an adverse impact on our financial position and results of operations. During
fiscal 2011
, we recorded a $114 million goodwill impairment charge related to our Firethorn division due to the operating performance of a new
product application falling significantly short of expectations.
We hold investments in marketable securities, including equity securities, non-investment-grade debt securities, equity and debt mutual and
exchange-traded funds, corporate bonds and notes, auction rate securities and mortgage- and asset-backed securities. The fair value of these
investments totaled $15.5 billion at September 25, 2011 , with increases and decreases in fair value generally recorded through stockholders’
equity as other comprehensive income or loss. We record impairment charges through the statement of operations when we believe an
investment has experienced a decline that is other than temporary. The determination that a decline is other than temporary is subjective and
influenced by many factors. In addition, the fair values of our strategic investments may be subject to substantial quarterly and annual
fluctuations and to significant market volatility. Adverse changes in market conditions or poor operating results of investees could result in
losses or an inability to recover the carrying value of the investments, thereby requiring impairment charges. When assessing these investments
for an other-than-temporary decline in value, we consider such factors as, among other things, how significant the decline in value is as a
percentage of the original cost; how long the market value of the investment has been below its original cost; the extent of the general decline in
prices or an increase in the default or recovery rates of securities in an asset class; negative events such as a bankruptcy filing or a need to raise
capital or seek financial support from the government or others; the performance and pricing of the investee’s securities in relation to the
securities of its competitors within the industry and the market in general; and analyst recommendations, as applicable. We also review the
financial statements of the investee to determine if the investee is experiencing financial difficulties. If we determine that a security price decline
is other than temporary, we may record an impairment loss, which could have an adverse impact on our results of operations. During fiscal
2011 , 2010 and 2009 , we recorded $39 million, $111 million and $743 million, respectively, in net impairment losses on our investments in
marketable securities.
Share-Based Compensation. Share-based compensation expense recognized during fiscal 2011 , 2010 and 2009 was $821 million,
$614 million and $584 million, respectively. Share-based compensation is measured at the grant date, or at the acquisition date for assumed
awards, based on the estimated fair value of the award and is recognized as expense over the requisite service period. We estimate the fair value
of stock option awards granted using a lattice binomial option-pricing model and the fair value of stock option awards assumed using the Black-
Scholes option-pricing model. Accordingly, the fair value of an option award as determined using an option-pricing model is affected by our
stock price on the valuation date as well as assumptions regarding a number of complex and subjective variables. These variables include, but
are not limited to, our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors,
risk-free interest rates and expected dividends. For purposes of estimating the fair value of stock options, we used the implied volatility of
market-traded options in our stock for the expected volatility assumption input to the option-pricing model. The assumption inputs related to
employee exercise behavior include estimates of the post-vest forfeiture rate and suboptimal exercise factors, which are based on historical
experience. Beginning in fiscal 2010 , we began to issue restricted stock units (RSUs) to employees. Since such time, the number of stock
options granted to employees has decreased, and we expect this trend to continue into the foreseeable future. We estimate the fair value of RSUs
based on the fair value of the underlying stock on the date of grant or date the awards are assumed. If RSUs do not have the right to participate in
dividends, the fair value is discounted by the dividend yield. Judgment is required in estimating the amount of share-based awards that are
expected to be forfeited. We estimate the forfeiture rate based on historical experience. To the extent our actual forfeiture rate is different from
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