Qualcomm 2011 Annual Report Download - page 40

our estimate, share-based compensation expense is adjusted accordingly.
Income Taxes. Our income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue
Service (IRS) and other tax authorities. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized upon settlement. While we believe we have appropriate support for the positions
taken on our tax returns, we regularly assess the potential outcomes of these examinations and any future examinations for the current or prior
years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments
and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become
known. Although we believe that the estimates and assumptions supporting our assessments are reasonable, adjustments could be materially
different from those that are reflected in historical income tax provisions and recorded assets and liabilities. We are participating in the IRS
Compliance Assurance Process program whereby we endeavor to agree with the IRS on the treatment of all issues prior to filing our federal
return. A benefit of participation in this program is that post-filing adjustments by the IRS are less likely to occur.
We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income,
projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax-planning
strategies. At September 25, 2011 , net deferred tax assets were $2.7 billion, which included a valuation allowance of $98 million. If we are
unable to generate sufficient future taxable income in certain tax jurisdictions, or if there is a material change in the time period within which the
underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowance against our deferred
tax assets which could result in an increase in our effective tax rate and an adverse impact on operating results.
We can only use net operating losses to offset taxable income of certain legal entities in certain tax jurisdictions. At September 25, 2011 , we
had unused federal, state and foreign net operating losses of $167 million, $352 million and $76 million, respectively. Based upon our
assessments of projected future taxable income and losses and historical losses incurred by these entities, we expect that the future taxable
income of the entities in these tax jurisdictions will not be sufficient to utilize the net operating losses we have incurred through fiscal 2011.
Therefore, we have provided a $29 million valuation allowance for these net operating losses. Significant judgment is required to forecast the
timing and amount of future taxable income in certain jurisdictions. Adjustments to our valuation allowance based on changes to our forecast of
taxable income are reflected in the period the change is made.
We consider the operating earnings of certain non-United States subsidiaries to be indefinitely invested outside the United States based on
estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. We have not recorded a deferred tax liability
of approximately $4.7 billion related to the United States federal and state income taxes and foreign withholding taxes on approximately
$13.5 billion of undistributed earnings of foreign subsidiaries indefinitely invested outside the United States. Should we decide to repatriate the
foreign earnings, we would have to adjust the income tax provision in the period we determined that the earnings will no longer be indefinitely
invested outside the United States.
Litigation. We are currently involved in certain legal proceedings. Although there can be no assurance that unfavorable outcomes in any of
these matters would not have a material adverse effect on our operating results, liquidity or financial position, we believe the claims are without
merit and intend to vigorously defend the actions. We estimate the range of liability related to pending litigation where the amount and range of
loss can be estimated. We record our best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a
range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the claim. As additional
information becomes available, we assess the potential liability related to our pending litigation and revise our estimates. Revisions in our
estimates of the potential liability could materially impact our results of operations. For example, we recorded a $783 million charge during
fiscal 2009 in connection with a litigation settlement related to the Settlement and Patent License and Non-Assert Agreement with Broadcom.
We are engaged in numerous other legal actions arising in the ordinary course of our business and, while there can be no assurance, we believe
that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.
Fiscal 2011 Compared to Fiscal 2010
Revenues. Total revenues for fiscal 2011 were $14.96 billion, compared to $10.98 billion for fiscal 2010 . Revenues from two customers of
our QCT and QTL segments (each of whom accounted for more than 10% of our consolidated revenues for the period) comprised approximately
26% and 25% in aggregate of total consolidated revenues in fiscal 2011 and 2010 , respectively.
Revenues from sales of equipment and services for fiscal 2011 were $9.22 billion, compared to $6.97 billion for fiscal
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