Qualcomm 2011 Annual Report Download - page 67

QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the fair value of the undelivered elements, and the residual revenue was then allocated to the delivered elements. If the fair value of any
undelivered element included in a multiple element arrangement could not be objectively determined, revenue was deferred until all elements
were delivered or services were performed, or until fair value could be objectively determined for any remaining undelivered elements.
Beginning in the first quarter of fiscal 2010, the Company adopted amended accounting guidance for revenue recognition that eliminated the use
of the residual method and requires entities to allocate revenue using the relative selling price method. For substantially all arrangements with
multiple deliverables, the Company continues to use VSOE to allocate the selling price to each deliverable. The Company determines VSOE
based on its normal pricing and discounting practices for the specific product or service when sold separately. In certain limited instances when
VSOE cannot be established, the Company first attempts to establish the selling price based on third-party evidence (TPE). If TPE is not
available, the Company estimates the selling price of the product or service as if it were sold on a standalone basis. The adoption of the new
guidance did not have a material impact on the timing or pattern of revenue recognition.
Revenues from sales of the Company’s products are recognized at the time of shipment, or when title and risk of loss pass to the customer
and other criteria for revenue recognition are met, if later. Revenues from providing services, including software hosting services, are recognized
when earned. Revenues from providing services were less than 10% of total revenues for all fiscal years presented.
The Company licenses or otherwise provides rights to use portions of its intellectual property portfolio, which includes certain patent rights
essential to and/or useful in the manufacture and sale of certain wireless products. Licensees typically pay a fixed license fee in one or more
installments and royalties based on their sales of products incorporating or using the Company’s licensed intellectual property. License fees are
recognized over the estimated period of benefit of the license to the licensee, typically 5 to 15 years . The Company earns royalties on such
licensed products sold worldwide by its licensees at the time that the licensees’ sales occur. The Company’s licensees, however, do not report
and pay royalties owed for sales in any given quarter until after the conclusion of that quarter. The Company recognizes royalty revenues based
on royalties reported by licensees during the quarter and when other revenue recognition criteria are met.
Revenues from long-term contracts are recognized using the percentage-of-completion method of accounting, based on costs incurred
compared with total estimated costs. The percentage-of-completion method relies on estimates of total contract revenue and costs. Revenues and
profits are subject to revisions as the contract progresses to completion. Revisions in profit estimates are charged or credited to income in the
period in which the facts that give rise to the revision become known. If actual contract costs are greater than expected, reduction of contract
profit would be required. Estimated contract losses are recognized when determined.
The Company provides both perpetual and renewable time-based software licenses. Revenues from software license fees are recognized
when revenue recognition criteria are met and, if applicable, when vendor-specific objective evidence exists to allocate the total license fee to
elements of multiple-element software arrangements, including post-contract customer support. Post-contract support is recognized ratably over
the term of the related contract. When contracts contain multiple elements wherein the only undelivered element is post-contract customer
support and vendor-specific objective evidence of the fair value of post-contract customer support does not exist, revenue from the entire
arrangement is recognized ratably over the support period. The amount or timing of the Company’s software licensing revenues may differ as a
result of changes in these judgments or estimates.
The Company records reductions to revenues for customer incentive arrangements, including volume-related and other pricing rebates and
cost reimbursements for marketing and other activities involving certain of the Company’s products. The Company recognizes the maximum
potential liability at the later of the date at which the Company records the related revenues or the date at which the Company offers the
incentive or, if payment is contingent, when the contingency is resolved. In certain arrangements, the liabilities are based on customer forecasts.
The Company reverses accruals for unclaimed incentive amounts to revenues when the unclaimed amounts are no longer subject to payment.
Unearned revenues consist primarily of license fees for intellectual property and software products, hardware product sales with continuing
performance obligations and billings on uncompleted contracts in excess of incurred cost and accrued profit.
Concentrations. A significant portion of the Company’s revenues is concentrated with a limited number of customers. Revenues from two
customers of the Company’s QCT and QTL segments each comprised 13% of total consolidated revenues in fiscal 2011 , compared to 15% and
10% of total consolidated revenues in fiscal 2010 and 18% and 13% of total consolidated revenues in fiscal 2009 , respectively. Aggregated
accounts receivable from two customers comprised 34% of gross accounts receivable at September 25, 2011 . Aggregated accounts receivable
from three customers comprised 42% of gross accounts receivable at September 26, 2010 .
Shipping and Handling Costs. Costs incurred for shipping and handling are included in cost of equipment and services revenues at the time
the related revenue is recognized. Amounts billed to a customer for shipping and handling are reported as revenue.
Share-Based Compensation. Share-based compensation expense for equity-classified awards, principally related to stock
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