Qualcomm 2011 Annual Report Download - page 70

QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded $165 million , $119 million and $106 million in share-based compensation expense during fiscal 2011 , 2010 and
2009 , respectively, related to share-based awards granted during those periods. The remaining share-based compensation expense primarily
related to stock awards granted in earlier periods and stock awards assumed. In addition, for fiscal 2011 , 2010 and 2009 , $183 million , $45
million and $79 million
, respectively, were reclassified to reduce net cash provided by operating activities with an offsetting increase in net cash
used by financing activities in the consolidated statements of cash flows to reflect the incremental tax benefits from stock options exercised and
restricted stock units vested in those periods. The amount of compensation cost capitalized related to share-
based payment awards was negligible
for all periods presented.
Litigation. The Company is currently involved in certain legal proceedings. The Company records its best estimate of a loss related to
pending litigation when the loss is considered probable and the amount can be reasonably estimated. Where a range of loss can be reasonably
estimated with no best estimate in the range, the Company records the minimum estimated liability related to the claim. As additional
information becomes available, the Company assesses the potential liability related to the Company’
s pending litigation and revises its estimates.
The Company’s legal costs associated with defending itself are recorded to expense as incurred.
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 comprehensive income (loss). Where the United States dollar is the
functional currency, resulting translation gains or losses are recognized in the consolidated statements of operations. Transaction gains or losses
related to balances denominated in a different currency than the functional currency are recognized in the consolidated statements of operations.
Net foreign currency transaction losses included in the Company
’s consolidated statements of operations were $8 million and $6 million for
fiscal 2011 and 2010 , respectively, and negligible in fiscal 2009 .
Income Taxes. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Tax law and rate changes are
reflected in income in the period such changes are enacted. The Company records a valuation allowance to reduce the deferred tax assets to the
amount that is more likely than not to be realized. The Company includes interest and penalties related to income taxes, including unrecognized
tax benefits, within the provision for income taxes.
The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue
Service and other tax authorities. In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the
application of complex tax regulations. The Company recognizes 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 the Company believes it has appropriate
support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in
determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential
adjustments and adjusts 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.
The Company recognizes windfall tax benefits associated with the exercise of stock options directly to stockholders’ equity only when
realized. A windfall tax benefit occurs when the actual tax benefit realized by the Company upon an employee’s disposition of a share-based
award exceeds the deferred tax asset, if any, associated with the award that the Company had recorded. When assessing whether a tax benefit
relating to share-based compensation has been realized, the Company follows the tax law ordering method, under which current year share-
based
compensation deductions are assumed to be utilized before net operating loss carryforwards and other tax attributes.
Earnings Per Common Share. Basic earnings per common share is computed by dividing net income attributable to Qualcomm by the
weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by
dividing net income attributable to Qualcomm 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 share equivalents, which
are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise
price of an award, if any, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the estimated
tax benefits that would be recorded in paid-in capital, if any, when an award is settled 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 fiscal 2011 , 2010 and 2009 were
32,908,000 , 15,652,000 and 16,900,000 , respectively.
Employee stock options to purchase 20,224,000 , 149,007,000 and 136,309,000 shares of common stock during fiscal 2011 ,
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