Qualcomm 2012 Annual Report Download - page 70

QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Certain foreign subsidiaries use a local currency as the functional currency. Resulting translation gains or losses are
recognized as a component of accumulated other comprehensive income. 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 currency other 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 $7 million , $8 million and $6 million for fiscal 2012 ,
2011 and 2010 , respectively.
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 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 income tax provision.
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 share-based awards 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 2012 , 2011 and 2010 were
40,978,000 , 32,908,000 and 15,652,000 , respectively.
Employee stock options to purchase 1,590,000 , 20,224,000 and 149,007,000 shares of common stock during fiscal 2012 , 2011 and 2010 ,
respectively, were outstanding but not included in the computation of diluted earnings per common share because the effect would be anti-
dilutive. Put options outstanding during fiscal 2012 and 2011 were not included in the earnings per common share computation because the put
options’ exercise prices were less than the average market price of the common stock while they were outstanding, and therefore, the effect on
diluted earnings per common share would be anti-dilutive (Note 5). In addition, 1,947,000 , 1,963,000 and 235,000 shares of other common
stock equivalents outstanding in fiscal 2012 , 2011 and 2010 , respectively, were not included in the computation of diluted earnings per
common share because the effect would be anti-dilutive.
Comprehensive Income. Comprehensive income is defined 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 and derivative instruments. The Company presents comprehensive income in its consolidated statements of
stockholders’ equity. The reclassification adjustment for net realized gains results from the recognition of the net realized gains in the statements
of operations when marketable securities are sold
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