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QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 and technologies. 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 with continuing performance obligations.
Concentrations. A significant portion of the Company’s revenues is concentrated with a small number of customers/licensees of the
Company
’
s QCT and QTL segments. Revenues related to the products of two companies comprised 28% and 21% of total consolidated
revenues in fiscal 2014 , compared to 24% and 19% in fiscal 2013 and 20% and 18% in fiscal 2012 . Aggregate accounts receivable from two
customers/licensees comprised 44% and 43% of gross accounts receivable at September 28, 2014 and September 29, 2013 , respectively.
The Company relies on sole- or limited-source suppliers for some products, particularly products in the QCT segment, subjecting the
Company to possible shortages of raw materials or manufacturing capacity. While the Company has established alternate suppliers for certain
technologies that the Company considers critical, the loss of a supplier or the inability of a supplier to meet performance or quality specifications
or delivery schedules could harm the Company’s ability to meet its delivery obligations and/or negatively impact the Company’s revenues,
business operations and ability to compete for future business.
Shipping and Handling Costs. Costs incurred for shipping and handling are included in cost of equipment and services revenues. Amounts
billed to a customer for shipping and handling are reported as revenues.
Share-Based Compensation. Share-based compensation expense for equity-classified awards, principally related to restricted stock units
(RSUs), is measured at the grant date, or at the acquisition date for awards assumed in business combinations, based on the estimated fair value
of the award and is recognized over the employee’s requisite service period. Share-based compensation expense is adjusted to exclude amounts
related to share-based awards that are expected to be forfeited.
The fair values of RSUs are estimated based on the fair market values of the underlying stock on the dates of grant or dates the RSUs are
assumed. If RSUs do not have the right to participate in dividends, the fair values are discounted by the dividend yield. The weighted-average
estimated fair values of employee RSUs granted during fiscal 2014 , 2013 and 2012 were $72.81 , $64.21 and $58.57
per share, respectively. For
the majority of RSUs, shares are issued on the vesting dates net of the amount of shares needed to satisfy statutory tax withholding requirements
to be paid by the Company on behalf of the employees. As a result, the actual number of shares issued will be fewer than the number of RSUs
outstanding. The annual pre-vest forfeiture rate for RSUs granted in fiscal 2014 , 2013 and 2012 was estimated to be approximately 3%
based on
historical experience.
Total share-based compensation expense, related to all of the Company’s share-based awards, was comprised as follows (in millions):
F- 12
2014
2013
2012
Cost of equipment and services revenues
$
49
$
71
$
75
Research and development
672
643
546
Selling, general and administrative
338
391
414
Continuing operations
1,059
1,105
1,035
Related income tax benefit
(203
)
(217
)
(225
)
Continuing operations, net of income taxes
856
888
810
Discontinued operations
—
—
1
Related income tax benefit
—
—
—
Discontinued operations, net of income taxes
—
—
1
$
856
$
888
$
811