Qualcomm 2014 Annual Report Download - page 69

QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded $249 million , $242 million and $270 million in share-based compensation expense during fiscal 2014 , 2013 and
2012 , respectively, related to share-based awards granted during those periods. The remaining share-based compensation expense was primarily
related to share-based awards granted in earlier periods and share-based awards assumed. In addition, for fiscal 2014 , 2013 and 2012 , $280
million , $231 million and $168 million , respectively, were reclassified to reduce net cash provided by operating activities with an offset to 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 and other share-based awards that vested in those periods. The amount of compensation cost capitalized related to
share-based awards was negligible for all periods presented.
Legal Proceedings.
The Company is currently involved in certain legal proceedings. The Company records its best estimate of a loss related
to pending legal proceedings 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. As additional information
becomes available, the Company assesses the potential liability related to pending legal proceedings 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.
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 negligible for all years presented.
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 income tax expense.
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 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 are 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 are 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, if any, 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 for future service that the Company has not yet recognized, if any, and the
estimated tax benefits that would be recorded in paid-in capital when an award is settled, if any, are assumed to be used to repurchase shares in
the current period. The dilutive common share equivalents, calculated using the treasury stock method, for fiscal 2014 , 2013 and 2012 were
30,655,000 , 38,670,000 and 40,978,000 , respectively.
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