Document


 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
_____________________
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                      .
Commission File Number 0-19528
QUALCOMM Incorporated
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
 
95-3685934
(I.R.S. Employer
Identification No.)
 
 
 
5775 Morehouse Dr., San Diego, California
(Address of Principal Executive Offices)
 
92121-1714
(Zip Code)
(858) 587-1121
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on April 29, 2019, was as follows:
Class
 
Number of Shares
Common Stock, $0.0001 per share par value
 
1,215,698,926
 
 
 
 
 




QUALCOMM Incorporated
Form 10-Q
For the Quarter Ended March 31, 2019
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
 
March 31,
2019
 
September 30,
2018
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
10,135

 
$
11,777

Marketable securities
195

 
311

Accounts receivable, net
3,638

 
2,904

Inventories
1,725

 
1,693

Other current assets
631

 
699

Total current assets
16,324

 
17,384

Deferred tax assets
3,832

 
936

Property, plant and equipment, net
2,945

 
2,975

Goodwill
6,299

 
6,498

Other intangible assets, net
2,510

 
2,955

Other assets
2,113

 
1,970

Total assets
$
34,023

 
$
32,718

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Trade accounts payable
$
1,667

 
$
1,825

Payroll and other benefits related liabilities
633

 
1,081

Unearned revenues
478

 
500

Short-term debt
998

 
1,005

Other current liabilities
6,741

 
6,978

Total current liabilities
10,517

 
11,389

Unearned revenues
1,330

 
1,620

Income taxes payable
1,849


2,312

Long-term debt
15,405

 
15,365

Other liabilities
1,056

 
1,225

Total liabilities
30,157

 
31,911

 
 
 
 
Commitments and contingencies (Note 6)

 

 
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock, $0.0001 par value; 8 shares authorized; none outstanding
—

 
—

Common stock and paid-in capital, $0.0001 par value; 6,000 shares authorized; 1,214 and 1,219 shares issued and outstanding, respectively
384

 
—

Retained earnings
3,309

 
542

Accumulated other comprehensive income
173

 
265

Total stockholders’ equity
3,866

 
807

Total liabilities and stockholders’ equity
$
34,023

 
$
32,718

See accompanying notes.

3


QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
March 31,
2019
 
March 25,
2018
 
March 31,
2019
 
March 25,
2018
Revenues:
 
 
 
 
 
 
 
Equipment and services
$
3,753

 
$
3,936

 
$
7,506

 
$
8,639

Licensing
1,229

 
1,284

 
2,318

 
2,616

Total revenues
4,982

 
5,220

 
9,824

 
11,255

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues
2,179

 
2,239

 
4,367

 
4,902

Research and development
1,308

 
1,402

 
2,577

 
2,822

Selling, general and administrative
573

 
869

 
1,100

 
1,641

Other
(18
)
 
310

 
130

 
1,493

Total costs and expenses
4,042

 
4,820

 
8,174

 
10,858

Operating income
940

 
400

 
1,650

 
397

Interest expense
(162
)
 
(179
)
 
(317
)
 
(350
)
Investment and other income, net
28

 
96

 
33

 
211

Income before income taxes
806

 
317

 
1,366

 
258

Income tax (expense) benefit
(143
)
 
13

 
365

 
(5,911
)
Net income (loss)
$
663

 
$
330

 
$
1,731

 
$
(5,653
)
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.55

 
$
0.22

 
$
1.43

 
$
(3.82
)
Diluted earnings (loss) per share
$
0.55

 
$
0.22

 
$
1.42

 
$
(3.82
)
Shares used in per share calculations:
 
 
 
 
 
 
 
Basic
1,213

 
1,482

 
1,213

 
1,479

Diluted
1,217

 
1,494

 
1,220

 
1,479

See accompanying notes.

4


QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
March 31,
2019
 
March 25,
2018
 
March 31,
2019
 
March 25,
2018
Net income (loss)
$
663

 
$
330

 
$
1,731

 
$
(5,653
)
Other comprehensive (loss) income, net of income taxes:
 
 
 
 
 
 
 
Foreign currency translation (losses) gains
(17
)
 
178

 
(41
)
 
173

Reclassification of foreign currency translation (gains) losses included in net income (loss)
(2
)
 
—

 
1

 
—

Reclassification of net other-than-temporary losses on available-for-sale securities included in net income (loss)
—

 
—

 
—

 
1

Net unrealized losses on other available-for-sale securities
(1
)
 
(5
)
 
(6
)
 
(1
)
Reclassification of net realized gains on available-for-sale securities included in net income (loss)
—

 
(8
)
 
(1
)
 
(9
)
Net unrealized (losses) gains on derivative instruments
—

 
(7
)
 
16

 
(6
)
Reclassification of net realized (gains) losses on derivative instruments included in net income (loss)
(1
)
 
2

 
(2
)
 
3

Other losses
(8
)
 
—

 
(8
)
 
—

Total other comprehensive (loss) income
(29
)
 
160

 
(41
)
 
161

Comprehensive income (loss)
$
634

 
$
490

 
$
1,690

 
$
(5,492
)

See accompanying notes.

5


QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Six Months Ended
 
March 31,
2019
 
March 25,
2018
Operating Activities:
 
 
 
Net income (loss)
$
1,731

 
$
(5,653
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
698

 
751

Income tax provision (less than) in excess of income tax payments
(958
)
 
5,466

Non-cash portion of share-based compensation expense
452

 
470

Net gains on marketable securities and other investments
(9
)
 
(73
)
Indefinite and long-lived asset impairment charges
203

 
33

Impairment losses on marketable securities and other investments
69

 
20

Other items, net
(190
)
 
52

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
200

 
94

Inventories
(49
)
 
243

Other assets
25

 
58

Trade accounts payable
(173
)
 
(511
)
Payroll, benefits and other liabilities
(727
)
 
1,453

Unearned revenues
(122
)
 
(125
)
Net cash provided by operating activities
1,150

 
2,278

Investing Activities:
 
 
 
Capital expenditures
(322
)
 
(411
)
Purchases of debt and equity marketable securities
—

 
(5,758
)
Proceeds from sales and maturities of debt and equity marketable securities
92

 
7,659

Acquisitions and other investments, net of cash acquired
(118
)
 
(170
)
Proceeds from other investments
39

 
159

Other items, net
48

 
2

Net cash (used) provided by investing activities
(261
)
 
1,481

Financing Activities:
 
 
 
Proceeds from short-term debt
3,297

 
5,563

Repayment of short-term debt
(3,303
)
 
(4,330
)
Proceeds from issuance of common stock
177

 
335

Repurchases and retirements of common stock
(1,019
)
 
(425
)
Dividends paid
(1,502
)
 
(1,689
)
Payments of tax withholdings related to vesting of share-based awards
(143
)
 
(196
)
Payment of purchase consideration related to RF360 joint venture
—

 
(115
)
Other items, net
(38
)
 
(17
)
Net cash used by financing activities
(2,531
)
 
(874
)
Effect of exchange rate changes on cash and cash equivalents
—

 
32

Net (decrease) increase in total cash and cash equivalents
(1,642
)
 
2,917

Total cash and cash equivalents at beginning of period
11,777

 
37,029

Total cash and cash equivalents at end of period
$
10,135

 
$
39,946

 
 
 
 
Reconciliation to the condensed consolidated balance sheets
 
 
 
Cash and cash equivalents
$
10,135

 
$
37,946

Restricted cash and restricted cash equivalents included in other assets
—

 
2,000

Total cash and cash equivalents at end of period
$
10,135

 
$
39,946

See accompanying notes.

6


QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except per share data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
March 31,
2019
 
March 25,
2018
 
March 31,
2019
 
March 25,
2018
Total stockholders’ equity, beginning balance
$
3,617

 
$
23,872

 
$
807

 
$
30,725

 
 
 
 
 
 
 
 
Common stock and paid-in capital:
 
 
 
 
 
 
 
Balance at beginning of period
—

 
265

 
—

 
274

Common stock issued under employee benefit plans and the related tax benefits
150

 
201

 
177

 
343

Repurchases and retirements of common stock
—

 
(200
)
 
(136
)
 
(425
)
Share-based compensation
237

 
233

 
486

 
499

Tax withholdings related to vesting of share-based payments
(3
)
 
(4
)
 
(143
)
 
(196
)
Balance at end of period
384

 
495

 
384

 
495

 
 
 
 
 
 
 
 
Retained earnings:
 
 
 
 
 
 
 
Balance at beginning of period
3,415

 
23,222

 
542

 
30,067

Cumulative effect of accounting changes (Note 1)
—

 
—

 
3,455

 
—

Net income (loss)
663

 
330

 
1,731

 
(5,653
)
Repurchases and retirements of common stock
—

 
—

 
(883
)
 
—

Dividends
(769
)
 
(857
)
 
(1,536
)
 
(1,719
)
Balance at end of period
3,309

 
22,695

 
3,309

 
22,695

 
 
 
 
 
 
 
 
Accumulated other comprehensive income:
 
 
 
 
 
 
 
Balance at beginning of period
202

 
385

 
265

 
384

Cumulative effect of accounting changes (Note 1)
—


—


(51
)

—

Other comprehensive (loss) income
(29
)
 
160

 
(41
)
 
161

Balance at end of period
173

 
545

 
173

 
545

 
 
 
 
 
 
 
 
Total stockholders’ equity, ending balance
$
3,866

 
$
23,735

 
$
3,866

 
$
23,735

 
 
 
 
 
 
 
 
Dividends per share announced
$
0.62

 
$
0.57

 
$
1.24

 
$
1.14


See accompanying notes.

7

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1. Basis of Presentation and Significant Accounting Policies Update
Financial Statement Preparation. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all normal recurring adjustments necessary for a fair statement of the results for the interim periods. These condensed consolidated financial statements are unaudited and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. We operate and report using a 52-53 week fiscal year ending on the last Sunday in September. Each of the three-month and six-month periods ended March 31, 2019 and March 25, 2018 included 13 weeks and 26 weeks, respectively.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.
Revision of Prior Period Financial Statements. As previously disclosed, in connection with the preparation of our condensed consolidated financial statements for the three months ended December 30, 2018, we identified an immaterial error related to the recognition of certain royalty revenues of our QTL (Qualcomm Technology Licensing) segment in the quarterly and annual periods in fiscal 2018 and third and fourth quarters and annual period in fiscal 2017. In accordance with SAB No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” we evaluated the error and determined that the related impact was not material to our financial statements for any prior annual or interim period, but that correcting the cumulative impact of the error would be significant to our results of operations for the three months ended December 30, 2018. Accordingly, we have revised previously reported financial information for such immaterial error, as previously disclosed in our Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2018. A summary of revisions to certain previously reported financial information presented herein for comparative purposes is included in Note 11. We will also correct previously reported financial information for such immaterial error in our future filings, as applicable.
Earnings (Loss) Per Common Share. Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed by dividing net income by the combination of dilutive common share equivalents, comprised of shares issuable under our share-based compensation plans and shares subject to accelerated share repurchase agreements, if any, and the weighted-average number of common shares outstanding during the reporting period. Due to the net loss for the six months ended March 25, 2018, all of the common share equivalents issuable under share-based compensation plans had an anti-dilutive effect and were therefore excluded from the computation of diluted loss per share. The following table provides information about the diluted earnings (loss) per share calculation (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 31,
2019
 
March 25,
2018
 
March 31,
2019
 
March 25,
2018
Dilutive common share equivalents included in diluted shares
3.8

 
12.2

 
7.0

 
—

Shares of common stock equivalents not included because the effect would be anti-dilutive or certain performance conditions were not satisfied at the end of the period
17.2

 
0.1

 
14.4

 
44.9


8

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Share-Based Compensation. Total share-based compensation expense, related to all of our share-based awards, was comprised as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 31,
2019
 
March 25,
2018
 
March 31,
2019
 
March 25,
2018
Cost of revenues
$
7

 
$
10

 
$
16

 
$
21

Research and development
157

 
151

 
315

 
307

Selling, general and administrative
57

 
61

 
121

 
142

Share-based compensation expense before income taxes
221

 
222

 
452

 
470

Related income tax benefit
(30
)
 
(29
)
 
(79
)
 
(77
)
 
$
191

 
$
193

 
$
373

 
$
393

At March 31, 2019, total unrecognized compensation expense related to nonvested restricted stock units granted prior to that date was $1.4 billion, which is expected to be recognized over a weighted-average period of 2.2 years. At March 31, 2019, we had outstanding 30.4 million restricted stock units that contain only a service requirement and 3.1 million stock options that contain only a service requirement.
Recently Adopted Accounting Pronouncements.
Revenue Recognition: In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to revenue recognition (ASC 606), which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition accounting guidance and requires increased disclosures. The new accounting guidance defines a five-step approach that requires a company to recognize revenue as control of goods or services transfers to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. We adopted ASC 606 in the first quarter of fiscal 2019 using the modified retrospective transition method only to those contracts that were not completed as of October 1, 2018. We recognized the cumulative effect of initially applying the new revenue accounting guidance as an adjustment to opening retained earnings. Prior period results have not been restated and continue to be reported in accordance with the accounting guidance in effect for those periods (ASC 605). We have implemented new accounting policies, systems, processes and internal controls necessary to support the requirements of ASC 606.
Adoption of this new accounting guidance most significantly impacts the timing of sales-based royalty revenues, which are the vast majority of our QTL segment’s revenues. Prior to adoption, we recognized sales-based royalties as revenues in the period in which such royalties were reported by licensees, which was after the conclusion of the quarter in which the licensees’ sales occurred and when all other revenue recognition criteria had been met. Under the new accounting guidance, we estimate and recognize sales-based royalties in the period in which the associated sales occur, subject to certain constraints on our ability to estimate such amounts, resulting in an acceleration of revenue recognition compared to the historical method. Since we do not invoice for sales-based royalties estimated and recognized in any given quarter until after the conclusion of that quarter (which is generally the following quarter when such royalties are reported by licensees), revenues recognized from sales-based royalties results in unbilled receivables (included in accounts receivable, net on the consolidated balance sheet). The adoption of ASC 606 did not otherwise have a material impact.
The new accounting guidance also impacts the timing of recognizing certain customer incentives, which are recorded as a reduction to revenues in the period that the related revenues are earned. Prior to adoption, we accounted for certain customer incentive arrangements, including volume-related and other pricing rebates or cost reimbursements for marketing and other activities involving certain of our products and technologies, in part based on the maximum potential liability. Under the new accounting guidance, we estimate the amount of all customer incentives.

9

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes the cumulative effects of adopting the new revenue accounting guidance (substantially all of which related to the impact to QTL’s sales-based royalties) on our condensed consolidated balance sheet at October 1, 2018 (in millions):
 
Balance as of September 30,
2018
 
Adjustment
 
Opening Balance as of October 1,
2018
Assets
 
 
 
 
 
Accounts receivable, net
$
2,904

 
$
957

 
$
3,861

Other current assets
699

 
1

 
700

Deferred tax assets
936

 
(98
)
 
838

Other assets
1,970

 
1

 
1,971

 
 
 


 


Liabilities
 
 
 
 
 
Unearned revenues, current
$
500

 
$
6

 
$
506

Other current liabilities
6,978

 
125

 
7,103

Unearned revenues
1,620

 
(110
)
 
1,510

 
 
 
 
 
 
Stockholders’ equity
 
 
 
 
 
Retained earnings
$
542

 
$
840

 
$
1,382

The following tables summarize the impacts of adopting the new revenue accounting guidance on our condensed consolidated balance sheet and statements of operations (in millions):
 
As of March 31, 2019
Balance Sheet
As Reported
ASC 606
 
Adjustment
 
ASC 605
Assets
 
 
 
 
 
Accounts receivable, net
$
3,638

 
$
(851
)
 
$
2,787

Other current assets
631

 
(9
)
 
622

Deferred tax assets
3,832

 
45

 
3,877

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Unearned revenues, current
$
478

 
$
304

 
$
782

Other current liabilities
6,741

 
(366
)
 
6,375

Unearned revenues
1,330

 
109

 
1,439

 
 
 
 
 
 
Stockholders’ equity
 
 
 
 
 
Retained earnings
$
3,309

 
$
(861
)
 
$
2,448


10

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
Statements of Operations
As Reported
ASC 606
 
Adjustment
 
ASC 605
 
As Reported
ASC 606
 
Adjustment
 
ASC 605
Revenues
 
 
 
 
 
 
 
 
 
 
 
Equipment and services
$
3,753

 
$
(55
)
 
$
3,698

 
$
7,506

 
$
(70
)
 
$
7,436

Licensing
1,229

 
(8
)
 
1,221

 
2,318

 
43

 
2,361

Investment and other income, net
28

 
(1
)
 
27

 
33

 
1

 
34

Income tax (expense) benefit
(143
)
 
10

 
(133
)
 
365

 
4

 
369

Net income
663

 
(54
)
 
609

 
1,731

 
(22
)
 
1,709

Adoption of the new accounting guidance had no impact to net cash provided (used) by operating, financing or investing activities on our condensed consolidated statement of cash flows for the six months ended March 31, 2019.
Financial Assets: In January 2016, the FASB issued new accounting guidance on classifying and measuring financial instruments, which requires that all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings in the statement of operations. Additionally, it changes the disclosure requirements for financial instruments. We adopted the new accounting guidance in the first quarter of fiscal 2019 using the modified retrospective transition method for investments in marketable securities, which have readily determinable fair values, with the cumulative effect of applying the new accounting guidance recognized as an adjustment to opening retained earnings. Upon adoption, we reclassified $50 million of unrealized gains, net of the associated tax effects, related to our investments in marketable securities from accumulated other comprehensive income to opening retained earnings. We have applied the prospective transition method for investments in non-marketable securities, which are investments in privately held companies that do not have readily determinable fair values and will recognize, through earnings, any unrealized gains that have accumulated in the period in which there is an observable transaction, if any.
Hedge Instruments: In August 2017, the FASB issued new accounting guidance that expands and refines hedge accounting for both financial and non-financial risks, aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements, and includes targeted improvements related to the assessment of hedge effectiveness. The new accounting guidance also modifies disclosure requirements for hedging activities. We adopted the new accounting guidance in the first quarter of 2019 using the modified retrospective transition method and recorded a negligible adjustment to opening retained earnings. The new accounting guidance did not have a material impact on our condensed consolidated financial statements.
Statement of Cash Flows: In August 2016, the FASB issued new accounting guidance related to the classification of certain cash receipts and cash payments in the statement of cash flows. We adopted the new accounting guidance in the first quarter of fiscal 2019 using the retrospective transition method for each period presented, which did not have a material impact on our condensed consolidated statements of cash flows.
In November 2016, the FASB issued new accounting guidance that requires companies to include restricted cash and cash equivalents as a component in total cash and cash equivalents on the statement of cash flows. As a result, the consolidated statement of cash flows no longer reflects transfers between cash and cash equivalents and restricted cash and cash equivalents. We adopted the new accounting guidance in the first quarter of fiscal 2019 using the retrospective transition method, which results in certain amounts in fiscal 2018 being adjusted to conform to the new accounting guidance. This includes restricted cash and cash equivalents held during fiscal 2018 related to funds deposited as collateral for outstanding letters of credit in connection with a then proposed acquisition. Restricted cash and cash equivalents related to the outstanding letters of credit totaled $2.0 billion at the end of the fourth quarter of fiscal 2017 and second quarter of fiscal 2018. There was no impact of this change on the activity presented on the condensed consolidated statement of cash flows for the six months ended March 25, 2018.
Income Taxes: In October 2016, the FASB issued new accounting guidance that changes the accounting for the income tax effects of intra-entity transfers of assets other than inventory. Under the new accounting guidance, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or deferred tax liability, as well as the related deferred tax benefit or expense, upon receipt of the asset. We adopted the new accounting guidance in the first quarter of fiscal 2019 using the modified retrospective transition method, with the cumulative effect of applying the new accounting

11

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

guidance recognized as an adjustment to opening retained earnings of $2.6 billion, primarily as the result of establishing a deferred tax asset on the basis difference of certain intellectual property distributed from one of our foreign subsidiaries to a subsidiary in the United States in fiscal 2018 (Note 3). The ongoing impact of this accounting guidance will be dependent on the facts and circumstances of any transactions within its scope.
Recent Accounting Pronouncements Not Yet Adopted.
Leases: In February 2016, the FASB issued new accounting guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease accounting guidance. The new accounting guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. We will adopt the new accounting guidance in the first quarter of fiscal 2020 and expect to use the modified retrospective approach and to elect certain practical expedients, with the cumulative effect of applying the new accounting guidance recognized as an adjustment to opening retained earnings as of the effective date. We are in the process of determining the effects the adoption will have on our consolidated financial statements.
Financial Assets: In June 2016, the FASB issued new accounting guidance that changes the accounting for recognizing impairments of financial assets. Under the new accounting guidance, credit losses for financial assets held at amortized cost will be estimated based on expected losses rather than the current incurred loss impairment model. The new accounting guidance also modifies the impairment model for available-for-sale debt securities. The new accounting guidance generally requires the modified retrospective transition method, with the cumulative effect of applying the new accounting guidance recognized as an adjustment to opening retained earnings in the year of adoption, except for certain financial assets where the prospective transition method is required, such as available-for-sale debt securities for which an other-than-temporary impairment has been recorded. We will adopt the new accounting guidance in the first quarter of fiscal 2021, and the impact of this new accounting guidance will largely depend on the composition and credit quality of our investment portfolio, as well as economic conditions at the time of adoption.
Accounting Policy Update.
Revenue Recognition: As a result of the adoption of ASC 606, we revised our revenue recognition policy beginning in fiscal 2019 as follows.
We derive revenues principally from sales of integrated circuit products and licensing of our intellectual property. We also generate revenues by performing software hosting, software development and other services and from other product sales. The timing of revenue recognition and the amount of revenue actually recognized in each case depends upon a variety of factors, including the specific terms of each arrangement and the nature of our performance obligations.
Revenues from sales of our products are recognized upon transfer of control to the customer, which is generally at the time of shipment. Revenues from providing services are typically recognized over time as our performance obligation is satisfied. Revenues from providing services were less than 5% of total revenues for all periods presented.
We grant licenses or otherwise provide rights to use portions of our intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. Licensees pay royalties based on their sales of products incorporating or using our licensed intellectual property and may also pay a fixed license fee in one or more installments. Sales-based royalties are generally based upon a percentage of the wholesale (i.e., licensee’s) selling price of complete licensed products, net of certain permissible deductions (including transportation, insurance, packing costs and other items). We broadly provide per unit royalty caps that apply to certain categories of complete wireless devices, namely smartphones, tablets and laptops, which in general, effectively provide for a maximum royalty amount per device. We estimate and recognize sales-based royalties on such licensed products in the period in which the associated sales occur, subject to certain constraints on our ability to estimate such royalties. Our estimates of sales-based royalties are based largely on an assessment of the volume of devices supplied into the market that incorporate or use our licensed intellectual property. We estimate sales-based royalties taking into consideration the mix of such sales on a licensee-by-licensee basis, as well as the licensees’ average wholesale prices of such products, and considers all information (historical, current and forecasted) that is reasonably available to us. Our licensees, however, do not report and pay royalties owed for sales in any given quarter until after the conclusion of that quarter, which is generally the following quarter. As a result of recognizing revenues in the period in which the licensees’ sales occur using estimates, adjustments to revenues are required in subsequent periods to reflect changes in estimates as new information becomes available, primarily resulting from actual amounts reported by our licensees.

12

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

License agreements that require payment of license fees contain a single performance obligation that represents ongoing access to a portfolio of intellectual property over the license term since such agreements provide the licensee the right to access a portfolio of intellectual property that exists at inception of the license agreement and to updates and new intellectual property that is added to the licensed portfolio during the term of the agreement that are highly interdependent or interrelated. Since we expect to expend efforts to develop and transfer updates to our licensed portfolio on an even basis, license fees are recognized as revenues on a straight-line basis over the estimated period of benefit of the license to the licensee.
We account for a contract with a customer/licensee when it is legally enforceable, the parties are committed to perform their respective obligations, the rights of the parties regarding the goods and/or services to be transferred are identified, payment terms are identified, the contract has commercial substance and collectability of substantially all of the consideration is probable.
From time to time, companies initiate various strategies to attempt to renegotiate, reduce and/or eliminate their need to pay royalties to us for the use of our intellectual property. Certain licensees have disputed, underreported, underpaid, not reported and/or not paid royalties owed to us under their license agreements with us or reported to us in a manner that is not in compliance with their contractual obligations, and such licensees may continue to do so in the future. In such cases, we estimate and recognize licensing revenues only when we have a contract, as defined in ASC 606, and to the extent it is probable that a significant reversal of cumulative revenues recognized will not occur. We analyze the risk of a significant revenue reversal considering both the likelihood and magnitude of the reversal and, if necessary, constrain the amount of estimated revenues recognized in order to mitigate this risk, which may result in recognizing revenues less than amounts contractually owed to us.
We measure revenues based on the amount of consideration we expect to receive in exchange for products or services. We record 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 our products and technologies, in the period that the related revenues are earned. The charges for such arrangements are recorded as a reduction to accounts receivable, net or as other current liabilities based on whether we have the intent and contractual right of offset. Certain of these charges are considered variable consideration and are included in the transaction price primarily based on estimating the most likely amount expected to be provided to the customer/licensee.
Revenues recognized from sales of our products and sales-based royalties are generally included in accounts receivable, net (including unbilled receivables) based on our unconditional right to payment for satisfied or partially satisfied performance obligations.
We disaggregate our revenues by segment (Note 7) and type of product and services (as presented on our consolidated statement of operations), as we believe this best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. Substantially all of QCT’s revenues consist of equipment revenues that are recognized at a point in time, and substantially all of QTL’s revenues represent licensing revenues that are recognized over time.
Revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were $398 million and $394 million for the three and six months ended March 31, 2019, respectively, and primarily relate to certain customer incentives, QTL royalty revenues recognized related to devices sold in prior periods and revenues related to a development contract with one of our equity method investees.
Unearned revenues (which are considered contract liabilities) consist primarily of license fees for intellectual property with continuing performance obligations. In the six months ended March 31, 2019, we recognized revenues of $258 million that were recorded as unearned revenues at October 1, 2018.
Remaining performance obligations, substantially all of which are included in unearned revenues, represent the aggregate amount of the transaction price of certain customer contracts yet to be recognized as revenues as of the end of the reporting period and exclude revenues related to (a) contracts that have an original expected duration of one year or less and (b) sales-based royalties (i.e., future royalty revenues) pursuant to our license agreements. Our remaining performance obligations are primarily comprised of certain customer contracts for which QTL received license fees upfront. At March 31, 2019, we had $1.8 billion of remaining performance obligations, of which $235 million, $470 million, $423 million, $416 million and $193 million was expected to be recognized as revenues for the remainder of fiscal 2019 and each of the subsequent four years from fiscal 2020 through 2023, respectively, and $77 million thereafter.

13

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Marketable Securities and Non-Marketable Securities: Prior to the adoption of the new accounting guidance in the first quarter of fiscal 2019, investments in marketable equity securities were generally classified as available-for-sale equity investments, with net unrealized gains or losses recorded as a component of accumulated other comprehensive income, net of income taxes. Beginning in fiscal 2019, all gains and losses on investments in marketable equity securities, realized and unrealized, are recognized in investment and other income, net.
Prior to the adoption of the new accounting guidance in the first quarter of fiscal 2019, investments in non-marketable equity securities were recorded at cost less impairment, if any, with any losses resulting from an impairment recognized in investment and other income, net. Beginning in fiscal 2019, investments in non-marketable equity securities are recorded at cost, less impairments (if any), adjusted for observable price changes in orderly transactions for identical or similar securities (if any). All gains and losses on investments in non-marketable equity securities, realized and unrealized, are recognized in investment and other income, net.
Note 2. Composition of Certain Financial Statement Items
Accounts Receivable (in millions)
 
 
 
 
March 31,
2019
 
September 30,
2018
Trade, net of allowances for doubtful accounts of $47 and $56, respectively
$
2,430

 
$
2,667

Unbilled receivables
1,196

 
201

Other
12

 
36

 
$
3,638

 
$
2,904

The increase in unbilled receivables was primarily due to the adoption of ASC 606 (Note 1). Accounts receivable at March 31, 2019 and September 30, 2018 included approximately $960 million related to the short payment in the second quarter of fiscal 2017 of royalties reported by and deemed collectible from Apple’s contract manufacturers. This same amount was recorded in customer-related liabilities (in other current liabilities) for Apple, since we do not have the contractual right to offset these amounts. On April 16, 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties, and as a result, these amounts were settled (Note 12).
Inventories (in millions)
 
 
 
 
March 31,
2019
 
September 30,
2018
Raw materials
$
79

 
$
72

Work-in-process
820

 
715

Finished goods
826

 
906

 
$
1,725

 
$
1,693

Equity Method and Non-marketable Equity Investments. The carrying values of our equity method and non-marketable equity investments are recorded in other noncurrent assets and were as follows (in millions):
 
March 31,
2019
 
September 30,
2018
Equity method investments
$
354

 
$
402

Non-marketable equity investments
779

 
650

 
$
1,133

 
$
1,052

In the second quarter of fiscal 2019, non-marketable debt and equity securities (non-cash consideration) with an aggregate fair value of $98 million were received related to a development contract with one of our equity method investees. Since contract revenues were no longer constrained, such amount was recognized as revenues from a previously satisfied performance obligation in the second quarter of fiscal 2019. In addition, in the second quarter of fiscal 2019, non-marketable equity securities (non-cash consideration) with a fair value of $53 million were received in connection with the sale of certain assets as part of the Cost Plan (Note 8).

14

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Other Current Liabilities (in millions)
 
 
 
 
March 31,
2019
 
September 30,
2018
Customer incentives and other customer-related liabilities
$
3,417

 
$
3,500

Accrual for EC fine (Note 6)
1,137

 
1,167

Income taxes payable
428

 
453

RF360 Holdings put and call option
1,145

 
1,137

Other
614

 
721

 
$
6,741

 
$
6,978

Beginning on August 4, 2019, for a period of 60 days, we have the option to acquire (and the minority owner has the option to sell) the minority ownership interest in the RF360 Holdings joint venture for $1.15 billion, and we expect one of such options to be exercised during this period. At March 31, 2019 and September 30, 2018, the accreted value of such amount was included in other current liabilities.
Accumulated Other Comprehensive Income. Changes in the components of accumulated other comprehensive income, net of income taxes, in stockholders’ equity in the six months ended March 31, 2019 were as follows (in millions):
 
Foreign Currency Translation Adjustment
 
Noncredit Other-than-Temporary Impairment Losses and Subsequent Changes in Fair Value for Certain Available-for-Sale Debt Securities
 
Net Unrealized Gain (Loss) on Other Available-for-Sale Securities
 
Net Unrealized (Loss) Gain on Derivative Instruments
 
Other Gains
 
Total Accumulated Other Comprehensive Income
Balance at September 30, 2018
$
11

 
$
23

 
$
243

 
$
(13
)
 
$
1

 
$
265

Other comprehensive (loss) income before reclassifications
(41
)
 
—

 
(6
)
 
16

 
(8
)
 
(39
)
Reclassifications from accumulated other comprehensive income
1

 
—

 
(51
)
 
(3
)
 
—

 
(53
)
Other comprehensive (loss) income
(40
)
 
—

 
(57
)
 
13

 
(8
)
 
(92
)
Balance at March 31, 2019
$
(29
)
 
$
23

 
$
186

 
$
—

 
$
(7
)
 
$
173

Reclassifications from accumulated other comprehensive income included adjustments of $51 million to the opening retained earnings balance as a result of the adoption of new accounting guidance in the first quarter of fiscal 2019 related to financial instruments and hedge instruments (Note 1). Reclassifications from accumulated other comprehensive income (excluding adjustments to opening retained earnings) related to available-for-sale securities were negligible in the three and six months ended March 31, 2019 and March 25, 2018 and were recorded in investment and other income, net.
Other Income, Costs and Expenses. Other income in the three months ended March 31, 2019 included a $43 million gain due to the partial recovery of a fine imposed in fiscal 2009 resulting from our appeal of the Korea Fair Trade Commission (KFTC) decision (Note 6), partially offset by $25 million in net restructuring and restructuring-related charges related to our Cost Plan (Note 8). Other expenses in the six months ended March 31, 2019 included $204 million in net restructuring and restructuring-related charges related to our Cost Plan, partially offset by a $43 million gain due to the partial recovery of a fine we previously paid to the KFTC and a $31 million gain related to a favorable legal settlement.
Other expenses in the three months ended March 25, 2018 consisted of $310 million in restructuring and restructuring-related charges related to our Cost Plan. Other expenses in the six months ended March 25, 2018 also included a $1.2 billion charge related to the European Commission (EC) fine (Note 6).

15

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Investment and Other Income, Net (in millions)
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
March 31,
2019
 
March 25,
2018
 
March 31,
2019
 
March 25,
2018
Interest and dividend income
$
80

 
$
154

 
$
155

 
$
280

Net gains (losses) on marketable securities
40

 
3

 
(33
)
 
13

Net gains on other investments
6

 
47

 
42

 
60

Impairment losses on marketable securities and other investments
(60
)
 
(11
)
 
(69
)
 
(20
)
Net (losses) gains on derivative investments
(1
)
 
10

 
(9
)
 
9

Equity in net losses of investees
(36
)
 
(17
)
 
(58
)
 
(38
)
Net (losses) gains on foreign currency transactions
(1
)
 
(90
)
 
5

 
(93
)
 
$
28

 
$
96

 
$
33

 
$
211

Note 3. Income Taxes
The 2017 Tax Cuts and Jobs Act (the Tax Legislation) significantly revised the United States corporate income tax by, among other things, lowering the corporate income tax rate to 21% and imposing a one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries (the Toll Charge). The Tax Legislation fundamentally changed the taxation of multinational entities, including a shift from a system of worldwide taxation with deferral to a hybrid territorial system, featuring a participation exemption regime with current taxation of certain foreign income, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion and promote U.S. production. As a fiscal-year taxpayer, certain provisions of the Tax Legislation became effective starting at the beginning of fiscal 2019, including new taxes due on certain foreign income, such as GILTI (global intangible low-taxed income), BEAT (base-erosion and anti-abuse tax) and FDII (foreign-derived intangible income). In response to the Tax Legislation, we implemented certain tax restructuring in fiscal 2018 and 2019. As a result, without considering the effects of the agreements with Apple and its contract manufacturers signed in April 2019 (Note 12), substantially all of our income is in the U.S. and qualifies for preferential treatment as FDII, and the impact of GILTI and BEAT are negligible. Accordingly, our estimated annual effective tax rate for fiscal 2019 reflects the effects of these components of the Tax Legislation. Our annual effective tax rate for fiscal 2018 reflected a blended federal statutory rate of approximately 25%.
As a result of the Tax Legislation, in fiscal 2019, several of our foreign subsidiaries made tax elections to be treated as U.S. branches for federal income tax purposes (commonly referred to as “check-the-box” elections) effective beginning in fiscal 2018 and 2019. We believe that by treating these foreign subsidiaries as U.S. branches for federal income taxes, rather than controlled foreign corporations, we will significantly reduce the risk of being subject to GILTI and BEAT taxes. As a result of making these check-the-box elections in the first quarter of fiscal 2019, we recorded a tax benefit of $570 million due to establishing new U.S. net deferred tax assets resulting from the difference between the GAAP basis and the U.S. federal tax carryover basis of the existing assets and liabilities of those foreign subsidiaries, primarily related to customer incentive liabilities that have not been deducted for tax purposes. Additionally, during fiscal 2018, one of our foreign subsidiaries distributed certain intellectual property to a U.S. subsidiary resulting in a difference between the GAAP basis and the U.S. federal tax basis of the distributed intellectual property. Upon adoption of new accounting guidance in the first quarter of fiscal 2019, we recorded a deferred tax asset of approximately $2.6 billion, primarily related to the distributed intellectual property, with an adjustment to opening retained earnings (Note 1).
Our second quarter of fiscal 2019 results reflected an estimated annual effective income tax rate of approximately 6% benefit for fiscal 2019, which included the impact of the tax benefit of $570 million (which was recorded discretely in the first quarter) due to establishing new U.S. net deferred tax assets from making certain check-the-box elections and excluded the effects of the agreements with Apple and its contract manufacturers signed in April 2019. The estimated annual effective tax rate for fiscal 2019 also reflected benefits from our FDII deduction and research and development tax credits. The annual effective tax rate for fiscal 2018 was impacted by the combined effect of the Toll Charge, the remeasurement of deferred tax assets and liabilities and our decision to no longer indefinitely reinvest certain foreign earnings, all of which resulted from the Tax Legislation. The annual effective tax rate for fiscal 2018 was also impacted by the termination fee paid to NXP Semiconductors N.V. (NXP), the EC fine, settlement with the Taiwan Fair Trade Commission (TFTC), allocation of expenses to our U.S. operations and new Singapore tax incentives.

16

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The effective tax rate of 18% for the second quarter of fiscal 2019 was higher than the estimated annual effective tax rate of 6% benefit primarily due to the tax benefit of $570 million, which was recorded discretely in the first quarter.
Unrecognized tax benefits were $228 million and $217 million at March 31, 2019 and September 30, 2018, respectively. We believe that it is reasonably possible that the total amounts of unrecognized tax benefits at March 31, 2019 may increase or decrease in the next 12 months.
The United States Treasury Department has issued proposed regulations on several provisions of the Tax Legislation, including foreign tax credits, FDII, GILTI, BEAT and interest expense deduction limitations, which are expected to be finalized in the next several months. When finalized, these proposed regulations may adversely affect our provision for income taxes, results of operations and/or cash flows.
We are subject to income taxes in the United States and numerous foreign jurisdictions and are currently under examination by various tax authorities worldwide, most notably in countries where we earn a routine return and tax authorities believe substantial value-add activities are performed. These examinations are at various stages with respect to assessments, claims, deficiencies and refunds, many of which are open for periods after fiscal 2000. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts give rise to a revision become known. As of March 31, 2019, we believe that adequate amounts have been reserved for based on facts known. However, the final determination of tax audits and any related legal proceedings could materially differ from amounts reflected in our income tax provision and the related accruals.
Note 4. Capital Stock
Stock Repurchase Program. On July 26, 2018, we announced a stock repurchase program authorizing us to repurchase up to $30 billion of our common stock. The stock repurchase program has no expiration date.
In September 2018, we entered into three accelerated share repurchase agreements (ASR Agreements) with three financial institutions under which we paid an aggregate of $16.0 billion upfront and received an initial delivery of 178.4 million shares of our common stock, which were retired. The final number of shares to be repurchased will be based on the volume-weighted average stock price of our common stock during the terms of the transactions, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR Agreements and will also be retired upon delivery to us. The ASR Agreements are scheduled to terminate in early September 2019, but may terminate earlier in certain circumstances. At settlement, one or more of the financial institutions may be required to deliver additional shares of common stock to us, or under certain circumstances, we may be required to deliver shares of common stock or make a cash payment to one or more of the financial institutions, with the method of settlement at our election.
In the six months ended March 31, 2019 and March 25, 2018, we repurchased and retired 16.8 million and 6.8 million shares for $1.0 billion and $425 million, respectively, before commissions. To reflect share repurchases in the consolidated balance sheet, we (i) reduce common stock for the par value of the shares, (ii) reduce paid-in capital for the amount in excess of par to zero during the quarter in which the shares are repurchased and (iii) record the residual amount to retained earnings, if any. At March 31, 2019, $7.8 billion remained authorized for repurchase under our stock repurchase program.
Note 5. Debt
Revolving Credit Facility. We have an Amended and Restated Revolving Credit Facility (Revolving Credit Facility) that provides for unsecured revolving facility loans, swing line loans and letters of credit in an aggregate amount of up to $5.0 billion, of which $530 million and $4.47 billion will expire in February 2020 and November 2021, respectively. Proceeds from the Revolving Credit Facility, if drawn, are expected to be used for general corporate purposes. Loans under the Revolving Credit Facility will bear interest, at our option, at either the reserve-adjusted Eurocurrency Rate (determined in accordance with the Revolving Credit Facility) or the Base Rate (determined in accordance with the Revolving Credit Facility), in each case plus an applicable margin based on our long-term unsecured senior, non-credit enhanced debt ratings. The margins over the reserve-adjusted Eurocurrency Rate and the Base Rate will be 0.805% and 0.00% per annum, respectively. The Revolving Credit Facility has a facility fee, which accrues at a rate of 0.07% per annum. At March 31, 2019 and September 30, 2018, we had not borrowed any funds under the Revolving Credit Facility.
Commercial Paper Program. We have an unsecured commercial paper program, which provides for the issuance of up to $5.0 billion of commercial paper. Net proceeds from this program are used for general corporate purposes. Maturities of commercial paper can range from 1 day to up to 397 days. At March 31, 2019 and September 30, 2018, we had $1.0 billion of outstanding commercial paper included in short-term debt with a weighted-average interest rate of 2.74% and 2.35%, respectively, which included fees paid to the commercial paper dealers, and weighted-average remaining days to maturity of

17

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

29 days and 16 days, respectively. The carrying value of the outstanding commercial paper approximated its estimated fair value at March 31, 2019 and September 30, 2018.
Long-term Debt. The following table provides a summary of our long-term debt (in millions, except percentages):
 
 
March 31, 2019
 
September 30, 2018
 
 
Amount
 
Effective
Rate
 
Amount
 
Effective
Rate
May 2015 Notes
 
 
 
 
 
 
 
 
Floating-rate three-month LIBOR plus 0.55% notes due May 20, 2020
$
250

 
3.25%
 
$
250

 
2.93%
 
Fixed-rate 2.25% notes due May 20, 2020
1,750

 
3.09%
 
1,750

 
3.13%
 
Fixed-rate 3.00% notes due May 20, 2022
2,000

 
3.51%
 
2,000

 
3.73%
 
Fixed-rate 3.45% notes due May 20, 2025
2,000

 
3.46%
 
2,000

 
3.46%
 
Fixed-rate 4.65% notes due May 20, 2035
1,000

 
4.73%
 
1,000

 
4.73%
 
Fixed-rate 4.80% notes due May 20, 2045
1,500

 
4.72%
 
1,500

 
4.72%
May 2017 Notes
 
 
 
 
 
 
 
 
Floating-rate three-month LIBOR plus 0.73% notes due January 30, 2023
500

 
3.55%
 
500

 
3.14%
 
Fixed-rate 2.60% notes due January 30, 2023
1,500

 
2.70%
 
1,500

 
2.70%
 
Fixed-rate 2.90% notes due May 20, 2024
1,500

 
3.01%
 
1,500

 
3.01%
 
Fixed-rate 3.25% notes due May 20, 2027
2,000

 
3.46%
 
2,000

 
3.46%
 
Fixed-rate 4.30% notes due May 20, 2047
1,500

 
4.47%
 
1,500

 
4.47%
 
Total principal
15,500

 
 
 
15,500

 
 
 
Unamortized discount, including debt issuance costs
(79
)
 
 
 
(85
)
 
 
 
Hedge accounting fair value adjustments
(16
)
 
 
 
(50
)
 
 
 
Total long-term debt
$
15,405

 
 
 
$
15,365

 
 
Reported as:
 
 
 
 
 
 
 
 
Short-term debt
$
—

 
 
 
$
—

 
 
 
Long-term debt
15,405

 
 
 
15,365

 
 
 
Total
$
15,405

 
 
 
$
15,365

 
 
At March 31, 2019 and September 30, 2018, the aggregate fair value of the notes, based on Level 2 inputs, was approximately $15.4 billion and $15.1 billion, respectively.
We may redeem the outstanding fixed-rate notes at any time in whole, or from time to time in part, at specified make-whole premiums as defined in the applicable form of note. We may not redeem the outstanding floating-rate notes prior to maturity. The obligations under the notes rank equally in right of payment with all of our other senior unsecured indebtedness and will effectively rank junior to all liabilities of our subsidiaries.
At March 31, 2019, we had outstanding interest rate swaps with an aggregate notional amount of $1.8 billion related to the May 2015 Notes, which effectively converted approximately 43% and 50% of the fixed-rate notes due in 2020 and 2022, respectively, into floating-rate notes. The net gains and losses on the interest rate swaps, as well as the offsetting gains or losses on the related fixed-rate notes attributable to the hedged risks, are recorded as interest expense in the current period. We did not enter into interest rate swaps in connection with issuance of the May 2017 Notes.
The effective interest rates for the notes include the interest on the notes, amortization of the discount, which includes debt issuance costs, and if applicable, adjustments related to hedging. Interest is payable in arrears quarterly for the floating-rate notes and semi-annually for the fixed-rate notes. Cash interest paid related to our commercial paper program and long-term debt, net of cash received from the related interest rate swaps, was $281 million and $317 million in the six months ended March 31, 2019 and March 25, 2018, respectively.
Debt Covenants. The Revolving Credit Facility requires that we comply with certain covenants, including one financial covenant to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization to consolidated interest expense, as defined in each of the respective agreements, of not less than three to one at the end of each fiscal quarter. We are not subject to any financial covenants under the notes nor any covenants that would prohibit us from incurring

18

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

additional indebtedness ranking equal to the notes, paying dividends, issuing securities or repurchasing securities issued by us or our subsidiaries. At March 31, 2019 and September 30, 2018, we were in compliance with the applicable covenants under the Revolving Credit Facility.
Note 6. Commitments and Contingencies
Legal and Regulatory Proceedings.
Apple Inc. (Apple) v. QUALCOMM Incorporated: On January 20, 2017, Apple filed a complaint against us in the United States District Court for the Southern District of California seeking declarations with respect to several of our patents and alleging that we breached certain agreements and violated federal antitrust and California state unfair competition laws. In its initial complaint, Apple sought declaratory judgments of non-infringement by Apple of nine of our patents, or in the alternative, a declaration of royalties Apple must pay for the patents. Apple further sought a declaration that our sale of baseband processor chipsets exhausts our patent rights for patents embodied in those chipsets. Separately, Apple sought to enjoin us from seeking excessive royalties from Apple and to disgorge royalties paid by Apple’s contract manufacturers that the court finds were not fair, reasonable and non-discriminatory (FRAND). Apple also claimed that our refusal to make certain payments to Apple under a Business Cooperation and Patent Agreement (Cooperation Agreement) constituted a breach of contract in violation of California law and sought damages in the amount of the unpaid payments, alleged to be approximately $1 billion. In addition, Apple claimed that we have refused to deal with competitors in contravention of our agreements with applicable standard setting organizations, have used our market position to impose contractual obligations on Apple that prevented Apple from challenging our licensing practices, have tied the purchase of our CDMA-enabled and “premium” LTE-enabled chipsets to licensing certain of our patents and have required Apple to purchase baseband processor chipsets exclusively from us as a condition of our payment to Apple of certain rebates, in violation of Section 2 of the Sherman Act and the California Unfair Competition Law. Apple sought injunctive relief with respect to these claims and a judgment awarding its expenses, costs and attorneys’ fees.
On April 10, 2017, we filed our Answer and Counterclaims (amended on May 24, 2017) in response to Apple’s complaint denying Apple’s claims and asserting claims against Apple. The counterclaims against Apple include tortious interference with our long-standing Subscriber Unit License Agreements (SULAs) with third-party contract manufacturers of Apple devices, causing those contract manufacturers to withhold certain royalty payments owed to us and violate their audit obligations; breach of contract and the implied covenant of good faith and fair dealing relating to the Cooperation Agreement; unjust enrichment and declaratory relief relating to the Cooperation Agreement; breach of contract based on Apple’s failure to pay amounts owed to us under a Statement of Work relating to a high-speed feature of our baseband processor chipsets; breach of the parties’ software agreement; and violation of California Unfair Competition Law based on Apple’s threatening us to prevent us from promoting the superior performance of our own baseband processor chipsets. We also seek declaratory judgments that we have satisfied our FRAND commitments with respect to Apple, and that our SULAs with the contract manufacturers do not violate either competition law or our FRAND commitments. On June 19, 2017, Apple filed a Partial Motion to Dismiss our counterclaim for violation of the California Unfair Competition Law. The court granted that motion on November 8, 2017. On June 20, 2017, Apple filed an Answer and Affirmative Defenses to the rest of our counterclaims, and also filed an Amended Complaint reiterating all of the original claims and adding claims for declaratory judgments of invalidity of the nine patents that are subject to declaratory judgment claims in the original complaint, adding new declaratory judgment claims for non-infringement, invalidity and a declaration of royalties for nine more patents. Apple also added claims for declaratory judgments that certain of our agreements are unenforceable. On July 21, 2017, we filed an Answer to Apple’s Amended Complaint as well as a motion to dismiss the new declaratory judgment claims for non-infringement, invalidity and a declaration of royalties for the nine additional patents. The court granted our motion on November 8, 2017.
On May 17, 2017, we filed a complaint (captioned QUALCOMM Incorporated v. Compal Electronics, Inc. et al.) in the United States District Court for the Southern District of California against certain of Apple’s contract manufacturers, Compal Electronics, Inc. (Compal), FIH Mobile, Ltd., Hon Hai Precision Industry Co., Ltd. (together with FIH Mobile, Ltd., Foxconn), Pegatron Corporation (Pegatron) and Wistron Corporation (Wistron), asserting claims for injunctive relief, specific performance, declaratory relief and damages stemming from the defendants’ breach of contracts by ceasing the payment of royalties for iPhones and other devices which they manufacture for Apple. On July 17, 2017, Compal, Foxconn, Pegatron and Wistron each filed third-party complaints for contractual indemnity against Apple seeking to join Apple as a party to the action. On July 18, 2017, Apple filed an answer to these third-party complaints acknowledging its indemnity agreements and consenting to be joined. On that same day, the defendants filed an Answer and Counterclaims to the complaint, asserting defenses and counterclaims similar to allegations previously made by Apple in the Apple Inc. v. QUALCOMM Incorporated

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case discussed above. In addition, the defendants asserted certain new claims, including claims under Section 1 of the Sherman Act and California’s Cartwright Act. The defendants seek damages, declaratory relief, injunctive relief, restitution of certain royalties and other relief. Also, on July 18, 2017, Apple filed a motion to consolidate this action with the Apple Inc. v. QUALCOMM Incorporated case. On September 13, 2017, the court granted Apple’s consolidation motion. Fact discovery is closed in these cases.
On August 31, 2018, Apple filed a motion for judgment on the pleadings that the court lacks subject matter jurisdiction over our counterclaim that our license offers to Apple have not violated our obligation to license standard-essential patents on FRAND terms. On March 20, 2019, the court denied Apple’s motion. Also, on August 31, 2018, Apple filed motions for partial summary judgment on the following issues: that part of our claim for Apple’s alleged tortious interference with its contract manufacturers’ agreements is barred by the statute of limitations; that our claim for damages under the Cooperation Agreement is unfounded; and that certain of our patent rights are exhausted by the sale of our baseband processor chipsets. On November 8, 2018, the court ruled on Apple’s motion regarding its alleged tortious interference, holding that Apple is not liable for tortious interference that occurred prior to January 20, 2015, but may be held liable for subsequent tortious interference. On December 18, 2018, the court denied Apple’s motion regarding patent exhaustion as moot in light of the dismissal of the claims at issue discussed below. On March 14, 2019, the court granted Apple’s motion for summary judgment against our claims for damages under the Cooperation Agreement. Amounts unpaid (and previously accrued) by us under the Cooperation Agreement were recorded in customer-related liabilities (in other current liabilities) at March 31, 2019 and September 30, 2018 (Note 2).
On September 14, 2018, we filed a motion to dismiss Apple’s declaratory judgment claims relating to the nine specific patents identified in its original complaint on the basis that we granted Apple and its contract manufacturers a covenant-not-to-sue on those patents. The judge granted our motion on November 20, 2018, which disposed of a total of 56 claims pled by Apple and its contract manufacturers, including non-infringement, validity, damages and patent exhaustion for each of the nine patents.
A jury trial commenced on April 15, 2019, and on April 16, 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties (Note 12).
On January 23, 2017, an Apple subsidiary in China filed two complaints against us in the Beijing Intellectual Property Court. On March 31, 2017, the court granted an application by Apple Inc. to join the actions as a plaintiff, and Apple amended the complaints. One of the complaints alleges a violation of China’s Anti-Monopoly Law (AML complaint); the other complaint requests a determination of the terms of a patent license between us and Apple (FRAND complaint). The AML complaint alleges that (i) we have abused our dominant position in communication standard-essential patents licensing markets and certain global baseband processor chipset markets by charging and offering royalty terms that were excessively high; (ii) we refused to license certain implementers of standardized technologies, including Apple and baseband processor chipset manufacturers; (iii) we forced Apple to use only our products and services; and (iv) we bundled licenses to standard-essential patents with licenses to non-standard-essential patents and imposed other unreasonable or discriminatory trading terms on Apple in violation of the AML. The AML complaint seeks a decree that we cease the alleged abuse of dominance, as well as damages in the amount of 1 billion Chinese renminbi (approximately $149 million based on the exchange rate on March 31, 2019). The FRAND complaint makes allegations similar to the AML complaint and further alleges that we refused to offer licensing terms for our cellular standard-essential patents consistent with our FRAND licensing commitments and failed to provide to Apple certain information about our patents. The FRAND complaint seeks (i) a declaration that the license terms offered to Apple by us for our mobile communication standard-essential patents are not compliant with FRAND; (ii) an order that we cease our actions that allegedly violate our FRAND obligations, including pricing on unfair, unreasonable and excessive terms, refusing to deal, imposing unreasonable trade conditions and failing to provide information on our patents; and (iii) a determination of FRAND-compliant license terms for our Chinese standard-essential patents. Apple also seeks its expenses in each of the cases.
On August 3, 2017, we received three additional complaints filed by an Apple subsidiary in China and Apple Inc. against us in the Beijing Intellectual Property Court. The complaints seek declaratory judgments of non-infringement of three of our patents. We filed jurisdictional and other objections to the complaints.
On November 30, 2017, Apple and certain of its Chinese subsidiaries filed three patent infringement complaints against us in the Beijing Intellectual Property Court. Apple seeks damages and costs. We have filed jurisdictional objections to the complaints. 

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On February 16, 2017, Apple and one of its Japanese subsidiaries filed four complaints against us in the Tokyo District Court. In three of the complaints, Apple seeks declaratory judgment of non-infringement by Apple of three of our patents. Apple further seeks a declaration that our patent rights with respect to those three patents are exhausted by our SULAs with the contract manufacturers of Apple’s devices as well as our sale of baseband processor chipsets. Apple also seeks an award of fees. On January 30, 2018, April 27, 2018 and July 13, 2018, the court dismissed each of Apple’s three declaratory judgment complaints, finding that Apple lacked standing based on the facts it alleged in those complaints. Apple has appealed all three decisions. On December 12, 2018, February 19, 2019 and March 4, 2019, the Intellectual Property High Court ruled in our favor on each of Apple’s appeals, finding that the Tokyo District Courts were correct in dismissing Apple’s declaratory judgment complaints. The court has yet to rule on whether Apple has standing in the remaining complaint. On May 15, 2017, we learned of the fourth complaint. In that complaint, Apple and one of its Japanese subsidiaries seek damages of 100 million Japanese yen (approximately $1 million based on the exchange rate on March 31, 2019) from us, based on allegations that we violated the Japanese Antimonopoly Act and the Japanese Civil Code. In particular, the fourth complaint alleges that (i) we hold a monopoly position in the market for baseband processor chipsets that implement certain cellular standards; (ii) we collect double royalties through our license agreements and the sale of baseband processor chipsets which exhaust certain of our patent rights; (iii) we refused to grant Apple a license on FRAND terms and forced Apple to execute a rebate agreement under unreasonable conditions; (iv) we refused to grant Apple a direct license; and (v) we demanded a license fee based on the market value of the total device. We have filed jurisdictional and other objections to this complaint.
On March 2, 2017, we learned that Apple and certain of its European subsidiaries issued a Claim Form against us in the UK High Court of Justice, Chancery Division, Patents Court on January 23, 2017. Apple subsequently filed an Amended Claim Form and Particulars of Claim. Both the Amended Claim Form and the Particulars of Claim allege several European competition law claims, including our refusal to license competing chipmakers, failure to offer Apple a direct license to our standard-essential patents on FRAND terms, demanding excessive royalties for our standard-essential patents, and demanding excessive license fees for the use of our standard-essential patents in connection with baseband processor chipsets purchased from us. Apple also seeks declarations that we are obliged to offer a direct patent license to Apple in respect of standard-essential patents actually practiced on FRAND terms and that using our baseband processor chipsets does not infringe any of our patents because we exhausted our patent rights. Finally, Apple seeks declarations that five of our European (UK) patents are invalid and not essential, and an order that each of those patents be revoked.
On April 18, 2017, Apple and one of its Taiwanese subsidiaries filed a complaint against us in the Taiwan Intellectual Property Court alleging that we have abused a dominant market position in licensing wireless standard-essential patents and selling baseband processor chipsets, including improper pricing, refusal to deal, exclusive dealing, tying, imposing unreasonable trade terms and discriminatory treatment. The complaint seeks rulings that we not use the sales price of the terminal device as the royalty base for standard-essential patents; not leverage our cellular standard-essential patents to obtain licenses of our non-standard-essential patents or demand cross-licenses without proper compensation; not refuse, reduce, delay or take any other action to limit the supply of our baseband processor chipsets to non-licensees; that we must license our standard-essential patents on FRAND terms; and that we shall not, based on standard-essential patents, seek injunctions. The complaint also seeks damages of 10 million Taiwan dollars (less than $1 million based on the exchange rate on March 31, 2019), among other relief.
On April 16, 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties (Note 12).
QUALCOMM Incorporated v. Apple Inc.: On July 6, 2017, we filed a complaint against Apple in the United States District Court for the Southern District of California asserting claims for damages and injunctive relief for infringement of six of our patents directed to a variety of features found in iPhone models. On July 7, 2017, we filed a complaint against Apple in the United States International Trade Commission (ITC) requesting that the ITC institute an investigation pursuant to Section 337 of the Tariff Act of 1930 based on Apple’s infringement of the same six patents. We sought a limited exclusion order and cease and desist order against importation of iPhone models that do not contain a Qualcomm brand baseband processor chipset. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. Apple filed an Answer and Counterclaims in the District Court case on September 26, 2017. On November 29, 2017, Apple filed a First Amended Answer and Counterclaims asserting that our Snapdragon processors infringe eight Apple patents. On August 8, 2017, the ITC issued a notice of institution of an investigation. On August 25, 2017, we withdrew allegations as to one patent in both the ITC investigation and the district court case. On April 25, 2018, we withdrew allegations as to two additional patents in the ITC investigation, but not the District Court case, in order to satisfy certain briefing limitations and to narrow the issues for hearing. The ITC investigation evidentiary hearing by the

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Administrative Law Judge (ALJ) was held June 18-26, 2018. The ALJ’s Initial Determination on the merits was issued on September 28, 2018. The ALJ found that we had established a violation of Section 337 by Apple due to the infringement of one of the three asserted patents. However, the ALJ recommended against an exclusion order on the grounds of public interest. On October 15, 2018, the parties each filed petitions for review of portions of the ALJ’s decision by the full ITC. On December 12, 2018, the ITC announced that it would review the ALJ’s determination of violation on one patent and requested public comments on the potential impact on the public interest if an exclusion order is issued. The ITC denied review of the ALJ’s findings of no violation as to the other two patents. On March 26, 2019, the ITC issued its final determination and found the remaining patent to be invalid. The ITC’s final determination did not take a position on the public interest considerations of any potential exclusion order. On March 2, 2018, the District Court granted our motion to sever, for separate trial, Apple’s counterclaims for patent infringement against us. On February 5, 2019, the District Court granted Apple’s motion for summary judgment of non-infringement as to one of our asserted patents. Trial on the remaining three of our asserted patents began on March 4, 2019 and has concluded. The jury returned a verdict in our favor on all three patents, awarding us over $31 million in damages. Post trial proceedings are ongoing, and as a result, we did not record a gain in the second quarter of fiscal 2019. In parallel, Apple has challenged the validity of four of our patents asserted in the first ITC action and corresponding District Court case via Inter Partes Review (IPR) petitions with the United States Patent and Trademark Office (USPTO) Patent Trial and Appeal Board (PTAB). The PTAB has instituted trials on three of those patents. With respect to Apple’s patent claims against us, trial is scheduled to begin on July 15, 2019. We challenged the validity of all of Apple’s asserted patents with the PTAB. Those petitions are pending.
On November 1, 2017, we filed a complaint against Apple in San Diego Superior Court for breach of the Master Software Agreement between the companies. The complaint recounts instances when Apple failed to protect our software as required by the agreement and failed to provide sufficient information to which we are entitled under the agreement in order to understand whether other breaches have occurred. The complaint seeks specific performance of Apple’s obligations to cooperate with an audit of its handling of our software, damages and injunctive relief. Apple filed its answer to the complaint on December 19, 2017. On September 24, 2018, we filed a motion seeking to amend our complaint to add causes of action for additional contract breaches and misappropriation of trade secrets. On October 26, 2018, the court granted our motion. We filed an amended complaint on October 31, 2018 and further amended the complaint on November 15, 2018. On December 17, 2018, Apple filed a demurrer objecting to the sufficiency of the second amended complaint. On February 8, 2019, the court denied Apple’s demurrer. Trial is scheduled to begin on February 7, 2020.
On November 29, 2017, we filed three additional complaints against Apple in the United States District Court for the Southern District of California alleging infringement of a total of 16 of our patents. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. The complaints seek damages and injunctive relief. On January 22, 2018, Apple filed answers and counterclaims in each of these cases seeking declaratory judgments that the asserted patents are invalid and/or not infringed. For the case relating to the November 30, 2017 ITC investigation described below, fact discovery closed on March 13, 2019, and trial is scheduled to begin on October 21, 2019. Apple has filed IPR petitions with the PTAB challenging the validity of four of our patents asserted in the November 30, 2017 ITC action and corresponding District Court action. The PTAB has granted the petition as to one of those patents. For the cases not related to the ITC investigation, Apple has challenged all of the asserted patents in IPR proceedings filed in the PTAB. No decisions have yet been issued by the PTAB. In total, Apple has filed 50 IPRs. The PTAB has initiated proceedings in 36 of the IPRs to date. As a result of the IPR proceedings, on August 29, 2018, the court stayed those two cases pending the outcome of the IPR proceedings.
On November 30, 2017, we filed a complaint in the ITC accusing certain Apple products of infringing five of our patents. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. We seek a limited exclusion order and cease and desist order against importation of iPhone models that do not contain a Qualcomm brand baseband processor chipset. On January 2, 2018, the ITC instituted an investigation. The evidentiary hearing by the Administrative Law Judge (ALJ) took place from September 17-24, 2018 and included three of our patents. On March 26, 2019, the ALJ’s Initial Determination was issued, found a violation as to one patent and recommended a limited exclusion order and cease and desist order against iPhones that do not contain a Qualcomm brand baseband processor chipset. The target date for final determination by the ITC is July 26, 2019.
On July 17, 2017, we filed complaints against Apple and certain of its subsidiaries in the Federal Republic of Germany, asserting infringement of one of our patents in the Mannheim District Court and infringement of another patent in the Munich District Court. On October 2, 2017, we filed claim extensions in these actions against Apple and certain of its subsidiaries, asserting infringement of two additional patents in the Mannheim District Court and infringement of five additional patents in the Munich District Court. On May 28, 2018, we filed additional claim extensions in these actions against Apple and certain

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of its subsidiaries, asserting infringement of three additional patents in the Mannheim District Court and infringement of one additional patent in the Munich District Court. The complaints seek remedies including, among other relief, declaratory relief confirming liability on the merits for damages and injunctive relief. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. Apple and/or its subsidiaries and, in some cases, also Intel have challenged the validity of the asserted patents in opposition proceedings before the European Patent Office or nullity actions before the Federal Patent Court. On October 11, 2018, the Munich District Court issued a judgment declaring one of the patents asserted on October 2, 2017 as not infringed. We have appealed that judgment. On December 20, 2018, the Munich District Court issued judgments declaring one of the patents asserted on July 17, 2017 as infringed and issued an injunction against the infringing Apple products, which would be effective following the posting of financial guarantees. On January 3, 2019, Qualcomm served the requisite financial guarantees to enforce the injunction in the amount of 1.3 billion Euro (approximately $1.5 billion based on the exchange rate at March 31, 2019). Apple and its subsidiaries appealed the judgments and requested a preliminary stay of enforcement pending the appeals. On April 9, 2019, the Munich Court of Appeals stayed the enforcement proceedings. On January 15, 2019, the Mannheim District Court issued a judgment declaring one of the patents asserted on October 2, 2017 as not infringed. On January 31, 2019, the Munich District Court issued judgments declaring two further patents (belonging to the same patent family) asserted on October 2, 2017 as not infringed. We have appealed all of these judgments. On February 25, 2019, the Mannheim District Court ordered a stay of infringement proceedings of another patent asserted on October 2, 2017, pending the decision of the Federal Patent Court on validity. On April 5, 2019, the Opposition Division of the European Patent Office revoked a patent that had been asserted on July 17, 2017 before the Mannheim District Court. We intend to appeal this decision. All other patents remain pending. Dates for the pronouncements of judgment and hearings are scheduled for various dates through September 2019.
On September 29, 2017, we filed three complaints against Apple and certain of its subsidiaries in the Beijing (China) Intellectual Property Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On May 10, 2018 and June 21, 2018, Apple filed invalidation requests with the Chinese Patent Review Board (PRB) for the three asserted patents. The PRB has issued orders upholding the validity of all three patents.
On November 13, 2017, we filed three complaints against certain of Apple’s subsidiaries in the Beijing (China) High People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief, damages and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On December 19, 2017, Apple’s subsidiaries filed invalidation requests with the PRB for the three asserted patents. PRB hearings regarding the validity of the patents were held in April and May 2018. The PRB issued rulings upholding the validity of all three patents. On May 22, 2018, Apple’s subsidiaries filed a second invalidation request with the PRB for one of the three asserted patents. The PRB held a hearing regarding this request on October 19, 2018. The PRB issued rulings on two of the second round invalidity petitions, upholding the validity of one patent based on amended claims and upholding the validity of the second patent again. The PRB has not ruled yet on Apple’s second invalidity challenge to the third patent. On November 30, 2018 and December 5, 2018, Apple appealed all three of the original validity rulings from the PRB to the Beijing IP Court.
On November 15, 2017, we filed three complaints against certain of Apple’s subsidiaries in the Fuzhou (China) Intermediate People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. Apple’s subsidiaries filed invalidation requests with the PRB on December 8, 2017 for one of the patents and December 11, 2017 for the other two patents. PRB hearings regarding the validity of the patents were held in April and May 2018. The PRB issued orders upholding the validity of two of the patents subject to Apple’s invalidity challenges. The PRB ruled that the third patent was invalid. We subsequently withdrew the infringement action in Fuzhou with respect to the third patent. We have appealed the adverse PRB ruling to the Beijing IP Court. Infringement hearings were held from August through October 30, 2018. On November 30, 2018, the court granted our motions for preliminary injunctions with respect to two of the patents and enjoined Apple’s subsidiaries from importing, selling and offering to sell the iPhone 6S through X.
On January 12, 2018, we filed three additional complaints against Apple and certain of its subsidiaries in the Fuzhou (China) Intermediate People’s Court, asserting infringement of three additional patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms.

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Also, on January 12, 2018, we filed three complaints against certain of Apple’s subsidiaries in the Jiangsu (China) High People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief, damages and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On February 5, 2018, Apple’s subsidiaries filed invalidation requests with the PRB. PRB hearings regarding the validity of the patents were held in June 2018. The PRB issued orders upholding the validity of two of the patents and an order partially upholding the validity of another patent.
On February 2, 2018, we filed three complaints against certain of Apple’s subsidiaries in the Qingdao (China) Intermediate People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On February 26, 2018, Apple’s subsidiaries filed invalidation requests with the PRB. PRB hearings regarding the validity of the patents were held in June 2018. The PRB issued orders upholding the validity of two of the patents and invalidating the third patent. We subsequently withdrew the infringement action in Qingdao with respect to the third patent. We filed an appeal of the adverse PRB ruling, and Apple filed an appeal of the other two.
Also, on February 2, 2018, we filed three complaints against certain of Apple’s subsidiaries in the Guangzhou (China) Intermediate People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On March 14, 2018, Apple’s subsidiaries filed invalidation requests with the PRB. PRB hearings regarding the validity of the patents began in July 2018. The PRB issued orders upholding the validity of two of the patents and an order invalidating the third patent. Infringement hearings for all three of the patents were held in October through December 2018. We filed a motion withdrawing the infringement action pertaining to the patent that was invalidated. We have appealed the adverse PRB decision, and Apple has appealed the other two.
On June 14, 2018, we filed three complaints against certain of Apple’s subsidiaries in the Guangdong (China) High People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On August 13, 2018, Apple’s subsidiaries filed invalidation requests with the PRB. The PRB has held hearings regarding all three of the patents. The PRB issued an order invalidating one of the patents and has not ruled yet regarding Apple’s invalidity challenges of the other two patents.
On April 16, 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties (Note 12).
3226701 Canada, Inc. v. QUALCOMM Incorporated et al: On November 30, 2015, a securities class action complaint was filed by purported stockholders of us in the United States District Court for the Southern District of California against us and certain of our current and former officers. On April 29, 2016, the plaintiffs filed an amended complaint. On January 27, 2017, the court dismissed the amended complaint in its entirety, granting leave to amend. On March 17, 2017, the plaintiffs filed a second amended complaint, alleging that we and certain of our current and former officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, by making false and misleading statements regarding our business outlook and product development between November 19, 2014 and July 22, 2015. The second amended complaint sought unspecified damages, interest, attorneys’ fees and other costs. On May 8, 2017, we filed a motion to dismiss the second amended complaint. On October 20, 2017, the court entered an order granting in part our motion to dismiss, and on November 29, 2017, the court entered an order granting the remaining portions of our motion to dismiss. On December 28, 2017, the plaintiffs filed an appeal to the United States Court of Appeals for the Ninth Circuit. A hearing has been scheduled for July 11, 2019. We believe the plaintiffs’ claims are without merit.
Consolidated Securities Class Action Lawsuit: On January 23, 2017 and January 26, 2017, securities class action complaints were filed by purported stockholders of us in the United States District Court for the Southern District of California against us and certain of our current and former officers and directors. The complaints alleged, among other things, that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, by making false and misleading statements and omissions of material fact in connection with certain allegations that we are or were engaged in anticompetitive conduct. The complaints sought unspecified damages, interest, fees and costs. On May 4, 2017, the court consolidated the two actions and appointed lead plaintiffs. On July 3, 2017, the lead plaintiffs filed a consolidated amended complaint asserting the same basic theories of liability and requesting the same basic relief. On September 1, 2017, we filed a motion to dismiss the consolidated amended complaint. On March 18, 2019, the court denied our motion to dismiss the complaint. Discovery will commence in the coming months. We believe the plaintiffs’ claims are without merit.

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In re Qualcomm/Broadcom Merger Securities Litigation (formerly Camp v. Qualcomm Incorporated et al): On June 8, 2018 and June 26, 2018, securities class action complaints were filed by purported stockholders of us in the United States District Court for the Southern District of California against us and two of our current officers. The complaints allege, among other things, that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, by failing to disclose that we had submitted a notice to the Committee on Foreign Investment in the United States (CFIUS) in January 2018. The complaints seek unspecified damages, interest, fees and costs. On January 22, 2019, the Court appointed the lead plaintiff in the action and designated that the case be captioned “In re Qualcomm/Broadcom Merger Securities Litigation.” On March 18, 2019, the plaintiffs filed a consolidated complaint. We believe the plaintiffs’ claims are without merit.
Consumer Class Action Lawsuit: Since January 18, 2017, a number of consumer class action complaints have been filed against us in the United States District Courts for the Southern and Northern Districts of California, each on behalf of a putative class of purchasers of cellular phones and other cellular devices. Twenty-two such cases remain outstanding. In April 2017, the Judicial Panel on Multidistrict Litigation transferred the cases that had been filed in the Southern District of California to the Northern District of California. On May 15, 2017, the court entered an order appointing the plaintiffs’ co-lead counsel. On July 11, 2017, the plaintiffs filed a consolidated amended complaint alleging that we violated California and federal antitrust and unfair competition laws by, among other things, refusing to license standard-essential patents to our competitors, conditioning the supply of certain of our baseband chipsets on the purchaser first agreeing to license our entire patent portfolio, entering into exclusive deals with companies, including Apple Inc., and charging unreasonably high royalties that do not comply with our commitments to standard setting organizations. The complaint seeks unspecified damages and disgorgement and/or restitution, as well as an order that we be enjoined from further unlawful conduct. On August 11, 2017, we filed a motion to dismiss the consolidated amended complaint. On November 10, 2017, the court denied our motion, except to the extent that certain claims seek damages under the Sherman Antitrust Act. On July 5, 2018, the plaintiffs filed a motion for class certification, and the court granted that motion on September 27, 2018. On January 23, 2019, the Ninth Circuit Court of Appeals granted us permission to appeal the court’s class certification order. On January 24, 2019, the court stayed the case pending our appeal. We believe the plaintiffs’ claims are without merit. 
Canadian Consumer Class Action Lawsuits: Since November 9, 2017, eight consumer class action complaints have been filed against us in Canada (in the Ontario Superior Court of Justice, the Supreme Court of British Columbia, and the Quebec Superior Court), each on behalf of a putative class of purchasers of cellular phones and other cellular devices, alleging various violations of Canadian competition and consumer protection laws. The claims are similar to those in the FTC and U.S. consumer class action complaints. The complaints seek unspecified damages. One of the complaints in the Supreme Court of British Columbia has since been discontinued by the plaintiffs. We have not yet answered the complaints. On April 15, 2019, the Quebec Superior Court held a class certification hearing, and on April 30, 2019, the court issued an order certifying a class. We believe the plaintiffs’ claims are without merit.
Japan Fair Trade Commission (JFTC) Complaint: The JFTC received unspecified complaints alleging that our business practices are, in some way, a violation of Japanese law. On September 29, 2009, the JFTC issued a cease and desist order concluding that our Japanese licensees were forced to cross-license patents to us on a royalty-free basis and were forced to accept a provision under which they agreed not to assert their essential patents against our other licensees who made a similar commitment in their license agreements with us. The cease and desist order seeks to require us to modify our existing license agreements with Japanese companies to eliminate these provisions while preserving the license of our patents to those companies. We disagree with the conclusions that we forced our Japanese licensees to agree to any provision in the parties’ agreements and that those provisions violate the Japanese Antimonopoly Act. We invoked our right under Japanese law to an administrative hearing before the JFTC. In February 2010, the Tokyo High Court granted our motion and issued a stay of the cease and desist order pending the administrative hearing before the JFTC. The JFTC held hearings on 37 different dates. On March 13, 2019, the JFTC issued a decision revoking the cease and desist order against us in its entirety.
Korea Fair Trade Commission (KFTC) Complaint: On January 4, 2010, the KFTC issued a written decision finding that we violated Korean law by offering certain discounts and rebates for purchases of our CDMA chipsets and for including in certain agreements language requiring the continued payment of royalties after all licensed patents expired. The KFTC levied a fine of 273.2 billion Korean won (approximately $230 million), which we recorded as an expense in fiscal 2009 and paid in fiscal 2010. We appealed to the Seoul High Court, and on June 19, 2013, the Seoul High Court affirmed the KFTC’s decision. On July 4, 2013, we filed an appeal with the Korea Supreme Court. On January 31, 2019, the Korea Supreme Court reversed in part the decision of the Seoul High Court and remanded the case for further proceedings consistent with its decision. In March 2019, the KFTC refunded $56 million (including interest) to us, representing a portion of the fine we previously paid to the KFTC. In the second quarter of fiscal 2019, we recorded a gain of $43 million in other income and interest income of

25

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

$13 million in investment and other income, net. In light of the Korea Supreme Court’s reversal in part of the decision of the Seoul High Court and the refund received from the KFTC, we expect to withdraw the case from the Seoul High Court.
Korea Fair Trade Commission (KFTC) Investigation: On March 17, 2015, the KFTC notified us that it was conducting an investigation of us relating to the Korean Monopoly Regulation and Fair Trade Act (MRFTA). On December 27, 2016, the KFTC announced that it had reached a decision in the investigation, finding that we violated provisions of the MRFTA. On January 22, 2017, we received the KFTC’s formal written decision, which found that the following conducts violate the MRFTA: (i) refusing to license, or imposing restrictions on licenses for, cellular communications standard-essential patents with competing modem chipset makers; (ii) conditioning the supply of modem chipsets to handset suppliers on their execution and performance of license agreements with us; and (iii) coercing agreement terms including portfolio license terms, royalty terms and free cross-grant terms in executing patent license agreements with handset makers. The KFTC’s decision orders us to: (i) upon request by modem chipset companies, engage in good-faith negotiations for patent license agreements, without offering unjustifiable conditions, and if necessary submit to a determination of terms by an independent third party; (ii) not demand that handset companies execute and perform under patent license agreements as a precondition for purchasing modem chipsets; (iii) not demand unjustifiable conditions in our license agreements with handset companies, and upon request renegotiate existing patent license agreements; and (iv) notify modem chipset companies and handset companies of the decision and order imposed on us and report to the KFTC new or amended agreements. According to the KFTC’s decision, the foregoing will apply to transactions between us and the following enterprises: (i) handset manufacturers headquartered in Korea and their affiliate companies; (ii) enterprises that sell handsets in or to Korea and their affiliate companies; (iii) enterprises that supply handsets to companies referred to in (ii) above and the affiliate companies of such enterprises; (iv) modem chipset manufacturers headquartered in Korea and their affiliate companies; and (v) enterprises that supply modem chipsets to companies referred to in (i), (ii) or (iii) above and the affiliate companies of such enterprises. The KFTC’s decision also imposed a fine of 1.03 trillion Korean Won (approximately $927 million), which we paid on March 30, 2017. We believe that our business practices do not violate the MRFTA, and on February 21, 2017, we filed an action in the Seoul High Court to cancel the KFTC’s decision. On the same day, we filed an application with the Seoul High Court to stay the decision’s remedial order pending the Seoul High Court’s final judgment on our action to cancel the KFTC’s decision. On September 4, 2017, the Seoul High Court denied our application to stay the remedial order, and on November 27, 2017, the Korea Supreme Court dismissed our appeal of the Seoul High Court’s decision on the application to stay. The Seoul High Court has not ruled on our action to cancel the KFTC’s decision.
Icera Complaint to the European Commission (EC): On June 7, 2010, the EC notified and provided us with a redacted copy of a complaint filed with the EC by Icera, Inc. (subsequently acquired by Nvidia Corporation) alleging that we were engaged in anticompetitive activity. On July 16, 2015, the EC announced that it had initiated formal proceedings in this matter. On December 8, 2015, the EC announced that it had issued a Statement of Objections expressing its preliminary view that between 2009 and 2011, we were engaged in predatory pricing by selling certain baseband chipsets to two customers at prices below cost, with the intention of hindering competition. A Statement of Objections informs the subject of the investigation of the allegations against it and provides an opportunity to respond to such allegations. It is not a determination of the final outcome of the investigation. On August 15, 2016, we submitted our response to the Statement of Objections. On July 19, 2018, the EC announced that it had issued a Supplementary Statement of Objections which focuses on certain elements of the “price-cost” test applied by the EC to assess the extent to which we sold certain baseband chipsets allegedly below cost. On October 22, 2018, we submitted our response to the Supplementary Statement of Objections. On January 10, 2019, the EC held a hearing regarding the Supplementary Statement of Objections and our response to it. If a violation is found, a broad range of remedies is potentially available to the EC, including imposing a fine (of up to 10% of our annual revenues) and/or injunctive relief prohibiting or restricting certain business practices. It is difficult to predict the outcome of this matter or what remedies, if any, may be imposed by the EC. We believe that our business practices do not violate the European Union (EU) competition rules.
European Commission (EC) Investigation: On October 15, 2014, the EC notified us that it was conducting an investigation of us relating to Articles 101 and/or 102 of the Treaty on the Functioning of the European Union (TFEU). On July 16, 2015, the EC announced that it had initiated formal proceedings in this matter. On December 8, 2015, the EC announced that it had issued a Statement of Objections expressing its preliminary view that, pursuant to an agreement with Apple Inc., since 2011, we paid significant amounts to Apple on the condition that it exclusively use our baseband chipsets in its smartphones and tablets. This conduct allegedly reduced Apple’s incentives to source baseband chipsets from our competitors and harmed competition and innovation for certain baseband chipsets. On January 24, 2018, the EC issued a decision finding that certain terms of that agreement violate EU competition law and imposed a fine of 997 million Euros. On

26

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

April 6, 2018, we filed an appeal of the EC’s decision with the General Court of the European Union. The court has not yet ruled on our appeal. We believe that our business practices do not violate the EU competition rules.
We recorded a charge of $1.2 billion to other expenses related to the EC fine in the first quarter of fiscal 2018. We provided financial guarantees in the third quarter of fiscal 2018 to satisfy the obligation in lieu of cash payment while we appeal the EC’s decision. The fine is accruing interest at a rate of 1.50% per annum while it is outstanding. As of October 1, 2018, we have designated the liability as a hedge of our net investment in certain foreign subsidiaries, with gains and losses recorded in accumulated other comprehensive income as a component of the foreign currency translation adjustment. At March 31, 2019, the liability, including related foreign currency gains and accrued interest (which, to the extent they were not related to the net investment hedge, were recorded in investment and other income, net), was $1.14 billion and included in other current liabilities.
United States Federal Trade Commission (FTC) v. QUALCOMM Incorporated: On September 17, 2014, the FTC notified us that it was conducting an investigation of us relating to Section 5 of the Federal Trade Commission Act (FTCA). On January 17, 2017, the FTC filed a complaint against us in the United States District Court for the Northern District of California alleging that we were engaged in anticompetitive conduct and unfair methods of competition in violation of Section 5 of the FTCA by conditioning the supply of cellular modem chipsets on the purchaser first agreeing to a license to our cellular standard-essential patents, paying incentives to purchasers of cellular modem chipsets to induce them to accept certain license terms, refusing to license our cellular standard-essential patents to our competitors, and entering into alleged exclusive dealing arrangements with Apple Inc. The complaint seeks a permanent injunction against our alleged violations of the FTCA and other unspecified ancillary equitable relief. A fine is not an available remedy in this matter, and the FTC has not sought monetary remedies. On August 30, 2018, the FTC moved for partial summary judgment that our commitments to license our cellular standard-essential patents to the Alliance for Telecommunications Industry Solutions (ATIS) and the Telecommunications Industry Association (TIA) require us to make licenses available to rival sellers of cellular modem chipsets. On November 6, 2018, the District Court granted the FTC’s partial summary judgment motion. On November 29, 2018, we and the FTC filed a Joint Pretrial Statement in which the FTC indicated that at trial it would seek a declaration and adjudication that our conduct violates the FTCA and seek permanent injunctive and other equitable relief, including an order that would at least (i) require us to: negotiate or renegotiate license terms with licensees in good faith under conditions free from the threat of lack of access to or discriminatory provision of cellular modem chipset supply or associated technical, software or other support; submit to arbitral or judicial dispute resolution to determine reasonable royalties and other license terms should a licensee choose to pursue such a resolution; make exhaustive standard-essential patent licenses available to cellular modem chipset suppliers on FRAND terms and submit to arbitral or judicial dispute resolution to determine such terms; and adhere to certain compliance and monitoring procedures; and (ii) prohibit us from: conditioning the supply of cellular modem chipsets on a customer’s patent-license status; discriminating or retaliating against cellular modem chipset customers or cellular modem chipset suppliers because of a customer’s license status or a dispute over license terms; making payments or providing other value to a customer contingent on the customer’s agreement to license terms; entering into exclusive-dealing agreements for the supply of cellular modem chipsets; or interfering with the ability of customers to communicate with a government agency about a potential law enforcement or regulatory matter. Trial was held January 4-29, 2019. The FTC alleged at trial that we have monopoly power in the markets for both CDMA and premium-tier LTE cellular modem chipsets and have acted anticompetitively in violation of either Section 1 or Section 2 of the Sherman Act, or Section 5 of the FTCA to maintain our monopoly power in one or both of these alleged markets by employing four business practices. These practices include (i) our longstanding practice of requiring a license to our cellular standard-essential patents for a particular cellular standard before selling cellular modem chipsets that are used in cellular devices that implement such cellular standards; (ii) providing incentive payments to certain licensees in order to induce them to agree to our preferred license terms; (iii) not exhaustively licensing our cellular standard-essential patents to companies that make, use or sell cellular modem chipsets; and (iv) entering into a now-expired contract that conditioned certain payments to Apple on its not launching a new device that used a non-Qualcomm brand cellular modem chipset. In asserting that we have acted anticompetitively, the FTC asserts that our historical royalty rates are too high to be reasonable, and that amounts over a reasonable rate act as a surcharge on cellular modem chipset transactions taking place between OEMs and our competitors, and this surcharge weakens our competitors by raising the price OEMs must pay for such competitors’ cellular modem chipsets. We believe the FTC’s claims and request for injunctive relief are without merit.
Contingent losses and other considerations: We will continue to vigorously defend ourself in the foregoing matters. However, litigation and investigations are inherently uncertain, and we face difficulties in evaluating or estimating likely outcomes or ranges of possible loss in antitrust and trade regulation investigations in particular. Other than with respect to the EC fine, we have not recorded any accrual at March 31, 2019 for contingent losses associated with these matters based on our

27

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

belief that losses, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time. The unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations, financial condition or cash flows. For example, if some or all of our license agreements are declared invalid or unenforceable and we are required to renegotiate these license agreements, or if as part of a settlement we agree to renegotiate certain of our license agreements, we may not receive, or may not be able to recognize, any licensing or royalty revenues on the impacted license agreements unless and until we enter into new license agreements. We are engaged in numerous other legal actions not described above arising in the ordinary course of our business and, while there can be no assurance, believe that the ultimate outcome of these other legal actions will not have a material adverse effect on our business, results of operations, financial condition or cash flows.
Indemnifications. We generally do not indemnify our customers and licensees for losses sustained from infringement of third-party intellectual property rights. However, we are contingently liable under certain product sales, services, license and other agreements to indemnify certain customers, chipset foundries and semiconductor assembly and test service providers against certain types of liability and/or damages arising from qualifying claims of patent, copyright, trademark or trade secret infringement by products or services sold or provided by us, or by intellectual property provided by us to chipset foundries and semiconductor assembly and test service providers. Our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments made by us.
Through March 31, 2019, we have received a number of claims from our direct and indirect customers and other third parties for indemnification under such agreements with respect to alleged infringement of third-party intellectual property rights by our products. Reimbursements under indemnification arrangements have not been material to our consolidated financial statements. We have not recorded any accrual for contingent liabilities at March 31, 2019 associated with these indemnification arrangements based on our belief that additional liabilities, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time.
Purchase Obligations and Operating Leases. We have agreements with suppliers and other parties to purchase inventory, other goods and services and long-lived assets. Integrated circuit product inventory obligations represent purchase commitments for raw materials, semiconductor die, finished goods and manufacturing services, such as wafer bump, probe, assembly and final test. Under our manufacturing relationships with our foundry suppliers and assembly and test service providers, cancelation of outstanding purchase commitments is generally allowed but requires payment of costs incurred through the date of cancelation, and in some cases, incremental fees related to capacity underutilization. We lease certain of our land, facilities and equipment under noncancelable operating leases, with terms ranging from less than one year to 15 years and with provisions in certain leases for cost-of-living increases.
Obligations under our purchase agreements, which primarily relate to integrated circuit product inventory obligations, and future minimum lease payments under our operating leases at March 31, 2019 were as follows (in millions):
 
Purchase Obligations
 
Operating Leases
Remainder of fiscal 2019
$
2,948

 
$
74

2020
637

 
112

2021
326

 
84

2022
92

 
54

2023
52

 
25

Thereafter
17

 
38

Total
$
4,072

 
$
387

Other Commitments. At March 31, 2019, we committed to fund certain strategic investments up to $226 million, of which $32 million is expected to be funded in fiscal 2020. The remaining commitments do not have fixed funding dates and are subject to certain conditions. Commitments represent the maximum amounts to be funded under these arrangements; actual funding may be in lesser amounts or not at all.
In March 2018, our RF360 Holdings joint venture entered into an agreement for a build-to-suit construction project with a third-party lessor for the development of a manufacturing facility located in Singapore. The agreement includes a long-term

28

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

lease commitment with a noncancelable 10-year term commencing upon completion of the construction project. At March 31, 2019, the minimum lease commitment under the agreement based on the noncancelable term was $88 million.
Note 7. Segment Information
We are organized on the basis of products and services and have three reportable segments. We conduct business primarily through our QCT (Qualcomm CDMA Technologies) semiconductor business and our QTL (Qualcomm Technology Licensing) licensing business. QCT develops and supplies integrated circuits and system software based on CDMA, OFDMA and other technologies for use in mobile devices, wireless networks, devices used in the Internet of Things (IoT), broadband gateway equipment, consumer electronic devices and automotive telematics and infotainment systems. QTL grants licenses to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments and includes revenues and related costs associated with development contracts with an equity method investee. We also have nonreportable segments, including Qualcomm Government Technologies or QGOV (formerly Qualcomm Cyber Security Solutions) and other wireless technology and service initiatives.
We evaluate the performance of our segments based on earnings (loss) before income taxes (EBT). In fiscal 2018, all of the costs related to pre-commercial research and development of 5G technologies, of which we recorded $115 million and $216 million in the second quarter and first six months of fiscal 2018, respectively, were included in unallocated corporate research and development expenses. Beginning in the first quarter of fiscal 2019, all research and development costs associated with 5G technologies are included in segment results. Additionally, beginning in the first quarter of fiscal 2019, certain research and development costs associated with early research and development that were historically included in our QCT segment are allocated to our QTL segment. The net effect of these changes negatively impacted QTL’s EBT by $119 million and $241 million in the second quarter and first six months of fiscal 2019, respectively. QCT's EBT was positively impacted by $32 million and $44 million in the second quarter and first six months of fiscal 2019, respectively.
During the first quarter of fiscal 2019, we combined our Small Cells business, which sells products designed for the implementation of small cells to address the challenge of meeting the increased demand for mobile data, into our QCT segment. Revenues and operating results related to the Small Cells business were included in nonreportable segments through the end of fiscal 2018. Prior period segment information has not been adjusted to conform to the new segment presentation as such adjustments are insignificant.
The table below presents revenues, EBT and total assets for reportable segments (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 31,
2019
 
March 25,
2018
 
March 31,
2019
 
March 25,
2018
Revenues
 
 
 
 
 
 
 
QCT
$
3,722

 
$
3,897

 
$
7,461

 
$
8,548

QTL
1,122

 
1,219

 
2,141

 
2,485

QSI
98

 
30

 
125

 
60

Reconciling items
40

 
74

 
97

 
162

Total
$
4,982

 
$
5,220

 
$
9,824

 
$
11,255

EBT
 
 
 
 
 
 
 
QCT
$
542

 
$
608

 
$
1,140

 
$
1,563

QTL
674

 
809

 
1,264

 
1,664

QSI
17

 
40

 
25

 
51

Reconciling items
(427
)
 
(1,140
)
 
(1,063
)
 
(3,020
)
Total
$
806

 
$
317

 
$
1,366

 
$
258

 
 
 
 
 
 
 
 

29

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
March 31,
2019
 
September 30,
2018
Assets
 
 
 
QCT
$
2,948

 
$
3,041

QTL
2,405

 
1,472

QSI
1,393

 
1,279

Reconciling items
27,277

 
26,926

Total
$
34,023

 
$
32,718

Reconciling items for revenues and EBT in the previous table were as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 31,
2019
 
March 25,
2018
 
March 31,
2019
 
March 25,
2018
Revenues
 
 
 
 
 
 
 
Nonreportable segments
$
40

 
$
74

 
$
97

 
$
162

 
$
40

 
$
74

 
$
97

 
$
162

EBT
 
 
 
 
 
 
 
Unallocated cost of revenues
$
(104
)
 
$
(111
)
 
$
(218
)
 
$
(228
)
Unallocated research and development expenses
(190
)
 
(271
)
 
(337
)
 
(551
)
Unallocated selling, general and administrative expenses
(84
)
 
(258
)
 
(148
)
 
(420
)
Unallocated other income (expenses) (Note 2)
18

 
(310
)
 
(130
)
 
(1,493
)
Unallocated interest expense
(159
)
 
(179
)
 
(313
)
 
(348
)
Unallocated investment and other income, net
109

 
82

 
130

 
206

Nonreportable segments
(17
)
 
(93
)
 
(47
)
 
(186
)
 
$
(427
)
 
$
(1,140
)
 
$
(1,063
)
 
$
(3,020
)
Unallocated acquisition-related expenses were comprised as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 31,
2019
 
March 25,
2018
 
March 31,
2019
 
March 25,
2018
Cost of revenues
$
99

 
$
102

 
$
202

 
$
208

Research and development expenses
1

 
2

 
2

 
3

Selling, general and administrative expenses
7

 
214

 
14

 
290

Note 8. Cost Plan
In the second quarter of fiscal 2018, we announced a Cost Plan designed to align our cost structure to our long-term margin targets. As part of this plan, we initiated a series of targeted actions across our businesses with the objective to reduce annual costs by $1 billion, excluding incremental costs resulting from any future acquisition of a business. Actions taken under this plan have been completed and have resulted in us achieving substantially all of this target in fiscal 2019 based on our run rate exiting the second quarter of fiscal 2019, excluding litigation costs that are in excess of the baseline spend.
During the six months ended March 31, 2019, we recorded net restructuring and restructuring-related charges related to our Cost Plan of $204 million in other expenses. This consisted of restructuring-related charges of $156 million, primarily related to asset impairment charges (and included a $45 million net gain from the sale of certain assets related to wireless electric vehicle charging applications and the sale of our mobile health nonreportable segment), and restructuring charges of $48 million, primarily related to severance and consulting costs. Since inception of the Cost Plan, we have incurred a total of $892 million in net restructuring and restructuring-related charges. The remaining restructuring and restructuring-related charges to be incurred related to the plan are expected to be negligible.

30

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The restructuring accrual, a portion of which was included in payroll and other benefits related liabilities with the remainder included in other current liabilities, is expected to be substantially paid within the next 12 months. At March 31, 2019 and September 30, 2018, the restructuring accrual was $25 million and $83 million, respectively.
Note 9. Fair Value Measurements
The following table presents our fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at March 31, 2019 (in millions):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
4,830

 
$
3,560

 
$
—

 
$
8,390

Marketable securities:
 
 
 
 
 
 
 
Corporate bonds and notes
—

 
51

 
—

 
51

Auction rate securities
—

 
—

 
35

 
35

Equity securities
145

 
—

 
—

 
145

Total marketable securities
145

 
51

 
35

 
231

Derivative instruments
—

 
12

 
—

 
12

Other investments
398

 
—

 
63

 
461

Total assets measured at fair value
$
5,373

 
$
3,623

 
$
98

 
$
9,094

Liabilities
 
 
 
 
 
 
 
Derivative instruments
$
—

 
$
20

 
$
—

 
$
20

Other liabilities
399

 
—

 
76

 
475

Total liabilities measured at fair value
$
399

 
$
20

 
$
76

 
$
495

Activity between Levels of the Fair Value Hierarchy. There were no transfers of marketable securities into or out of Level 3 during the six months ended March 31, 2019 and March 25, 2018. Other investments and other liabilities included in Level 3 at March 31, 2019 were comprised of debt instruments issued by private companies and contingent consideration related to business combinations, respectively. There were no transfers of debt instruments or contingent consideration amounts into or out of Level 3 during the six months ended March 31, 2019 and March 25, 2018.
Assets Measured and Recorded at Fair Value on a Nonrecurring Basis. During the six months ended March 31, 2019, certain intangible assets and goodwill were written down to their estimated fair values (Note 8). We also measured certain non-marketable equity securities received as non-cash consideration at fair value on a nonrecurring basis (Note 2). The estimation of fair value required the use of significant unobservable inputs, and as a result, the fair value measurements were classified as Level 3. During the six months ended March 31, 2019 and March 25, 2018, we did not have any other significant assets or liabilities that were measured at fair value on a nonrecurring basis.
Note 10. Marketable Securities
Our marketable securities were comprised as follows (in millions):
 
Current
 
Noncurrent (1)
 
March 31,
2019
 
September 30,
2018
 
March 31,
2019
 
September 30,
2018
Available-for-sale debt securities:
 
 
 
 
 
 
 
Corporate bonds and notes
$
51

 
$
144

 
$
—

 
$
—

Auction rate securities
—

 
—

 
35

 
35

Total available-for-sale debt securities
51

 
144

 
35

 
35

Equity securities
144

 
167

 
1

 
—

Total marketable securities
$
195

 
$
311

 
$
36

 
$
35

(1) Noncurrent marketable securities were included in other assets.

31

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The contractual maturities of available-for-sale debt securities were as follows (in millions):
 
March 31,
2019
Years to Maturity
 
Less than one year
$
51

No single maturity date
35

Total
$
86

Debt securities with no single maturity date included auction rate securities.
During the three and six months ended March 31, 2019, there were no realized gains or losses on sales of available-for-sale debt securities, and during the three and six months ended March 25, 2018, gross realized gains were $11 million. As of March 31, 2019 and September 30, 2018, unrealized gains and losses on available for sale debt securities were negligible. As of September 30, 2018, available-for-sale securities also included equity securities with a fair value of $167 million, including an unrealized gain of $63 million.
Note 11. Revision of Prior Period Financial Statements
We revised certain prior period financial statements for an immaterial error related to the recognition of certain royalty revenues of our QTL segment (Note 1). A summary of revisions to our previously reported financial statements presented herein for comparative purposes is included below (in millions, except per share data).
Revised Consolidated Balance Sheet.
 
As of September 30, 2018
 
As reported
 
Adjustment
 
As revised
Deferred tax assets (non-current)
$
904

 
$
32

 
$
936

Total assets
32,686

 
32

 
32,718

Other current liabilities
6,825

 
153

 
6,978

Total current liabilities
11,236

 
153

 
11,389

Total liabilities
31,758

 
153

 
31,911

Retained earnings
663

 
(121
)
 
542

Total stockholders’ equity
928

 
(121
)
 
807

Total liabilities and stockholders’ equity
32,686

 
32

 
32,718

Revised Consolidated Statements of Operations.
 
Three Months Ended March 25, 2018
 
Six Months Ended March 25, 2018
 
As reported
 
Adjustment
 
As revised
 
As reported
 
Adjustment
 
As revised
Licensing revenues
$
1,325

 
$
(41
)
 
$
1,284

 
$
2,690

 
$
(74
)
 
$
2,616

Total revenues
5,261

 
(41
)
 
5,220

 
11,329

 
(74
)
 
11,255

Operating income
441

 
(41
)
 
400

 
471

 
(74
)
 
397

Income before income taxes
358

 
(41
)
 
317

 
332

 
(74
)
 
258

Income tax benefit (expense)
5