DEF 14A 1 a54709def14a.htm DEF 14A def14a
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO.    )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [   ]

Check the appropriate box:

[   ] Preliminary Proxy Statement
[   ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X ] Definitive Proxy Statement
[   ] Definitive Additional Materials
[   ] Soliciting Material Pursuant to Section 240.14a-12

QUALCOMM INCORPORATED

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.
[   ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1) Title of each class of securities to which transaction applies:
     
   
(2) Aggregate number of securities to which transaction applies:
     
   
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
     
   
(4) Proposed maximum aggregate value of transaction:
     
   
(5) Total fee paid:
     
   
[   ] Fee paid previously with preliminary materials.
 
[   ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1)  Amount Previously Paid:
     
   
(2) Form, Schedule or Registration Statement No.:
     
   
(3) Filing Party:
     
   
(4)  Date Filed:
     
   


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(QUALCOMM LOGO)
 
January 13, 2010
 
Dear Fellow Stockholder:
 
You are cordially invited to attend Qualcomm’s Annual Meeting on Tuesday, March 2, 2010. The meeting will begin promptly at 9:30 a.m. Pacific Time at the Irwin M. Jacobs Qualcomm Hall, 5775 Morehouse Drive, San Diego, California 92121. I invite you to arrive early at 8:30 a.m. to preview our product displays. We will begin the Annual Meeting with a discussion and vote on the matters set forth in the Notice of Annual Meeting of Stockholders, followed by presentations and a report on Qualcomm’s fiscal 2009 performance. In addition to the election of our directors (Proposal 1) and ratification of our selection of independent public accountants (Proposal 3), there is one other substantive proposal on the agenda that I would like to highlight.
 
Proposal 2 amends our 2006 Long-Term Incentive Plan. We continue to believe that offering a broad-based equity compensation program is critical to attracting and retaining the most talented employees in our industry. Employees with a stake in the future success of our business are highly motivated to achieve long-term growth and increase stockholder value. One of the purposes of Proposal 2 is to provide us with a sufficient share reserve for the next year. These additional shares will allow us to continue to provide new hires, as well as our existing employees, with opportunities for equity ownership in a dynamic and highly competitive employment market. Equity compensation has always been a significant component of our long-term employee compensation program because we do not offer a defined benefit pension plan, and we do not include Company stock in our 401(k) plan. Over 99% of our regular, full-time employees currently have stock options.
 
We take great pride in our accomplishments and believe that our broad-based equity compensation program has contributed significantly to this success. Based on the 4-week moving average at December 15, 2009, the Company’s stock price has increased at a compound annual growth rate of 27.73% compared to 6.03% for the S&P 500 Index since the Company became publicly-traded in December 1991. In each of the past 11 years, Qualcomm has been honored as one of the “100 Best Companies to Work for in America” by Fortune Magazine. The annual retention rate of our employees is higher than other high-technology industry companies, according to Radford, a leading human resources compensation survey company in the high-tech industry.
 
This year, we are again furnishing the proxy materials to stockholders primarily over the Internet. Therefore, most stockholders will not receive paper copies of our proxy materials. We will instead send these stockholders a notice with instructions for accessing the proxy materials and voting via the Internet. The notice also provides information on how stockholders may obtain paper copies of our proxy materials if they so choose. This method expedites the receipt of your proxy materials, lowers the costs of our Annual Meeting and helps to conserve natural resources.
 
Whether or not you plan to attend the Annual Meeting, please vote as soon as possible. As an alternative to voting in person at the Annual Meeting, you may vote via the Internet, by telephone or, if you receive a paper proxy card in the mail, by mailing the completed proxy card. Voting by any of these methods will ensure your representation at the Annual Meeting.
 
Your vote is very important to us. I urge you to vote “FOR” all proposals.
 
I look forward to seeing you in San Diego at the Irwin M. Jacobs Qualcomm Hall on March 2, 2010.
 
Sincerely,
 
-s- Paul E. Jacobs
Paul E. Jacobs
Chairman and Chief Executive Officer


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(QUALCOMM LOGO)
5775 Morehouse Drive
San Diego, California 92121-1714
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On March 2, 2010
 
To the Stockholders of QUALCOMM Incorporated:
 
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the Annual Meeting) of QUALCOMM Incorporated (the Company), a Delaware corporation, will be held at the Irwin M. Jacobs Qualcomm Hall, 5775 Morehouse Drive, San Diego, California 92121, on Tuesday, March 2, 2010 at 9:30 a.m. Pacific Time for the following purposes:
 
1.   To elect twelve directors to hold office until the next annual stockholders’ meeting or until their respective successors have been elected or appointed.
 
2.   To approve an amendment to the 2006 Long-Term Incentive Plan to increase the share reserve by 13,000,000 shares.
 
3.   To ratify the selection of PricewaterhouseCoopers LLP as our independent public accountants for our fiscal year ending September 26, 2010.
 
4.   To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
 
The Board of Directors has fixed the close of business on January 4, 2010 as the record date for the determination of stockholders entitled to notice of and to vote at this Annual Meeting and at any adjournment or postponement thereof.
 
By Order of the Board of Directors,
 
-s- Donald J. Rosenberg
Donald J. Rosenberg
Executive Vice President,
General Counsel and Corporate Secretary
 
San Diego, California
January 13, 2010
 
How To Vote
 
If your shares are held by a broker, bank or other stockholder of record, in nominee name or otherwise, exercising fiduciary powers (typically referred to as being held in “street name”), you may receive a separate voting instruction form with this Proxy Statement, or you may need to contact your broker, bank or other stockholder of record to determine whether you will be able to vote electronically via the Internet or by telephone.
 
If you are a stockholder with shares registered in your name, you may vote by one of the following three methods:
 
•  Vote via the Internet. Go to the web address http://www.proxyvote.com and follow the instructions for Internet voting shown on the proxy card mailed to you.
 
•  Vote by Telephone. Dial 1-800-690-6903 and follow the instructions for telephone voting shown on the proxy card mailed to you.
 
•  Vote by Proxy Card mailed to you. Complete, sign, date and mail the proxy card in the envelope provided. If you vote via the Internet or by telephone, please do not mail your proxy card.
 
PLEASE NOTE THAT IF YOUR SHARES ARE HELD BY A BROKER, BANK OR OTHER STOCKHOLDER OF RECORD AND YOU WISH TO VOTE AT THE ANNUAL MEETING, YOU MUST FIRST OBTAIN A LEGAL PROXY ISSUED IN YOUR NAME FROM THE RECORD HOLDER. OTHERWISE, YOU WILL NOT BE PERMITTED TO VOTE IN PERSON AT THE MEETING.


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In this document, the words “Qualcomm,” “the Company,” “we,” “our,” “ours” and “us” refer only to QUALCOMM Incorporated and not any other person or entity.
 
INTERNET AVAILABILITY OF PROXY MATERIALS
 
We are furnishing proxy materials to our stockholders primarily via the Internet under rules adopted by the U.S. Securities and Exchange Commission (SEC), instead of mailing printed copies of those materials to each stockholder. On January 13, 2010, we mailed to our stockholders (other than those who previously requested electronic or paper delivery) a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy materials, including our Proxy Statement. The Notice of Internet Availability of Proxy Materials also provides instructions on how to access your proxy card to vote via the Internet or by telephone.
 
This process is designed to expedite stockholders’ receipt of proxy materials, lower the cost of the Annual Meeting and help conserve natural resources. If you would prefer to continue to receive printed proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials via e-mail unless you elect otherwise.


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PROXY STATEMENT
 
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QUALCOMM INCORPORATED
5775 Morehouse Drive
San Diego, California 92121-1714

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
March 2, 2010
 
GENERAL MATTERS
 
The enclosed proxy is solicited on behalf of the Board of Directors (the Board) of QUALCOMM Incorporated, a Delaware corporation, for use at the Annual Meeting of Stockholders (the Annual Meeting) to be held on Tuesday, March 2, 2010, at 9:30 a.m. Pacific Time, or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting. The Annual Meeting will be held at the Irwin M. Jacobs Qualcomm Hall, 5775 Morehouse Drive, San Diego, California 92121.
 
Voting Rights and Outstanding Shares
 
Only holders of record of common stock at the close of business on January 4, 2010 (the Record Date) will be entitled to notice of and to vote at the Annual Meeting. At the close of business on the Record Date, we had 1,675,613,049 shares of common stock outstanding and entitled to vote.
 
Each holder of record of common stock on the Record Date will be entitled to one vote for each share held on all matters to be voted upon. If no choice is indicated on the proxy, the shares will be voted in favor of all proposals.
 
All votes will be counted by an independent inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes.
 
Broker Non-Votes
 
A broker non-vote occurs when a broker, bank or other stockholder of record, in nominee name or otherwise, exercising fiduciary powers (typically referred to as being held in “street name”) submits a proxy for the Annual Meeting, but does not vote on a particular proposal because that holder does not have discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner. Abstentions and broker non-votes have no effect on the determination of whether a nominee or the proposal has received the vote of a majority of the shares of common stock present or represented by proxy and voting at the Annual Meeting. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote those shares on routine matters, but not on non-routine matters. Routine matters include ratification of independent public accountants. Non-routine matters include the election of directors and actions on stock plans.
 
Revocability of Proxies
 
Any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. It may be revoked by filing with our Corporate Secretary at our principal executive offices, 5775 Morehouse Drive, N-510F, San Diego, California 92121-1714, a written notice of revocation or a duly executed proxy bearing a later date, or it may be revoked by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, by itself, revoke a proxy.
 
Solicitation
 
We will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of the Notice of Internet Availability of Proxy Materials, this Proxy Statement, the proxy card and any additional information furnished to stockholders. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of common stock beneficially owned by others to forward to such beneficial owners. We may reimburse persons representing beneficial owners of common stock for their costs of forwarding solicitation materials to such beneficial owners. In addition, we have retained Morrow & Company to act as a proxy solicitor in conjunction with the meeting. We have agreed to pay that firm $12,500, plus


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reasonable out-of-pocket expenses, for proxy solicitation services. Solicitation of proxies by mail may be supplemented by telephone or personal solicitation by our directors, officers or other regular employees. No additional compensation will be paid to directors, officers or other regular employees for such services.
 
Stockholder Proposals
 
The deadline for submitting a stockholder proposal for inclusion in our proxy materials for our 2011 Annual Meeting of Stockholders is September 15, 2010. Stockholder nominations for director and other proposals that are not to be included in such materials must be received no earlier than November 2, 2010 and no later than the close of business on December 2, 2010. Any such stockholder proposals or nominations for director must be submitted to our Corporate Secretary in writing at 5775 Morehouse Drive, N-510F, San Diego, California 92121-1714. Stockholders are also advised to review our Amended and Restated Bylaws, which contain additional advance notice requirements, including requirements with respect to advance notice of stockholder proposals and director nominations. See page 7 for further information.
 
Financial Information
 
Attached in Appendix 1 is certain financial information from our Annual Report on Form 10-K for fiscal 2009 that we originally filed with the Securities and Exchange Commission (SEC) on November 5, 2009. We have not undertaken any updates or revisions to such information since the date it was originally filed with the SEC. Accordingly, we encourage you to review Appendix 1 together with any subsequent information we have filed with the SEC and other publicly available information.
 
Corporate Directory
 
Attached in Appendix 2 is a listing of our executive officers and members of the board of directors.
 
PROPOSAL 1
 
ELECTION OF DIRECTORS
 
Our Restated Certificate of Incorporation and Amended and Restated Bylaws provide that directors are to be elected at the annual meeting to hold office until the next annual meeting of stockholders and until their respective successors are elected and qualified. Vacancies on the Board resulting from death, resignation, disqualification, removal or other causes may be filled by either the affirmative vote of the holders of a majority of the then-outstanding shares of common stock or by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum of the Board is present. Newly created directorships resulting from any increase in the number of directors may, unless the Board determines otherwise, be filled only by the affirmative vote of the directors then in office, even if less than a quorum of the Board is present. Any director elected as a result of a vacancy shall hold office for a term expiring at the next annual meeting of stockholders and until such director’s successor shall have been elected and qualified.
 
Our Restated Certificate of Incorporation provides that the number of directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board. The Board has set the current number of directors at twelve. Therefore, twelve directors will stand for election at the Annual Meeting.
 
If a quorum is present, the directors will be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Abstentions and broker non-votes have no effect on the vote. The twelve candidates receiving the highest number of affirmative votes of the shares of common stock entitled to be voted for such directors will be elected directors of the Company. Shares of common stock represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the twelve nominees named below. In the event that any nominee should be unavailable for election as a result of an unexpected occurrence, such shares of common stock will be voted for the election of such substitute nominee as the Board may propose. See page 8 for further information concerning our majority voting policy. Each person nominated for election has agreed to serve, if elected, and the Board has no reason to believe that any nominee will be unable to serve.


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The following table sets forth the nominees for election at this meeting and information with respect to their position with Qualcomm, age and tenure as director.
                     
            Director
Name
 
Position With Qualcomm
  Age   Since
 
Barbara T. Alexander
  Director     61       2006  
Stephen M. Bennett
  Director     55       2008  
Donald G. Cruickshank
  Director     67       2005  
Raymond V. Dittamore
  Director     66       2002  
Thomas W. Horton
  Director     48       2008  
Irwin Mark Jacobs
  Director     76       1985  
Paul E. Jacobs
  Chairman and Chief Executive Officer     47       2005  
Robert E. Kahn
  Director     71       1997  
Sherry Lansing
  Director     65       2006  
Duane A. Nelles
  Director     66       1988  
Brent Scowcroft. 
  Director     84       1994  
Marc I. Stern
  Director     65       1994  
 
Set forth below is biographical information for each person nominated.
 
Nominees for Election at this Meeting
 
BARBARA T. ALEXANDER
 
Barbara T. Alexander has served as a director of the Company since July 2006. Ms. Alexander has been an independent consultant since February 2004. From October 1999 to January 2004, she was a senior advisor for UBS, and from January 1992 to September 1999, she was a managing director of Dillon Read & Co., Inc. Prior to Dillon Read, Ms. Alexander was a managing director in the corporate finance department of Salomon Brothers. Ms. Alexander is past Chairman of the Board of the Joint Center for Housing Studies at Harvard University and is currently a member of that board’s executive committee and an executive fellow of the Joint Center for Housing Studies at Harvard University. Ms. Alexander also serves as a director of Allied World Assurance Company Holdings, Ltd. and Federal Home Loan Mortgage Corporation (Freddie Mac). She holds B.S. and M.S. degrees in theoretical mathematics from the University of Arkansas, Fayetteville.
 
STEPHEN M. BENNETT
 
Stephen M. Bennett has served as a director of the Company since August 2008. He was Chief Executive Officer of Intuit, Inc. from January 2000 to January 2008. Prior to Intuit, Mr. Bennett was at General Electric Corporation (GE) for 23 years. From December 1999 to January 2000, he was an executive vice president and a member of the board of directors of GE Capital, the financial services subsidiary of GE. From July 1999 to November 1999, he was President and Chief Executive Officer of GE Capital e-Business, and he was President and Chief Executive Officer of GE Capital Vendor Financial Services from April 1996 through June 1999. Mr. Bennett also serves as a director of Sun Microsystems, Inc. He holds a B.A. degree in finance and real estate from the University of Wisconsin.
 
DONALD G. CRUICKSHANK
 
Sir Donald G. Cruickshank has served as a director of the Company since June 2005. He was Chairman of Clinovia Group Ltd. from 2004 to 2006 and Formscape Group Ltd. from 2003 to 2006 and has been a member of the Financial Reporting Council, the body in the U.K. responsible for oversight of the Accountancy and Actuarial professions and for corporate governance standards, since 2002. Sir Donald has extensive experience in a number of areas, including European regulation and telecommunications. His career has included assignments at McKinsey & Co. Inc., Times Newspapers, Virgin Group plc., Wandsworth Health Authority and the National Health Service in Scotland. Sir Donald served as Chairman of the London Stock Exchange plc. from 2000 to 2003 and as Director


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General of the U.K.’s Office of Telecommunications (Oftel) from 1993 to 1998. From 1997 to 2000, he served as Chairman of Action 2000, the U.K.’s Millennium Bug campaign. In 1998, Chancellor Gordon Brown appointed him as Chairman of the Government’s Review of the U.K. banking sector, and from 1999 to 2004, he served as Chairman of SMG plc., one of Scotland’s leading broadcasters. Sir Donald holds a M.A. degree in law and an honorary L.L.D. degree from the University of Aberdeen, a M.B.A. degree from Manchester Business School, the University of Manchester, and is a member of the Institute of Chartered Accountants of Scotland.
 
RAYMOND V. DITTAMORE
 
Raymond V. Dittamore has served as a director of the Company since December 2002. Mr. Dittamore is a retired audit partner of Ernst & Young LLP, an international accounting firm. Mr. Dittamore retired in 2001 after 35 years of service with that firm, including 14 years as the Managing Partner of the firm’s San Diego office. Mr. Dittamore is also a director of Life Technologies Corporation. Mr. Dittamore holds a B.S. degree in accounting from San Diego State University.
 
THOMAS W. HORTON
 
Thomas W. Horton has served as a director of the Company since December 2008. Mr. Horton has been Executive Vice President and Chief Financial Officer of AMR Corporation, the parent company of American Airlines, since March 2006. He served as Vice Chairman and Chief Financial Officer of AT&T Corporation from January 2002 to February 2006. Prior to AT&T, Mr. Horton was Senior Vice President and Chief Financial Officer of AMR from January 2000 to 2002 and served in numerous management positions with AMR since 1985. He holds a B.B.A. degree in accounting from Baylor University and a M.B.A. degree from Southern Methodist University.
 
IRWIN MARK JACOBS
 
Irwin Mark Jacobs, one of the founders of the Company, has served as a director, and as Chairman until March 2009, since we began operations in July 1985. He also served as Chief Executive Officer of the Company from July 1985 to June 2005. Dr. Jacobs received a B.S. degree in electrical engineering from Cornell University and M.S. and Sc.D. degrees from the Massachusetts Institute of Technology. Dr. Jacobs is Chair of the Board of Trustees of the Salk Institute for Biological Studies and Chairman of the National Academy of Engineering. He has received numerous industry, education and business awards, including a Woodrow Wilson Award for Corporate Citizenship in 2004, a fellow of the American Academy of Arts and Sciences in 2001 and the National Medal of Technology in 1994. Dr. Irwin Jacobs is the father of Dr. Paul Jacobs, our Chairman and Chief Executive Officer.
 
PAUL E. JACOBS
 
Paul E. Jacobs has served as Chairman of the Board of Directors since March 2009, as a director of the Company since June 2005 and as our Chief Executive Officer since July 2005. He served as Group President of the Qualcomm Wireless & Internet Group from July 2001 to June 2005. In addition, he served as an executive vice president from February 2000 to June 2005. Dr. Paul Jacobs is also a director of A123 Systems, Inc., a lithium-ion battery developer and manufacturer. Dr. Paul Jacobs holds a B.S. degree in electrical engineering and computer science, a M.S. degree in electrical engineering and a Ph.D. degree in electrical engineering and computer science from the University of California, Berkeley. Dr. Paul Jacobs is the son of Dr. Irwin Jacobs, a director of the Company.
 
ROBERT E. KAHN
 
Robert E. Kahn has served as a director of the Company since February 1997. Dr. Kahn is Chairman, Chief Executive Officer and President of the Corporation for National Research Initiatives (CNRI), which he founded in 1986. From 1972 to 1985, Dr. Kahn was employed at the U.S. Defense Advanced Research Projects Agency, where his last position was Director of the Information Processing Techniques Office. From 1966 to 1972, Dr. Kahn was a senior scientist with Bolt Beranek and Newman, where he was responsible for the system design of the Arpanet, the first packet switched network. Dr. Kahn received numerous awards for his work on the Internet, including the 2008 Japan Prize, the 2005 Presidential Medal of Freedom and the 1997 National Medal of Technology. Dr. Kahn holds a


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B.E.E. degree from the City College of New York and M.A. and Ph.D. degrees in electrical engineering from Princeton University. Dr. Kahn holds numerous honorary degrees and is a member of the National Academy of Engineering and is an Inductee of the National Inventors Hall of Fame.
 
SHERRY LANSING
 
Sherry Lansing has served as a director of the Company since September 2006. Ms. Lansing is the Founder and Chair of the Sherry Lansing Foundation, a philanthropic organization focusing on cancer research, health and education. From 1992 to 2005, she was the Chair of the Motion Picture Group of Paramount Pictures where she oversaw the release of more than 200 films, including Academy Award® winners Forrest Gump, Braveheart and Titanic. From 1984 to 1990, she operated her own production company, Lansing Productions, and co-founded Jaffe/Lansing Productions. In 1980, she became the film industry’s first female to oversee all aspects of a studio’s motion picture production when she was appointed President of Production at 20th Century Fox. She holds additional trustee, chair and advisory positions with the Friends of Cancer Research, the American Association of Cancer Research, the Carter Center and Stop Cancer, a non-profit philanthropic group she founded in partnership with Dr. Armand Hammer. Ms. Lansing is also a regent of the University of California and serves as Chair of the University Health Services Committee. She has earned the 2004 Horatio Alger Humanitarian Award, the 2003 Woodrow Wilson Award for Corporate Citizenship, a 2003 honorary doctorate in fine arts from the American Film Institute, the 1989 Alfred P. Sloan, Jr. Memorial Award, and the 1982 Distinguished Community Service Award from Brandeis University. Ms. Lansing is also a director of Dole Food Company, Inc. She holds a B.S. degree in speech, with a minor in English and mathematics, from Northwestern University.
 
DUANE A. NELLES
 
Duane A. Nelles has served as a director of the Company since August 1988. Mr. Nelles has been in the personal investment business since 1987. Prior to that time, Mr. Nelles was a partner in the international public accounting firm of Coopers & Lybrand LLP, which he joined in 1968. He holds a B.A. degree in economics and mathematics from Albion College and a M.B.A. degree from the University of Michigan.
 
BRENT SCOWCROFT
 
Brent Scowcroft has served as a director of the Company since December 1994. General Scowcroft is the President of The Scowcroft Group, Inc., an international business consulting firm he founded in June 1994. General Scowcroft is also the President of The Forum for International Policy, a non-profit organization he founded in 1993 that promotes American leadership and foreign policy. General Scowcroft served as Assistant to the President for National Security Affairs for President George H.W. Bush from January 1989 until January 1993; he also held that position for President Ford during his term. A retired U.S. Air Force Lieutenant General, General Scowcroft served in numerous national security posts in the Pentagon and the White House prior to his appointments as Assistant to the President for National Security Affairs. General Scowcroft received a B.S. degree in engineering from West Point and M.A. and Ph.D. degrees in political science from Columbia University and holds numerous honorary degrees.
 
MARC I. STERN
 
Marc I. Stern has served as a director of the Company since February 1994. Mr. Stern has been Vice Chairman of The TCW Group, Inc., an asset management firm based in Los Angeles, since October 2005 and Interim Chief Executive Officer of TCW since July 2009. Mr. Stern is also Chairman of Société Générale’s Global Investment Management and Services in North America (GIMS) and has been since October 2005 and a Member of the Management Committee of Société Générale Group, the parent company of GIMS and TCW, since May 2007. Société Générale acquired majority control of TCW in 2001. From May 1992 to October 2005, Mr. Stern served as President of TCW. From 1988 to 1990, Mr. Stern served as President and a director of SunAmerica, Inc., a financial services company. Prior to joining SunAmerica, Mr. Stern was Managing Director and Chief Administrative Officer of The Henley Group, Inc., a diversified manufacturing company, and prior thereto was Senior Vice President of Allied-Signal Inc., a diversified manufacturing company. Mr. Stern is also a director of TCW Funds, Inc., a registered investment company. Mr. Stern holds a B.A. degree from Dickinson College, a M.A. degree from the


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Columbia University Graduate School of Public Law and Government and a J.D. degree from the Columbia University School of Law.
 
Required Vote and Board Recommendation
 
If a quorum is present and voting, the twelve nominees for director receiving the highest number of votes will be elected as directors. If you hold your shares in your own name and abstain from voting on this matter, your abstention will have no effect on the vote. If you hold your shares through a broker and you do not instruct the broker on how to vote for the twelve nominees, your broker will not have the authority to vote your shares. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum but will not have any effect on the outcome of the vote.
 
THE BOARD RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH NAMED NOMINEE.
 
CORPORATE GOVERNANCE
 
Code of Ethics
 
We have adopted a code of ethics that applies to all our employees, including employees of our subsidiaries, as well as each member of the Board. The code of ethics is available on our website at www.qualcomm.com under the “Corporate Governance” section under “Investor Relations.” To date, there have not been any waivers by us of the code of ethics. Any amendments to, or waivers under, the code of ethics that are required to be disclosed by the rules of the SEC will be disclosed on our website at www.qualcomm.com under the “Corporate Governance” section under “Investor Relations.”
 
Board Committees, Meetings and Attendance
 
During fiscal 2009, the Board held seven meetings. Board agendas include regularly scheduled sessions for the independent directors to meet without management present, and the Board’s presiding independent director leads those sessions. Mr. Dittamore has acted as the Board’s presiding independent director since the Board meeting immediately following the 2009 Annual Meeting of Stockholders. The Board delegates various responsibilities and authority to different Board committees. Committees regularly report on their activities and actions to the full Board. The Board’s current standing committees are: Audit, Compensation, Governance and Finance. Committee assignments are re-evaluated annually and approved by the Board at its annual meeting that follows the annual meeting of stockholders in February or March of each year. Each committee acts according to a written charter approved by the Board. Copies of each charter can be found on our website at www.qualcomm.com as follows:
 
     
Name of Committee
 
Website link
 
Audit Committee
  http://investor.qualcomm.com/documentdisplay.cfm?DocumentID=463
Compensation Committee
  http://investor.qualcomm.com/documentdisplay.cfm?DocumentID=462
Governance Committee
  http://investor.qualcomm.com/documentdisplay.cfm?DocumentID=461
Finance Committee
  http://investor.qualcomm.com/documentdisplay.cfm?DocumentID=464
 
The Audit Committee.  The Audit Committee meets at least quarterly with our management and independent public accountants to review the results of the annual audit and quarterly reviews, discuss the financial statements, select and engage the independent public accountants, assess the adequacy of our staff, management performance and procedures in connection with financial controls and receive and consider comments as to internal controls, among other things. At the beginning of fiscal 2009, the Audit Committee was composed of Mr. Dittamore (Committee Chair), Ms. Alexander and Dr. Kahn. Since March 2009, the Audit Committee has been composed of Mr. Dittamore (Committee Chair), Ms. Alexander and Mr. Horton. The Audit Committee met ten times during fiscal 2009. The Board has determined that Messrs. Dittamore and Horton and Ms. Alexander are audit committee financial experts as defined by SEC rules. All of the members of the Audit Committee are independent directors within the meaning of Rule 5605 of the NASDAQ Stock Market LLC (NASDAQ) and SEC Rule 10A-3(b)(1)(ii).
 
The Compensation Committee.  The Compensation Committee makes recommendations concerning salaries and incentive compensation, administers and approves stock offerings under our employee stock purchase


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plan and stock option plans and otherwise determines compensation levels for the Chief Executive Officer, the Named Executive Officers (as listed in the “Summary Compensation Table”), the directors and other key employees and performs such other functions regarding compensation as the Board may delegate. At the beginning of fiscal 2009, the Compensation Committee was composed of Messrs. Stern (Committee Chair), Bennett and Dittamore and General Scowcroft. Since March 2009, the Compensation Committee has been composed of Messrs. Bennett (Committee Chair) and Stern and General Scowcroft. The Compensation Committee met six times during fiscal 2009. All of the members of the Compensation Committee are independent directors within the meaning of Rule 5605 of the NASDAQ and outside directors within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended.
 
The Governance Committee.  The Governance Committee reviews, approves and oversees various corporate governance related policies and procedures applicable to us. The Committee also reviews and evaluates the effectiveness of our executive development and succession planning processes and provides active leadership and oversight with respect to these processes. In addition, the Governance Committee evaluates and recommends nominees for membership on the Board and its committees. In fiscal 2009, the Governance Committee was composed of Mses. Lansing (Committee Chair) and Alexander, Sir Donald Cruickshank and Mr. Stern. The Governance Committee met seven times during fiscal 2009. All of the members of the Governance Committee are independent directors within the meaning of Rule 5605 of the NASDAQ.
 
The Finance Committee.  The Finance Committee reviews our financial position, cash management, dividend and stock repurchase programs, securities issuances, acquisitions and other major strategic investment decisions. At the beginning of fiscal 2009, the Finance Committee was composed of Mr. Nelles (Committee Chair), Sir Donald Cruickshank and Dr. Paul Jacobs. Since March 2009, the Finance Committee has been composed of Mr. Nelles (Committee Chair), Sir Donald Cruickshank and Drs. Irwin Jacobs and Kahn. The Finance Committee met seven times during fiscal 2009.
 
During fiscal 2009, each Board member attended at least 75% of the aggregate of the meetings of the Board and of the meetings of the committees on which he or she served and that were held during the period for which he or she was a Board or committee member, respectively.
 
Director Nominations
 
Our Amended and Restated Bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the Board at our Annual Meeting of Stockholders. The Board has also adopted a formal policy concerning stockholder recommendations of Board candidates to the Governance Committee. This policy is set forth in our Corporate Governance Principles and Practices, which is available on our website at www.qualcomm.com under the “Corporate Governance” section of “Investor Relations.” Under this policy, the Governance Committee will review a reasonable number of candidates recommended by a single stockholder who has held over 1% of our stock for over one year and who satisfies the notice, information and consent requirements set forth in our Amended and Restated Bylaws. To recommend a nominee for election to the Board, a stockholder must submit his or her recommendation to the Corporate Secretary at our corporate offices at 5775 Morehouse Drive, N-510F, San Diego, California 92121-1714. A stockholder’s recommendation must be received by us prior to the date set forth above under “Stockholder Proposals.” A stockholder’s recommendation must be accompanied by the information with respect to stockholder nominees as specified in the Amended and Restated Bylaws, including among other things, the name, age, address and occupation of the recommended person, the proposing stockholder’s name and address, the ownership interests of the proposing stockholder and any beneficial owner on whose behalf the nomination is being made (including the number of shares beneficially owned, any hedging, derivative, short or other economic interests and any rights to vote any shares), and any material monetary or other relationships between the recommended person and the proposing stockholder and/or the beneficial owners, if any, on whose behalf the nomination is being made. The proposing stockholder must also provide evidence of owning the requisite number of shares of our stock for over one year. Candidates so recommended will be reviewed using the same process and standards for reviewing Governance Committee recommended candidates.


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In evaluating director nominees, the Governance Committee considers the following factors:
 
  •  The appropriate size of the Board;
 
  •  Our needs with respect to the particular talents and experience of our directors;
 
  •  The knowledge, skills and experience of nominees, including experience in technology, business, finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board;
 
  •  Familiarity with national and international business matters;
 
  •  Experience in political affairs;
 
  •  Experience with accounting rules and practices;
 
  •  Appreciation of the relationship of our business to the changing needs of society;
 
  •  The nominee’s other commitments, including the other boards on which the nominee serves; and
 
  •  The desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members.
 
The Governance Committee’s goal is to assemble a board of directors that brings to us a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Governance Committee also considers candidates with appropriate non-business backgrounds.
 
Other than the foregoing, there are no stated minimum criteria for director nominees, although the Governance Committee may also consider such other factors as it may deem are in the best interests of the Company and its stockholders. The Governance Committee does, however, believe it appropriate for at least one, and preferably several, members of the Board to meet the criteria for an “audit committee financial expert” as defined by SEC rules, and that a majority of the members of the Board meet the definition of “independent director” under NASDAQ rules. The Governance Committee also believes it is in the stockholders’ best interest for certain key members of our current and former management to participate as members of the Board. The Governance Committee identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. If any member of the Board does not wish to continue in service or if the Governance Committee or the Board decides not to re-nominate a member for re-election, the Governance Committee identifies the desired skills and experience of a new nominee based on the criteria above. Current members of the Governance Committee and Board are polled for suggestions as to individuals meeting the criteria of the Governance Committee. Research may also be performed to identify qualified individuals. We have, in the past, engaged third parties to assist in identifying and evaluating potential nominees.
 
Majority Voting, Stock Ownership Guidelines and Other Matters
 
We adopted a “Majority Voting” policy as a part of our Corporate Governance Principles and Practices. Under this policy, if a director receives in an uncontested election a greater number of “withhold” votes than votes cast “for” his or her election, the Governance Committee will undertake a prompt evaluation of the appropriateness of the director’s continued service on the Board. In performing this evaluation, the Governance Committee will review all factors it deems relevant, including the stated reasons why votes were withheld, the director’s length of service, his or her past contributions to us and the availability of other qualified candidates. The Governance Committee will then make its recommendation to the Board. The Board will review the Governance Committee’s recommendation and consider such further factors and information as it deems relevant. Under this policy, the Governance Committee will make its recommendation, and the Board will act on the Governance Committee’s recommendation no later than 90 days following the date of the stockholders’ meeting. If the Board determines remedial action is appropriate, the director shall promptly take whatever action is requested by the Board. If the director does not promptly take the recommended remedial action or if the Board determines that immediate resignation is in the best


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interests of the Company and its stockholders, the director shall promptly tender his or her resignation upon request from the Board. We will publicly disclose the Board’s decision within four business days in a Current Report on Form 8-K with the SEC, providing an explanation of the process by which the decision was reached and, if applicable, the reason for not requesting the director’s resignation. The director in question will not participate in the Governance Committee’s or the Board’s analysis.
 
We adopted stock ownership guidelines for our directors and executive officers to help ensure that they each maintain an equity stake in the Company and, by doing so, appropriately link their interests with those of the other stockholders. The guideline for executive officers is based on a multiple of the executive’s base salary, ranging from two to five times, with the size of the multiple based on the individual’s position with the Company. Only shares actually owned (as shares or as deferred units) count towards the requirement. Executives are required to achieve these stock ownership levels within five years of becoming an executive, or (in the case of persons who were executive officers at the time these guidelines were adopted) by September 2011. For directors, the guideline is three times the annual retainer for Board service. Directors are required to achieve this ownership level within five years of joining the Board, or (in the case of directors serving on the Board at the time the guidelines were adopted) by September 2011. In addition to the preceding ownership guidelines, all directors are expected to own shares of our common stock within one year of joining the Board. See the “Other Key Policies and Practices” section under “Compensation Discussion and Analysis” for additional information.
 
Communications with Directors
 
We have adopted a formal process for stockholder communications with the Board. This process is also set forth in our Corporate Governance Principles and Practices. Stockholders who wish to communicate to the Board should do so in writing to the following address:
 
[Name of Director(s) or Board of Directors]
Qualcomm Incorporated
Attn: General Counsel
5775 Morehouse Drive, N-510F
San Diego, California 92121-1714
 
Our General Counsel logs all such communications and forwards those not deemed frivolous, threatening or otherwise inappropriate to the Chair of the Governance Committee for distribution.
 
Annual Meeting Attendance
 
Our Corporate Governance Principles and Practices set forth a policy on director attendance at annual meetings. Directors are encouraged to attend absent unavoidable conflicts. All of the then-sitting directors attended our last annual meeting except for Mr. Stern.
 
Director Independence
 
The Board has determined that, except as noted below, all of the members of the Board are “independent directors” within the meaning of Rule 5605 of the NASDAQ. Dr. Paul Jacobs is not considered independent because he is employed by us as an executive officer of the Company, and Dr. Irwin Jacobs is not considered independent because he has been employed as an executive officer of the Company within the last three years.


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PROPOSAL 2

APPROVAL OF AMENDMENT TO
THE 2006 LONG-TERM INCENTIVE PLAN
TO INCREASE THE SHARE RESERVE BY 13,000,000 SHARES
 
On March 7, 2006, the stockholders approved our 2006 Long-Term Incentive Plan (the 2006 LTIP). The 2006 LTIP is a restatement of our 2001 Stock Option Plan and the successor to the 1991 Stock Option Plan, the 2001 Non-Employee Directors’ Stock Option Plan and their predecessor plans. The 2006 LTIP also serves as the source of shares for the Executive Retirement Matching Contribution Plan (the ERMC Plan).
 
The Board of Directors has adopted the following amendment to the 2006 LTIP, which requires stockholder approval:
 
Increase the maximum number of shares that the Company may issue under the 2006 LTIP from 405,284,432 shares to 418,284,432 shares, which will enable it to continue to grant awards to deserving individuals and remain competitive with its industry peers.
 
Although historically we have granted stock options as our primary form of equity compensation, in order to manage our burn rate and dilution going forward, we are considering making a substantial shift in the form of equity awards, including restricted stock units and performance-based units.
 
We believe that equity incentives are critical to attracting and retaining the most talented employees in our industry. The approval of the proposed amendment will allow us to continue to provide such incentives under the 2006 LTIP.
 
Key Features of the 2006 LTIP:
 
  •  Awards are merit-based as part of our comprehensive and effective compensation program.
 
  •  An independent committee of the Board of Directors administers the plan.
 
  •  66,329,392 shares remained available for issuance as of September 27, 2009, and 43,984,307 shares were available as of December 15, 2009.
 
  •  Awards other than stock options and stock appreciation rights are charged against the 2006 LTIP share reserve at the rate of three shares for each share actually granted.
 
  •  Awards may not be granted later than 10 years from the effective date of the 2006 LTIP.
 
  •  Awards may be in the form of stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance shares, performance units, deferred compensation awards and other stock-based awards.
 
  •  Stock options and stock appreciation rights may not be repriced without prior approval by our stockholders.
 
  •  Stock options and stock appreciation rights may not be granted below fair market value.
 
  •  Stock options and stock appreciation rights generally shall not be fully vested over a period of less than three years from the date of grant and cannot be exercised more than 10 years from the date of grant.
 
  •  Restricted stock, restricted stock units and performance awards generally shall not be fully vested over a period of less than three years (or a 12-month period if vesting is based on a performance measure).
 
  •  Shares tendered in payment of a stock option, shares withheld for taxes and shares repurchased by the Company are not available again for grant under the 2006 LTIP.
 
  •  The 2006 LTIP reserve is reduced by the full amount of shares granted as stock appreciation rights, regardless of the number of shares upon which payment is made.


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Significant Historical Option Grant Information
 
  •  The aggregate number of stock options the Company granted in fiscal 2009 decreased 19.89% as compared to fiscal 2008 (from 51.3 million in fiscal 2008 to 41.1 million in fiscal 2009); however, the Company’s full-time employee base increased 1.7% in the same period (from 14,730 in fiscal 2008 to 14,983 in fiscal 2009).
 
  •  The Company’s options granted expressed as a percentage of the Company’s shares outstanding (“burn rate”), for fiscal year 2009 was 2.5%, significantly lower than the 3.1% in fiscal 2008, due to the Company’s proactive management of its option granting practices that maintained its broad-based eligibility and reduced the average number of stock options granted per employee from 3,486 in fiscal 2008 to 2,746 in fiscal 2009.
 
  •  Overhang (the sum of total options outstanding and options available for grant as a percentage of the sum of common shares outstanding, options outstanding and options available for grant) was 14.6% at the end of fiscal 2009. If the proposed amendment is approved by stockholders, the maximum overhang would be 15.2%.
 
  •  The Named Executive Officers’ (NEO) awards comprise 5.1% of the total stock options granted in fiscal 2009 and in fiscal 2008.
 
  •  The Company’s policy is that all full-time employees are eligible to receive stock options. At present, approximately 15,000 employees and 11 non-employee directors are eligible to receive awards under the 2006 LTIP.
 
Background for the Current Request and Expected Future Grant Practices.
 
Our request to increase the share reserve by 13 million shares considers the following:
 
  •  If we do not increase the share reserve at our 2010 Annual Meeting, we anticipate the share reserve balance will be between 3 and 3.5 million at the time of our 2011 annual meeting. This balance could limit our flexibility in unexpected circumstances and our ability to award competitive grants in certain situations, such as acquisitions, accelerated hiring activity, opportunities to attract unique and highly qualified talent, and special employee retention matters.
 
  •  If our stockholders approve our request for 13 million shares at the 2010 Annual Meeting, we plan to request an increase to the share reserve at the 2011 annual meeting for an amount that will be sufficient for two years, with the intent of making the next request for additional shares at the 2013 annual meeting.
 
  •  In the first quarter of fiscal 2010, our Compensation Committee introduced performance shares that shall vest over a three-year period, in combination with stock option grants that shall vest over a four-year period, as the annual, on-going long-term incentives for our executive officers. (See “Compensation Decisions for Our NEOs for Fiscal 2010” in the CD&A.)
 
  •  We intend to decrease our annual burn rate and dilution by introducing full-value shares, such as restricted stock units that shall vest over a four-year period, as a component of our broad-based equity program.
 
  •  Stock options granted after September 27, 2009 shall vest over a four-year period. Stock options granted prior to that date vest over a five-year period.
 
Summary of the 2006 LTIP
 
The following paragraphs summarize material terms of the 2006 LTIP. This summary is qualified in its entirety by the specific terms of the 2006 LTIP, a copy of which is available to any stockholder upon request.
 
General
 
The 2006 LTIP provides for the grant of incentive and nonstatutory stock options, as well as stock appreciation rights, restricted stock, restricted stock units, performance units and shares and other stock-based awards. It is also the source of shares for matching stock awards under the ERMC Plan. Incentive stock options granted under the


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2006 LTIP are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code). Nonstatutory stock options granted under the 2006 LTIP are not intended to qualify as incentive stock options under the Code.
 
Purpose
 
The 2006 LTIP advances the interests of the Company and its stockholders by helping to attract and retain persons of skill and ability to serve the Company and by motivating these individuals to continue their contributions to the growth and profitability of the Company.
 
Administration
 
The Board and its designees administer the 2006 LTIP.  The Board interprets the 2006 LTIP, subject to the requirements of the 2006 LTIP. As permitted under the 2006 LTIP, the Board has delegated administration of the 2006 LTIP to the Compensation Committee of the Board. The Compensation Committee determines the recipients of awards, the number of shares subject to each award, the times when an award will become exercisable, the exercise price, the type of consideration to be paid upon exercise and other terms of the award. For awards to persons other than directors or executive officers, the Compensation Committee in turn has delegated administration of the 2006 LTIP to the Management Stock Option Committee, currently comprised of our Chief Executive Officer, President and Executive Vice President, Human Resources, who act pursuant to the guidelines approved by the Compensation Committee. As used herein with respect to the 2006 LTIP, the “Board” refers to the Compensation Committee and the Management Stock Option Committee, in addition to the full Board.
 
Stock Subject to the 2006 LTIP
 
A total of 405,284,432 shares are currently reserved for issuance under the 2006 LTIP. As discussed above, we propose to increase the number of shares by 13,000,000 shares, for a total of 418,284,432 shares reserved for issuance under the 2006 LTIP. As of September 27, 2009, 219,510,951 shares are subject to outstanding stock options, 55,000 shares are subject to restricted stock units, 12,092 shares subject to deferred stock units, 1,299 shares subject to dividend reinvestment shares related to the restricted and deferred stock units, and 66,329,392 shares remain available for future grants under the 2006 LTIP. Shares underlying awards that expire, are cancelled or otherwise terminate again become available for grant under the 2006 LTIP, as do shares subject to an award under the ERMC Plan that fail to vest under the terms of that plan.
 
Shares subject to stock options and stock appreciation rights that include dividend equivalent rights and all other types of awards are charged against the 2006 LTIP share reserve on the basis of three shares for each one share granted. Any shares returned to the reserve will be returned on the same basis as they were originally charged against the share reserve.
 
Eligibility
 
Awards other than incentive stock options are generally granted only to our employees and directors. Incentive stock options may be granted only to employees, and only certain executives may participate in the ERMC Plan.
 
Any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of the Company, or any of its parent or subsidiary corporations, must be granted an incentive stock option at an exercise price that is at least 110% of the fair market value of the Company’s stock on the date of grant, and the term of the option must not exceed five years. The aggregate fair market value, determined at the time of grant, of the shares of common stock with respect to which incentive stock options granted under the 2006 LTIP are exercisable for the first time by an optionee during any calendar year (under all our plans and our parent and subsidiary corporations) may not exceed $100,000. In order to permit awards to qualify as “performance-based compensation” under Section 162(m) of the Code, no employee may be granted awards during any fiscal year in excess of the following limits:
 
  •  Stock options and stock appreciation rights: No more than 3,000,000 shares.


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  •  Restricted stock and restricted stock unit awards vesting based upon the attainment of performance goals: No more than 1,000,000 shares.
 
  •  Performance share awards:  No more than 1,000,000 shares for each full fiscal year contained in the performance period of the award.
 
  •  Performance unit awards:  No more than $8,000,000 for each full fiscal year contained in the performance period of the award.
 
The 2006 LTIP provides, in general, a mandatory minimum three-year vesting period, based on the participant’s continued service, for restricted stock awards, restricted stock unit awards, performance awards or stock-based awards based on the full value of shares of stock. These vesting rules do not apply to shares granted under the ERMC Plan or to a maximum of 2% of the shares reserved under the 2006 LTIP, which may be issued as awards to non-employee directors. Performance awards generally are subject to achievement of performance goals over a performance period no shorter than 12 months. Acceleration of awards under the 2006 LTIP occurs only in connection with death, disability or a Change-in-Control (as defined under “Effect of Certain Corporate Events”).
 
Stock Options and Stock Appreciation Rights
 
The following is a general description of the terms of options and stock appreciation rights that may be awarded under the 2006 LTIP. Individual grants may have different terms, subject to the overall requirements of the 2006 LTIP.
 
Exercise Price; Payment.  The exercise price of incentive stock options under the 2006 LTIP may not be less than the fair market value of the Company’s common stock subject to the option on the date of grant, and in some cases may not be less than 110% of the fair market value on the grant date (see “Eligibility”). As of January 4, 2010, the fair market value (i.e., closing price) of a share of the Company’s common stock was $46.94. The exercise price of nonstatutory stock options and stock appreciation rights may not be less than the fair market value of the Company’s stock subject to the award on the date of grant. The exercise price of options granted under the 2006 LTIP must be paid: (1) in cash, check or a cash equivalent; (2) by tender of shares of common stock of the Company to the Company subject to attestation to the ownership of the shares and to having a fair market value not less than the exercise price; (3) if permitted by the Board, by means of a cashless exercise that complies with applicable securities and other laws; (4) in any other form of payment acceptable to the Board; or (5) by a combination of the above forms of payment.
 
No Repricing.  The 2006 LTIP does not permit the Company to lower the exercise price of options or stock appreciation rights without stockholder pre-approval.
 
Exercise.  Options and stock appreciation rights granted under the 2006 LTIP vest in cumulative increments as determined by the Board, provided that the holder’s employment by, or service as a director or consultant to, the Company or certain related entities or designated affiliates, continues from the date of grant until the applicable vesting date. Awards granted under the 2006 LTIP may be subject to different vesting terms, subject to an overall minimum three-year vesting requirement applicable to options and stock appreciation rights issued to participants other than non-employee directors. The Board has the power to accelerate the time during which an award may be exercised, subject to this three-year overall limit.
 
Term.  The maximum term of options and stock appreciation rights under the 2006 LTIP is 10 years, except for certain incentive stock options with a maximum term of 5 years (see “Eligibility”). The 2006 LTIP provides for the earlier termination of an award due to the holder’s termination of service.
 
Restrictions on Transfer.  Participants may not transfer incentive stock options granted under the 2006 LTIP, except by will or by the laws of descent and distribution. Participants may not transfer nonstatutory stock options or stock appreciation rights other than: (1) by will or by the laws of descent and distribution; (2) by written designation of a beneficiary taking effect upon the death of the optionee or (3) by delivering written notice to the Company, in a form acceptable to the Company, that the optionee will be gifting the option to certain family members or other specific entities controlled by or for the benefit of such family members, and such other transferees as the Board may approve.


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Restricted Stock Units
 
The Board may grant restricted stock units under the 2006 LTIP, which represent a right to receive shares of the Company’s common stock at a future date determined in accordance with the participant’s award agreement. There is no purchase or exercise price associated with the restricted stock units or the shares issued in settlement of the award. The Board may grant restricted stock unit awards subject to the attainment of one or more performance goals, similar to those described below in connection with performance awards, or may make the awards subject to vesting conditions similar to those for restricted stock awards, as described below. Unless the Board provides otherwise, participants forfeit any unvested restricted stock units upon termination of service. Participants have no voting rights or rights to receive cash dividends with respect to restricted stock unit awards until shares of common stock are issued in settlement of such awards. However, the Board may grant restricted stock units that entitle the holders to receive dividend equivalents, which are rights to receive additional restricted stock units based on the value of any cash dividends the Company pays. A total of 56,085 restricted stock units, including dividend equivalents, have been granted under the 2006 LTIP.
 
Restricted Stock Awards
 
The Board may grant restricted stock awards under the 2006 LTIP in the form of either a restricted stock purchase right, an immediate right to purchase common stock, or a restricted stock bonus, for which the participant furnishes consideration in the form of services to the Company. The Board determines the purchase price payable under restricted stock purchase rights, which may be less than the then current fair market value of the Company’s common stock. Restricted stock awards may be subject to vesting conditions based on such service or performance criteria as the Board specifies, including the attainment of one or more performance goals similar to those described below in connection with performance awards. Participants may not transfer shares acquired pursuant to a restricted stock award until the shares vest. Unless otherwise provided by the Board, participants forfeit any unvested shares of restricted stock upon termination of service. Participants holding restricted stock generally may vote the shares and receive any dividends paid; however, such distributions are subject to the same restrictions as the original award.
 
Performance Awards
 
The Board may grant performance awards subject to the fulfillment of conditions and the attainment of performance goals over such periods as the Board determines in writing and sets forth in a written agreement between the Company and the participant. To the extent compliance with Section 162(m) of the Code is desired, a committee comprised solely of “outside directors” under Section 162(m) must act with respect to performance awards, and “Board” as used in this section shall include this committee. These awards may be designated as performance shares or performance units. Performance shares and performance units are unfunded bookkeeping entries generally having initial values equal to the fair market value of a share of stock determined on the grant date and a value set by the Board, respectively. Performance awards specify a predetermined amount of performance shares or performance units that may be earned by the participant to the extent that one or more predetermined performance goals are attained within the predetermined performance period. To the extent earned, performance awards may be settled in cash, shares of common stock (including shares of restricted stock) or a combination thereof.
 
Prior to the start of the applicable performance period, or as permitted pursuant to Section 162(m) of the Code, the Board establishes one or more performance goals applicable to the award. Performance goals are based on the attainment of specified target levels with respect to one or more selected measures of business or financial performance. Performance goals may be based on one or more of the following measures: revenues, gross margin, operating margin, operating income, earnings before tax, earnings before interest, taxes, depreciation and amortization, net income, expenses, the market price of the Company’s common stock, earnings per share, return on stockholder equity, return on capital, return on net assets, economic value added, market share, customer service, customer satisfaction, safety, total stockholder return, free cash flow or other measures as determined by the Board. The degree of attainment of performance measures may be calculated in accordance with GAAP, industry usage or other formulations determined by the Board in its discretion. For example, performance goals may be established


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and calculated without regard to the accrual or payment of performance awards and may be based on pro forma formulations of these performance measures, as determined by the Board in its discretion.
 
Following completion of the applicable performance period, the Board certifies in writing the extent to which a participant has attained the applicable performance goals and the resulting value of the participant’s award. The Board retains the discretion to eliminate or reduce, but not increase, the amount that would otherwise be payable to a participant who is a “covered employee” within the meaning of Section 162(m) of the Code. However, no such reduction may increase the amount correspondingly paid to any other participant. The Board may make positive or negative adjustments to performance award payments to participants other than covered employees to reflect individual job performance or other factors. In its discretion, the Board may provide for the payment of dividend equivalents with respect to cash dividends paid on the Company’s common stock to a participant awarded performance shares. The Board may provide for performance award payments in lump sums or installments. If any payment is to be made on a deferred basis, the Board may provide for the payment of dividend equivalents or interest during the deferral period.
 
Unless otherwise provided by the Board, if a participant terminates service due to death or disability prior to completion of the applicable performance period, the final award value is determined at the end of the performance period on the basis of the performance goals attained during the entire performance period, but is prorated for the number of months of the participant’s service during the performance period. If a participant’s service terminates prior to completion of the applicable performance period for any other reason, the participant forfeits the performance award, unless the Board determines otherwise. Participants may not sell or transfer a performance award, other than by will or the laws of descent and distribution, prior to the end of the applicable performance period.
 
Deferred Compensation Awards
 
The 2006 LTIP authorizes the Board to establish a deferred compensation award program in addition to the ERMC Plan. If and when implemented, participants designated by the Board who are officers, directors or members of a select group of highly compensated employees may elect to receive an award of deferred stock units, in lieu of compensation otherwise payable in cash or in lieu of cash or shares of common stock issuable upon the exercise or settlement of stock options, stock appreciation rights, performance shares or performance unit awards. Each such stock unit represents a right to receive one share of common stock at a future date determined in accordance with the participant’s award agreement. Deferred stock units are fully vested upon grant and settled by distribution to the participant of a number of whole shares of common stock equal to the number of stock units subject to the award upon the earlier of the date on which the participant separates from service or a specific date elected by the participant at the time of his or her election to receive the deferred stock unit award. A holder of deferred stock units has no voting rights or other rights as a stockholder until shares of common stock are issued to the participant in settlement of the stock units. However, participants holding deferred stock units may receive dividend equivalents credited in the form of additional stock units as determined by the Board. Prior to settlement, deferred stock units may not be assigned or transferred other than by will or the laws of descent and distribution. A total of 12,306 fully vested deferred stock units, including dividend equivalents, have been granted to non-employee directors in lieu of their annual cash retainer.
 
Other Stock-Based Awards
 
The 2006 LTIP permits the Board to grant other awards based on the Company’s stock or on dividends paid on its stock.
 
Effect of Certain Corporate Events
 
In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, the 2006 LTIP provides for appropriate adjustments in the number and class of shares subject to the 2006 LTIP and to any outstanding awards, in the Section 162(m) of the Code per employee grant limit (see “Federal Income Tax Information — Potential Limitation on Company Deductions”), and in the exercise price per share of any outstanding awards. Any fractional share resulting from an


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adjustment is rounded down to the nearest whole number, and at no time will the exercise price of any option or stock appreciation right be decreased to an amount less than par value of the stock subject to the award.
 
Change-in-Control.  If a Change-in-Control occurs, the surviving, continuing, successor or purchasing corporation or parent corporation thereof may either assume the Company’s rights and obligations under the outstanding awards or substitute substantially equivalent awards. However, if an outstanding award is not assumed or replaced, the 2006 LTIP provides that the vesting and exercisability of the award shall accelerate, effective 10 days prior to the Change-in-Control. Awards that are not assumed, replaced or exercised prior to the Change-in-Control will terminate. The 2006 LTIP defines a “Change-in-Control” of the Company as any of the following events upon which the stockholders of the Company immediately before the event do not retain immediately after the event, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the event, direct or indirect beneficial ownership of more than 50% of the total combined voting power of the stock of the Company, its successor or the corporation to which the assets of the Company were transferred: (1) a sale or exchange by the stockholders in a single or series of related transactions of more than 50% of the Company’s voting stock; (2) a merger or consolidation in which the Company is a party; (3) the sale, exchange or transfer of all or substantially all of the assets of the Company; or (4) a liquidation or dissolution of the Company.
 
Duration, Amendment and Termination
 
The Board may amend or terminate the 2006 LTIP at any time. If not earlier terminated, the 2006 LTIP expires on the tenth anniversary of the date it was originally approved by the stockholders. No amendment authorized by the Board will be effective unless approved by the stockholders of the Company if the amendment would (1) increase the number of shares reserved under the 2006 LTIP; (2) change the class of persons eligible to receive incentive stock options; or (3) modify the 2006 LTIP in any other way that requires stockholder approval under applicable law.
 
Awards Granted to Certain Persons
 
The aggregate number of shares of common stock subject to awards granted to certain persons under the 2006 LTIP in the last completed fiscal year are as follows: (1) Paul E. Jacobs, Chief Executive Officer, 915,000 shares; (2) William E. Keitel, Executive Vice President and Chief Financial Officer, 375,000 shares; (3) Steven R. Altman, President, 545,000 shares; (4) Len J. Lauer, Executive Vice President and Chief Operating Officer, 295,000 shares; (5) Steven M. Mollenkopf, Executive Vice President and President, Qualcomm CDMA Technologies, 295,000 shares; (6) all current executive officers as a group, an aggregate of 3,445,000 shares; (7) all current directors who are not executive officers as a group, an aggregate of 122,500 shares; and (8) all employees, including current officers who are not executive officers, as a group, an aggregate of 37,272,190 shares.
 
Federal Income Tax Information
 
The following discussion is intended to be a general summary only of the federal income tax aspects of awards granted under the 2006 LTIP and not of state or local taxes that may apply to awards under the 2006 LTIP. Tax consequences may vary depending on particular circumstances, and administrative and judicial interpretations of the application of the federal income tax laws are subject to change. Participants in the 2006 LTIP who are residents of or are employed in a country other than the United States may be subject to taxation in accordance with the tax laws of that particular country in addition to or in lieu of United States federal income taxes.
 
Incentive Stock Options. An optionee recognizes no taxable income for regular income tax purposes as the result of the grant or exercise of an incentive stock option. Optionees who do not dispose of their shares for at least two years following the date the incentive stock option was granted or within one year following the exercise of the option normally will recognize a long-term capital gain or loss equal to the difference, if any, between the sale price and the purchase price of the shares. If an optionee satisfies both such holding periods upon a sale of the shares, the Company will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of shares either within two years after the date of grant or within one year from the date of exercise (referred to as a “disqualifying disposition”), the difference between the fair market value of the shares on the exercise date and the


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option exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be treated as a capital gain. If a loss is recognized, it will be a capital loss. A capital gain or loss will be long-term if the optionee’s holding period is more than 12 months. Any ordinary income recognized by the optionee upon the disqualifying disposition of the shares generally should be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code or the regulations thereunder. The difference between the option exercise price and the fair market value of the shares on the exercise date of an incentive stock option is an adjustment in computing the optionee’s alternative minimum taxable income and may be subject to an alternative minimum tax, which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to optionees subject to the alternative minimum tax.
 
Nonstatutory Stock Options and Stock Appreciation Rights.  Nonstatutory stock options and stock appreciation rights have no special tax status. A holder of these awards generally does not recognize taxable income as the result of the grant of such award. Upon exercise of a nonstatutory stock option or stock appreciation right, the holder normally recognizes ordinary income in an amount equal to the difference between the exercise price and the fair market value of the shares on the exercise date. If the holder is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of stock acquired by the exercise of a nonstatutory stock option or stock appreciation right, any gain or loss, based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss. A capital gain or loss will be long-term if the holding period of the shares is more than 12 months. The Company generally is entitled to a deduction equal to the amount of ordinary income recognized by the optionee as a result of the exercise of a nonstatutory stock option or stock appreciation right, except to the extent such deduction is limited by applicable provisions of the Code or the regulations thereunder. No tax deduction is available to the Company with respect to the grant of a nonstatutory stock option or stock appreciation right or the sale of the stock acquired pursuant to such grant.
 
Restricted Stock.  A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value of the shares on the “determination date.” The determination date is the date on which the participant acquires the shares unless the shares are subject to a substantial risk of forfeiture and are not transferable, in which case the determination date is the earlier of (i) the date on which the shares become transferable or (ii) the date on which the shares are no longer subject to a substantial risk of forfeiture. If the determination date is after the date on which the participant acquires the shares, the participant may elect, pursuant to Section 83(b) of the Code, to have the date of acquisition be the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date on which the shares are acquired. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.
 
Performance and Restricted Stock Unit Awards.  A participant generally will recognize no income upon the receipt of a performance share, performance unit or restricted stock unit award. Upon the settlement of such an award, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any substantially vested shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. If the participant receives shares of restricted stock, the participant generally will be taxed in the same manner as described under “Restricted Stock.” Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the determination date (as defined under “Restricted Stock”), will be taxed as capital gain or loss. The Company generally is entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.


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Deferred Compensation Awards.  A participant generally will recognize no income upon the receipt of a deferred compensation award. Upon the settlement of the award, the participant normally will recognize ordinary income in the year of settlement in an amount equal to the fair market value of the shares received. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value of the shares on the date they were transferred to the participant, will be taxed as capital gain or loss. The Company generally is entitled to a deduction equal to the amount of ordinary income recognized by the participant, except to the extent such deduction is limited by applicable provisions of the Code. Deferred compensation awards, when granted, would generally be subject to the requirements of Section 409A of the Code, which would impose certain restrictions on the timing and form of payment of deferred compensation.
 
Potential Limitation on Company Deductions.  In accordance with applicable regulations issued under Section 162(m), compensation attributable to stock options and stock appreciation rights will qualify as performance-based compensation, provided that: (1) the 2006 LTIP contains a per-employee limitation on the number of shares for which options or stock appreciation rights may be granted during a specified period; (2) the per-employee limitation is approved by the stockholders; (3) the option is granted by a compensation committee comprised solely of outside directors (as defined in Section 162(m) of the Code); and (4) the exercise price of the option or right is not less than the fair market value of the stock on the date of grant. For the above reasons, our 2006 LTIP provides for an annual per employee limitation as required under Section 162(m), and our Compensation Committee is comprised solely of outside directors. Accordingly, options or stock appreciation rights granted by the Compensation Committee qualify as performance-based compensation, and the other awards subject to performance goals may also qualify.
 
Equity Compensation Plan Information
 
Information about our equity compensation plans at September 27, 2009 that were either approved or not approved by our stockholders was as follows (number of shares in millions):
 
                         
    Number of Shares to
             
    be Issued Upon
    Weighted Average
    Number of Shares
 
    Exercise of
    Exercise Price of
    Remaining Available
 
Plan Category
  Outstanding Options     Outstanding Options     for Future Issuance  
 
Equity compensation plans approved by stockholders (1)
    217     $ 38.31       70  (2)
Equity compensation plans not approved by stockholders
                 
Total (3)
    217     $ 38.31       70  
 
 
(1) Consists of six plans: our 1991 Stock Option Plan, 2001 Stock Option Plan, 2006 Long-Term Incentive Plan, 1998 Non-Employee Directors’ Stock Option Plan, 2001 Non-Employee Directors’ Stock Option Plan and the Amended and Restated 2001 Employee Stock Purchase Plan.
 
(2) Includes approximately 4 million shares reserved for issuance under the Amended and Restated 2001 Employee Stock Purchase Plan.
 
(3) Excludes options assumed in connection with mergers and acquisitions. Approximately 2,523,000 shares of our common stock were issuable upon exercise of these assumed options. These options have a weighted average exercise price of $27.37 per share. No additional options may be granted under these assumed arrangements.
 
Required Vote and Board Recommendation
 
The affirmative vote of a majority of the votes cast at the Annual Meeting, at which a quorum is present, either in person or by proxy, is required to approve the proposed amendment to the 2006 LTIP discussed above. If you hold your shares in your own name and abstain from voting on this matter, your abstention will have no effect on the vote. If you hold your shares through a broker and you do not instruct the broker on how to vote on this proposal, your broker will not have the authority to vote your shares. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum, but will not have any effect on the outcome of the proposal.


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Should stockholder approval not be obtained, then the proposed amendments will not be implemented, and the 2006 LTIP will continue in effect pursuant to its current terms.
 
The Board believes that the proposed amendment to the 2006 LTIP is in the best interests of the Company and its stockholders for the reasons stated above. THEREFORE, THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE PROPOSED AMENDMENT TO THE 2006 LTIP FOR THE INCREASE IN THE SHARE RESERVE BY 13,000,000 SHARES.
 
PROPOSAL 3
 
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
 
The Audit Committee of the Board has selected PricewaterhouseCoopers LLP as our independent public accountants for the fiscal year ending September 26, 2010, and the Board has directed that management submit the selection of independent public accountants for ratification by the stockholders at the Annual Meeting. PricewaterhouseCoopers LLP has audited our consolidated financial statements since we commenced operations in 1985. Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
 
Stockholder ratification of the selection of PricewaterhouseCoopers LLP as our independent public accountants is not required by our Amended and Restated Bylaws or otherwise. However, the Board is submitting the selection of PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee at its discretion may direct the appointment of a different independent accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.
 
Fees for Professional Services
 
The following table presents fees for professional services rendered by PricewaterhouseCoopers LLP for the audit of our annual financial statements for the years ended September 27, 2009 and September 28, 2008 and fees for other services rendered by PricewaterhouseCoopers LLP during those periods.
 
                 
    Fiscal 2009     Fiscal 2008  
 
Audit fees (1)
  $ 5,369,000     $ 4,993,000  
Audit-related fees (2)
    2,708,000       1,916,000  
All other fees (3)
    8,000       11,000  
                 
Total
  $ 8,085,000     $ 6,920,000  
                 
 
 
(1) Audit fees consist of fees for professional services rendered for the audit of our annual consolidated financial statements and review of the interim condensed consolidated financial statements included in quarterly reports and services that are normally provided by PricewaterhouseCoopers LLP in connection with statutory and regulatory filings. Audit fees also include fees for professional services rendered for the audits of the effectiveness of our internal control over financial reporting.
 
(2) Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “audit fees.” This category includes fees principally related to field verification of royalties from licensees.
 
(3) All other fees were comprised of fees related to technical publications purchased from the independent public accountant.


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Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Public Accountants
 
The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the independent public accountants. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is subject to a budget. The Audit Committee has delegated pre-approval authority to certain committee members when expedition of approval is necessary. The independent public accountants and management periodically report to the full Audit Committee regarding the extent of services provided by the independent public accountants and the fees for the services performed to date. All services rendered by PricewaterhouseCoopers LLP during fiscal 2009 and 2008 were pre-approved by the Audit Committee.
 
Required Vote and Board Recommendation
 
The affirmative vote of a majority of the votes cast at the meeting at which a quorum is present, either in person or by proxy, is required to approve this proposal. Abstentions will be counted as present for purposes of determining the presence of a quorum but will not have any effect on the outcome of the proposal.
 
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING SEPTEMBER 26, 2010.
 
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth certain information regarding the ownership of our common stock as of December 14, 2009 by: (i) each director and nominee for director; (ii) each of our executive officers named in the “Summary Compensation Table” under “Executive Compensation and Related Information” (the Named Executive Officers or NEOs); and (iii) all of our executive officers and directors as a group. Based on currently available Schedules 13D and 13G filed with the SEC, we do not know of any beneficial owners of more than 5% of our common stock.
 
                 
    Amount and Nature of
 
    Beneficial Ownership (1)  
    Number of
    Percent of
 
Name of Beneficial Owner
  Shares     Class  
 
Paul E. Jacobs (2)
    5,337,295       *  
William E. Keitel (3)
    1,369,511       *  
Steven R. Altman (4)
    2,203,754       *  
Len J. Lauer (5)
    581,635       *  
Steven M. Mollenkopf (6)
    434,755       *  
Barbara T. Alexander (7)
    50,000       *  
Stephen M. Bennett (8)
    10,000       *  
Donald G. Cruickshank (9)
    87,633       *  
Raymond V. Dittamore (10)
    127,200       *  
Thomas W. Horton (11)
    2,200       *  
Irwin Mark Jacobs (12)
    25,417,856       1.52 %
Robert E. Kahn (13)
    283,300       *  
Sherry Lansing (14)
    22,333       *  
Duane A. Nelles (15)
    271,140       *  
Brent Scowcroft (16)
    533,499       *  
Marc I. Stern (17)
    665,474       *  
All Executive Officers and Directors as a Group (24 persons) (18)
    41,294,645       2.44 %
 
 
Less than 1%.


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(1) This table is based upon information supplied by officers and directors. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 1,673,577,965 shares outstanding on December 14, 2009, adjusted as required by rules promulgated by the SEC.
 
(2) Includes 790,696 shares held in family trusts, 745,538 shares held in Grantor Retained Annuity Trusts for the benefit of Dr. Paul Jacobs and his spouse and 119,946 shares held for the benefit of Dr. Paul Jacobs’s children. Dr. Paul Jacobs disclaims beneficial ownership for all the shares held in trust for the benefit of his children. Also includes 3,680,115 shares issuable upon exercise of options exercisable within 60 days of which 804,546 are held in trusts for the benefit of Dr. Paul Jacobs and/or his spouse and 431,768 are held by Dr. Paul Jacobs’s spouse.
 
(3) Includes 1,369,917 shares issuable upon exercise of options exercisable within 60 days.
 
(4) Includes 132,088 shares held in family trusts and 2,071,666 shares issuable upon exercise of options exercisable within 60 days.
 
(5) Includes 1,053 shares held jointly with his spouse and 580,582 shares issuable upon exercise of options exercisable within 60 days. Mr. Lauer submitted his resignation from his positions with the Company in December 2009.
 
(6) Includes 434,401 shares issuable upon exercise of options exercisable within 60 days.
 
(7) Includes 5,000 shares held in family trusts and 50,000 shares issuable upon exercise of options exercisable within 60 days. Excludes 3,056 fully vested deferred stock units and dividend equivalents that settle three years after the date of grant.
 
(8) Includes 10,000 shares held jointly with his spouse. Excludes 2,856 fully vested deferred stock units and dividend equivalents that settle on December 31, 2020.
 
(9) Includes 8,200 shares held in a pension plan pursuant to which Sir Donald Cruickshank has voting rights and discretion over the holdings in the plan. Also includes 79,433 shares issuable upon exercise of options exercisable within 60 days.
 
(10) Includes 7,400 shares held in family trusts and 119,800 shares issuable upon exercise of options exercisable within 60 days. Excludes 4,584 fully vested deferred stock units and dividend equivalents that settle on December 31, 2020.
 
(11) Includes 2,200 shares held jointly with his spouse.
 
(12) Includes 3,862,152 shares held in family trusts and 18,607,412 shares held in Grantor Retained Annuity Trusts for the benefit of Dr. Irwin Jacobs and his spouse. Dr. Irwin Jacobs shares voting power with his spouse for shares owned through these trusts. Also includes 2,948,292 shares issuable upon exercise of options exercisable within 60 days, of which 411,881 shares are held by Dr. Irwin Jacobs’s spouse.
 
(13) Includes 159,800 shares issuable upon exercise of options exercisable within 60 days.
 
(14) Includes 2,245 shares held in family trusts and 20,088 shares issuable upon exercise of options exercisable within 60 days.
 
(15) Includes 111,340 shares held in family trusts and 159,800 shares issuable upon exercise of options exercisable within 60 days.
 
(16) Includes 372,699 shares held in Grantor Annuity Trusts for the benefit of Mr. Scowcroft and 159,800 shares issuable upon exercise of options exercisable within 60 days.
 
(17) Includes 284,500 shares held by the Beatrice B. Corporation of which Mr. Stern is the president and sole owner, 240,585 shares owned through a grantor trust, of which Mr. Stern is the trustee. Also includes 140,389 shares issuable upon exercise of options exercisable within 60 days. Includes 525,085 shares pledged by Mr. Stern. Excludes 3,616 fully vested deferred stock units and dividend equivalents that settle three years after the date of grant.
 
(18) Includes 15,814,178 shares issuable upon exercise of options exercisable within 60 days for all directors and executive officers as a group. Also includes 525,085 shares pledged by one director. Excludes 70,197 deferred stock units, restricted stock units and related dividend equivalents.


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Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act requires our directors, executive officers and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater-than-10-percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
 
To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, all Section 16(a) filing requirements were complied with during fiscal 2009, except for the following: a late Form 4 was filed to report a grant of phantom stock under the Executive Retirement Matching Contribution Plan (the ERMC Plan) for Mr. Altman in fiscal 2009; a late Form 5 was filed to report a gift by Mr. Altman in fiscal 2006; three late Forms 4 were filed to report a sale of shares and distributions from a Grantor Retained Annuity Trust by Dr. Paul Jacobs in fiscal 2009 that were reported late by his broker; a Form 5 was filed to report a late transaction for the distribution of shares to Dr. Irwin Jacobs from the ERMC Plan and the related sale of shares to cover taxes on the distribution upon his transition from being an employee of the Company in fiscal 2009; and a late Form 5 was filed to report a gift by Dr. Irwin Jacobs in fiscal 2009 that was reported late by his broker.
 
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
 
None of the members of our Compensation Committee are, or have been, employees or officers of the Company. During fiscal 2009, no member of the Compensation Committee had any relationship with us requiring disclosure under Item 404 of Regulation S-K. During fiscal 2009, none of our executive officers served on the compensation committee (or equivalent) or board of another entity whose executive officer(s) served on our Compensation Committee or Board.
 
CERTAIN RELATIONSHIPS AND RELATED-PERSON TRANSACTIONS
 
Our code of ethics states that our executive officers and directors, including their immediate family members, are charged with avoiding situations in which their personal, family or financial interests conflict with those of the Company. In accordance with its charter, the Audit Committee is responsible for reviewing and approving related-person transactions between the Company and any directors or executive officers. The Compensation Committee reviews compensation-related transactions with directors or executive officers (such as base salary and annual cash incentives). Any request for us to enter into a transaction with an executive officer or director, or any of such person’s immediate family members or affiliates, which would be reportable as a related-person transaction, must be presented to our Audit Committee for review and approval. In considering the proposed agreement, our Audit Committee will consider the relevant facts and circumstances and the potential for conflicts of interest or improprieties.
 
During fiscal 2009, we employed the family members of certain directors and executive officers. Those employees whose compensation exceeded $120,000 are discussed below, all of whom were adults who did not live with the related director or executive officer. Each family member is compensated according to our standard practices, including participation in our employee benefit plans generally made available to employees of a similar responsibility level. We do not view any of the directors or executive officers as having a beneficial interest in the described transactions that is material to them or the Company. Moreover, none of the following directors or executive officers believe that they have a direct or indirect material interest in the employment relationships of the listed family members. Options were granted under our 2006 Long-Term Incentive Plan and have exercise prices that were equal to the closing price of our stock on the date of grant. Such options vest according to the following schedule: 10% of the shares subject to the option vest on the six-month anniversary of the date of grant, with ratable monthly vesting over the remaining five-year vesting period. Generally, vesting is contingent upon continued service with the Company. Options granted under any of our stock option plans have a term of 10 years.


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Dr. Paul E. Jacobs and Jeffrey A. Jacobs are the sons of Dr. Irwin Mark Jacobs, a director of the Company. Dr. Paul Jacobs serves as our Chairman and Chief Executive Officer (CEO). Dr. Paul Jacobs was compensated as described below under the heading “Executive Compensation and Related Information.”
 
Dr. Irwin Mark Jacobs serves as a director of the Company. Dr. Irwin Jacobs served as an executive officer of the Company through March 3, 2009 and earned $321,111 in base salary during fiscal 2009.
 
Jeffrey A. Jacobs served as Executive Vice President and Chief Marketing Officer through July 8, 2009 and earned $169,714 in base salary during fiscal 2009.
 
Duane A. Nelles’s son, Duane A. Nelles III, serves as Vice President, Business Development. During fiscal 2009, Duane A. Nelles III earned $227,307 in base salary and $107,000 in cash incentives and received a stock option grant for 11,500 shares of our stock at an exercise price of $34.99 per share and a second grant for 20,000 shares at an exercise price of $41.36 per share.
 
Steven R. Altman’s brother, Jeffrey S. Altman, serves as Vice President, Business Development. Jeffrey Altman earned $185,423 in base salary and $45,000 in cash incentives during fiscal 2009 and received a stock option grant for 3,500 shares of our common stock at an exercise price of $34.99 per share and a second grant for 5,500 shares at an exercise price of $41.36 per share.
 
COMPENSATION COMMITTEE REPORT
 
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis (CD&A) with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in our 2010 Proxy Statement.
 
COMPENSATION COMMITTEE
 
Stephen M. Bennett, Chair
Brent Scowcroft
Marc I. Stern
 
COMPENSATION DISCUSSION AND ANALYSIS
 
In this section we discuss and analyze our compensation program and the specific amounts of compensation paid to our Chief Executive Officer (CEO), Chief Financial Officer (CFO) and the other three most highly compensated executive officers for fiscal 2009. Collectively, we refer to these individuals as the “Named Executive Officers” or the “NEOs.” They are:
 
  •  Dr. Paul E. Jacobs, Chairman and CEO, has 19 years of service with Qualcomm and has been CEO since July 2005 and Chairman since March 2009.
 
  •  Mr. William E. Keitel, Executive Vice President (EVP) and CFO, has 13 years of service with Qualcomm and has been CFO since February 2002.
 
  •  Mr. Steven R. Altman, President, has 20 years of service with Qualcomm and has been President since July 2005.
 
  •  Mr. Len J. Lauer, EVP and Chief Operating Officer (COO), has 3 years of service with Qualcomm and had been COO since August 2008. In December 2009, Mr. Lauer submitted his resignation from his positions with the Company.
 
  •  Mr. Steven M. Mollenkopf, EVP and President, Qualcomm CDMA Technologies (QCT), has 15 years of service with Qualcomm and has been President, QCT since August 2008.


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Summary for Fiscal 2009
 
We paid for performance.  Our pay-for-performance approach encourages our NEOs to achieve our annual financial objectives and build value for long-term stockholders.
 
In fiscal 2009, global demand for 3G-enabled products and services remained strong despite the economic environment. We reduced our selling, general and administrative expenses and staffing levels while continuing to grow our research and development program. We achieved 98% of our pro forma revenues objective and 107% of our adjusted pro forma operating income objective. Compared to fiscal 2008, pro forma revenues were down 7% and adjusted pro forma operating income was down 11%. Because we place more relative weight on adjusted pro forma operating income performance relative to pro forma revenues performance, our annual cash incentive program was funded at 25% more than the target incentive for meeting our financial performance objectives.
 
Dr. Jacobs’s fiscal 2009 annual cash incentive was $3.6 million, which was 28% more than the target annual cash incentive of $2.8 million. The annual cash incentives for the other NEOs ranged from approximately 10% to 31% more than their respective target annual cash incentives. With the exception of Dr. Jacobs and Mr. Mollenkopf, the annual cash incentives for fiscal 2009 were less than the annual cash incentives for fiscal 2008. At the beginning of fiscal 2009, the Compensation Committee increased Dr. Jacobs’s base salary and target annual cash incentive (expressed as a percentage of base salary) to position his target annual cash compensation at the median of our peer group. This higher target amount contributed to Dr. Jacobs’s fiscal 2009 annual cash incentive being more than the $2.9 million he received for fiscal 2008. Mr. Mollenkopf’s fiscal 2008 annual cash incentive reflected his partial-year tenure as President of QCT and therefore was less than his fiscal 2009 annual cash incentive.
 
The stock options our NEOs received during the first quarter of fiscal 2009 were granted at an option exercise price of $35.66, the closing price of our stock on the date of grant. The closing price of our stock on the last day of fiscal 2009 was $44.70, a 25% appreciation from the price on the grant date. These options become fully vested five years after the grant date and have a 10 year term.
 
We continued to enhance our compensation program structure.  We introduced the following two enhancements to our compensation program, both of which were effective on January 1, 2009:
 
  •  We established a policy that the Company would not pay the tax liability associated with reimbursements to our NEOs for non-business-related benefits related to financial, estate and tax planning services.
 
  •  We adopted a cash incentive compensation repayment (“claw back”) policy that applies to our NEOs and other executive officers. See “Other Key Policies and Practices” below.
 
We continued the foundation of our compensation program.  The foundation of our compensation program includes the following features, which have been in place for several years:
 
  •  Our program philosophy, design and practices ensure consistent leadership, decision-making and actions among our NEOs in a manner that requires innovation, execution and partnering without taking inappropriate or unnecessary risks.
 
  •  Maximum amounts are established that may be awarded from our annual cash incentive program and we maintain stock ownership guidelines so that we do not encourage excessive risk-taking.
 
  •  Our compensation program for NEOs consists of four components: (1) base salary; (2) annual cash incentives; (3) long-term incentives in the form of stock options; and (4) benefits.
 
  •  We balance our compensation program to include: (1) a fixed component of base salary with variable components of annual cash incentives and long-term incentives; and (2) annual components of base salary and cash incentives with a long-term component in the form of stock options.
 
  •  Approximately 90% of our NEOs’ compensation is performance-based and realized only if we achieve our annual financial performance objectives and our stock price increases above the option exercise price over the option term.


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  •  Our NEOs and other executive officers do not have guaranteed severance agreements or employment contracts, and we do not have a predefined severance policy or plan for the involuntary termination of employees.
 
  •  Our compensation program is subject to a thorough process that includes Compensation Committee review and approval of program design and practices; the advice of an independent, third-party compensation consultant engaged by the Compensation Committee who does no other work for management; and long-standing, consistently applied practices with respect to the timing and pricing of stock option grants.
 
Compensation Program Objectives and What We Reward
 
Our compensation program has five primary objectives:
 
  •  Align the interests of our NEOs and long-term stockholders;
 
  •  Pay for performance;
 
  •  Deliver pay that is competitively reasonable and appropriate for our business needs and circumstances;
 
  •  Be tax efficient for the Company; and
 
  •  Reflect high standards for corporate governance and compensation-related risk management.
 
Our compensation program rewards our NEOs when they achieve our annual financial performance objectives, build stockholder value and maintain long-term careers with Qualcomm. We reward these three aspects so that the executive team will make annual and long-term decisions that appropriately consider opportunities and risks and result in consistent financial performance, product innovation and collaboration within Qualcomm and with its customers and suppliers.
 
Risk Management
 
The following practices ensure consistent leadership, decision-making and actions among our NEOs in a manner that requires innovation, execution and partnering without taking inappropriate or unnecessary risks:
 
  •  The financial performance objectives of our annual cash incentive program are the budgeted objectives that are reviewed and approved by the Board of Directors.
 
  •  We generally use the same financial performance measures for our annual cash incentive programs for the NEOs, other executive officers, non-officer executives (senior vice presidents and vice presidents) and non-executive employees.
 
  •  Our variable compensation awards (annual cash incentives and long-term incentives in the form of stock options) are at the discretion of the Compensation Committee and not formulaic.
 
  •  We have a policy that requires repayment of any cash incentive amount based on financial results that were subsequently restated when the executive officer engaged in theft, dishonesty or intentional falsification.
 
  •  The financial opportunity in our long-term incentive program is best realized through long-term appreciation of our stock price, which also mitigates excessive short-term risk-taking.
 
  •  Because of our stock ownership guidelines, our NEOs could lose significant value if our stock price were exposed to inappropriate or unnecessary risks.
 
  •  We balance short- and long-term decision-making with the annual cash incentive program and stock options that vest over a number of years.
 
Key Components of Our NEO Compensation Program
 
The following three tables summarize the key components of our NEO compensation program. The first table includes the principal components of our pay-for-performance approach. The second table includes benefit programs that are available only to our NEOs and other employees in vice president or senior vice president


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roles. The third table includes benefit programs that are generally available to all of our U.S.-based employees, including our NEOs.
 
Principal Components of our Pay-for-Performance Approach (1)
 
                 
Component
 
Purpose
  Form   Pay-for-Performance  
Comment
 
Base salary   Provide sufficient competitive pay to attract and retain experienced and successful executives.   Cash   Adjustments to base salary consider individual performance and contributions to the business, as well as competitive practices and internal comparisons.   Annual fixed cash compensation. Base salary reflects the employee’s level of responsibility, expertise, skills, knowledge and experience.
                 
Annual
cash
incentive
  Encourage and reward valuable contributions to our annual financial performance objectives.   Cash   The potential amount that may be awarded varies relative to the degree to which we achieve our annual pro forma revenues and pro forma operating income objectives and the extent to which the NEO contributes to strategic and operational objectives.   Annual variable cash compensation. The Compensation Committee, at its sole discretion, determines the amount of the annual cash incentive each year.
                 
Long-term
incentive
  Encourage and reward building long-term stockholder value. Align interests of NEOs and stockholders. Retain NEOs through the potential of long-term wealth creation.   Stock
options
  The potential appreciation in our stock price above the option exercise price motivates our NEOs to build stockholder value. NEOs may realize an amount only if our stock price appreciates over the option term.   Long-term variable stock-based compensation. The Compensation Committee, at its sole discretion, determines the number of stock options awarded each year. We encourage stock ownership through guidelines applicable to all of our executive officers.
 
 
(1) All of our employees receive a base salary and are eligible to participate in our annual cash incentive program and substantially all of our employees are eligible to participate in our long-term incentive programs.


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Other Components of Our Compensation Program Available Only to U.S.-Based Executive-Level
Employees
 
             
Component
 
Purpose
 
Form
 
Comment
 
Nonqualified
deferred
compensation
  Provide a tax-efficient retirement savings opportunity. Encourage retention and building long-term stockholder value through a Company contribution in the form of Qualcomm stock (Match Shares).   Qualcomm
stock (Match
Shares)
  We match 50% of a participant’s deferred base salary and/or cash incentive, up to a maximum of 20% of the aggregate of a participant’s base salary and annual cash incentive, less the 401(k) Plan maximum match contribution limit, in the form of Qualcomm stock (Match Shares). The Match Shares are subject to a four-year vesting schedule.
             
Supplemental
health care
  Attract and retain executive-level employees.   Limited
coverage
above the
basic health
plan
  For each NEO and eligible dependent, the supplemental health plan provides a maximum annual coverage limit of $7,500 above the basic health plan coverage.
             
Financial
planning
reimbursement
  Attract and retain executive-level employees. Assist NEOs to efficiently manage time.   Reimbursement
of actual
expenses
incurred
for financial,
estate and
tax planning
  Annual maximum reimbursement of up to $12,500 for the Chairman and CEO and the President and up to $8,000 for the other NEOs. We do not pay the tax liability associated with the reimbursement (i.e., no “gross up”) effective January 1, 2009.
             
Additional
life insurance
  Attract and retain executive-level employees.   Additional
coverage,
above the
amount
provided to
all employees
  The additional coverage is $1 million for the Chairman and CEO and $750,000 for the other NEOs.
             
Use of
corporate
aircraft for
personal
travel
  Facilitate flexible travel arrangements and security.   Imputed
taxable
income
  Our NEOs are not allowed to reimburse the Company for the cost for personal flights or for the incremental cost of non-business guests because we do not operate our aircraft on a “for hire” basis under applicable Federal Aviation Administration regulations.


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Other Components of Our Compensation Program Available to All U.S.-Based Employees
 
             
Component
 
Purpose
 
Form
 
Comment
 
Tax qualified
deferred
compensation
  Provide a tax-efficient retirement savings opportunity. Attract and retain employees.   401(k) Plan   The 401(k) Plan is a voluntary, tax-qualified deferred compensation plan. We match employee contributions in cash using a tiered structure in order to encourage participation among all employees.
             
Employee
Stock
Purchase Plan
(ESPP)
  Encourage long-term stock ownership and align employee and stockholder interests. Attract and retain employees.   Qualcomm
stock
  A tax-qualified, voluntary ESPP available to all U.S.-based employees. (We also make a non-tax-qualified ESPP available to employees based in other countries provided we are able to comply with local regulations.) Annual purchases are limited to $25,000 per employee, through payroll deductions, including the purchase price discount. The purchase price is equal to 85% of the lower of: (1) the fair market value (FMV) on the first day of the six-month offering period or (2) the FMV on the last day of the six-month offering period.
             
Charitable
contribution
match
  Encourage and extend employees’ support of cultural, educational and community non-profit organizations.   Matching
cash paid
to the
charitable
organization
  We match 100% of employee contributions, up to predefined maximum amounts, to qualified tax-exempt non-profit organizations, excluding organizations that further religious doctrine, exclusionary organizations and/or political non-profit organizations. The maximum annual amount we will match is based on the employee’s job level. We will match up to $125,000 for our Chairman and CEO and the President and up to $100,000 annually for the other NEOs.
             
Entertainment
and charitable
events
  Reward and recognize employee contributions and employee team building.   Tickets/passes
to attend
various
events
  We purchase tickets to various sporting, civic, cultural, charity and entertainment events for business purposes. If not used for business purposes, we may make these tickets available to our employees, including our NEOs, as a form of reward and recognition.
 
Post-Employment Compensation
 
We do not have employment agreements.  We employ all U.S.-based employees, including our NEOs, “at will,” without severance agreements or employment contracts. This is consistent with our objective of providing


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compensation related to individual contributions that improve our market leadership, competitive advantage and stockholder value. It enables our Board to terminate employment with discretion as to the terms and conditions of any separation.
 
We do not have a pre-defined severance plan.  We do not have a pre-defined severance plan covering the involuntary termination of employees, including the NEOs. While a portion of unvested stock options may be accelerated in certain severance situations under the provisions of our stock option plans, we do not accelerate unvested stock options in the event of an involuntary “for cause” termination. Such terminations may involve theft, dishonesty, falsification, actions that are detrimental to the Company, conviction of a criminal act that impairs the performance of duties required by the Company or violation of a material Company policy.
 
Treatment of unvested stock options following involuntary termination without good cause.  We accelerate 10% of unvested stock options under certain involuntary terminations that are not for cause, subject to execution of a general release of claims. The award agreements for stock options granted on or after September 28, 2009, provide for accelerating 10% of unvested stock options plus a prorated amount based on the months of service since the last vesting tranche. We made this change concurrent with changes to our standard vesting schedule from five-year vesting to four-year vesting and from monthly vesting following the initial vesting tranche to six-month vesting following the initial vesting tranche.
 
Treatment of unvested stock options following a change-in-control.  If a change-in-control (as defined in our 2006 Long-Term Incentive Plan (LTIP)) occurs and our outstanding stock options are not assumed or substituted with a substantially similar award, the Compensation Committee may accelerate the vesting of all outstanding stock options. In addition, our stock option agreements include a “double trigger” in which vesting of stock options is accelerated if, within 24 months after a change-in-control, the stock option recipient is involuntarily terminated for any reason other than for cause or if the stock option recipient voluntarily resigns “for good reason” (as defined in the stock option award agreements).
 
Determining the Amount of Compensation for Our NEOs
 
The amount of compensation we provide our NEOs is intended to be:
 
  •  Competitively reasonable and appropriate for our business needs and circumstances.  We consider competitive compensation practices by other companies as reference points that the Compensation Committee may use for comparative purposes. We do not target specific benchmark percentiles.
 
  •  Internally fair and equitable relative to roles, responsibilities and work relationships.  Management and the Compensation Committee may consider certain business and individual factors to evaluate internal fairness and equity. We do not attempt to establish specific internal relationships among the NEOs.
 
  •  Variable from year-to-year based on the Company’s performance and individual performance (“pay-for-performance”).  Our annual cash incentive program and long-term incentives provide compensation to our NEOs that is only realizable when we achieve our financial performance objectives and the price of its stock appreciates above the stock option exercise price during the option term.
 
  •  Tax efficient to the Company and executives.  Our compensation programs are designed and administered to comply with sections 162(m) and 409A of the Internal Revenue Code.
 
We consider competitive compensation practices.  One objective of our compensation program is to provide amounts that are competitively reasonable and appropriate in the talent market for our business needs and circumstances. We conduct analyses using compensation data disclosed in SEC filings for the purpose of establishing reference points (i.e., the statistical median and the 75th percentile) that we use to compare our NEOs’ compensation to that provided by peer companies.
 
Peer companies for fiscal 2009.  The Compensation Committee’s independent compensation consultant, Frederic W. Cook & Co., Inc. (FWC), identified potential peer companies that had all of the following characteristics with regard to Qualcomm:
 
  •  Principal business in a related industry segment;
 
  •  Broadly similar in revenues and market capitalization;


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  •  Comparable performance-based compensation model; and
 
  •  Commonly used as peers of peers (i.e., the peer companies disclosed by the companies we used as peers).
 
Peer Companies for Fiscal 2009 (1)
 
         
Adobe Systems
  Amazon   Apple
Applied Materials
  AT&T   Broadcom
Cisco
  Comcast   Corning
Dell
  eBay   Electronic Arts
EMC
  Google   Hewlett Packard
IBM
  Intel   Microsoft
Motorola
  NVIDIA   Oracle
Sprint Nextel
  Texas Instruments   Time Warner
United Technologies
  Verizon   Viacom
Walt Disney
  Yahoo!    
 
 
(1) This list does not include the same companies for comparison of our stock performance.
 
Peer Company Data for Fiscal 2009 (1)
(Dollars in billions)
 
                                 
                Qualcomm’s
    Range   Median   Qualcomm   Percentile
 
Market Capitalization
  $ 10.4 - $264.8     $ 47.5     $ 66.8       62nd  
Revenues (trailing four quarters)
  $ 3.2 - $118.9     $ 23.8     $ 9.3       24th  
Net Income (trailing four quarters)
  $ (29.6) - $17.0     $ 2.8     $ 3.4       55th  
1-Year TSR(2)
    (65%) - 79%       (2) %     (3) %     48th  
3-Year TSR(2)
    (31%) - 51%       5 %     5 %     42nd  
 
 
(1) The peer company data reported was as of April 2008, the time at which FWC prepared the peer company analysis.
 
(2) Total shareholder return (TSR) includes gains from increases in stock price and assumes any dividends paid are reinvested. The percentage is calculated by dividing (a) the increase or decrease in the stock price plus the dividends paid during the period by (b) the stock price at the beginning of the period.
 
We consider business and individual factors.  In addition to compensation amounts that are competitively reasonable and appropriate, we intend for our compensation amounts to be internally fair and equitable relative to roles, responsibilities and relationships among our NEOs. Accordingly, we also consider many other factors in the process of determining compensation levels for each NEO, including:
 
  •  The Compensation Committee’s evaluation of the CEO and other NEOs;
 
  •  Individual performance and contributions to financial goals such as pro forma revenues, pro forma operating income, pro forma net income, free cash flow and pro forma operating expenses;
 
  •  Operational management, such as project milestones and process improvements;
 
  •  Internal working and reporting relationships and our desire to encourage collaboration and teamwork among our NEOs;
 
  •  Individual expertise, skills and knowledge;
 
  •  Leadership, including developing and motivating employees, collaborating within Qualcomm, attracting and retaining employees and personal development;


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  •  Labor market conditions, the need to retain and motivate the NEO, and the NEO’s potential to assume increased responsibilities and long-term value to the Company; and
 
  •  Information and advice from an independent, third-party compensation consultant engaged by the Compensation Committee.
 
We do not have a predefined framework that determines which of these factors may be more or less important, and the emphasis placed on specific factors may vary among the NEOs. Ultimately, it is the Compensation Committee’s judgment of these factors, along with competitive data, that form the basis for determining the CEO’s compensation. The Compensation Committee and the CEO follow a similar practice to determine the basis of the other NEOs’ compensation.
 
We consider tax regulations.  A goal of the Compensation Committee is to comply with the requirements of Internal Revenue Code Sections 162(m) and 409A. Section 162(m) places a $1 million annual limit on the amount that a public company may deduct for compensation paid to the CEO and the other three most highly compensated NEOs, excluding the CFO. We refer to these four executive officers as 162(m) covered officers. The $1 million limit does not apply if the compensation meets Section 162(m) requirements for performance-based compensation (i.e., the compensation is based on pre-established objective performance goals based on criteria approved by stockholders and is determined and administered according to related regulations). Compliance with Section 162(m) did not influence the allocation of compensation among base salary, target annual cash incentives and long-term incentives for fiscal 2009. We designed and administered our fiscal 2009 cash incentive program as cash-denominated performance units granted under the 2006 LTIP to be eligible for tax deductions to the extent permitted by the relevant tax regulations, including Section 162(m). The 2009 cash incentive program established the maximum amounts payable to covered officers, which were not exceeded by the target or actual payments to those individuals. Stock options granted under the 2006 LTIP also qualify as performance-based compensation. From time-to- time, we may pay compensation to our 162(m) covered officers that may not be tax deductible if there are compelling business reasons to do so.
 
Under Section 409A, amounts deferred by a NEO under a nonqualified deferred compensation plan (such as the ERMC Plan) may be included in gross income when earned and subject to a 20% additional federal tax for the individual, unless the plan complies with certain requirements related to the timing of deferral election and distribution decisions. Nonqualified stock options are generally exempt from Section 409A if the option satisfies certain requirements (i.e., the exercise price is not less than the fair market value of our stock on the grant date, the number of shares subject to the options is fixed on the grant date, and there is no deferral feature beyond exercise). We administer the ERMC Plan and stock option awards in accordance with Section 409A requirements.
 
Other factors that may influence the amount of compensation for our NEOs.
 
Consultants and advisors.  The Compensation Committee has the authority to retain and terminate any independent, third-party compensation consultant and to obtain independent advice and assistance from internal and external legal, accounting and other advisors. During fiscal 2009, the Compensation Committee engaged an independent executive compensation consulting firm, FWC, to advise them on compensation matters. FWC reported directly to the Compensation Committee. We did not engage FWC for any additional services during fiscal 2009 beyond its support of the Compensation Committee. Pursuant to this engagement, FWC:
 
  •  Provided information, insights and advice regarding compensation philosophy, objectives and strategy;
 
  •  Recommended peer group selection criteria and identified and recommended potential peer companies;
 
  •  Provided analyses of competitive compensation practices for executive officers and non-employee directors;
 
  •  Provided analyses of aggregate equity compensation spending;
 
  •  Reviewed and commented on recommendations regarding NEO compensation; and
 
  •  Researched and advised the Compensation Committee on specific issues as they arose.
 
Representatives from FWC attended all Compensation Committee meetings during fiscal 2009 and interacted with the Committee Chair, members of our human resources staff and outside legal counsel prior to and following


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Compensation Committee meetings. We paid $181,349 in fees to FWC during fiscal 2009, all for work that was directly in support of the Compensation Committee and execution of its charter.
 
The Compensation Committee also sought and received advice from our outside legal counsel, DLA Piper. The total rewards management department within our human resources organization supported the Compensation Committee in its work, collaborated with FWC and DLA Piper, conducted analyses and managed our compensation and benefit programs.
 
Compensation or amounts realizable from prior compensation.  FWC prepared and reviewed with the Compensation Committee an analysis of the carried interest and wealth accumulation of our NEOs based on the current and potential values of their stock options and ownership of our stock. The Compensation Committee and the CEO reviewed these analyses as part of their broader consideration of alignment with stockholder interests and NEO retention and determined that the potential values provide strong alignment between the interests of the NEOs and stockholders. The Compensation Committee also determined to not include the amounts of annual cash incentives and the amounts realized or realizable from prior stock option awards in establishing compensation amounts for fiscal 2009 because annual cash incentives are awarded for fiscal year performance, and stock options are forward-looking long-term incentives awarded as part of the direct compensation that the Compensation Committee establishes each year. The Compensation Committee believes that reducing stock option awards because of prior gains could penalize our executive officers for their long-term service and past performance.
 
CEO involvement in compensation decisions.  After the end of the fiscal year, the Compensation Committee and the CEO discussed our business performance, his performance and his evaluation of and compensation recommendations for the other NEOs. The Compensation Committee, without the CEO present, determined the CEO’s base salary, annual cash incentive and stock option award. The Compensation Committee also approved the base salaries, annual cash incentives and stock option awards for the other NEOs.
 
Other Key Policies and Practices
 
We have a cash incentive compensation repayment (“claw back”) policy.  Effective January 1, 2009, we adopted a policy that would require an executive officer, including a NEO, to repay to us the amount of any annual cash incentive that an executive officer received to the extent that:
 
  •  The amount of such payment was based on the achievement of certain financial results that were subsequently the subject of a restatement that occurs within twelve months of such payment;
 
  •  The executive officer had engaged in theft, dishonesty or intentional falsification of our documents or records that resulted in the obligation to restate; and
 
  •  A lower annual cash incentive would have been paid to the executive officer based upon the restated financial results.
 
The Compensation Committee is responsible for the interpretation and enforcement of this repayment policy.
 
We have long-standing practices regarding the timing, grant date and exercise price for stock option awards.  We have a long-standing and consistent practice of awarding annual stock options to the NEOs during the first quarter of our fiscal year. The Compensation Committee approves base salaries, annual cash incentives and stock options at the same time to facilitate consideration of total direct compensation to NEOs. We may award stock options upon hiring a new NEO, and we may award stock options upon a promotion or change in roles and responsibilities of a NEO. The exercise price of all stock options is the fair market value (i.e., closing price) on the grant date and the number of shares subject to the options is fixed on the grant date.
 
We have stock ownership guidelines.  Our stock ownership guidelines for all of our executive officers, including our NEOs, help ensure that they maintain an equity stake in the Company, and by doing so, appropriately link their interests with those of other stockholders. Only shares actually owned and deferred stock units under the ERMC Plan count towards the equity ownership requirement. Outstanding unexercised stock options do not count towards the requirement. Dr. Jacobs and Messrs. Altman and Keitel are required to achieve these stock ownership levels by September 2011 (five years after the Board of Directors adopted the guidelines). Mr. Mollenkopf is required to achieve these guidelines by May 2013 (five years after becoming an executive officer). If a NEO has not


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met the guidelines by the deadline, we will require that the NEO, upon a stock option exercise, hold at least 50% of the net shares remaining after required tax withholdings until they meet the minimum guideline. The guidelines are as follows:
 
         
Role
  Multiple of Base Salary  
 
CEO
    5 X  
President
    3 X  
President of QCT
    3 X  
All other executive officers
    2 X  
 
Although no NEO is required to satisfy the guideline until 2011 at the earliest, four of the NEOs (Dr. Jacobs and Messrs. Altman, Keitel and Mollenkopf) have met their ownership guidelines as of September 27, 2009.
 
Discussion of NEO Compensation for Fiscal 2009
 
In the first quarter of fiscal 2009, the Compensation Committee determined base salaries, target annual cash incentives and long-term incentives for the NEOs. The Compensation Committee considered information from FWC’s competitive analysis, the business and individual factors described above, tax efficiency and the CEO’s recommendations for the other NEOs in determining these amounts. The “Fiscal 2009 Target Direct Compensation” table reports the base salary, target annual incentive and long-term incentives for NEOs, the resulting target direct compensation (TDC) and how it compares to competitive practice, the portion that is “at risk” and the internal relationship of the CEO to the other NEOs. The Compensation Committee reviewed these relationships but did not use or attempt to establish specific internal compensation relationships among the NEOs.
 
Fiscal 2009 Target Direct Compensation
 
                                                     
          Target Annual
          Target Direct
    TDC Position
  Percent of
       
    Base
    Cash
    Long-Term
    Compensation
    Relative to
  TDC “at
    CEO TDC
 
    Salary
    Incentive
    Incentive
    (TDC)
    Competitive
  risk”
    Multiple
 
    ($) (1)     ($)     ($) (2)     ($) (3)     Practice   (%) (4)     (#) (5)  
 
Paul E. Jacobs
    1,125,010       2,812,524       12,243,249       16,180,783     At median     93          
William E. Keitel
    670,010       737,011       5,017,725       6,424,745     At 75th Percentile (P75)     90       2.5  
Steven R. Altman
    810,014       1,012,518       7,292,427       9,114,959     Between median and P75     91       1.8  
Len J. Lauer
    660,005       726,005       3,947,277       5,333,287     Slightly below P75     88       3.0  
Steven M. Mollenkopf
    660,005       726,005       3,947,277       5,333,287     Slightly below P75     88       3.0  
 
 
(1) The NEOs’ 2009 base salaries were effective on December 27, 2008.
 
(2) These amounts reflect the estimated fair value of stock options granted in fiscal 2009 as determined using a binomial option-pricing model with the following assumptions: 41.7% volatility; 3.0% risk-free interest rate; 1.5% dividend rate; 9.0% post-vesting forfeiture rate and 1.9 suboptimal exercise factor. These are not indicative of whether the NEO will realize the estimated fair value or any financial benefit from the awards. The potential appreciation in our stock price above the exercise price of the stock options, not the estimated fair value used for accounting purposes at the grant date, motivates and retains our NEOs.
 
(3) TDC is the sum of base salary, target annual cash incentive and long-term incentive.
 
(4) The percent of TDC “at risk” is the sum of the target annual cash incentive and long-term incentive divided by TDC.
 
(5) The CEO TDC multiple is the ratio of the CEO’s TDC divided by the individual NEO’s TDC. For example, Dr. Jacobs’s TDC is 2.5 times greater than Mr. Keitel’s TDC.
 
Fiscal 2009 annual cash incentive program.  During the first quarter of fiscal 2009, the Compensation Committee, after consultation with the CEO and review by the Board of Directors, established pro forma revenues


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and pro forma operating income objectives for the fiscal 2009 annual cash incentive program. These two pro forma operating objectives were used because they:
 
  •  Focus the executive officer team on overall business growth and profitability;
 
  •  Provide direct linkage between decisions and outcomes; and
 
  •  Are two key factors that influence stockholder value.
 
Pro forma objectives exclude the Qualcomm Strategic Initiatives (QSI) segment, certain estimated share-based compensation, certain tax items and acquired in-process research and development expense. The Compensation Committee determined that pro forma objectives, rather than objectives based on generally accepted accounting principles (GAAP), enable evaluation of operating results on a consistent and comparable basis. The QSI segment, estimated share-based compensation and certain tax items are excluded because we view such items as unrelated to our operational performance. Acquired in-process research and development is excluded because we view such expense as unrelated to the operating activities of our ongoing business. To encourage profitable growth, we have a 60% relative weighting on pro forma operating income and a 40% relative weighting on pro forma revenues. Prior to fiscal 2009, pro forma earnings before tax (EBT) was used for the earnings measure rather than pro forma operating income. This change was made because, unlike pro forma EBT, pro forma operating income does not include net investment income, which is not related to company operations that is the plan’s performance focus. The major disruptions in U.S. and foreign credit and financial markets that emerged during 2008 could have continued to impact the value of our marketable securities portfolio in a manner that may not have reflected our NEOs’ performance in 2009. Given the unprecedented volatility and the significant judgments involved, establishing appropriate objectives for the performance of our investment portfolio would have been extremely difficult.
 
The “Fiscal 2009 Annual Cash Incentive Calculation” table below reports our pro forma revenues, pro forma operating income objectives and the adjusted pro forma results for fiscal 2009. We achieved 98% and 107% of our pro forma revenues and adjusted pro forma operating income objectives for fiscal 2009, respectively. These levels of performance, when applied to the formula approved by the Compensation Committee at the beginning of fiscal 2009, resulted in an incentive target multiple of 1.25. (See the narrative under “Grants of Plan-Based Awards” that provides a detailed description of the cash incentive program design and formula.) To calculate each NEO’s performance-adjusted incentive amount, we multiplied (a) the target incentive multiple by (b) the target annual cash incentive. (See the table titled “Fiscal 2009 Company Performance-Adjusted Incentive Amounts.”)
 
Fiscal 2009 Annual Cash Incentive Calculation
 
                                                                                 
    Adjusted
                                                       
    Pro Forma
          Fiscal 2009
                                  Weighted
       
    Results
          Objective
          Achievement
          Relative
          Achievement
       
Pro Forma Financial Metric
  (000 $)     ¸     (000 $)     =     Ratio     ×     Weighting     =     Ratio        
 
Revenues
    10,386,322               10,650,400               0.98               0.40               0.39          
Operating Income (1)
    4,093,448               3,818,600               1.07               0.60       +       0.64          
                                                                                 
                                                      Sum       =       1.03          
                                                                                 
                                    Target Incentive Multiple (2,3)     1.25          
 
 
(1) Adjusted pro forma results exclude charges related to the Broadcom Corporation (Broadcom) and Korea Fair Trade Commission (KFTC) matters (see below).
 
(2) See the section titled “Annual Cash Incentive Program” under the “Grants of Plan-Based Awards” for a discussion of how we calculate the target incentive multiple.
 
(3) The target incentive multiple has been rounded to the nearest hundredth.


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The fiscal 2009 annual cash incentive program authorized the Compensation Committee to exclude certain items from pro forma revenues and pro forma operating income for calculating financial performance. For fiscal 2009, the Compensation Committee adjusted pro forma operating income to exclude the following items:
 
  •  In April 2009, we entered into a Settlement and Patent License and Non-Assert Agreement with Broadcom. Under the agreement, we agreed to pay Broadcom $891 million through April 2013, of which we recorded a $783 million litigation settlement charge. Fiscal 2009 pro forma operating income was adjusted to exclude this charge. The Compensation Committee determined that it was appropriate to exclude this charge because it was an infrequent item and not indicative of our operating performance, the settlement was consistent with our strategy goal to protect and defend our business model and the exclusion of significant and infrequent items is consistent with our established practices. The Compensation Committee’s consultants, FWC, noted that among large market cap, publicly-traded companies, a sizeable majority do not recognize significant and infrequent items when determining NEO incentive awards.
 
  •  In July 2009, the KFTC announced (although a written decision had not yet been issued as of the date the executives’ annual cash incentives were approved by the Compensation Committee) that it found us to be in violation of South Korean law by offering certain discounts and rebates for purchases of our CDMA chips and that it would levy a fine, for which we recorded a $230 million charge, as well as order us to cease the practices at issue. Fiscal 2009 pro forma operating income was adjusted to exclude this charge. The Compensation Committee determined that it was appropriate to exclude this charge because it was an infrequent item and not indicative of our operating performance, we had not yet been afforded the opportunity to discuss the findings with the KFTC, and we intend to appeal the KFTC findings.
 
Compared to fiscal 2008, our fiscal 2009 pro forma revenues and adjusted pro forma operating income used to calculate the target incentive multiple were 7% and 11% lower, respectively. The fiscal 2009 target incentive multiple of 1.25 is 21% below the fiscal 2008 target incentive multiple of 1.59. Results of applying the 1.25 target incentive multiple to each NEO’s target annual cash incentive are shown in the following table.
 
Fiscal 2009 Company Performance-Adjusted Incentive Amounts
 
                                         
    Target
                      Company
 
    Annual
          Target
          Performance-
 
    Cash
          Incentive
          Adjusted
 
    Incentive
          Multiple
          Incentive
 
Name
  ($)     *     (#)     =     ($)  
 
Paul E. Jacobs
    2,812,524               1.25               3,515,655  
William E. Keitel
    737,011               1.25               921,263  
Steven R. Altman
    1,012,518               1.25               1,265,648  
Len J. Lauer
    726,005               1.25               907,507  
Steven M. Mollenkopf
    726,005               1.25               907,507  
 
Fiscal 2009 annual stock option awards.  We do not have a formulaic approach for calculating the number of stock options awarded to each NEO. Rather, the Compensation Committee exercises its discretion to award an amount that is reasonable and appropriate after it has considered several factors, including:
 
  •  Individual performance and contributions;
 
  •  Competitive practice among our peer companies;
 
  •  The business and individual factors described earlier;
 
  •  Internal fairness and equitability;
 
  •  The estimated grant date fair value of an equity award; and
 
  •  The resulting target direct compensation when the fair value of the award is combined with base salary and the target annual cash incentive.


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Discussion of compensation for Dr. Paul Jacobs, Chairman and CEO.
 
Dr. Jacobs’s total direct compensation for fiscal 2009 was 6.8% less than his fiscal 2008 amount. During the first quarter of fiscal 2009, the Compensation Committee increased Dr. Jacobs’s base salary to $1,125,010 and his target annual cash incentive to 250% of base salary from 175% for fiscal 2008 to position his target annual cash compensation near the median of our peer group. At Dr. Jacobs’s request, the Compensation Committee reduced his base salary by 25% to an annual rate of $843,752, effective February 14, 2009. His voluntary reduction was in conjunction with several company-wide cost-containment initiatives that included foregoing the non-executive employees’ semi-annual merit increase in the Spring of 2009 and the executive level employees’ annual merit increase in the fall of 2009. At the time the Compensation Committee reduced Dr. Jacobs’s base salary, it determined that his base salary would be readjusted to the previous amount of $1,125,010 at the beginning of fiscal 2010 and that the fiscal 2009 annual cash incentive would be calculated based on the original salary level, not the voluntarily reduced amount. The stock option award granted in November 2008 (see the “Grants of Plan-Based Awards” table) had a grant date fair value of $12.2 million. This, combined with the total cash compensation of $4.6 million, resulted in total direct compensation of $16.8 million.
 
Total Direct Compensation
 
                         
    Fiscal 2009
    Fiscal 2008
    Change
 
    ($)     ($)     (%)  
 
Base salary
    964,427       1,112,218       (13.3 )
Annual cash incentive
    3,600,000       2,900,000       24.1  
                         
Total cash compensation
    4,564,427       4,012,218       13.8  
Annual stock option award (grant date fair value)
    12,243,249       14,021,335       (12.7 )
                         
Total direct compensation
    16,807,676       18,033,553       (6.8 )
                         
 
After the end of fiscal 2009, the Compensation Committee awarded Dr. Jacobs a fiscal 2009 annual cash incentive of $3.6 million. This was approximately 24% more than the $2.9 million annual cash incentive he received for fiscal 2008 due to the increases in base salary and target annual cash incentive described above. In determining Dr. Jacobs’s annual cash incentive, the Compensation Committee considered the performance-adjusted incentive amount of $3.5 million and his leadership in the following accomplishments:
 
  •  We demonstrated strong operating performance, driven by continued 3G growth, execution in our chipset business and disciplined management of operating expenses.
 
  •  We further developed our capabilities of innovation, execution, partnership, leadership and employee development and retention, and our culture of high performance. We continued our strong investments in research and development, while reducing other operating expenses in a recessionary climate.
 
  •  We returned $1.38 billion to stockholders in the form of cash dividends and the repurchase of our common stock and grew our cash, cash equivalents and marketable securities portfolio from $11.3 billion to $17.7 billion.
 
  •  We continued to identify and develop strategies to increase future revenues and stockholder value. We are extending the life of CDMA with DO Rev A and B, 1x Advanced and HSPA+ and enhancing our multimedia capabilities through the acquisition of certain graphics and multimedia technology assets, intellectual property and resources.
 
  •  We reached a global settlement and multi-year patent agreement with Broadcom Corporation that ended all pending litigation between our companies.
 
  •  We continued to build positive strategic partnerships. We formed the nPhase joint venture with Verizon Wireless, furthered our Wireless Reach initiative that brings the benefits of connectivity to developing communities and created the West Wireless Health Institute, one of the world’s first medical research organizations dedicated to advancing health and well-being through the use of wireless technologies.


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Discussion of compensation for Mr. Keitel, CFO.
 
Mr. Keitel’s total direct compensation for fiscal 2009 was 18% less than his fiscal 2008 amount. During the first quarter of fiscal 2009, the Compensation Committee increased Mr. Keitel’s base salary from the 2008 level. Base salary includes vacation match payments payable under our vacation policy. The stock option award granted in November 2008 (see the “Grants of Plan-Based Awards” table) had a grant date fair value of $5.0 million. This, combined with the total cash compensation of $1.6 million, resulted in total direct compensation of $6.7 million.
 
Total Direct Compensation
 
 
                         
    Fiscal 2009
    Fiscal 2008
    Change
 
    ($)     ($)     (%)  
 
Base salary
    684,004       689,707       (0.8 )
Annual cash incentive
    950,000       1,150,000       (17.4 )
                         
Total cash compensation
    1,634,004       1,839,707       (11.2 )
Annual stock option award (grant date fair value)
    5,017,725       6,272,703       (20.0 )
                         
Total direct compensation
    6,651,729       8,112,410       (18.0 )
                         
 
After the end of fiscal 2009, the Compensation Committee awarded Mr. Keitel a fiscal 2009 annual cash incentive of $950,000. This was approximately 17% less than the $1.2 million annual cash incentive he received for fiscal 2008, primarily due to the lower target incentive multiple. In determining Mr. Keitel’s cash incentive, the Compensation Committee considered Dr. Jacobs’s assessment of Mr. Keitel’s performance, the performance-adjusted incentive amount of $921,263 and his leadership in the following accomplishments:
 
  •  We demonstrated strong operating performance and remain well positioned to drive innovation with our strong balance sheet and operating cash flow while maintaining our focus on overall operating expenses.
 
  •  We maintained our excellence with accounting quality and transparent, robust disclosures.
 
  •  We achieved excellent returns on our substantial cash and marketable security holdings despite the worldwide credit crisis, ending fiscal 2009 with a net unrealized gain of $674 million following a $1.5 billion portfolio appreciation in the second half of the fiscal year.
 
  •  We successfully completed an Internal Revenue Service (IRS) audit for 2005 through 2007, and we recorded a tax benefit of $155 million as a result of tax audits. We continued to progress towards being a member of the IRS’s elite Compliance Assurance Process (a real-time audit process) and remain on target to be fully compliant with our fiscal 2009 tax return.
 
  •  We upheld best practices for earnings conference calls, analyst meetings and full disclosure, demonstrated by being recognized as one of the top companies for investor relations and financial management.
 
Discussion of compensation for Mr. Altman, President.
 
Mr. Altman’s total direct compensation for fiscal 2009 was 14% less than his fiscal 2008 amount. During the first quarter of fiscal 2009, the Compensation Committee increased Mr. Altman’s base salary from the 2008 level to $810,014. At Mr. Altman’s request, the Compensation Committee reduced his base salary by 25% to an annual rate of $607,506, effective February 14, 2009. His voluntary reduction was in conjunction with several company-wide cost-containment initiatives that included foregoing the non-executive employees’ semi-annual merit increase in the Spring of 2009 and the executive level employees’ annual merit increase in the fall of 2009. At the time the Compensation Committee reduced Mr. Altman’s base salary, it determined that his base salary would be readjusted to the previous amount of $810,014 at the beginning of fiscal 2010 and that the fiscal 2009 annual cash incentive would be calculated based on the original salary level, not the voluntarily reduced amount. The stock option award granted in November 2008 (see the “Grants of Plan-Based Awards” table) had a grant date fair value of $7.3 million.


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This, combined with the total cash compensation of $2.0 million, resulted in total direct compensation of $9.3 million.
 
Total Direct Compensation
 
                         
    Fiscal 2009
    Fiscal 2008
    Change
 
    ($)     ($)     (%)  
 
Base salary
    708,045       817,351       (13.4 )
Annual cash incentive
    1,260,000       1,475,000       (14.6 )
                         
Total cash compensation
    1,968,045       2,292,351       (14.1 )
Annual stock option award (grant date fair value)
    7,292,427       8,486,598       (14.1 )
                         
Total direct compensation
    9,260,472       10,778,949       (14.1 )
                         
 
After the end of fiscal 2009, the Compensation Committee awarded Mr. Altman a fiscal 2009 annual cash incentive of $1.3 million. This was approximately 15% less than the $1.5 million annual cash incentive he received for fiscal 2008 primarily due to the lower target incentive multiple. In determining Mr. Altman’s cash incentive, the Compensation Committee considered Dr. Jacobs’s assessment of Mr. Altman’s performance, the performance-adjusted incentive amount of $1.27 million and his leadership in the following accomplishments:
 
  •  Mr. Altman demonstrated leadership in the negotiations with Broadcom Corporation that resulted in a global settlement and multi-year patent agreement and ended all pending litigation between our companies.
 
  •  Mr. Altman provided oversight and active participation in several negotiations that resulted in new technology license agreements for various wireless technologies.
 
  •  Mr. Altman exhibited leadership and guidance on various acquisitions and participation in discussions with carriers.
 
  •  Mr. Altman participated in discussions with government agencies and political leaders regarding important patent reform and standards issues critical to our licensing program.
 
Discussion of compensation for Mr. Lauer, EVP & COO.
 
Mr. Lauer’s total direct compensation for fiscal 2009 was 20% less than his fiscal 2008 amount. During the first quarter of fiscal 2009, the Compensation Committee increased Mr. Lauer’s base salary from the 2008 level to recognize his expanded responsibilities following his promotion to COO in August 2008. The stock option award granted in November 2008 (see the “Grants of Plan-Based Awards” table) had a grant date fair value of $3.9 million. This, combined with the total cash compensation of $1.4 million, resulted in total direct compensation of $5.4 million.
 
Total Direct Compensation
 
                         
    Fiscal 2009
    Fiscal 2008
    Change
 
    ($)     ($)     (%)  
 
Base salary
    637,123       545,632       16.8  
Annual cash incentive
    800,000       1,000,000       (20.0 )
                         
Total cash compensation
    1,437,123       1,545,632       (7.0 )
Annual stock option award (grant date fair value)
    3,947,277       5,165,755       (23.6 )
                         
Total direct compensation
    5,384,400       6,711,387       (19.8 )
                         
 
After the end of fiscal 2009, the Compensation Committee awarded Mr. Lauer a fiscal 2009 annual cash incentive of $800,000. This was approximately 20% less than the $1.0 million annual cash incentive he received for fiscal 2008 due to the lower target incentive multiple. In determining Mr. Lauer’s cash incentive, the Compensation


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Committee considered Dr. Jacobs’s assessment of Mr. Lauer’s performance, the performance-adjusted incentive amount of $907,507 and his leadership in the following accomplishments:
 
  •  We formed the nPhase joint venture with Verizon Wireless for Global Smart Services (machine-to-machine) business.
 
  •  We repositioned FLO TV for expanded devices, distribution and entry into direct-to-consumer markets.
 
  •  We repositioned BREW to an open, multi-platform application suite with Plaza and secured initial customers América Móvil and TIM Brazil.
 
  •  We obtained multiple design wins for mirasol displays and continued our focus on color architecture and our entry into high-end devices and larger screen sizes.
 
  •  We enhanced our brand and relationships with key stakeholders, including growing chip share and service agreements with European operators and successful involvement with GSMA.
 
Discussion of compensation for Mr. Mollenkopf, EVP and President of QCT.
 
Mr. Mollenkopf’s total direct compensation for fiscal 2009 was 72% more than his fiscal 2008 amount. During the first quarter of fiscal 2009, the Compensation Committee increased Mr. Mollenkopf’s base salary from the 2008 level to recognize his expanded responsibilities following his promotion to President of QCT in August 2008. The stock option award granted in November 2008 (see the “Grants of Plan-Based Awards” table) had a grant date fair value of $3.9 million. This, combined with the total cash compensation of $1.6 million, resulted in total direct compensation of $5.5 million.
 
Total Direct Compensation
 
                         
    Fiscal 2009
    Fiscal 2008
    Change
 
    ($)     ($)     (%)  
 
Base salary
    637,123       346,038       84.1  
Annual cash incentive
    950,000       800,000       18.8  
                         
Total cash compensation
    1,587,123       1,146,038       38.5  
Annual stock option award (grant date fair value)
    3,947,277       2,072,118       90.5  
                         
Total direct compensation
    5,534,400       3,218,156       72.0  
                         
 
After the end of fiscal 2009, the Compensation Committee awarded Mr. Mollenkopf a fiscal 2009 annual cash incentive of $950,000. This was approximately 19% more than the $800,000 annual cash incentive he received for fiscal 2008, primarily due to the increases in his base salary and resulting target annual cash incentive. In addition, Mr. Mollenkopf’s fiscal 2008 annual cash incentive reflected his tenure as President of QCT for only a portion of the fiscal year. In determining Mr. Mollenkopf’s annual cash incentive, the Compensation Committee considered Dr. Jacobs’s assessment of Mr. Mollenkopf’s performance, the performance-adjusted incentive amount of $907,507 and his leadership in the following accomplishments:
 
  •  QCT achieved strong financial performance shipping 317 million MSMs and delivering $6.1 billion in revenues and $1.4 in earnings before tax, despite challenging market conditions.
 
  •  QCT continued its industry leadership, demonstrated by being recognized as the top fabless company, the top wireless chip company and the seventh largest semiconductor company worldwide in revenue.
 
  •  QCT demonstrated leadership in cellular products, with UMTS volume increasing 24% over fiscal year 2008 and the commercialization of the industry’s first 65nm UMTS and CDMA integrated radios.
 
  •  QCT was a leader in connectivity and wireless modules, with Gobi 2000 designed into 105 notebook models and the launch of inGeo on Sprint Nextel Corporation’s network.
 
  •  QCT was a leader in consumer and computer products, with the introduction of the smartbook category, penetration in the eBook segment and over 40 design wins for Snapdragon.


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  •  QCT strengthened our multimedia and software teams through the acquisition of AMD’s handheld team, the hiring of key new leaders, as well as architectural and organizational improvements.
 
Compensation Decisions for Our NEOs for Fiscal 2010
 
This section provides an update to compensation decisions and actions we made after the end of fiscal 2009. The Compensation Committee reviewed a competitive compensation analysis prepared by its compensation consultant, FWC, during the fourth quarter of fiscal 2009. The Compensation Committee met on November 9, 2009 and approved base salary, target annual cash incentives and long-term incentives that are summarized in the “Fiscal 2010 Compensation Decisions” table below.
 
During the past several years, we have monitored the evolution of our peer companies’ practices from a stock options only approach to a portfolio approach when providing equity to their NEOs. In previous years, the Compensation Committee had determined that stock options were the preferred equity vehicle to align the interests of our NEOs’ with our stockholders’ interests and to appropriately encourage, engage and retain our NEOs. We believe this has been an effective strategy and has benefitted our NEOs and all of our employees along with our long-term stockholders.
 
Starting in fiscal 2010, the Compensation Committee established a strategy to implement a portfolio approach for equity compensation for executive officers. Fiscal 2010 is a transition year that includes grants of stock options and performance-based stock units. The stock options have a 10-year term and vest 12.5% at the end of each six-month period over four years. The performance-based stock units are designed to award a variable amount of Qualcomm shares based on the relative performance of our total shareholder return compared to the NASDAQ 100. If our total shareholder return matches that of the NASDAQ 100, the NEO will receive 100% of the award amount. The maximum number of shares that may be earned is 125% of the award amount if our specified formula for total shareholder return on Company stock is 150% or greater than that of the NASDAQ 100. The minimum number of shares that may be earned is 75% of the award amount if our relative total shareholder return is 50% or less than that of the NASDAQ 100. The performance period is three years, from November 2, 2009 to October 31, 2012, and the performance-based stock units cliff-vest at the end of the performance period. The Compensation Committee, after consulting with Dr. Paul Jacobs and FWC, determined that this performance-based approach was appropriate based on the following considerations:
 
  •  The performance-based stock units are consistent with our stock option program because they align the interests of our NEOs and our stockholders and also provide the additional advantage of providing a retention tool under certain circumstances. Our past practice of granting only stock options may not provide the necessary ability to retain employees compared to our labor market competitors who have granted full-value shares in prior years, during periods in which the price of our stock may be volatile or flat, and stock options may not consistently provide retention value.
 
  •  We intend to further develop measures for performance shares to be implemented in fiscal 2011.
 
We believe we continue to offer an attractive capital investment opportunity to our stockholders. Providing a portfolio of stock-based compensation vehicles to our NEOs and other employees enables us to focus on certain strategic compensation objectives, including:
 
  •  Better managing our equity burn rate (the number of shares awarded during the year divided by total common shares outstanding) while we increase our staffing levels and maintain a broad-based equity program in which substantially all of our employees are eligible to receive equity awards;
 
  •  Better balancing of our NEOs’ equity portfolios, especially in times of high market volatility and when increases to our stock price may be constrained by external factors such as challenges to our business model; and
 
  •  Reinforcing our already strong capability to attract, retain and engage highly talented executives.


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The Compensation Committee met on December 15, 2009 and, based on discussions with the CEO, CFO and following review by the Board, approved pro forma revenues and pro forma operating income objectives for the fiscal 2010 annual cash incentive program.
 
  •  The pro forma revenues and pro forma operating income objectives are within the range we provided in our initial fiscal year earnings guidance of $10.5 billion to $11.3 billion and $4.0 billion to $4.5 billion, respectively.
 
  •  Pro forma operating income is weighted 60% and pro forma revenues are weighted 40%, consistent with fiscal 2009.
 
We believe the relative difficulty of achieving the fiscal 2010 objectives is consistent with the difficulty of achieving the fiscal 2009 objectives given the uncertain global economic conditions, which may lower consumer demand for our products and services and negatively affect our revenues and operating results.
 
Fiscal 2010 Compensation Decisions
 
                                 
          Annual Target
    Stock
    Performance-Based
 
    Base Salary
    Cash Incentive
    Options
    Stock Units
 
Name
  ($) (1)     ($)     (#)     (#)  
 
Paul E. Jacobs
    1,125,010       2,812,524       395,250       153,980  
William E. Keitel
    670,010       837,512       150,350       58,570  
Steven R. Altman
    810,014       1,134,020       231,500       90,190  
Len J. Lauer (2)
    660,005       726,005       113,150       44,090  
Steven M. Mollenkopf
    700,003       770,004       134,150       52,270  
 
 
(1) The NEOs’ 2010 base salaries were effective on December 26, 2009.
 
(2) Mr. Lauer submitted his resignation from his positions with the Company in December 2009.
 
EXECUTIVE COMPENSATION AND RELATED INFORMATION
 
The following tables, narratives and footnotes describe the total compensation and benefits for our NEOs for fiscal 2009. The values presented in the tables do not always reflect the actual compensation received by our NEOs during the fiscal year. In the narratives and footnotes, we disclose values actually realized by the NEOs.
 
Summary Compensation Table
 
Base Salary.  We have a long-standing practice of establishing NEOs’ base salaries concurrent with the calendar year. Salary increases during fiscal 2009 were effective on December 27, 2008. Thus, the base salaries reported in this table reflect approximately three months of earnings at the calendar 2008 rates and approximately nine months of earnings at the calendar 2009 rates. We reported the calendar year 2009 base salaries in the CD&A and noted that both Dr. Jacobs and Mr. Altman voluntarily asked that their base salaries be reduced by 25% during a portion of fiscal 2009. Base salary for certain NEOs as presented in this table includes vacation match payments payable under our vacation policy.
 
Bonus.  The amounts in this column represent discretionary bonuses to the NEOs including amounts received under our patent award program and new hire bonuses. We disclose the annual cash incentives in the “Non-Equity Incentive Plan Compensation” column.
 
Stock Awards.  The amounts in this column represent the fair value of fully vested, unrestricted stock awarded as part of the fiscal 2007 annual cash incentive program or the estimated fair value of restricted stock units recognized by us for accounting purposes as share-based compensation expense in fiscal 2009 because service was provided during fiscal 2009. The estimated fair value amounts were determined based on the fair value of our stock on the date of grant.


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Option Awards.  Option awards granted to NEOs include annual grants, promotion grants and new hire grants. The amounts in this column represent the estimated fair value of stock option awards recognized by us for accounting purposes as share-based compensation expense in fiscal 2009 because service was provided during fiscal 2009. The stock options that vested in fiscal 2009 were awarded in fiscal 2009 and in prior years under our 2001 Stock Option Plan and our 2006 LTIP. The estimated fair value amounts were determined using option-pricing models and are not indicative of whether the NEO has or will realize the estimated fair value or any financial benefit from the award. See the “Grants of Plan-Based Awards” table for details on the stock option awards granted to the NEOs during fiscal 2009.
 
Non-Equity Incentive Plan Compensation.  The amounts in this column represent cash awards under our annual cash incentive program. The relevant performance period was fiscal 2009. The Compensation Committee approved the annual cash incentives after the end of fiscal 2009; the NEOs received payment of their fiscal 2009 annual cash incentives in November 2009. See the CD&A section and the “Grants of Plan-Based Awards” table and narrative for a description of the incentive program mechanics.
 
Change in Pension Value and Nonqualified Deferred Compensation Earnings.  We do not offer a pension plan or other defined benefit retirement plan. The amounts in this column represent the combined earnings from the ERMC Plan (see the “Voluntary Retirement Savings Plans” section in the CD&A). Earnings include the change in the fair values of investments held in the ERMC Plan and the fair values of the Match Shares as established on the match date that vested under the ERMC Plan during fiscal 2009, as well as dividend earnings on the vested shares. We do not provide above-market or preferential earnings on deferred compensation, nor do we provide dividends on stock in the ERMC Plan at a rate higher than dividends on our common stock. These values do not represent actual compensation realized by the NEOs in fiscal 2009 because deferred compensation is not realized until it is paid to the NEO.
 
All Other Compensation.  See the “All Other Compensation” table for an itemized account of all other compensation.
 
Summary Compensation Table
 
                                                                         
                                        Change in
             
                                        Pension
             
                                        Value and
             
                                        Nonqualified
             
                                  Non-Equity
    Deferred
             
                      Stock
    Option
    Incentive Plan
    Compensation
    All Other
       
          Salary
    Bonus
    Awards
    Awards
    Compensation
    Earnings
    Compensation
    Total
 
Name and Principal Position
  Year     ($)     ($) (1)     ($)     ($)     ($)     ($)     ($)     ($)  
 
Paul E. Jacobs,
    2009       964,427       6,750             13,713,263       3,600,000       (4,489 )     616,462       18,896,413  
Chairman and
    2008       1,112,218       9,000             12,035,760       2,900,000       (1,170,816 )     524,462       15,410,624  
Chief Executive Officer
    2007       1,063,467       13,200       131,671       10,802,060       1,000,000       1,380,976       691,858       15,083,232  
William E. Keitel,
    2009       684,004                   5,989,983       950,000       178,576       264,197       8,066,760  
Executive Vice
    2008       689,707                   5,538,239       1,150,000       (500,489 )     145,764       7,023,221  
President and
Chief Financial Officer
    2007       659,321                   5,208,739       715,000       602,519       165,724       7,351,303  
Steven R. Altman,
    2009       708,045                   9,811,093       1,260,000       98,963       388,633       12,266,734  
President
    2008       817,351       1,500             9,151,305       1,475,000       (293,772 )     367,080       11,518,464  
      2007       862,813                   8,720,428       765,100       649,780       372,469       11,370,590  
Len J. Lauer,
    2009       637,123       300,000             4,103,664       800,000       140,765       193,742       6,175,294  
Executive Vice President and Chief Operating Officer
                                                                       
Steven M. Mollenkopf,
    2009       637,123             434,167       2,636,525       950,000       42,195       61,487       4,761,497  
Executive Vice President and President, QCT
                                                                       
 
 
(1) Dr. Jacobs received $6,750 from our patent award program; Mr. Lauer received $300,000 as a final payment in connection with a recruiting bonus related to his hiring by the Company.
 
The “All Other Compensation” table provides an itemized account of all other compensation reported in the “Summary Compensation Table.” Any individual item of compensation exceeding $10,000, except as discussed below under “Perquisites and Other Personal Benefits,” have been identified and quantified in accordance with SEC requirements.


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All Other Compensation
 
Perquisites and Other Personal Benefits.  The amounts disclosed represent the full amount of perquisites if the aggregate annual value exceeded $10,000, and each perquisite and other personal benefit is identified by type. If the aggregate annual value of perquisites was less than $10,000, no disclosure was made. We have identified and quantified individual perquisite amounts that exceeded $25,000 or 10% of the aggregate amount of all perquisites for any NEO.
 
Executive Retirement Matching Contribution Plan.  The amounts disclosed represent the dollar values of common stock used to match up to 10% of the aggregate of the participant’s base salary plus annual cash incentives, less any 401(k) contributions, deferred on a pre-tax basis under the ERMC Plan. The dollar values are based on the average of the fair market value of the stock over the 10 trading days preceding the match date. (See the “Voluntary Retirement Savings Plans” section in the CD&A for a description of the ERMC Plan.)
 
Charitable Match.  The amounts disclosed represent our matching contributions for NEO contributions to qualified, eligible IRS recognized non-profit organizations.
 
Company Match on 401(k) Contributions.  The amounts disclosed represent the cash value of our matches to employee contributions to the 401(k) plan.
 
Life Insurance Premiums.  The amounts disclosed represent the premiums paid for group term life insurance greater than $50,000 and executive life insurance.
 
All Other Compensation
 
                                                                 
    Perquisites
    Executive
                                     
    and Other
    Retirement
          Company
    Life
                All Other
 
    Personal
    Contribution
    Charitable
    Matching 401k
    Insurance
    Tax
          Compensation
 
    Benefits
    Match Plan
    Match
    Contributions
    Premiums
    Gross-Ups
    Other
    Total
 
Name
  ($) (1,2)     ($)     ($)     ($)     ($)     ($) (3)     ($)     ($)  
 
Paul E. Jacobs
    90,681       384,519       125,000       5,325       7,470       3,467             616,462  
William E. Keitel
          199,081       45,806       5,875       13,435                   264,197  
Steven R. Altman
    40,666       212,936       122,500       5,325       7,206                   388,633  
Len J. Lauer
    16,258       148,084       9,700       5,875       7,210       6,615             193,742  
Steven M. Mollenkopf
    11,086       40,009       900       5,325       3,120       1,047             61,487  
 
 
(1) The amounts in this column include: Dr. Jacobs — $78,691 for the personal use of our corporate aircraft and $11,990 for financial planning and other insurance premiums; Mr. Altman — for the personal use of our corporate aircraft, financial planning and other insurance premiums; Mr. Lauer — for financial planning and other insurance premiums; and Mr. Mollenkopf — for financial planning and other insurance premiums. Under certain limited circumstances, NEOs may use the corporate aircraft solely for personal purposes. In those instances, the value of the benefit is based on the aggregate incremental cost to the Company. The incremental cost is calculated based on the variable costs to the Company, including fuel costs, mileage, trip-related maintenance, universal weather-monitoring costs, on-board catering, landing/ramp fees and other miscellaneous variable costs. Fixed costs that do not change based on usage, such as pilot salaries and the cost of maintenance not related to specific flights, are excluded.
 
(2) We purchase tickets to various sporting, civic, cultural, charity and entertainment events. We use these tickets for business development, partnership building, charitable donations and community involvement. If not used for business purposes, we may make these tickets available to our employees, including our NEOs, as a form of recognition and reward for their efforts. Because we had already purchased these tickets, we do not believe that there is any aggregate incremental cost to us if a NEO uses a ticket for personal purposes.
 
(3) Tax gross-up amounts are associated with certain perquisites and other personal benefits paid prior to January 1, 2009, after which we no longer cover estimated tax liabilities on these benefits for NEOs.


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Grants of Plan-Based Awards
 
Annual Cash Incentive Program.  The Compensation Committee approved a target annual cash incentive, expressed as a percentage of base salary, for each NEO. The target annual cash incentive was the potential earnings opportunity for the NEO if we achieved 100% of our financial objectives for pro forma revenues and pro forma operating income. We structured the cash incentive program to provide different potential incentive earnings opportunities at various levels of financial performance. Below are a table and a graphic depiction of the relationship between the percentage of financial performance that is achieved (the Achievement Ratio) and the potential cash incentive opportunity as a percentage of the target annual cash incentive (the Target Incentive Multiple).
 
Potential Non-Equity Incentive Plan Payout and Associated Financial Performance Levels
 
                 
    Weighted
    Target
 
    Achievement
    Incentive
 
Potential Payout Level
  Ratio (1)     Multiple (2)  
 
Threshold
    80       0.30  
Target
    100       1.00  
Maximum
    150       2.50  
 
 
(1) The weighted achievement ratio is the result from actual financial results achieved for the fiscal year divided by financial objectives established during the first quarter of the fiscal year.
 
(2) The target incentive multiple is the percentage of potential cash incentive earnings relative to the target annual cash incentive. The target incentive multiple is applied to each NEO’s target annual cash incentive to calculate the company performance-adjusted incentive amount. For example, if we achieve only 80% of our financial objectives, the NEOs’ target annual cash incentives would be multiplied by 0.30 to calculate the company performance-adjusted incentive amounts.
 
Relationship between Financial Performance and Potential Cash Incentive Earnings (1)
 
(PERFORMANCE GRAPH)
 
 
(1) Below are the slopes and intercepts for the various segments used to calculate the Target Incentive Multiple from the Weighted Achievement Ratio:
 
  •  Weighted Achievement Ratio from 80% to 95% of the financial performance objective: Target Incentive Multiple = (Weighted Achievement Ratio * 2.2) -1.46.


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  •  Weighted Achievement Ratio from 95% to 110% of the financial performance objective: Target Incentive Multiple = (Weighted Achievement Ratio * 7.4) -6.4.
 
  •  Weighted Achievement Ratio from 110% to 150% of the financial performance objective: Target Incentive Multiple = (Weighted Achievement Ratio * 1.9) -0.35.
 
Stock Option Awards.  At its previously scheduled meeting in November 2008, the Compensation Committee approved annual, on-going stock option awards for the NEOs. The grant date was the same date that the Compensation Committee met and approved the awards. The exercise price was the closing price of our stock on the grant date.
 
The stock options reported are nonqualified stock options granted under the 2006 LTIP. Ten percent of the shares vest six months after the grant date and then in equal monthly installments over the next 54 months, becoming fully vested five years after the grant date. The options have a 10-year term. Generally, vesting is contingent upon continued service with Qualcomm.
 
The fair value amounts reported in the table below reflect the fair values of stock option awards that were granted in fiscal 2009 as estimated for accounting purposes using a binomial option-pricing model on the grant dates and are not indicative of whether the NEO will realize the estimated fair value or any financial benefit from the award.
 
Grants of Plan-Based Awards (1)
 
                                                             
                        All other
       
                        Option
  Exercise or
   
                        Awards:
  Base
  Grant Date
                        Number of
  Price of
  Fair Value of
            Estimated Future Payouts Under
  Securities
  Stock
  Stock
            Non-Equity Incentive Plan Awards   Underlying Stock
  Option
  Option
    Type of
  Grant
  Threshold
  Target
  Maximum
  Options
  Awards
  Awards
Name
 
Award
  Date   ($)   ($)   ($)   (#)   ($/Sh)   ($) (2)
 
Paul E. Jacobs
  Annual cash incentive program             843,750       2,812,500       7,031,250                          
    On-going equity award     11/7/2008                               915,000       35.66       12,243,249  
                                                             
William E. Keitel
  Annual cash incentive program             221,100       737,000       1,842,500                          
    On-going equity award     11/7/2008                               375,000       35.66       5,017,725  
                                                             
Steven R. Altman
  Annual cash incentive program             303,750       1,012,500       2,531,250                          
    On-going equity award     11/7/2008                               545,000       35.66       7,292,427  
                                                             
Len J. Lauer
  Annual cash incentive program             217,800       726,000       1,815,000                          
    On-going equity award     11/7/2008                               295,000       35.66       3,947,277  
                                                             
Steven M. Mollenkopf
  Annual cash incentive program             217,800       726,000       1,815,000                          
    On-going equity award     11/7/2008                               295,000       35.66       3,947,277  
 
 
(1) We do not have an equity incentive award program, nor did we award stock or stock units to any NEOs in fiscal 2009; therefore, we did not include these columns in this table.
 
(2) These amounts represent the estimated fair values of stock option awards as determined using a binomial option-pricing model and are not indicative of whether the NEO will realize the estimated fair value or any financial benefit from the award. For additional information on the valuation assumptions, refer to Note 1 of our consolidated financial statements in our Annual Report on Form 10-K for the year ended September 27, 2009, as filed with the SEC.


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Outstanding Equity Awards at Fiscal Year End
 
The “Outstanding Equity Awards at Fiscal Year End” table provides information on the current holdings of stock options by the NEOs. All stock options awarded to the NEOs were nonqualified stock options and are exercisable for ten years from the grant date. Thus, the grant date for the stock options reported is ten years prior to the expiration date. We have not granted performance shares, units or other rights to any NEOs in fiscal 2009. Therefore, we did not include columns for these types of awards in this table.
 
Outstanding Equity Awards at Fiscal Year End
 
                                                         
    Option Awards     Stock Awards  
                Equity Incentive
                         
                Plan Awards:
                         
    Number of
    Number of
    Number
                      Market Value
 
    Securities
    Securities
    of Securities
                Number of
    of Shares or
 
    Underlying
    Underlying
    Underlying
    Option
          Shares or Units
    Units of Stock
 
    Unexercised Options
    Unexercised Options
    Unexercised
    Exercise
    Option
    of Stock That
    That Have Not
 
    (#)
    (#)
    Unearned Options
    Price
    Expiration
    Have Not Vested
    Vested
 
Name
  Exercisable (1)     Unexercisable     (#)     ($)     Date     (#) (2)     ($)  
 
Paul E. Jacobs
    544,000                     29.21       11/29/2011                  
      1,041                     17.47       11/7/2012                  
      570,000       30,000               43.62       12/2/2014                  
      658,657       133,334               33.01       6/30/2015                  
      690,000       210,000               44.02       11/3/2015                  
      436,333       333,667               34.83       11/9/2016                  
      348,333       601,667               37.29       11/11/2017                  
      152,500       762,500               35.66       11/6/2018                  
                                                         
Total
    3,400,864       2,071,168                                          
                                                         
William E. Keitel
    32,667                     22.23       11/27/2013                  
      380,000       20,000               43.62       12/2/2014                  
      364,166       110,834               44.02       11/3/2015                  
      209,666       160,334               34.83       11/9/2016                  
      155,833       269,167               37.29       11/11/2017                  
      62,500       312,500               35.66       11/6/2018                  
                                                         
Total
    1,204,832       872,835                                          
                                                         
Steven R. Altman
    570,000       30,000               43.62       12/2/2014                  
      193,333       91,667               33.01       6/30/2015                  
      475,333       144,667               44.02       11/3/2015                  
      323,000       247,000               34.83       11/9/2016                  
      210,833       364,167               37.29       11/11/2017                  
      90,833       454,167               35.66       11/6/2018                  
                                                         
Total
    1,863,332       1,331,668                                          
                                                         
Len J. Lauer
    275,000       225,000               38.54       12/21/2016                  
      128,333       221,667               37.29       11/11/2017                  
      54,166       195,834               52.87       8/3/2018                  
      49,166       245,834               35.66       11/6/2018                  
                                                         
Total
    506,665       888,335                                          
                                                         
Steven M. Mollenkopf
    2,100                     24.84       10/11/2011                  
      9,334                     16.20       4/25/2012                  
      9,817                     18.00       10/17/2012                  
      10,834                     16.47       4/20/2013                  
      15,500                     22.44       10/16/2013                  
      23,800                     33.02       4/15/2014                  
      39,333       667               42.16       10/14/2014                  
      28,266       3,734               33.57       4/14/2015                  
      25,066       6,934               41.70       10/13/2015                  
      21,866       10,134               51.48       4/13/2016                  
      12,333       7,667               34.52       7/27/2016                  
      14,583       10,417               37.99       10/26/2016                  
      16,916       18,084               44.63       4/26/2017                  
      23,000       37,000               41.33       10/25/2017                  
      19,833       50,167               43.24       4/24/2018                  
      5,333       14,667               47.35       5/18/2018                  
      43,333       156,667               52.87       8/3/2018                  
      49,166       245,834               35.66       11/6/2018                  
                                              40,789       1,823,290  
                                                         
Total
    370,413       561,972                               40,789       1,823,290  
                                                         


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(1) Includes 804,546 options exercisable by a Grantor Retained Annuity Trust for the benefit of Dr. Jacobs and his spouse and 431,768 options exercisable by Dr. Jacobs’ spouse.
 
(2) Includes 789 dividend equivalent shares that have not vested.
 
Option Exercises and Stock Vested During Fiscal 2009
 
The “Option Exercises and Stock Vested” table provides information on stock option exercises by the NEOs during fiscal 2009.
 
Option Exercises and Stock Vested (1)
 
                 
    Option Awards
    Number of Shares
  Value Realized Upon
    Acquired on Exercise
  Exercise
Name
  (#)   ($)
 
Paul E. Jacobs
    876,000       7,417,784  
William E. Keitel
           
Steven R. Altman
    795,000       4,427,008  
Len J. Lauer
           
Steven M. Mollenkopf
           
 
 
(1) There are no vested restricted stock units for the NEOs; therefore, we did not include these columns in this table.
 
Nonqualified Deferred Compensation
 
The “Nonqualified Deferred Compensation” table provides information on the nonqualified deferred compensation of the NEOs. We provide a nonqualified plan. Employees at a certain level are eligible to participate. See the “Retirement Savings Plans” section in the CD&A for a description of the ERMC Plan.
 
Under the ERMC Plan, we match participants’ contributions to the ERMC Plan with our stock. We provide the match at the end of each calendar quarter for eligible contributions made during that quarter. The number of shares for the match is based on the average closing price of our stock for the last ten trading days in the quarter. The amounts reported as company contributions in the last fiscal year reflect the cash value of the stock matches for the calendar quarters ending in September 2008, December 2008, March 2009 and June 2009. The September 2009 match occurred during fiscal 2010.
 
The amounts reported as total aggregate earnings in the last fiscal year are the sum of the ERMC Plan aggregate earnings plus the Match Shares aggregate earnings. The Match Shares aggregate earnings in the last fiscal year reflect the difference in the cash value of all vested and unvested Match Shares at the end of fiscal 2009 less their value at the end of fiscal 2008 and the Company’s contributions in fiscal 2009.


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Nonqualified Deferred Compensation
 
                                         
            Total
       
    Executive
  Registrant
  Aggregate
  Aggregate
  Aggregate Balance
    Contributions in
  Contributions in
  Earnings in Last
  Withdrawals/
  at Last
    Last Fiscal Year
  Last Fiscal Year
  Fiscal Year
  Distributions
  Fiscal Year End
Name
  ($) (1)   ($)   ($)   ($)   ($) (2)
 
Paul E. Jacobs
    756,385       384,519       (4,489 )           8,309,140  
William E. Keitel
    424,557       199,081       178,576             4,194,736  
Steven R. Altman
    420,109       212,936       98,963             6,217,189  
Len J. Lauer
    305,425       148,084       140,765             906,617  
Steven M. Mollenkopf
    80,000       40,009       42,195             320,761  
 
 
(1) The amounts disclosed in this column are also reported in the “Summary Compensation Table” with some of the amounts included in the “Base Salary” column for the current year and the remaining amounts included in the “Non-Equity Incentive Plan Compensation” column for the previous fiscal year.
 
(2) Includes all vested amounts under the ERMC Plan. Vested amounts attributable to fiscal 2009 are included in the “Summary Compensation Table” in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column.
 
Potential Post-Employment Payments
 
We noted in the CD&A that Qualcomm employs all U.S.-based employees, including our NEOs, “at will,” without employment contracts or severance agreements. We do not have a pre-defined involuntary termination severance plan or policy for employees, including the NEOs. Our practice in an involuntary termination situation may include:
 
  •  Salary continuation dependent on the business reason for the termination;
 
  •  Lump-sum payment based on job level and years of service with Qualcomm;
 
  •  Paid health care coverage and COBRA payments for a limited time; and
 
  •  Outplacement services.
 
The information in the “Potential Payments Upon Termination or Change-in-Control” table describes the compensation that would be payable under specific circumstances if the NEO’s employment had terminated on the last day of fiscal 2009.
 
The following summarizes the terms that our stock option plans and nonqualified deferred compensation ERMC Plan establish for how unvested options would be treated in the event of death, long-term disability, change-in-control and involuntary termination.


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Summary of the Treatment of Unvested Options and Match Shares
 
         
    Treatment of Unvested Stock
   
Termination Scenario
 
Options and Restricted Stock Units
 
Treatment of Unvested Match Shares
 
Death
  All unvested stock options and restricted stock units would become exercisable and remain exercisable up to one year from the date of death or the expiration date of the grant, whichever is earlier.   All unvested Match Shares would become immediately 100% vested.
Long-Term Disability (LTD)
  Stock options and restricted stock units would continue to vest per the original vesting schedule and remain exercisable until the expiration date of the grant.   All unvested Match Shares would become immediately 100% vested.
Change-in-Control
  If no stock options and restricted stock units were assumed, all unvested stock options and restricted stock units would become exercisable.   All unvested Match Shares would become immediately 100% vested if at any time within twenty-four months of the change-in-control, the participant’s employment is involuntarily terminated by the employer without cause, or if such employment is voluntarily terminated by the participant with good reason.
Involuntary Termination
  Stock options: 10% of unvested stock options may be accelerated under certain, not “for cause” terminations. The accelerated vested stock options could then be exercised up to six months after termination, but in no event later than the expiration date of such options.   All vested shares would be distributed to the ERMC Plan participant. There would be no accelerated vesting of unvested shares.
    Restricted stock units: There is no provision for acceleration. Unvested restricted stock units are forfeited.    


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Potential Payments Upon Termination or Change-in-Control
 
                                             
              Equity Awards     Nonqualified
       
        Accrued
          Restricted Stock
    Deferred
       
        Vacation
    Stock Options
    Awards/Restricted
    Compensation
    Total
 
Name
 
Termination Scenario
  ($) (1)     ($) (2,3,4,5,6)     Stock Units ($)     ($) (6)     ($)  
 
Paul E. Jacobs
  Death     151,774       16,378,520             874,645       17,404,939  
    LTD, Change-in-Control           16,378,520             874,645       17,253,165  
    Involuntary Termination     151,774       1,637,864                   1,789,638  
William E. Keitel
  Death     70,567       6,498,991             453,571       7,023,129  
    LTD, Change-in-Control           6,498,991             453,571       6,952,562  
    Involuntary Termination     70,567       649,908                   720,475  
Steven R. Altman
  Death     63,625       10,444,398             551,285       11,059,308  
    LTD, Change-in-Control           10,444,398             551,285       10,995,683  
    Involuntary Termination     63,625       1,044,448                   1,108,073  
Len J. Lauer
  Death     66,292       5,250,892             292,696       5,609,880  
    LTD, Change-in-Control           5,250,892             292,696       5,543,588  
    Involuntary Termination     66,292       525,097                   591,389  
Steven M. Mollenkopf
  Death     105,617       2,633,543       1,823,290       67,363       4,629,813  
    LTD, Change-in-Control           2,633,543       1,823,290       67,363       4,524,196  
    Involuntary Termination     105,617       263,374                   368,991  
 
 
(1) All U.S.-based employees, including the NEOs, are entitled to payouts of accrued vacation upon termination, including death. These amounts are as of September 27, 2009.
 
(2) Amounts related to the death, LTD and change-in-control termination scenarios are based on the intrinsic value of unvested stock options that would have become exercisable on September 27, 2009 based on the fair market value of the stock on such date.
 
(3) Amounts related to the termination scenario of involuntary termination are based on the intrinsic value of 10% of unvested options assuming acceleration.
 
(4) The share-based compensation expense recorded for accounting purposes may differ from the intrinsic value as disclosed in this column.
 
(5) The valuation of unvested shares is presented as of September 27, 2009. For the change-in-control termination scenario, we have assumed 100% acceleration of unvested shares under the “double trigger” provision described in the “Summary of the Treatment of Unvested Options and Match Shares” table.
 
(6) As of September 27, 2009, all NEOs would receive additional vested shares due to the accelerated vesting schedule described in the “Summary of the Treatment of Unvested Options and Match Shares” table.
 
Director Compensation
 
The following table, narrative and notes describe the total compensation and benefits for our non-employee directors for fiscal 2009.
 
Fees earned or paid in cash.
 
Annual retainer.  Directors receive an annual retainer of $100,000 paid in equal installments in arrears at the end of each calendar quarter. Directors may elect to receive all, or a portion of, the annual retainer in cash and/or in tax-deferred stock units (DSUs) granted under the 2006 LTIP. The number of DSUs received is based on the fair market value of our common stock (as defined by the 2006 LTIP) on the last trading day of the last month of the quarter. The DSUs generally settle three years from the grant date, unless the director elects to defer further.
 
Board committee chair retainer.  The chair of the audit committee receives an annual retainer of $17,500 and the chairs of the other committees receive an annual retainer of $10,000.


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Meeting fees.  Directors receive $2,000 for each Board meeting attended ($1,000 for telephonic attendance) and $1,500 for each committee meeting (in person or telephonic attendance).
 
Equity compensation.  The Compensation Committee approves annual stock option awards to each director. The grant date is the date of the annual stockholders’ meeting, and the exercise price is the closing price on the grant date. The options have a one-year cliff vesting with a requirement to hold the options, or the net shares after-tax, for at least three years following the grant date (or for at least six months after leaving the Board, if earlier). Vested options remain exercisable until the earlier of three years following separation from the Board or the expiration of the ten-year option term. We do not grant equity awards at the time a director is elected to the Board.
 
Nonqualified deferred compensation earnings.  Directors may defer any cash portion of their retainer and meeting fees under the ERMC Plan. Directors who contribute to the ERMC Plan are not eligible to receive Match Shares.
 
All other compensation.  See the “Director All Other Compensation” table for an itemized account of all other compensation.
 
Stock ownership requirement.  As discussed under “Majority Voting, Stock Ownership Guidelines and Other Matters,” directors are subject to a stock ownership requirement.
 
Director Compensation
 
                                                 
                Nonqualified
       
    Fees Earned
          Deferred
       
    or Paid
  Stock
  Option
  Compensation
  All Other
   
    in Cash
  Awards
  Awards
  Earnings
  Compensation
  Total
Name
  ($) (1,2,3,4)   ($)   ($) (5,6)   (Losses) ($)   ($)   ($)
 
Barbara T. Alexander
    137,000             296,622             50,000       483,622  
Stephen M. Bennett
    132,000             57,956             37,500       227,456  
Adelia A. Coffman
    13,000                               13,000  
Donald G. Cruickshank
    131,500             354,635             72,704       558,839  
Raymond V. Dittamore
    150,000             320,605             10,000       480,605  
Thomas W. Horton
    103,022             18,111             50,000       171,133  
Irwin Mark Jacobs
    69,778             3,392,439       (35,435 )     125,000       3,551,782  
Robert E. Kahn
    121,000             408,281       (128 )     50,000       579,153  
Sherry Lansing
    133,500             301,752             50,000       485,252  
Duane A. Nelles
    133,500             320,605             49,100       503,205  
Brent Scowcroft
    122,000             177,979             50,000       349,979  
Marc I. Stern
    130,500             320,605       25,842       50,000       526,947  
 
 
(1) Amounts include the value of DSUs issued in lieu of payment of retainer fees pursuant to elections by directors Ms. Alexander, Messrs. Bennett, Dittamore and Stern. DSUs awarded to Ms. Alexander and Mr. Stern are fully vested and will be settled three years from the grant date. DSUs awarded to Messrs. Bennett and Dittamore are fully vested and will be settled on December 31, 2020.
 
(2) Ms. Coffman received $13,000 in fees for attendance at Board of Directors meetings as Director Emeritus and did not receive any other fees or compensation.
 
(3) The amount for Dr. Jacobs represents fees earned after March 2009 while he was a non-employee director of the Company.
 
(4) At his request, Board fees due to Mr. Nelles are paid to his consulting company.
 
(5) These amounts represent the estimated fair values of stock option grants recognized by the Company as share-based compensation expense in fiscal 2009 because service was provided during fiscal 2009. The estimated fair value amounts were determined using option-pricing models and are not indicative of whether the director will realize the estimated fair value or any financial benefits from the award.


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(6) As of September 27, 2009, the directors listed in this table held stock options to purchase the following number of shares (not all of which had vested as of that date: Ms. Alexander, 76,000 shares; Mr. Bennett, 8,000 shares; Sir Donald Cruickshank, 100,000 shares; Mr. Dittamore, 138,000 shares; Mr. Horton, 2,500 shares; Dr. Jacobs, 3,237,877 shares; Dr. Kahn, 178,000 shares; Ms. Lansing, 53,334; Mr. Nelles, 178,000 shares; General Scowcroft, 178,000 shares; and Mr. Stern, 178,000 shares.
 
The “All Other Compensation” table provides an itemized account of all other compensation reported in the “Directors Compensation Table. Any individual item of compensation exceeding $10,000, except as discussed below under “Perquisites and Other Personal Benefits,” have been identified and quantified in accordance with SEC requirements.
 
All Other Compensation.
 
Perquisites and Other Personal Benefits.   We disclosed the full amount of perquisites if the aggregate annual value exceeded $10,000, and each perquisite and other personal benefit is identified by type. If the aggregate annual value of perquisites was less than $10,000, no disclosure was made. We have identified and quantified individual perquisite amounts that exceeded $25,000 or 10% of the aggregate amount of all perquisites for any director. We provide each director a new cellular phone each year as a personal benefit, and these amounts were included as a perquisite.
 
Charitable gifts matching program.  We will match 100%, up to $50,000 annually, of a director’s contribution to a qualified, eligible IRS recognized non-profit organization.
 
Director All Other Compensation
 
                                 
    Perquisites and
  Charitable
       
    Other Personal
  Matching
      All Other
    Benefits
  Grant
  Tax Gross-ups
  Compensation Total
Name and Principal Position
  ($) (1)   ($) (2)   ($) (3)   ($)
 
Barbara T. Alexander
          50,000             50,000  
Stephen M. Bennett
          37,500             37,500  
Adelia A. Coffman
                       
Donald G. Cruickshank
    13,578       50,000       9,126       72,704  
Raymond V. Dittamore
          10,000             10,000  
Thomas W. Horton
          50,000             50,000  
Irwin Mark Jacobs
          125,000             125,000  
Robert E. Kahn
          50,000             50,000  
Sherry Lansing
          50,000             50,000  
Duane A. Nelles
          49,100             49,100  
Brent Scowcroft
          50,000             50,000  
Marc I. Stern
          50,000             50,000  
 
 
(1) The amount for Sir Donald Cruickshank includes the personal expenses related to his attendance at our annual meeting of stockholders, the related estimated tax liability and a cellular phone.
 
(2) The amount for Dr. Jacobs includes matching grants while he was an employee of the Company.
 
Changes introduced for calendar 2010.  The Compensation Committee reviews our non-employee director compensation practices on an annual basis, which includes an analysis of reported non-employee director compensation practices at the same peer companies used for the Compensation Committee’s evaluation of NEO compensation. The analysis, prepared by FWC, includes prevalent practices for retainers, fees and equity compensation. The analysis conducted for 2010 revealed that prevalent practices among the peer companies and other large-cap companies has shifted to (1) award annual equity grants in the form of full-value restricted stock or DSUs using a fixed dollar value rather than a fixed number of shares and (2) not providing board meeting fees. Our historic practice of awarding a fixed number of stock options to non-employee directors, which had been the


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prevalent practice among our peer companies, resulted in significant variations in value provided to our directors as a result of fluctuations in our stock price, and this year positioned our directors’ total compensation above the 90th percentile of the peer companies. As a result of these changes in prevailing practices, the Compensation Committee realigned our director compensation program by making the following changes for 2010:
 
  •  Eliminated the Board meeting fee that had been $2,000 per meeting (or $1,000 for telephonic attendance). This represents an annual reduction of $14,000 in non-employee director compensation, based on the recent average of seven Board meetings during the year.
 
  •  Transitioned the annual equity award from a fixed share amount of 14,000 stock options to a fixed value amount of $200,000 in the form of deferred stock units. The DSUs will be fully vested at the next annual stockholder meeting following the grant date and settled at the earlier of three years following the grant date (unless the director voluntarily elects to further defer the settlement date) or separation from the Board.
 
  •  Increased the additional retainer for the Audit Committee Chair from $17,500 to $20,000 and for the Compensation Committee Chair from $10,000 to $15,000, which is consistent with competitive medians.
 
These changes are intended to align annual compensation closer to the 75th percentile of the peer companies.


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AUDIT COMMITTEE REPORT
 
The Audit Committee assists the Board in its general oversight of Qualcomm’s financial reporting processes. The Audit Committee Charter describes in greater detail the full responsibilities of the Committee. During each fiscal year, the Audit Committee reviews Qualcomm’s financial statements, management reports, internal control over financial reporting and audit matters. In connection with these reviews, the Audit Committee meets with management and the independent public accountants at least once each quarter. The Audit Committee schedules its meetings with a view to ensuring that it devotes appropriate attention to all of its tasks. These meetings include, whenever appropriate, executive sessions in which the Audit Committee meets separately with the independent public accountants, internal auditors, financial management personnel and legal counsel.
 
As part of its review of audit matters, the Audit Committee supervises the relationship between the Company and its independent registered public accountants, including: having direct responsibility for their appointment, compensation and retention; reviewing the scope of their audit services; approving audit and non-audit services; and confirming the independence of the independent public accountants. Together with senior members of the Company’s financial management team, the Audit Committee reviewed the overall audit scope and plans of the independent public accountants and the internal auditors, the results of internal and external audit examinations, and evaluations by management and the independent public accountants of the Company’s internal control over financial reporting and the quality of the Company’s financial reporting. Although the Audit Committee has the sole authority to appoint the independent public accountants, the Audit Committee will continue its longstanding practice of recommending that the Board ask the stockholders to ratify the appointment of the independent public accountants at the annual meeting.
 
In addition, the Committee reviewed key initiatives and programs aimed at maintaining the effectiveness of the Company’s internal and disclosure control structure. As part of this process, the Committee continued to monitor the scope and adequacy of the Company’s internal auditing program, reviewing internal audit department staffing levels and steps taken to maintain the effectiveness of internal procedures and controls.
 
In performing all of these functions, the Audit Committee acts in an oversight capacity. The Audit Committee reviews and discusses the quarterly and annual consolidated financial statements with management, the Company’s internal auditors and the Company’s independent public accountants prior to their issuance. In its oversight role, the Audit Committee relies on the work and assurances of the Company’s management, which is responsible for establishing and maintaining adequate internal control over financial reporting, preparing the financial statements and other reports, and maintaining policies relating to legal and regulatory compliance, ethics and conflicts of interest. PricewaterhouseCoopers LLP is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States of America, as well as expressing an opinion on the effectiveness of our internal control over financial reporting.
 
The Audit Committee has reviewed with the independent public accountants the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees,” including a discussion with management and the independent public accountants of the quality (and not merely the acceptability) of the Company’s accounting principles, the reasonableness of significant estimates and judgments and the disclosures in the Company’s financial statements. In addition, the Audit Committee reviewed and discussed with PricewaterhouseCoopers LLP matters related to its independence, including a review of audit and non-audit fees and the written disclosures in the letter from PricewaterhouseCoopers to the Committee required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent public accountant’s communication with the Audit Committee concerning independence. The Audit Committee concluded that PricewaterhouseCoopers LLP is independent from the Company and its management.
 
Taking all these reviews and discussions into account, the Audit Committee recommended to the Board that the audited financial statements be included in Qualcomm’s Annual Report on Form 10-K for fiscal year 2009, for filing with the SEC.
 
AUDIT COMMITTEE
 
Raymond V. Dittamore, Chair
Barbara T. Alexander
Thomas W. Horton


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OTHER MATTERS
 
The Board knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly submitted before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.
 
A copy of our Annual Report on Form 10-K for fiscal 2009 as filed with the SEC, excluding exhibits, may be obtained by stockholders without charge by request to Investor Relations, 5775 Morehouse Drive, San Diego, California 92121-1714 or by calling 858-658-4813 (or toll-free at 866-658-4813) and may be accessed on our website at http://investor.qualcomm.com/sec.cfm?DocType=Annual&Year=.
 
Stockholders Sharing the Same Last Name and Address
 
The Securities and Exchange Commission allows companies and intermediaries (such as brokers) to implement a delivery procedure called “householding.” Under this procedure, multiple stockholders who reside at the same address may receive a single copy of our proxy materials, including the Notice of Internet Availability of Proxy Materials, unless the affected stockholder has notified us that they want to continue receiving multiple copies. This practice is designed to reduce duplicate mailings and save significant printing and postage costs as well as natural resources.
 
Householding for bank and brokerage accounts is limited to accounts within the same bank or brokerage firm. For example, if you and your spouse share the same last name and mailing address, and you and your spouse each have two accounts containing Qualcomm stock at two different brokerage firms, your household will receive two copies of the Qualcomm proxy materials, one from each brokerage firm. To reduce the number of duplicate sets of proxy materials your household receives, you may wish to enroll some or all of your accounts in our electronic delivery program at http://enroll.icsdelivery.com/qcom.
 
If you received a householded mailing this year and you would like to have separate copies of our Notice of Internet Availability of Proxy Materials and proxy materials mailed to you, please submit your request to Broadridge ICS, either by calling toll-free (800) 542-1061, or by writing to Broadridge ICS, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. They will promptly send additional copies of our Notice of Internet Availability of Proxy Materials and proxy materials upon receipt of such request. Once you have received notice from your bank or broker that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent. Stockholders may revoke their consent at any time by contacting Broadridge ICS. Please note, however, that if you want to receive a paper proxy or voting instruction form or other proxy materials for purposes of this year’s Annual Meeting, you should follow the instructions included in the Notice of Internet Availability that was sent to you. If you received multiple copies of the proxy materials and would prefer to receive a single copy in the future or if you would like to opt out of householding for future mailings, you may contact Broadridge ICS.
 
By Order of the Board of Directors,
 
-s- Donald J. Rosenberg
Donald J. Rosenberg
Executive Vice President,
General Counsel and Corporate Secretary
 
January 13, 2010


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APPENDIX 1
 
Financial Information
 
The following is certain financial information that was originally filed with the Securities and Exchange Commission (SEC) on November 5, 2009 as part of our Annual Report on Form 10-K for the fiscal year ended September 27, 2009. We have not undertaken any updates or revision to such information since the date it was originally filed with the SEC. Accordingly, you are encouraged to review such financial information together with any subsequent information we have filed with the SEC and other publicly available information.
 
The financial information contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in the financial information. Additionally, statements concerning future matters such as the development of new products, enhancements or technologies, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements. Although the forward-looking statements reflect our good faith judgment, such statements can only be based on facts and factors known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties. Actual results and outcomes may differ materially from those referred to herein due to a number of factors, including but not limited to risks associated with: the rate of deployment of our technologies in wireless networks and of 3G wireless communications, equipment and services, including CDMA2000 1X, 1xEV-DO, WCDMA, HSPA and OFDMA both domestically and internationally; the current uncertainty of global economic conditions and its potential impact on demand for our products and our marketable securities portfolio; attacks on our business model, including results of current and future litigation and arbitration proceedings, as well as actions of governmental or quasi-governmental bodies, and the costs we incur in connection therewith, including potentially damaged relationships with customers and operators who may be impacted by the results of these proceedings; fluctuations in the demand for products, services or applications based on our technologies; our dependence on major customers and licensees; foreign currency fluctuations; strategic loans, investments and transactions we have or may pursue; our dependence on third-party manufacturers and suppliers; our ability to maintain and improve operational efficiencies and profitability; the development, deployment and commercial acceptance of the MediaFLO USA network and FLO technology; as well as the other risks detailed from time-to-time in our SEC reports.
 
We incorporated in 1985 under the laws of the state of California. In 1991, we reincorporated in the state of Delaware. We operate and report using a 52-53 week fiscal year ending the last Sunday in September. Our 52-week fiscal years consist of four equal quarters of 13 weeks each, and our 53-week fiscal years consist of three 13-week fiscal quarters and one 14-week fiscal quarter. The financial results for our 53-week fiscal years and our 14-week fiscal quarters will not be exactly comparable to our 52-week fiscal years and our 13-week fiscal quarters. Both of the fiscal years ended September 27, 2009 and September 28, 2008 include 52 weeks. The fiscal year ended September 30, 2007 includes 53 weeks.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information
 
Our common stock is traded on the NASDAQ Global Select Market under the symbol “QCOM.” The following table sets forth the range of high and low sales prices on the NASDAQ Stock Market of the common stock for the


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fiscal periods indicated, as reported by NASDAQ. Such quotations represent inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions.
 
                 
    High ($)     Low ($)  
 
2008
               
First quarter
    43.40       36.60  
Second quarter
    44.85       35.17  
Third quarter
    50.82       39.75  
Fourth quarter
    56.88       37.82  
2009
               
First quarter
    45.57       28.16  
Second quarter
    39.70       32.64  
Third quarter
    46.73       37.32  
Fourth quarter
    48.72       42.67  
 
As of November 2, 2009, there were 9,154 holders of record of our common stock. On November 2, 2009, the last sale price reported on the NASDAQ Stock Market for our common stock was $41.81 per share.
 
Dividends
 
On March 11, 2008, we announced an increase in our quarterly dividend from $0.14 to $0.16 per share on our common stock. On March 3, 2009, we announced an increase in our quarterly dividend from $0.16 to $0.17 per share of common stock. Cash dividends announced in fiscal 2008 and 2009 were as follows (in millions, except per share data):
 
                         
                Cumulative
 
    Per Share     Total     by Fiscal Year  
 
2008
                       
First quarter
  $ 0.14     $ 228     $ 228  
Second quarter
    0.14       227       455  
Third quarter
    0.16       261       716  
Fourth quarter
    0.16       266       982  
                         
    $ 0.60     $ 982          
                         
2009
                       
First quarter
  $ 0.16     $ 264     $ 264  
Second quarter
    0.16       264       528  
Third quarter
    0.17       282       810  
Fourth quarter
    0.17       283       1,093  
                         
    $ 0.66     $ 1,093          
                         
 
On October 2, 2009, we announced a cash dividend of $0.17 per share on our common stock, payable on December 23, 2009 to stockholders of record as of November 25, 2009. We intend to continue to pay quarterly dividends subject to capital availability and periodic determinations that cash dividends are in the best interests of our stockholders. Future dividends may be affected by, among other items, our views on potential future capital requirements, including those relating to research and development, creation and expansion of sales distribution channels and investments and acquisitions, legal risks, stock repurchase programs, changes in federal and state income tax law and changes to our business model.


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Share-Based Compensation
 
We primarily issue stock options under our share-based compensation plans, which are part of a broad-based, long-term retention program that is intended to attract and retain talented employees and directors and align stockholder and employee interests.
 
Pursuant to our 2006 Long-Term Incentive Plan (2006 Plan), we grant options to selected employees, directors and consultants to purchase shares of our common stock at a price not less than the fair market value of the stock at the date of grant. The 2006 Plan provides for the grant of both incentive and non-qualified stock options as well as stock appreciation rights, restricted stock, restricted stock units, performance units and shares and other stock-based awards. Generally, options outstanding vest over periods not exceeding five years and are exercisable for up to ten years from the grant date. The Board of Directors may terminate the 2006 Plan at any time.
 
Additional information regarding our stock option plans and plan activity for fiscal 2009, 2008 and 2007 is provided in the notes to our consolidated financial statements appearing elsewhere herein in “Notes to Consolidated Financial Statements, Note 7 — Employee Benefit Plans” and in our 2010 Proxy Statement under the heading “Equity Compensation Plan Information.”
 
Issuer Purchases of Equity Securities
 
On March 11, 2008, we announced that we had been authorized to repurchase up to $2.0 billion of our common stock with no expiration date. At September 27, 2009, approximately $1.7 billion remained authorized for repurchase. While we did not repurchase any of our shares during the fourth quarter of fiscal 2009, we continue to evaluate repurchases under this program.


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Performance Measurement Comparison of Stockholder Return
 
The following graph compares total stockholder return on our common stock since September 26, 2004 to two indices: the Standard & Poor’s 500 Stock Index (the S&P 500) and the Nasdaq Total Return Index for Communications Equipment Stocks, SIC 3660-3669 (the Nasdaq Industry). The S&P 500 tracks the aggregate price performance of the equity securities of 500 United States companies selected by Standard & Poor’s Index Committee to include companies in leading industries and to reflect the United States stock market. The NASDAQ Industry tracks the aggregate price performance of equity securities of communications equipment companies traded on the NASDAQ Stock Market. The total return for our stock and for each index assumes the reinvestment of dividends and is based on the returns of the component companies weighted according to their capitalizations as of the end of each annual period. We began paying dividends on our common stock on March 31, 2003. Our common stock is traded on the NASDAQ Global Select Market and is a component of each of the S&P 500 and the NASDAQ Industry.
 
Comparison of Cumulative Total Return on Investment Since
September 26, 2004 (1)
 
(PERFORMANCE GRAPH)
 
The Company’s closing stock price on September 25, 2009, the last trading day of the Company’s 2009 fiscal year, was $44.70 per share.
 
 
 (1) Shows the cumulative total return on investment assuming an investment of $100 in each of our common stock, the S&P 500 and the Nasdaq industry Index on September 26, 2004. All returns are reported as of our fiscal year end, which is the last Sunday of the month in which the fourth quarter ends, whereas the numbers for the S&P 500 are calculated as of the last day of the month in which the corresponding quarter ends.


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Selected Financial Data
 
The following balance sheet data and statement of operations data for the five fiscal years ended September 27, 2009, September 28, 2008, September 30, 2007, September 24, 2006 and September 25, 2005 were derived from our audited consolidated financial statements. Consolidated balance sheets at September 27, 2009 and September 28, 2008 and the related consolidated statements of operations and cash flows for fiscal 2009, 2008 and 2007 and notes thereto appear elsewhere herein. The data should be read in conjunction with the annual consolidated financial statements, related notes and other financial information appearing elsewhere herein.
 
                                         
    Years Ended(1)
    September 27,
  September 28,
  September 30,
  September 24,
  September 25,
    2009   2008   2007   2006   2005
    (In millions, except per share data)
 
Statement of Operations Data:
                                       
Revenues
  $ 10,416     $ 11,142     $ 8,871     $ 7,526     $ 5,673  
Operating income
    2,226       3,730       2,883       2,690       2,386  
Net income
    1,592       3,160       3,303       2,470       2,143  
Per Share Data:
                                       
Net income — basic
  $ 0.96     $ 1.94     $ 1.99     $ 1.49     $ 1.31  
Net income — diluted
    0.95       1.90       1.95       1.44       1.26  
Dividends announced
    0.66       0.60       0.52       0.42       0.32  
Balance Sheet Data:
                                       
Cash, cash equivalents and marketable securities
  $ 17,742     $ 11,269     $ 11,815     $ 9,949     $ 8,681  
Total assets
    27,445       24,712       18,495       15,208       12,479  
Capital lease obligations(2)
    187       142       91       58       3  
Other long-term liabilities(2)
    618       191       169       181       141  
Total stockholders’ equity
    20,316       17,944       15,835       13,406       11,119  
 
 
(1) Our fiscal year ends on the last Sunday in September. The fiscal years ended September 27, 2009, September 28, 2008, September 24, 2006, and September 25, 2005 each included 52 weeks. The fiscal year ended September 30, 2007 included 53 weeks.
 
(2) Capital lease obligations and other long-term liabilities are included in other liabilities in the consolidated balance sheets.
 
Business Overview
 
In 1989, we publicly introduced the concept that a digital communication technique called CDMA could be commercially successful in cellular wireless communication applications. CDMA stands for Code Division Multiple Access and is one of the main technologies currently used in digital wireless communications networks (also known as wireless networks). CDMA and TDMA (Time Division Multiple Access), of which Global System for Mobile Communications (GSM) is the primary commercial form, are the primary digital technologies currently used to transmit a wireless device user’s voice or data over radio waves using a public cellular wireless network. Because we led, and continue to lead, the development and commercialization of CDMA technology, we own significant intellectual property, including patents, patent applications and trade secrets, which applies to all versions of CDMA, portions of which we license to other companies and implement in our own products. The wireless communications industry generally recognizes that a company seeking to develop, manufacture and/or sell products that use CDMA technology will require a patent license from us.
 
We also continue our leading role in the development of Orthogonal Frequency Division Multiplexing Access (OFDMA)-based technologies, for which we have substantial intellectual property. Our CDMA licensees’ sales of multimode third generation (3G) CDMA and OFDMA devices are covered by their existing CDMA license agreements with us. We have begun to license companies to make and sell single-mode OFDMA devices. In


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addition, nine companies have royalty-bearing licenses under our patent portfolio for use in single-mode OFDMA products.
 
Our Revenues.  We generate revenues by licensing portions of our intellectual property to manufacturers of wireless products (such as wireless phones and other devices and the infrastructure required to establish and operate a wireless network). We receive licensing fees and royalties on products sold by our licensees that incorporate our patented technologies. We also sell products and services, which include:
 
  •  CDMA-based integrated circuits (also known as chips or chipsets) and Radio Frequency (RF) and Power Management (PM) chips and system software used in mobile devices (also known as subscriber units, which include handsets and modem cards) and in wireless networks;
 
  •  Equipment, software and services used by companies, including those in the transportation industry and governments to wirelessly connect with their assets and workforce;
 
  •  Software products and services for content enablement across a wide variety of platforms and devices for the wireless industry;
 
  •  Services to wireless operators delivering multimedia content, including live television, in the United States;
 
  •  Software and hardware development services; and
 
  •  Software products and services that enable financial institutions and wireless operators to offer mobile commerce services.
 
Our Integrated Circuits Business.  We develop and supply CDMA-based integrated circuits and system software for wireless voice and data communications, multimedia functions and global positioning system products. We also design and create multimode and multiband integrated circuits incorporating other wireless standards for roaming in global roaming markets. Our integrated circuit products and system software are used in wireless devices, particularly mobile phones, laptops, data modules, handheld wireless computers, data cards and infrastructure equipment. The integrated circuits for wireless devices include the baseband Mobile Station Modem (MSM), Mobile Data Modem (MDM), Qualcomm Single Chip (QSC), Qualcomm Snapdragon (QSD), RF, PM and Bluetooth devices, as well as the system software that enables the other device components to interface with the integrated circuit products and is the foundation software enabling device manufacturers to develop handsets utilizing the functionality within the integrated circuits. These integrated circuits for wireless devices and system software perform voice and data communication, multimedia and global positioning functions, radio conversion between RF and baseband signals and power management. Our infrastructure equipment Cell Site Modem (CSM) integrated circuits and system software perform the core baseband CDMA modem functionality in the wireless operator’s base station equipment providing wireless standards-compliant processing of voice and data signals to and from wireless devices. Because of our broad and unique experience in designing and developing CDMA-based products, we not only design the baseband integrated circuit, but the supporting system as well, including the RF devices, PM devices and accompanying software products. This approach enables us to optimize the performance of the wireless device with improved product features, as well as the integration and performance of the network system. Our design of the system allows CDMA systems and devices manufactured by our customers to come to market faster. We provide our integrated circuits and system software, including reference designs and tools, to many of the world’s leading wireless device and infrastructure equipment manufacturers. We also provide support to enable our customers to reduce the time required to design their products and bring their products to market faster. We plan to add additional features and capabilities to our integrated circuit products to help our customers reduce the costs and size of their products, to simplify our customers’ design processes and to enable more wireless devices and services.
 
Our Licensing Business.  We grant 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, and collect license fees and royalties in partial consideration for such licenses.
 
Our Wireless Device Software and Related Services Business.  We provide software products and services for the global wireless industry. Our BREW (Binary Runtime Environment for Wireless) services enable wireless operators, device manufacturers and software developers to provide over-the-air and pre-loaded wireless


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applications and services. Our Plaza suite of products, which includes Plaza Retail and Plaza Mobile Internet, enable wireless operators, device manufacturers and publishers to create and distribute mobile content across a wide variety of platforms and devices. We also offer Xiam wireless content discovery and recommendation products to help wireless operators improve usage and adoption of digital content and services. We also provide QChat, a push to talk product optimized for 3G networks, as well as QPoint, which enables wireless operators to offer enhanced 911 (E-911) wireless emergency and other location-based applications and services.
 
Our Asset Tracking and Services Business.  We design, manufacture and sell equipment, license software and provide services to our customers to enable them to connect wirelessly with their assets, products and workforce. We offer satellite- and terrestrial-based two-way wireless connectivity and position location services to transportation and logistics fleets and other enterprise companies to enable our customers to track the location and monitor the performance of their assets, and the workflow of their personnel.
 
Our Mobile Banking Business.  We provide a single, secure, certified application embedded on select wireless devices, which enables financial institutions and merchants to deliver branded services to consumers through the wireless devices. Our application enables wireless operators to deliver consumer-convenient, mass-market applications to subscribers, and wireless device users to access and add multiple financial relationships with one password.
 
Our FLO TV Business.  Our subsidiary, FLO TV Incorporated (FLO TV), formerly MediaFLO USA, Inc., offers its service over our nationwide multicast network based on our MediaFLO Media Distribution System (MDS) and MediaFLO technology, which leverages the Forward Link Only (FLO) air interface standard. This network is utilized as a shared resource for wireless operators and their customers in the United States. The commercial availability of the FLO TV network and service on wireless operator devices will continue, in part, to be determined by our wireless operator partners. FLO TV’s network uses the 700 MHz spectrum for which we hold licenses nationwide. Additionally, FLO TV has and will continue to procure, aggregate and distribute content in service packages, which we will continue to make available on a wholesale basis to our wireless operator customers (whether they operate on CDMA, WCDMA or GSM) in the United States. In fiscal 2010, FLO TV expects to offer the FLO TV service on a subscription basis directly to consumers in the United States. FLO TV plans to provide the services for use in personal television devices, automotive devices and other portable device accessories. These devices are expected to be sold through various retail and distribution channels.
 
Our MediaFLO Technologies (MFT) division is developing MediaFLO technology and marketing it for deployment outside of the United States. The market for mobile TV remains nascent with numerous competing technologies and standards.
 
Our Display Business.  We develop display technology for the full range of consumer-targeted mobile products. Our interferometric modulator (IMOD) display technology, based on a MEMS structure combined with thin film optics and sold under the “mirasol” brand, is expected to provide performance, power consumption and cost benefits as compared to current display technologies.
 
Wireless Telecommunications Market
 
Use of wireless telecommunications devices has increased dramatically in the past decade. According to Wireless Intelligence estimates as of November 2009, the number of worldwide mobile connections is expected to reach approximately 4.6 billion by the end of 2009 and almost 6.3 billion in 2013 reaching a wireless penetration rate of approximately 89%. Growth in the market for wireless telecommunications services has traditionally been fueled by demand for voice communications. There have been several factors responsible for the increasing demand for wireless voice services, including:
 
  •  lower cost of wireless handsets, joined with an increasing selection of appealing mobile devices;
 
  •  lower cost of service, including flat-rate and bundled long-distance calling plans;
 
  •  prepaid services, particularly popular in developing countries;
 
  •  increased coverage, roaming, privacy, reliability and clarity of voice transmissions;


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  •  wireless networks becoming the primary communications infrastructure in developing countries due to the higher costs of and longer time required for installing wireline networks; and
 
  •  regulatory environments worldwide favoring increased competition in wireless telecommunications.
 
In addition to the tremendous demand for wireless voice services, wireless service providers are increasingly focused on providing broadband wireless access to the Internet, as well as e-mail, multimedia, entertainment, messaging, social networking, mobile commerce and position location services.
 
Wireless Technologies
 
The significant growth in the use of wireless devices worldwide and demand for enhanced network functionality requires constant innovation to further improve network reliability, expand capacity and introduce new types of services. To meet these requirements, progressive generations of wireless telecommunications technology standards have evolved. The adoption of wireless standards for mobile communications within individual countries is generally determined by the telecommunication service providers operating in those countries and, in some instances, local government regulations. Such determinations are typically based on economic criteria and the service provider’s evaluation of each technology’s ability to provide the features and functionality required for its business plan. More than two decades ago, the European Community developed regulations requiring the use of the GSM standard, a TDMA-based, 2G technology. In addition, there are several versions of CDMA technology that have been adopted worldwide as public cellular standards. The first version, known as cdmaOne, is a 2G cellular technology that was first commercially deployed in the mid-1990s. The other subsequent versions of CDMA are popularly referred to as 3G technologies.
 
Our Engineering Resources.  We have significant engineering resources, including engineers with substantial expertise in CDMA, OFDMA and a broad range of other technologies. Using these engineering resources, we expect to continue to develop new versions of CDMA, OFDMA and other technologies, develop alternative technologies for certain specialized applications (including multicast), participate in the formulation of new wireless telecommunications standards and technologies and assist in deploying wireless voice and data communications networks around the world.
 
Further Investments in New and Existing Products, Services and Technologies.  We continue to invest heavily in research and development in a variety of ways in an effort to extend the market for our products and services.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled Risk Factors and elsewhere in our Annual Report on Form 10-K.
 
Recent Developments
 
Revenues for fiscal 2009 were $10.4 billion, with net income of $1.6 billion, which were impacted by the following key items:
 
  •   Both revenues and net income were adversely impacted by lower demand for CDMA-based MSM integrated circuits during the first half of fiscal 2009 as a result of the slowdown in the global economy. We shipped approximately 317 million Mobile Station Modem (MSM) integrated circuits for CDMA-based wireless devices, a decrease of 6%, compared to approximately 336 million MSM integrated circuits in fiscal 2008. In addition, net income was adversely impacted by other-than-temporary losses on marketable securities related primarily to the volatility in global financial markets.
 
  •   CDMA-based device shipments totaled approximately 492 million units, an increase of 14% over the


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  433 million units shipped in fiscal 2008.(1)
 
  •   The average selling price of CDMA-based devices was estimated to be approximately $200, a decrease of approximately 9% from the prior year.(1)
 
  •   We entered into a Settlement and Patent License and Non-Assert Agreement with Broadcom Corporation. As a result of this agreement, we recorded a $783 million charge.
 
  •   In July 2009, the Korea Fair Trade Commission (KFTC) announced (although a written decision has not yet been issued) that it found us to be in violation of South Korean law by offering certain discounts and rebates for purchases of our CDMA chips and that it would levy a fine, as well as order us to cease the practices at issue. We intend to appeal the written decision once issued. As a result of this announcement, we recorded a $230 million charge.
 
Against this backdrop, the following recent developments occurred during fiscal 2009 with respect to key elements of our business or our industry:
 
  •   Worldwide wireless subscribers grew by approximately 16% to reach approximately 4.5 billion.(2)
 
  •   CDMA subscribers, including both 2G (cdmaOne) and 3G (CDMA2000 1X, 1xEV-DO, WCDMA, HSPA and TD-SCDMA), are approximately 20% of total worldwide wireless subscribers to date.(2)
 
  •   3G subscribers (all CDMA-based) grew to approximately 885 million worldwide including approximately 455 million CDMA2000 1X/1xEV-DO subscribers and approximately 430 million WCDMA/HSPA/TD-SCDMA subscribers.(2)
 
  •   In the handset market, CDMA-based unit shipments grew an estimated 7% year-over-year, compared to an estimated decline of 7% year-over-year across all technologies.(3)
 
  •   In September 2009, the Japan Fair Trade Commission (JFTC) issued a Cease and Desist Order (CDO) seeking to require us to modify our existing license agreements with Japanese companies to eliminate certain cross-license non-assertion provisions in our license agreements, while preserving the license of our patents to those companies. We intend to invoke our right under Japanese law to an administrative hearing before the JFTC and to seek a stay of the CDO from the JFTC, and if necessary, from the Japanese courts.
 
 
(1) Derived from reports provided by our licensees/manufacturers during the year and our own estimates of unreported activity.
 
(2) According to Wireless Intelligence estimates as of November 2, 2009, for the quarter ending September 30, 2009. Wireless Intelligence estimates for CDMA2000 1X/1xEV-DO subscribers do not include Wireless Local Loop.
 
(3) Based on current reports by Strategy Analytics, a global research and consulting firm, in their Global Handset Market Share Updates.
 
Our Business and Operating Segments
 
We design, manufacture, have manufactured on our behalf and market digital wireless telecommunications products and services based on our CDMA technology and other technologies. We derive revenues principally from sales of integrated circuit products, license fees and royalties for use of our intellectual property, messaging and other services and related hardware sales, software development and licensing and related services, software hosting services and services related to delivery of multimedia content. Operating expenses primarily consist of cost of equipment and services, research and development and selling, general and administrative expenses.
 
We conduct business primarily through four reportable segments. These segments are: Qualcomm CDMA Technologies, or QCT; Qualcomm Technology Licensing, or QTL; Qualcomm Wireless & Internet, or QWI; and Qualcomm Strategic Initiatives, or QSI.
 
QCT is a leading developer and supplier of CDMA-based integrated circuits and system software for wireless voice and data communications, multimedia functions and global positioning system products. QCT’s integrated


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circuit products and system software are used in wireless devices, particularly mobile phones, laptops, data modules, handheld wireless computers, data cards and infrastructure equipment. The integrated circuits for wireless devices include the Mobile Station Modem (MSM), Radio Frequency (RF) and Power Management (PM) devices. These integrated circuits for wireless devices and system software perform voice and data communication, multimedia and global positioning functions, radio conversion between RF and baseband signals and power management. QCT’s system software enables the other device components to interface with the integrated circuit products and is the foundation software enabling equipment manufacturers to develop devices utilizing the functionality within the integrated circuits. The infrastructure equipment integrated circuits and system software perform the core baseband CDMA modem functionality in the wireless operator’s base station equipment. QCT revenues comprised 59%, 60% and 59% of total consolidated revenues in fiscal 2009, 2008 and 2007, respectively.
 
QCT utilizes a fabless production business model, which means that we do not own or operate foundries for the production of silicon wafers from which our integrated circuits are made. Integrated circuits are die cut from silicon wafers that have completed the assembly and final test manufacturing processes. We rely on independent third-party suppliers to perform the manufacturing and assembly, and most of the testing, of our integrated circuits. Our suppliers are also responsible for the procurement of most of the raw materials used in the production of our integrated circuits. We employ both turnkey and two-stage manufacturing business models to purchase our integrated circuits. Turnkey is when our foundry suppliers are responsible for delivering fully assembled and tested integrated circuits. Under the two-stage manufacturing business model, we purchase die from semiconductor manufacturing foundries and contract with separate third-party manufacturers for back-end assembly and test services. We refer to this two-stage manufacturing business model as Integrated Fabless Manufacturing (IFM).
 
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, including, without limitation, products implementing cdmaOne, CDMA2000, WCDMA, CDMA TDD (including TD-SCDMA), GSM/GPRS/EDGE and/or OFDMA standards and their derivatives. QTL receives license fees as well as ongoing royalties based on worldwide sales by licensees of products incorporating or using our intellectual property. License fees are fixed amounts paid in one or more installments. Ongoing royalties are generally based upon a percentage of the wholesale selling price of licensed products, net of certain permissible deductions (e.g., certain shipping costs, packing costs, VAT, etc.). QTL revenues comprised 35%, 33% and 31% of total consolidated revenues in fiscal 2009, 2008 and 2007, respectively. The vast majority of such revenues have been generated through our licensees’ sales of cdmaOne, CDMA2000 and WCDMA products.
 
QWI, which includes Qualcomm Enterprise Services (QES), Qualcomm Internet Services (QIS), Qualcomm Government Technologies (QGOV) and Firethorn, generates revenues primarily through mobile information products and services, software and software development aimed at support and delivery of wireless applications. QES sells equipment, software and services used by transportation and other companies to connect wirelessly with their assets and workforce. Through September 2009, QES has shipped approximately 1,344,000 terrestrial-based and satellite-based mobile information units. QIS provides content enablement services for the wireless industry, including BREW (Binary Runtime Environment for Wireless), the Plaza suite and other services. QIS also provides QChat push-to-talk, QPoint and other products for wireless network operators. The QGOV division provides development, hardware and analytical expertise involving wireless communications technologies to United States government agencies. Firethorn builds and manages software applications that enable financial institutions and wireless operators to offer mobile commerce services. QWI revenues comprised 6%, 7% and 9% of total consolidated revenues in fiscal 2009, 2008 and 2007, respectively.
 
QSI manages the Company’s strategic investment activities, including FLO TV Incorporated (FLO TV), formerly MediaFLO USA, Inc., our wholly-owned wireless multimedia operator subsidiary. QSI also makes strategic investments to promote the worldwide adoption of CDMA-based products and services. Our strategy is to invest in early-stage and other companies, including licensed device manufacturers, that we believe open new markets for CDMA technology, support the design and introduction of new CDMA-based products or possess unique capabilities or technology. Our FLO TV subsidiary offers its service over our nationwide multicasting network based on our MediaFLO Media Distribution System (MDS) and MediaFLO technology. This network is utilized as a shared resource for wireless operators and their customers in the United States. The commercial availability of the FLO TV service to retail wireless consumers continues to be determined, in part, by our wireless


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operator partners. FLO TV’s network uses the 700 MHz spectrum for which we hold licenses nationwide. Additionally, FLO TV has and will continue to procure, aggregate and distribute content in service packages which we will continue to make available on a wholesale basis to our wireless operator customers (whether they operate on CDMA, WCDMA or GSM networks) in the United States. Distribution, marketing, billing and customer care remain functions that are provided primarily by our wireless operator partners. As part of our strategic investment activities, we intend to pursue various exit strategies at some point in the future, which may include distribution of our ownership interest in FLO TV to our stockholders in a spin-off transaction.
 
Nonreportable segments include: the Qualcomm MEMS Technologies division, which is developing an interferometric modulator (IMOD) display technology based on micro-electro-mechanical-system (MEMS) structure combined with thin film optics; the Qualcomm Flarion Technologies division, which is developing femtocell chipset products and other OFDM/OFDMA technologies; the MediaFLO Technologies division, which is developing our MediaFLO MDS and MediaFLO technology and markets MediaFLO for deployment outside of the United States; and other product initiatives.
 
Looking Forward
 
The deployment of 3G networks enables increased voice capacity and higher data rates, thereby supporting more minutes of use and a range of mobile broadband data applications for handsets, 3G connected computing devices and other consumer electronics. Data applications include broadband connectivity, streaming video, location based services, mobile social networking and multimedia messaging. As a result, we expect continued growth in the coming years in consumer demand for 3G products and services around the world. As we look forward to the next several months, the following items are likely to have an impact on our business:
 
  •   The network launches and further expansion of 3G in China, including CDMA2000 by China Telecom, WCDMA by China Unicom and TD-SCDMA by China Mobile, is expected to drive competition and growth of 3G products and services in that region.
 
  •   The transition to 3G CDMA-based networks is expected to continue:
 
  •   More than 595 operators have commercially launched 3G networks, including 300 CDMA2000 networks and 295 WCDMA networks;
 
  •   More than 110 CDMA2000 operators have commercially launched the higher data speeds of 1xEV-DO and more than 75 have launched EV-DO Revision A; and
 
  •   More than 280 WCDMA operators have commercially launched the higher data speeds of HSDPA, while more than 90 have launched HSUPA and 26 have launched HSPA+.
 
  •   We expect that CDMA-based device prices will continue to segment into high and low end due to high volumes and vibrant competition in marketplaces around the world. As operators deploy the higher data speeds of HSPA, HSPA+, EV-DO Revision A and EV-DO Revision B and as manufacturers introduce additional highly-featured, converged devices, we expect consumer demand for advanced 3G devices to continue at a strong pace.
 
  •   To meet growing demand for advanced 3G wireless devices and increased multimedia functionality, we intend to continue to invest significant resources toward the development of wireless baseband chips, converged computing/communication chips, multimedia products, software and services for the wireless industry. We expect that a portion of our research and development initiatives in fiscal 2010 will not reach commercialization until several years in the future.
 
  •   We expect demand for cost-effective wireless devices to continue to grow and have developed a family of Qualcomm Single Chip (QSC) products, which integrate the baseband, radio frequency and power management functions into a single chip or package, lowering component counts and enabling faster time-to-market for our customers. While we continue to invest aggressively to expand our QSC product family to address the low-end market more effectively with CDMA-based products, we still face significant competition from GSM-based products, particularly in emerging markets.


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  •   We expect to continue to invest in the evolution of CDMA and a broad range of other technologies as part of our vision to enable a range of technologies, including the following products and technologies:
 
  •   The continued evolution of CDMA-based technologies, including the long-term roadmaps of 1xEV-DO and High Speed Packet Access (HSPA);
 
  •   OFDM and OFDMA-based technologies, including LTE;
 
  •   Our service applications platform, content delivery services and user interfaces;
 
  •   Our Snapdragon platform to help create new CDMA-based connected computing products and drive connectivity beyond traditional wireless devices;
 
  •   Our Gobi mobile data modems to provide worldwide CDMA-based embedded connectivity for existing computing platforms;
 
  •   Our convergence-based chips that include 3G modem and applications processor capabilities (including support for third-party operating systems);
 
  •   Our FLO TV mobile television service which includes product and distribution expansion beyond wireless operators through direct-to-consumer products such as automotive devices and personal television devices through retail channels; and
 
  •   Our IMOD display technology.
 
In addition to the foregoing business and market-based matters, the following items are likely to have an impact on our business and results of operations over the next several months:
 
  •   We expect to continue to devote resources to working with and educating all participants in the wireless value chain as to the benefits of our business model in promoting a highly competitive and innovative wireless market. However, we expect that certain companies may continue to be dissatisfied with the need to pay reasonable royalties for the use of our technology and not welcome the success of our business model in enabling new, highly cost-effective competitors to their products. We expect that such companies will continue to challenge our business model in various forums throughout the world. For example, we expect that we will continue to be involved in litigation, and to appear in front of administrative and regulatory bodies, including the European Commission, the Korea Fair Trade Commission and the Japan Fair Trade Commission, to defend our business model and to rebuff efforts by companies seeking to gain competitive advantage or negotiating leverage.
 
  •   We have been and will continue evaluating and providing reasonable assistance to our customers. This includes, in some cases, certain levels of financial support to minimize the impact of litigation in which we or our customers may become involved.
 
  •   The volatility in financial markets may continue to have an impact on the value of our marketable securities and net investment income (loss).
 
Further discussion of risks related to our business is presented in the Risk Factors included in our Annual Report on Form 10-K.
 
Revenue Concentrations
 
Revenues from customers in South Korea, China and Japan comprised 35%, 23% and 11%, respectively, of total consolidated revenues for fiscal 2009, as compared to 35%, 21% and 14%, respectively, for fiscal 2008, and 31%, 21% and 17%, respectively, for fiscal 2007. We distinguish revenues from external customers by geographic areas based on the location to which our products, software or services are delivered and, for QTL’s licensing and royalty revenues, the invoiced addresses of our licensees. The decline in revenues from customers in Japan was primarily due to lower replacement rates in Japan.


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Critical Accounting Policies and Estimates
 
Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation of intangible assets and investments, share-based payments, income taxes and litigation. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position. We believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others.
 
Revenue Recognition.  We derive revenue principally from sales of integrated circuit products, royalties and license fees for our intellectual property, messaging and other services and related hardware sales, software development and licensing and related services, software hosting services and services related to delivery of multimedia content. 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 deliverables and obligations. Determination of the appropriate amount of revenue recognized involves judgments and estimates that we believe are reasonable, but actual results may differ from our estimates. We record reductions to revenue for customer incentive programs, including special pricing agreements and other volume-related rebate programs. Such reductions to revenue are based on estimates, including our assumptions related to historical and projected customer sales volumes, market share and inventory levels.
 
We license rights 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. Licensees typically pay a license fee in one or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property. License fees are recognized over the estimated period of benefit to the licensee, typically five to fifteen years. We earn royalties on such licensed products sold worldwide by our licensees at the time that the licensees’ sales occur. Our licensees, however, do not report and pay royalties owed for sales in any given quarter until after the conclusion of that quarter. We recognize royalty revenues based on royalties reported by licensees during the quarter and when other revenue recognition criteria are met. From time to time, licensees will not report royalties timely due to legal disputes, and when this occurs, the timing and comparability of royalty revenues could be affected.
 
Valuation of Intangible Assets and Investments.  Our business acquisitions typically result in the recording of goodwill and other intangible assets, and the recorded values of those assets may become impaired in the future. We also acquire intangible assets in other types of transactions. As of September 27, 2009, our goodwill and intangible assets, net of accumulated amortization, were $1.5 billion and $3.1 billion, respectively. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements. For intangible assets purchased in a business combination or received in a non-monetary exchange, the estimated fair values of the assets received (or, for non-monetary exchanges, the estimated fair values of the assets transferred if more clearly evident) are used to establish their recorded values, except when neither the values of the assets received or the assets transferred in non-monetary exchanges are determinable within reasonable limits. Valuation techniques consistent with the market approach, income approach and/or cost approach are used to measure fair value. An estimate of fair value can be affected by many assumptions which require significant judgment. For example, the income approach generally requires assumptions related to the appropriate business model to be used to estimate cash flows, total addressable market, pricing and share forecasts, competition, technology obsolescence, future tax rates and discount rates. Our estimate of the fair value of certain assets, or our conclusion that the value of certain assets is not reliably estimable, may differ materially from that determined by others who use different assumptions or utilize different business models. New information may arise in the future


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that affects our fair value estimates and could result in adjustments to our estimates in the future, which could have an adverse impact on our results of operations.
 
We assess potential impairments to intangible assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Our judgments regarding the existence of impairment indicators and future cash flows related to intangible assets are based on operational performance of our businesses, market conditions and other factors. Although there are inherent uncertainties in this assessment process, the estimates and assumptions we use, including estimates of future cash flows, volumes, market penetration and discount rates, are consistent with our internal planning. If these estimates or their related assumptions change in the future, we may be required to record an impairment charge on all or a portion of our goodwill and intangible assets. Furthermore, we cannot predict the occurrence of future impairment-triggering events nor the impact such events might have on our reported asset values. Future events could cause us to conclude that impairment indicators exist and that goodwill or other intangible assets associated with our acquired businesses are impaired. Any resulting impairment loss could have an adverse impact on our net investment income (loss).
 
We hold minority investments in publicly-traded companies whose share prices may be highly volatile. We also hold investments in other marketable securities, including non-investment-grade debt securities, equity and debt mutual and exchange-traded funds, corporate bonds and notes, auction rate securities and mortgage- and asset-backed securities. These investments, which are recorded at fair value with increases or decreases generally recorded through stockholders’ equity as other comprehensive income or loss, totaled $15 billion at September 27, 2009. We record impairment charges through the statement of operations when we believe an investment has experienced a decline that is other than temporary. The determination that a decline is other than temporary is subjective and influenced by many factors. In addition, the fair values of our strategic investments are subject to substantial quarterly and annual fluctuations and to significant market volatility. Adverse changes in market conditions or poor operating results of investees could result in losses or an inability to recover the carrying value of the investments, thereby requiring impairment charges. When assessing these investments for an other-than-temporary decline in value, we consider such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been below its original cost, the extent of the general decline in prices or an increase in the default or recovery rates of securities in an asset class, negative events such as a bankruptcy filing or a need to raise capital or seek financial support from the government or others, the performance and pricing of the investee’s securities in relation to the securities of its competitors within the industry and the market in general and analyst recommendations, as applicable. We also review the financial statements of the investee to determine if the investee is experiencing financial difficulties. If we determine that a security price decline is other than temporary, we may record an impairment loss, which could have an adverse impact on our results of operations. During fiscal 2009, 2008 and 2007, we recorded $743 million, $502 million and $16 million, respectively, in net other-than-temporary losses on our investments in marketable securities.
 
Share-Based Payments.  We grant options to purchase our common stock to our employees and directors under our equity compensation plans. Eligible employees can also purchase shares of our common stock at 85% of the lower of the fair market value on the first or the last day of each six-month offering period under our employee stock purchase plan. Share-based compensation expense recognized during fiscal 2009, 2008 and 2007 was $584 million, $543 million and $493 million, respectively. At September 27, 2009, total unrecognized estimated compensation expense related to non-vested stock options granted prior to that date was $1.4 billion, which is expected to be recognized over a weighted-average period of 3.3 years. Net stock options, after forfeitures and cancellations, granted during fiscal 2009 represented 2.2% of outstanding shares as of the beginning of the fiscal period. Total stock options granted during fiscal 2009 represented 2.5% of outstanding shares as of the end of the fiscal period.
 
We estimate the value of stock option awards on the date of grant using a lattice binomial option-pricing model (binomial model). The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected


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dividends. We believe it is important for investors to be aware of the high degree of subjectivity involved when using option-pricing models to estimate share-based compensation. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions, are fully transferable and do not cause dilution. Because our share-based payments have characteristics significantly different from those of freely traded options, and because valuation model assumptions are subjective, in our opinion, existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our share-based compensation awards. There is not currently a generally accepted market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models. Although we estimate the fair value of employee share-based awards, the option-pricing model we use may not produce a value that is indicative of the fair value observed in a willing buyer/willing seller market transaction.
 
For purposes of estimating the fair value of stock options granted during fiscal 2009, we used the implied volatility of market-traded options in our stock for the expected volatility assumption input to the binomial model. We utilized the term structure of volatility up to approximately two years, and we used the implied volatility of the option with the longest time to maturity for the expected volatility estimates for periods beyond two years. The weighted-average volatility assumption was 42.7% for fiscal 2009, which if increased to 50%, would increase the weighted-average estimated fair value of stock options granted during fiscal 2009 by $1.78 per share, or 11%. The authoritative guidance includes implied volatility in its list of factors that should be considered in estimating expected volatility. We believe implied volatility is more useful than historical volatility in estimating expected volatility because it is generally reflective of both historical volatility and expectations of how future volatility will differ from historical volatility.
 
The risk-free interest rate is based on the yield curve of U.S. Treasury strip securities for a period consistent with the contractual life of the option in effect at the time of grant. The weighted-average risk-free interest rate assumption was 2.6% for fiscal 2009, which if increased to 6.0% would increase the weighted-average estimated fair value of stock options granted during fiscal 2009 by $1.42 per share, or 8%.
 
We do not target a specific dividend yield for our policy on dividend payments, but we are required to assume a dividend yield as an input to the binomial model. The dividend yield assumption is based on our history and expectation of dividend payouts. The dividend yield assumption was 1.5% for fiscal 2009, which if decreased to 0.4% would increase the weighted-average estimated fair value of stock options granted during fiscal 2009 by $1.14 per share, or 7%. Dividends and/or increases or decreases in dividend payments are subject to approval by our Board of Directors as well as to future cash inflows and outflows resulting from operating performance, stock repurchase programs, mergers and acquisitions, and other sources and uses of cash. While our historical dividend rate is assumed to continue in the future, it may be subject to substantial change, and investors should not depend upon this forecast as a reliable indication of future cash distributions that will be made to investors.
 
The post-vesting forfeiture rate is estimated using historical option cancellation information. The weighted-average post-vesting forfeiture rate assumption was 9.2% for fiscal 2009, which if decreased to 1.5%, would increase the weighted-average estimated fair value of stock options granted during fiscal 2009 by $1.20 per share, or 7%.
 
The suboptimal exercise factor is estimated using historical option exercise information. The weighted-average suboptimal exercise factor assumption was 1.9 for fiscal 2009, which if increased to 2.5, would increase the weighted-average estimated fair value of stock options granted during fiscal 2009 by $1.21 per share or 7%.
 
Income Taxes.  Our income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. 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


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the facts that give rise to a revision become known. Although we believe that the estimates and assumptions supporting our assessments are reasonable, adjustments could be materially different from those which are reflected in historical income tax provisions and recorded assets and liabilities. For example, during fiscal 2009, we recorded an income tax benefit of $155 million, adjusting our prior year estimates of uncertain tax positions as a result of various federal, state and foreign tax audits.
 
We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax-planning strategies. As of September 27, 2009, gross deferred tax assets were $1.5 billion. If we are unable to generate sufficient future taxable income in certain tax jurisdictions, or if there is a material change in the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowance against our deferred tax assets which could result in an increase in our effective tax rate and an adverse impact on operating results.
 
As of September 27, 2009, we had gross deferred tax assets of $510 million related to capital losses and $23 million related to foreign and state net operating losses. We can only use realized capital losses to offset realized capital gains. Based upon our assessments of when capital gains and losses will be realized, we estimate that our future capital gains will not be sufficient to utilize all of the temporary and other-than-temporary capital losses that were recorded through fiscal 2009. During fiscal 2009, we decreased our valuation allowance for the portion of capital losses we do not expect to utilize by $79 million to $55 million. This decrease was comprised of a $278 million net decrease in valuation allowance as a result of an increase in net unrealized gains on marketable securities, which was recorded as an increase in other comprehensive income, partially offset by a $199 million net increase in valuation allowance related to other-than-temporary impairments on investments, which was recognized in earnings. We can only use net operating losses to offset taxable income of certain legal entities in certain tax jurisdictions. Based upon our assessments of projected future taxable income and losses and historical losses incurred by these entities, we expect that the future taxable income of the entities in these tax jurisdictions will not be sufficient to utilize the net operating losses we have incurred through fiscal 2009. Therefore, we have provided a $17 million valuation allowance for these net operating losses. Significant judgment is required to forecast the timing and amount of future capital gains, the timing of realization of capital losses and the amount of future taxable income in certain jurisdictions. Adjustments to our valuation allowance based on changes to our forecast of capital losses, capital gains and taxable income are reflected in the period the change is made.
 
We consider the operating earnings of certain non-United States subsidiaries to be indefinitely invested outside the United States based on estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. We have not recorded a deferred tax liability of approximately $3.0 billion related to the United States federal and state income taxes and foreign withholding taxes on approximately $8.6 billion of undistributed earnings of foreign subsidiaries indefinitely invested outside the United States. Should we decide to repatriate the foreign earnings, we would have to adjust the income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside the United States.
 
We recognize windfall tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. A windfall tax benefit occurs when the actual tax benefit realized by us upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that we had recorded. When assessing whether a tax benefit relating to share-based compensation has been realized, we follow the tax law ordering method, under which current year share-based compensation deductions are assumed to be utilized before net operating loss carryforwards and other tax attributes.
 
Litigation.  We are currently involved in certain legal proceedings. Although there can be no assurance that unfavorable outcomes in any of these matters would not have a material adverse effect on our operating results, liquidity or financial position, we believe the claims are without merit and intend to vigorously defend the actions. We estimate the range of liability related to pending litigation where the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the claim. As additional information becomes available, we assess the potential liability related to our pending litigation and revise our estimates. Other than amounts relating to the Korea Fair Trade Commission Complaint, we


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have not recorded any accrual for contingent liabilities associated with any other legal proceedings 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. Revisions in our estimates of the potential liability could materially impact our results of operations.
 
Fiscal 2009 Compared to Fiscal 2008
 
Revenues.  Total revenues for fiscal 2009 were $10.42 billion, compared to $11.14 billion for fiscal 2008. Revenues from two customers of our QCT and QTL segments (each of whom accounted for more than 10% of our consolidated revenues for the period) comprised approximately 31% and 30% in aggregate of total consolidated revenues in fiscal 2009 and 2008, respectively.
 
Revenues from sales of equipment and services for fiscal 2009 were $6.47 billion, compared to $7.16 billion for fiscal 2008. The decrease in revenues from sales of equipment and services was primarily due to a $597 million reduction in revenues from sales of integrated circuit products, mostly consisting of MSM and accompanying RF and PM integrated circuits, caused by the contraction in CDMA-based channel inventory, and a $79 million decrease in QES revenues. Revenues from licensing and royalty fees for fiscal 2009 were $3.95 billion, compared to $3.98 billion for fiscal 2008. The decrease in revenues from licensing and royalty fees was primarily due to a $26 million decrease in BREW licensing revenues resulting from lower consumer demand and lower prices due to the slowdown in global economies and competitive pricing pressures.
 
Cost of Equipment and Services.  Cost of equipment and services revenues for fiscal 2009 was $3.18 billion compared to $3.41 billion for fiscal 2008. Cost of equipment and services revenues as a percentage of equipment and services revenues was 49% for fiscal 2009, compared to 48% for fiscal 2008. Cost of equipment and services revenues included $41 million in share-based compensation in fiscal 2009, compared to $39 million in fiscal 2008. Cost of equipment and services revenues as a percentage of equipment and services revenues may fluctuate in future quarters depending on the mix of products sold and services provided, competitive pricing, new product introduction costs and other factors.
 
Research and Development Expenses.  For fiscal 2009, research and development expenses were $2.44 billion or 23% of revenues, compared to $2.28 billion or 20% of revenues for fiscal 2008. The dollar increase was primarily attributable to a $129 million increase in costs related to the development of integrated circuit products, next generation CDMA and OFDMA technologies, the expansion of our intellectual property portfolio and other initiatives to support the acceleration of advanced wireless products and services, including lower cost devices, the integration of wireless with consumer electronics and computing, the convergence of multiband, multimode, multinetwork products and technologies, third-party operating systems and services platforms. The technologies supporting these initiatives may include CDMA2000 1X, 1xEV-DO, EV-DO Revision A, EV-DO Revision B, 1x Advanced, WCDMA, HSDPA, HSUPA, HSPA+ and LTE. Research and development expenses in fiscal 2009 included share-based compensation and in-process research and development of $280 million and $6 million, respectively, compared to $250 million and $14 million, respectively, in fiscal 2008.
 
Selling, General and Administrative Expenses.  For fiscal 2009, selling, general and administrative expenses were $1.56 billion or 15% of revenues, compared to $1.71 billion or 15% of revenues for fiscal 2008. The dollar decrease was primarily attributable to a $110 million decrease in professional fees, of which $72 million related to litigation and other legal matters, a $24 million decrease in selling and marketing expenses and a $19 million decrease in travel expenses. Selling, general and administrative expenses in fiscal 2009 included share-based compensation of $263 million, compared to $254 million in fiscal 2008.


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Net Investment (Loss) Income.  Net investment loss was $150 million for fiscal 2009, compared to net investment income of $96 million for fiscal 2008. The net decrease was primarily comprised as follows (in millions):
 
                         
    Year Ended        
    September 27,
    September 28,
       
    2009     2008     Change  
 
Interest and dividend income:
                       
Corporate and other segments
  $ 513     $ 487     $ 26  
QSI
    3       4       (1 )
Interest expense
    (24 )     (22 )     (2 )
Net realized gains on investments:
                       
Corporate and other segments
    107       104       3  
QSI
    30       51       (21 )
Net impairment losses on investments:
                       
Corporate and other segments
    (734 )     (502 )     (232 )
QSI
    (29 )     (33 )     4  
Gains on derivative instruments
    1       6       (5 )
Equity in (losses) earnings of investees
    (17 )     1       (18 )
                         
    $ (150 )   $ 96     $ (246 )
                         
 
Net other-than-temporary losses on marketable securities related primarily to depressed securities values caused by the prolonged disruption in global financial markets affecting consumers and the banking, finance and housing industries. This disruption is evidenced by a deterioration of confidence in financial markets and a severe decline in the availability of capital and demand for debt and equity securities.
 
Income Tax Expense.  Income tax expense was $484 million for fiscal 2009, compared to $666 million for fiscal 2008. The annual effective tax rate was 23% for fiscal 2009, compared to 17% for fiscal 2008. The annual effective tax rate for fiscal 2009 is higher than the annual effective tax rate for fiscal 2008 primarily due to a decrease in foreign earnings taxed at less than the United States federal rate, an increase in the valuation allowance on capital losses recognized in earnings and the revaluation of net deferred tax assets to reflect changes in California law, partially offset by adjustments to prior year estimates of uncertain tax positions as a result of tax audits during fiscal 2009.
 
The annual effective tax rate for fiscal 2009 of 23% is less than the United States federal statutory rate primarily due to benefits of approximately 20% related to foreign earnings taxed at less than the United States federal rate, 7% related to adjustments to prior year estimates of uncertain tax positions as a result of tax audits during the year and 5% related to research and development tax credits, partially offset by an increase in valuation allowance related to capital losses of 11%, the revaluation of net deferred items of 4% and state taxes of approximately 5%.
 
Fiscal 2008 Compared to Fiscal 2007
 
Revenues.  Total revenues for fiscal 2008 were $11.14 billion, compared to $8.87 billion for fiscal 2007. Revenues from two customers of our QCT, QTL and QWI segments (each of whom accounted for more than 10% of our consolidated revenues for the period) comprised approximately 30% and 27% in aggregate of total consolidated revenues in fiscal 2008 and 2007, respectively.
 
Revenues from sales of equipment and services for fiscal 2008 were $7.16 billion, compared to $5.77 billion for fiscal 2007. The increase in revenues from sales of equipment and services was primarily due to a $1.41 billion increase in revenues from sales of integrated circuit products, mostly consisting of MSM and accompanying RF and PM integrated circuits. Revenues from licensing and royalty fees for fiscal 2008 were $3.98 billion, compared to $3.11 billion for fiscal 2007. The increase in revenues from licensing and royalty fees primarily related to an increase in sales of CDMA-based products reported by QTL’s licensees other than Nokia, driven by the continued


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adoption of WCDMA at higher average selling prices than CDMA and fluctuations in currency exchange rates. In addition, revenues from licensing and royalties in fiscal 2008 included $560 million (attributable to both fiscal 2008 and 2007) related to agreements with Nokia. Revenues from licensing and royalties in fiscal 2007 included royalty payments from Nokia only for sales of Nokia products through April 9, 2007.
 
Cost of Equipment and Services.  Cost of equipment and services revenues for fiscal 2008 was $3.41 billion compared to $2.68 billion for fiscal 2007. Cost of equipment and services revenues as a percentage of equipment and services revenues was 48% for fiscal 2008, compared to 47% for fiscal 2007. Cost of equipment and services revenues included $39 million in share-based compensation in both fiscal 2008 and 2007.
 
Research and Development Expenses.  For fiscal 2008, research and development expenses were $2.28 billion or 20% of revenues, compared to $1.83 billion or 21% of revenues for fiscal 2007. The dollar increase was primarily attributable to a $358 million increase in costs related to the development of integrated circuit products, next generation CDMA and OFDMA technologies, the expansion of our intellectual property portfolio and other initiatives to support the acceleration of advanced wireless products and services, including lower cost devices, the integration of wireless with consumer electronics and computing, the convergence of multiband, multimode, multinetwork products and technologies, third-party operating systems and services platforms. The technologies supporting these initiatives may include CDMA2000 1X, 1xEV-DO, EV-DO Revision A, EV-DO Revision B, WCDMA, HSDPA, HSUPA, HSPA+ and OFDMA. Research and development expenses related to the development of our MediaFLO technology, MediaFLO MDS, IMOD display products using MEMS technology, BREW products and mobile commerce applications increased by $63 million. Research and development expenses in fiscal 2008 included share-based compensation and in-process research and development of $250 million and $14 million, respectively, compared to $221 million and $10 million, respectively, in fiscal 2007.
 
Selling, General and Administrative Expenses.  For fiscal 2008, selling, general and administrative expenses were $1.71 billion or 15% of revenues, compared to $1.48 billion or 17% of revenues for fiscal 2007. The dollar increase was primarily attributable to a $137 million increase in employee-related expenses and a $72 million increase in certain professional fees, primarily related to patent activities. Selling, general and administrative expenses in fiscal 2008 included share-based compensation of $254 million, compared to $233 million in fiscal 2007.
 
Net Investment Income.  Net investment income was $96 million for fiscal 2008, compared to $743 million for fiscal 2007. The net decrease was primarily comprised as follows (in millions):
 
                         
    Year Ended        
          September 30,
       
    September 28, 2008     2007     Change  
 
Interest and dividend income:
                       
Corporate and other segments
  $ 487     $ 551     $ (64 )
QSI
    4       7       (3 )
Interest expense
    (22 )     (11 )     (11 )
Net realized gains on investments:
                       
Corporate and other segments
    104       201       (97 )
QSI
    51       21       30  
Net impairment losses on investments:
                       
Corporate and other segments
    (502 )     (16 )     (486 )
QSI
    (33 )     (11 )     (22 )
Gains on derivative instruments
    6       2       4  
Equity in earnings (losses) of investees
    1       (1 )     2  
                         
    $ 96     $ 743     $ (647 )
                         
 
The decrease in interest and dividend income on cash, cash equivalents and marketable securities held by corporate and other segments was primarily a result of lower interest rates earned on interest-bearing securities. Other-than-temporary losses in fiscal 2008 included $327 million recognized in the fourth quarter on marketable securities held by corporate and other segments. Both other-than-temporary losses on marketable securities and the


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decrease in net realized gains on corporate investments were generally related to depressed securities values caused by the major disruption in global financial markets.
 
Income Tax Expense.  Income tax expense was $666 million for fiscal 2008, compared to $323 million for fiscal 2007. The annual effective tax rate was 17% for fiscal 2008, compared to 9% for fiscal 2007. The annual effective tax rate for fiscal 2008 is higher than the annual effective tax rate for fiscal 2007 primarily due to the impact of prior year audits completed during fiscal 2007.
 
The annual effective tax rate for fiscal 2008 is 18% lower than the United States federal statutory rate primarily due to benefits of approximately 22% related to foreign earnings taxed at less than the United States federal rate, and 1% related to research and development tax credits, partially offset by state taxes of approximately 4% and 1% related to an increase in the valuation allowance.
 
Our Segment Results for Fiscal 2009 Compared to Fiscal 2008
 
The following should be read in conjunction with the fiscal 2009 and 2008 financial results for each reporting segment. See “Notes to Consolidated Financial Statements — Note 10 — Segment Information.”
 
QCT Segment.  QCT revenues for fiscal 2009 were $6.14 billion, compared to $6.72 billion for fiscal 2008. Equipment and services revenues, mostly related to sales of MSM and accompanying RF and PM integrated circuits, were $5.93 billion for fiscal 2009, compared to $6.53 billion for fiscal 2008. The decrease in equipment and services revenues resulted primarily from a $770 million decrease related to lower unit shipments, caused by the contraction in CDMA-based channel inventory. This decrease was partially offset by an increase of $113 million related to the net effects of changes in product mix and the average selling prices of such products. Approximately 317 million MSM integrated circuits were sold during fiscal 2009, compared to approximately 336 million for fiscal 2008.
 
QCT earnings before taxes for fiscal 2009 were $1.44 billion, compared to $1.83 billion for fiscal 2008. QCT operating income as a percentage of its revenues (operating margin percentage) was 23% in fiscal 2009, compared to 27% in fiscal 2008. The decrease in operating margin percentage was primarily due to increased research and development expenses while revenues declined.
 
QCT inventories decreased by 10% in fiscal 2009 from $453 million to $408 million primarily due to the net effects of changes in integrated circuit product mix and a decrease in average unit costs.
 
QTL Segment.  QTL revenues for fiscal 2009 were $3.61 billion, compared to $3.62 billion for fiscal 2008. QTL earnings before taxes for fiscal 2009 were $3.07 billion, compared to $3.14 billion for fiscal 2008. QTL operating margin percentage was 85% in fiscal 2009, compared to 87% in fiscal 2008. The decrease in earnings before taxes was primarily attributable to an increase in amortization related to acquired patents, partially offset by a decrease in professional fees related to litigation and other legal matters, which resulted in a corresponding decline in operating margin percentage.
 
QWI Segment.  QWI revenues for fiscal 2009 were $641 million, compared to $785 million for fiscal 2008. Revenues decreased primarily due to a $79 million decrease in QES revenues and a $71 million decrease in QIS revenues. The decrease in QES revenues was primarily attributable to a $50 million decrease in revenues from hardware product sales, due to a 47,500-unit reduction, or 52%, in the number of units shipped, and a $21 million decrease in messaging revenue. The decrease in QIS revenues was primarily attributable to a $45 million decrease in QChat revenues resulting primarily from decreased development efforts under the licensing agreement with Sprint and a $30 million decrease in BREW revenues resulting from lower consumer demand and lower prices due to the slowdown in global economies and competitive pricing pressures.
 
QWI earnings before taxes for fiscal 2009 was $20 million, compared to a loss before taxes of $1 million for fiscal 2008. QWI operating margin percentage was 3% in fiscal 2009, compared to zero percent in fiscal 2008. The increase in QWI earnings before taxes was primarily attributable to a decrease in selling, general and administrative expenses and research and development expenses at QIS and QES, partially offset by an increase in the operating loss of Firethorn. The increase in QWI operating margin percentage was primarily attributable to improvements in QIS and QES gross margin percentage, partially offset by an increase in the operating loss of Firethorn.


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QSI Segment.  QSI revenues for fiscal 2009 were $29 million, compared to $12 million for fiscal 2008. QSI loss before taxes for fiscal 2009 was $361 million, compared to $304 million for fiscal 2008. QSI revenues are attributable to our FLO TV subsidiary. QSI loss before taxes increased by $57 million primarily due to a $39 million increase in net investment losses (unrelated to FLO TV) and an $18 million increase in our FLO TV subsidiary’s loss before taxes.
 
Our Segment Results for Fiscal 2008 Compared to Fiscal 2007
 
The following should be read in conjunction with the financial results of fiscal 2008 and 2007 for each reporting segment. See “Notes to Consolidated Financial Statements, Note 10 — Segment Information.”
 
QCT Segment.  QCT revenues for fiscal 2008 were $6.72 billion, compared to $5.28 billion for fiscal 2007. Equipment and services revenues, mostly consisting of MSM and accompanying RF and PM integrated circuits, were $6.53 billion for fiscal 2008, compared to $5.12 billion for fiscal 2007. The increase in equipment and services revenues resulted primarily from an increase of $1.23 billion related to higher unit shipments and an increase of $219 million related to the net effects of changes in product mix and the average sales prices of such products. Approximately 336 million MSM integrated circuits were sold during fiscal 2008, compared to approximately 253 million for fiscal 2007.
 
QCT earnings before taxes for fiscal 2008 were $1.83 billion, compared to $1.55 billion for fiscal 2007. QCT operating income as a percentage of its revenues (operating margin percentage) was 27% in fiscal 2008, compared to 29% in fiscal 2007. The decrease in operating margin percentage was primarily due to a decrease in gross margin percentage related to an increase in reserves for excess and obsolete inventory and product support costs.
 
QCT inventories increased by 17% in fiscal 2008 from $387 million to $453 million primarily due to the shift in our manufacturing business model from turnkey to IFM and the related work-in process which includes purchased die and related back-end assembly and test manufacturing services needed to complete QCT integrated circuit products. The increase is also attributable to an increase in finished goods associated with growth in sales volume.
 
QT