10-Q 1 qcom3311310-q.htm 10-Q QCOM 3.31.13 10-Q
 
 
 
 
 

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

For the quarterly period ended March 31, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to
Commission File Number 0-19528
QUALCOMM Incorporated
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
 
95-3685934
(I.R.S. Employer
Identification No.)
 
 
 
5775 Morehouse Dr., San Diego, California
(Address of Principal Executive Offices)
 
92121-1714
(Zip Code)
(858) 587-1121
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x






Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on April 22, 2013, was as follows:
Class
 
Number of Shares
Common Stock, $0.0001 per share par value
 
1,727,835,431
 
 
 
 
 



1



INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION

ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
 
March 31,
2013
 
September 30,
2012
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
4,093

 
$
3,807

Marketable securities
9,400

 
8,567

Accounts receivable, net
1,889

 
1,459

Inventories
1,484

 
1,030

Deferred tax assets
318

 
309

Other current assets
582

 
473

Total current assets
17,766

 
15,645

Marketable securities
17,046

 
14,463

Deferred tax assets
1,229

 
1,412

Assets held for sale
1,070

 
1,109

Property, plant and equipment, net
2,971

 
2,851

Goodwill
3,975

 
3,917

Other intangible assets, net
2,735

 
2,938

Other assets
807

 
677

Total assets
$
47,599

 
$
43,012

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Trade accounts payable
$
1,628

 
$
1,298

Payroll and other benefits related liabilities
679

 
664

Unearned revenues
514

 
545

Liabilities held for sale
538

 
1,072

Other current liabilities
1,904

 
1,723

Total current liabilities
5,263

 
5,302

Unearned revenues
3,697

 
3,739

Liabilities held for sale

531

 

Other liabilities
480

 
426

Total liabilities
9,971

 
9,467

 
 
 
 
Commitments and contingencies (Note 6)

 

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

 

Common stock, $0.0001 par value; 6,000 shares authorized; 1,726 and 1,706 shares issued
 
 
 
and outstanding, respectively

 

Paid-in capital
12,991

 
11,956

Retained earnings
23,599

 
20,701

Accumulated other comprehensive income
1,021

 
866

Total Qualcomm stockholders’ equity
37,611

 
33,523

Noncontrolling interests
17

 
22

Total stockholders’ equity
37,628

 
33,545

Total liabilities and stockholders’ equity
$
47,599

 
$
43,012


See Accompanying Notes to Condensed Consolidated Financial Statements.


3


QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
March 31,
2013
 
March 25,
2012
 
March 31,
2013
 
March 25,
2012
Revenues:
 
 
 
 
 
 
 
Equipment and services
$
3,990

 
$
3,137

 
$
8,189

 
$
6,305

Licensing
2,134

 
1,806

 
3,954

 
3,320

Total revenues
6,124

 
4,943

 
12,143

 
9,625

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Cost of equipment and services revenues
2,372

 
1,783

 
4,609

 
3,537

Research and development
1,214

 
954

 
2,320

 
1,827

Selling, general and administrative
661

 
595

 
1,248

 
1,098

Other

 
97

 

 
97

Total operating expenses
4,247

 
3,429

 
8,177

 
6,559

 
 
 
 
 
 
 
 
Operating income
1,877

 
1,514

 
3,966

 
3,066

 
 
 
 
 
 
 
 
Investment income, net (Note 3)
259

 
220

 
497

 
389

Income from continuing operations before income taxes
2,136

 
1,734

 
4,463

 
3,455

Income tax expense
(273
)
 
(296
)
 
(697
)
 
(617
)
Income from continuing operations
1,863

 
1,438

 
3,766

 
2,838

Discontinued operations, net of income taxes (Note 7)

 
761

 

 
756

Net income
1,863

 
2,199

 
3,766

 
3,594

Net loss attributable to noncontrolling interests
3

 
31

 
6

 
37

Net income attributable to Qualcomm
$
1,866

 
$
2,230

 
$
3,772

 
$
3,631

 
 
 
 
 
 
 
 
Basic earnings per share attributable to Qualcomm:
 
 
 
 
 
 
 
Continuing operations
$
1.08

 
$
0.86

 
$
2.20

 
$
1.70

Discontinued operations

 
0.45

 

 
0.45

Net income
$
1.08

 
$
1.31

 
$
2.20

 
$
2.15

Diluted earnings per share attributable to Qualcomm:
 
 
 
 
 
 
 
Continuing operations
$
1.06

 
$
0.84

 
$
2.15

 
$
1.66

Discontinued operations

 
0.44

 

 
0.44

Net income
$
1.06

 
$
1.28

 
$
2.15

 
$
2.10

Shares used in per share calculations:
 
 
 
 
 
 
 
Basic
1,722

 
1,698

 
1,716

 
1,691

Diluted
1,763

 
1,743

 
1,757

 
1,732

 
 
 
 
 
 
 
 
Dividends per share announced
$
0.250

 
$
0.215

 
$
0.500

 
$
0.430




See Accompanying Notes to Condensed Consolidated Financial Statements.


4


QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
March 31,
2013
 
March 25,
2012
 
March 31,
2013
 
March 25,
2012
Net income
$
1,863

 
$
2,199

 
$
3,766

 
$
3,594

Other comprehensive income, net of income taxes:
 
 
 
 
 
 
 
Foreign currency translation
(10
)
 
16

 
(7
)
 
(12
)
Noncredit other-than-temporary impairment losses and subsequent changes in fair value related to certain available-for-sale debt securities
9

 
3

 
(1
)
 
4

Net unrealized gains on other available-for-sale securities and derivative instruments
196

 
320

 
247

 
495

Reclassification of net realized gains on available-for-sale securities and derivative instruments included in net income
(56
)
 
(40
)
 
(95
)
 
(57
)
Reclassification of other-than-temporary losses on available-for-sale securities included in net income
2

 
16

 
11

 
25

Total other comprehensive income
141

 
315

 
155

 
455

Total comprehensive income
2,004

 
2,514

 
3,921

 
4,049

Comprehensive loss attributable to noncontrolling interests
3

 
30

 
6

 
38

Comprehensive income attributable to Qualcomm
$
2,007

 
$
2,544

 
$
3,927

 
$
4,087


See Accompanying Notes to Condensed Consolidated Financial Statements.


5


QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Six Months Ended
 
March 31,
2013
 
March 25,
2012
Operating Activities:
 
 
 
Net income
$
3,766

 
$
3,594

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
489

 
419

Gain on sale of wireless spectrum

 
(1,179
)
Revenues related to non-monetary exchanges
(62
)
 
(61
)
Income tax provision in excess of income tax payments
161

 
500

Non-cash portion of share-based compensation expense
550

 
488

Incremental tax benefits from share-based compensation
(103
)
 
(98
)
Net realized gains on marketable securities and other investments
(179
)
 
(144
)
Gains on derivative instruments
(12
)
 
(74
)
Other items, net
91

 
62

Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable, net
(424
)
 
(195
)
Inventories
(454
)
 
(21
)
Other assets
(201
)
 
(10
)
Trade accounts payable
377

 
287

Payroll, benefits and other liabilities
203

 
(261
)
Unearned revenues
(11
)
 
360

Net cash provided by operating activities
4,191

 
3,667

Investing Activities:
 
 
 
Capital expenditures
(494
)
 
(635
)
Purchases of available-for-sale securities
(7,449
)
 
(7,036
)
Proceeds from sales of available-for-sale securities
4,532

 
3,543

Purchases of trading securities
(1,796
)
 
(1,639
)
Proceeds from sales of trading securities
1,598

 
651

Proceeds from sale of wireless spectrum

 
1,925

Acquisitions and other investments, net of cash acquired
(132
)
 
(329
)
Other items, net
70

 
(53
)
Net cash used by investing activities
(3,671
)
 
(3,573
)
Financing Activities:
 
 
 
Borrowing under loans and debentures

 
232

Repayment of loans

 
(151
)
Proceeds from issuance of common stock
747

 
1,135

Incremental tax benefits from share-based compensation
103

 
98

Repurchases and retirements of common stock
(250
)
 
(99
)
Dividends paid
(859
)
 
(729
)
Other items, net
(2
)
 
(39
)
Net cash (used) provided by financing activities
(261
)
 
447

Changes in cash and cash equivalents held for sale
31

 

Effect of exchange rate changes on cash and cash equivalents
(4
)
 
(5
)
Net increase in cash and cash equivalents
286

 
536

Cash and cash equivalents at beginning of period
3,807

 
5,462

Cash and cash equivalents at end of period
$
4,093

 
$
5,998


See Accompanying Notes to Condensed Consolidated Financial Statements.


6



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1 - Basis of Presentation
Financial Statement Preparation. These condensed consolidated financial statements have been prepared by QUALCOMM Incorporated (collectively with its subsidiaries, the Company or Qualcomm) in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the interim data includes all normal recurring adjustments necessary for a fair statement of the results for the interim periods. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. The Company operates and reports using a 52-53 week fiscal year ending on the last Sunday in September. Each of the three-month and six-month periods ended March 31, 2013 and March 25, 2012 included 13 weeks and 26 weeks, respectively.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’s condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.
Earnings Per Common Share. Basic earnings per common share is computed by dividing net income attributable to Qualcomm by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income attributable to Qualcomm by the combination of dilutive common share equivalents, comprised of shares issuable under the Company’s share-based compensation plans and shares subject to written put options, and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which is calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an award, if any, the amount of compensation cost for future service that the Company has not yet recognized, if any, and the estimated tax benefits that would be recorded in paid-in capital, when an award is settled are assumed to be used to repurchase shares in the current period, if any. The incremental dilutive common share equivalents, calculated using the treasury stock method, for the three and six months ended March 31, 2013 were 41,007,000 and 41,235,000, respectively. The incremental dilutive common share equivalents, calculated using the treasury stock method, for the three and six months ended March 25, 2012 were 44,100,000 and 40,576,000, respectively.
Employee stock options to purchase approximately 326,000 and 486,000 shares of common stock during the three and six months ended March 31, 2013, respectively, and employee stock options to purchase approximately 504,000 and 2,488,000 shares of common stock during the three and six months ended March 25, 2012, respectively, were outstanding but not included in the calculation of diluted earnings per common share because the effect would be anti-dilutive. Put options outstanding during the three and six months ended March 25, 2012 to purchase 11,800,000 shares of common stock were not included in the earnings per common share computation because the put options’ exercise prices were less than the average market price of the common stock while they were outstanding, and therefore, the effect on diluted earnings per common share would be anti-dilutive. No put options were outstanding during the three and six months ended March 31, 2013. In addition, other common stock equivalents of 77,000 and 38,000 shares outstanding during the three and six months ended March 31, 2013, respectively, and 733,000 and 704,000 shares outstanding during the three and six months ended March 25, 2012, respectively, were not included in the computation of diluted earnings per common share because the effect would be anti-dilutive.


7



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Share-Based Compensation. Total estimated share-based compensation expense, related to all of the Company’s share-based awards, was comprised as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 31,
2013
 
March 25,
2012
 
March 31,
2013
 
March 25,
2012
Cost of equipment and services revenues
$
17

 
$
17

 
$
37

 
$
36

Research and development
156

 
126

 
313

 
253

Selling, general and administrative
95

 
97

 
201

 
198

Share-based compensation expense before income taxes
268

 
240

 
551

 
487

Related income tax benefit
(48
)
 
(56
)
 
(111
)
 
(109
)
Share-based compensation expense, net of income taxes
$
220

 
$
184

 
$
440

 
$
378

The Company recorded $71 million and $82 million in share-based compensation expense during the six months ended March 31, 2013 and March 25, 2012, respectively, related to share-based awards granted during those periods.
At March 31, 2013, total unrecognized compensation costs related to non-vested stock options and restricted stock units granted prior to that date were $144 million and $1.2 billion, respectively, which are expected to be recognized over weighted-average periods of 0.9 and 1.6 years, respectively. During the six months ended March 31, 2013 and March 25, 2012, net share-based awards granted, after forfeitures and cancellations, represented 0.4% and 0.5%, respectively, of outstanding shares as of the beginning of each fiscal period, and total share-based awards granted represented 0.4% and 0.6%, respectively, of outstanding shares as of the end of each fiscal period.

Note 2 — Composition of Certain Financial Statement Items
Accounts Receivable (in millions)
March 31,
2013
 
September 30,
2012
Trade, net of allowances for doubtful accounts of $2 and $1, respectively
$
1,852

 
$
1,418

Long-term contracts
28

 
32

Other
9

 
9

 
$
1,889

 
$
1,459

Inventories (in millions)
March 31,
2013
 
September 30,
2012
Raw materials
$
14

 
$
19

Work-in-process
671

 
531

Finished goods
799

 
480

 
$
1,484

 
$
1,030

 
Other Current Liabilities (in millions)
March 31,
2013
 
September 30,
2012
Customer incentives and other customer-related liabilities
$
1,349

 
$
1,107

Other
555

 
616

 
$
1,904

 
$
1,723




8



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 3 — Investment Income, Net (in millions)
 
Three Months Ended
 
Six Months Ended
 
March 31,
2013
 
March 25,
2012
 
March 31,
2013
 
March 25,
2012
Interest and dividend income
$
181

 
$
146

 
$
347

 
$
275

Interest expense
(7
)
 
(29
)
 
(15
)
 
(57
)
Net realized gains on marketable securities
74

 
90

 
167

 
127

Net realized gains on other investments
10

 
11

 
12

 
17

Impairment losses on marketable securities
(10
)
 
(23
)
 
(15
)
 
(37
)
Impairment losses on other investments
(2
)
 
(1
)
 
(7
)
 
(6
)
Gains on derivative instruments
14

 
28

 
12

 
74

Equity in losses of investees
(1
)
 
(2
)
 
(4
)
 
(4
)
 
$
259

 
$
220

 
$
497

 
$
389


Note 4 — Income Taxes
The Company estimates its annual effective income tax rate to be approximately 16% for fiscal 2013, which is less than the 19% effective income tax rate for fiscal 2012. During the second quarter of fiscal 2013, the United States government reinstated the federal research and development tax credit retroactively to January 1, 2012 and extended the credit through December 31, 2013. As a result of the reinstatement, the Company recorded a tax benefit of $64 million related to fiscal 2012 in the second quarter of fiscal 2013. The annual effective tax rate for fiscal 2013 also reflects the tax benefit from such reinstatement for fiscal 2013, while the fiscal 2012 annual effective tax rate only reflected the United States federal research and development credit generated through December 31, 2011, the date on which the credit originally expired. Tax benefits from foreign earnings taxed at rates that are less than the United States federal tax rate are expected to be approximately 17% of earnings before taxes for fiscal 2013 as compared to 15% in fiscal 2012.

Note 5 — Stockholders’ Equity
Changes in stockholders’ equity for the six months ended March 31, 2013 were as follows (in millions):
 
Qualcomm Stockholders’ Equity
 
Noncontrolling Interests
 
Total Stockholders’ Equity
Balance at September 30, 2012
$
33,523

 
$
22

 
$
33,545

Net income (loss)
3,772

 
(6
)
 
3,766

Other comprehensive income
155

 

 
155

Common stock issued under employee benefit plans and the related tax benefits, net of shares withheld for taxes
725

 

 
725

Share-based compensation
562

 

 
562

Dividends
(874
)
 

 
(874
)
Stock repurchases
(250
)
 

 
(250
)
Other
(2
)
 
1

 
(1
)
Balance at March 31, 2013
$
37,611

 
$
17

 
$
37,628



9



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Accumulated Other Comprehensive Income. Components of accumulated other comprehensive income in Qualcomm stockholders’ equity consisted of the following (in millions):
 
March 31,
2013
 
September 30,
2012
Foreign currency translation
$
(114
)
 
$
(107
)
Noncredit other-than-temporary impairment losses and subsequent changes in fair value related to certain available-for-sale debt securities, net of income taxes
25

 
29

Net unrealized gains on other available-for-sale securities, net of income taxes
1,083

 
942

Net unrealized gains on derivative instruments, net of income taxes
27

 
2

 
$
1,021

 
$
866

At March 31, 2013 and September 30, 2012, accumulated other comprehensive income included $2 million and $7 million, respectively, of other-than-temporary losses on certain available-for-sale debt securities related to factors other than credit, net of income taxes.
Stock Repurchase Program. During the six months ended March 31, 2013 and March 25, 2012, the Company repurchased and retired 4,295,000 and 2,046,000 shares, respectively, of the Company’s common stock for $250 million and $99 million, respectively, before commissions. On March 5, 2013, the Company announced that it had been authorized to repurchase up to $5.0 billion of the Company’s common stock. The stock repurchase program has no expiration date. The $5.0 billion stock repurchase program replaced a $4.0 billion stock repurchase program, of which $2.5 billion remained authorized for repurchase. At March 31, 2013, $5.0 billion remained available for repurchase under the Company’s stock repurchase program.
Dividends. On March 5, 2013, the Company announced a 40% increase in its quarterly cash dividend per share of common stock from $0.25 to $0.35, which is effective for dividends payable after March 27, 2013. On April 9, 2013, the Company announced a cash dividend of $0.35 per share on the Company’s common stock, payable on June 26, 2013 to stockholders of record as of June 5, 2013. During the six months ended March 31, 2013 and March 25, 2012, dividends charged to retained earnings were as follows (in millions, except per share data):
 
2013
 
2012
 
Per Share
 
Total
 
Per Share
 
Total
First quarter
$
0.250

 
$
435

 
$
0.215

 
$
368

Second quarter
0.250

 
439

 
0.215

 
377

 
$
0.500

 
$
874

 
$
0.430

 
$
745


Note 6 — Commitments and Contingencies
Legal Proceedings. Tessera, Inc. v. QUALCOMM Incorporated: On April 17, 2007, Tessera filed a patent infringement lawsuit in the United States District Court for the Eastern District of Texas and a complaint with the United States International Trade Commission (ITC) pursuant to Section 337 of the Tariff Act of 1930 against the Company and other companies, alleging infringement of two patents. The district court action was stayed pending resolution of the ITC proceeding, including all appeals. On May 20, 2009, the ITC issued a limited exclusion order and a cease and desist order, both of which were terminated when the patents expired on September 24, 2010. During the period of the exclusion order, the Company shifted supply of accused chips for customers who manufacture products that may be imported to the United States to a licensed supplier of Tessera, and the Company continued to supply those customers without interruption. The ITC’s orders were affirmed on appeal, and on November 28, 2011, the United States Supreme Court denied the Company’s petition for review. On January 18, 2012, pursuant to the parties’ stipulation, the District Court in the Eastern District of Texas lifted the stay and ordered that the case be moved to the United States District Court for the Northern District of California. On March 1, 2012, that court consolidated the case with an earlier-filed lawsuit filed by Tessera against multiple parties, including some of the Company’s semiconductor chip package suppliers. Trial is scheduled for August 25, 2014. Tessera may continue to seek alleged past damages in the district court, but it cannot obtain injunctive relief due to the expiration of the patents.


10



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

MicroUnity Systems Engineering, Inc. v. QUALCOMM Incorporated, et al.: MicroUnity filed a total of three patent infringement complaints, on March 16, 2010, June 3, 2010 and January 27, 2011, against the Company and a number of other technology companies, including Texas Instruments, Samsung, Apple, Nokia, Google and HTC, in the United States District Court for the Eastern District of Texas. MicroUnity’s complaint against the Company alleges that certain of its Snapdragon products infringe 10 of MicroUnity’s patents and seeks damages and injunctive and other relief. The court consolidated the actions in May 2011. Trial was scheduled for June 3, 2013. On April 16, 2013, MicroUnity and the Company entered into a binding settlement agreement pursuant to which the parties will dismiss with prejudice all claims against each other, and the Company will enter into a license agreement for the patents-in-suit and the MicroUnity patent portfolio. The agreement provides that the Company will pay to MicroUnity an amount that is not material to the Company’s financial statements.
MOSAID Technologies Incorporated v. Dell, Inc. et al.: On March 16, 2011, MOSAID filed a complaint against Atheros Communications, Inc. (Atheros Communications), which the Company acquired in May 2011 and renamed Qualcomm Atheros, Inc. (Qualcomm Atheros), and 32 other entities in the United States District Court for the Eastern District of Texas. MOSAID’s complaint against Atheros Communications alleges that certain of its WiFi products infringed six MOSAID patents. MOSAID seeks damages for the relevant statutory period prior to May 2011. The case is in the discovery phase. A claim construction hearing was held on April 16, 2013, and trial is scheduled for January 8, 2014.
ParkerVision, Inc. v. QUALCOMM Incorporated: On July 20, 2011, ParkerVision filed a complaint against the Company in the United States District Court for the Middle District of Florida alleging that certain of the Company’s products infringe seven of its patents alleged to cover direct-down conversion receivers. ParkerVision’s complaint seeks damages and injunctive and other relief. On February 28, 2012, ParkerVision filed an amended complaint dropping two patents from the case and adding one new patent. On January 22, 2013, the court granted in part ParkerVision’s motion to dismiss the Company’s counterclaim for inequitable conduct, and the Company subsequently withdrew the remainder of its inequitable conduct counterclaim. On February 20, 2013, the court issued its claim construction order. The Company filed its amended answer and counterclaims on April 11, 2013. Trial is scheduled for October 7, 2013.
Icera Complaint to the European Commission: On June 7, 2010, the European Commission (the Commission) notified and provided the Company with a redacted copy of a complaint filed with the Commission by Icera, Inc. alleging that the Company has engaged in anticompetitive activity. The Company was asked by the Commission to submit a preliminary response to the portions of the complaint disclosed to it, and the Company submitted its response in July 2010. On October 19, 2011, the Commission notified the Company that it should provide to the Commission additional documents and information. On January 16, 2012, the Company provided additional documents and information in response to that request. The Company continues to cooperate fully with the Commission’s preliminary investigation.
Korea Fair Trade Commission (KFTC) Complaint: On January 4, 2010, the KFTC issued a written decision finding that the Company had violated South Korean law by offering certain discounts and rebates for purchases of its CDMA chips and for including in certain agreements language requiring the continued payment of royalties after all licensed patents have expired. The KFTC levied a fine, which the Company paid in the second quarter of fiscal 2010. The Company is appealing that decision in the Korean courts.
Japan Fair Trade Commission (JFTC) Complaint: The JFTC received unspecified complaints alleging that the Company’s business practices are, in some way, a violation of Japanese law. On September 29, 2009, the JFTC issued a cease and desist order concluding that the Company’s Japanese licensees were forced to cross-license patents to the Company on a royalty-free basis and were forced to accept a provision under which they agreed not to assert their essential patents against the Company’s other licensees who made a similar commitment in their license agreements with the Company. The cease and desist order seeks to require the Company to modify its existing license agreements with Japanese companies to eliminate these provisions while preserving the license of the Company’s patents to those companies. The Company disagrees with the conclusions that it forced its Japanese licensees to agree to any provision in the parties’ agreements and that those provisions violate the Japanese Antimonopoly Act. The Company has invoked its right under Japanese law to an administrative hearing before the JFTC. In February 2010, the Tokyo High Court granted the Company’s motion and issued a stay of the cease and desist order pending the administrative hearing before the JFTC. The JFTC has held hearings on 17 different dates, with another hearing scheduled for May 22, 2013 and additional hearing dates yet to be scheduled.


11



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Securities and Exchange Commission (SEC) Formal Order of Private Investigation and Department of Justice Investigation: On September 8, 2010, the Company was notified by the SEC’s Los Angeles Regional office of a formal order of private investigation. The Company understands that the investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of the Company’s Board of Directors and to the SEC. In 2010, the audit committee completed an internal review of the allegations with the assistance of independent counsel and independent forensic accountants. This internal review into the whistleblower’s allegations and related accounting practices did not identify any errors in the Company’s financial statements. On January 27, 2012, the Company learned that the U.S. Attorney’s Office for the Southern District of California/Department of Justice (collectively, DOJ) had begun a preliminary investigation regarding the Company’s compliance with the Foreign Corrupt Practices Act (FCPA). The Company believes that FCPA compliance had also become a focus of the SEC investigation. The audit committee has commenced an internal review into the Company’s compliance with the FCPA with the assistance of independent counsel and independent forensic accountants.
The Company has discovered, and as a part of its ongoing cooperation with these investigations has informed the SEC and the DOJ of, instances in which special hiring consideration, gifts or other benefits (collectively, benefits) were provided to several individuals associated with Chinese state-owned companies or agencies. Based on the facts currently known, the Company believes the aggregate monetary value of the benefits in question to be less than $250,000, excluding employment compensation. The Company is continuing to investigate the circumstances relating to providing these benefits and is attempting to identify whether any other benefits were provided.
The Company is continuing to cooperate with the SEC and the DOJ, but is unable to predict the outcome of their investigations.
The Company will continue to vigorously defend itself in the foregoing actions. However, litigation and investigations are inherently uncertain. Accordingly, the Company cannot predict the outcome of these matters. Other than the amount payable to MicroUnity, the Company has not recorded any accrual at March 31, 2013 for contingent losses associated with these matters based on its belief that losses, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time. Nonetheless, the unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows. The Company is engaged in numerous other legal actions not described above arising in the ordinary course of its business and, while there can be no assurance, believes that the ultimate outcome of these other legal actions will not have a material adverse effect on its business, results of operations, financial condition or cash flows.
Loans and Debentures. The Company’s subsidiaries in India that were established to operate a wireless network on Broadband Wireless Access (BWA) spectrum (the BWA subsidiaries) have loan and debenture liabilities in connection with the BWA spectrum won in India in June 2010 and payment of $81 million to the India Government’s Department of Telecommunications in March 2012, which was recorded as a charge to other operating expenses in the second quarter of fiscal 2012. At both March 31, 2013 and September 30, 2012, the aggregate carrying value of the loans and debentures, including accrued interest on the debentures, was $1.1 billion. The assets and liabilities of the BWA subsidiaries are classified as held for sale as a result of the Company’s agreement with Bharti Airtel Limited (Bharti), which provides that Bharti’s ownership interests in the BWA subsidiaries will increase over time to 100% if certain conditions are met. At March 31, 2013 and September 30, 2012, the carrying values of the loan and debenture liabilities approximated fair value (a Level 2 measurement).
The BWA subsidiaries’ loan agreements with multiple lenders are denominated in Indian rupees. The majority of the loans ($455 million at March 31, 2013) are due and payable on May 31, 2014, and the remaining loan ($76 million at March 31, 2013) is due and payable on December 1, 2014. All of the loans bear interest at an annual rate based on the highest rate of the relevant bank, which is reset quarterly, plus 0.25% (9.75% at March 31, 2013) with interest payments due monthly. All of the loans can be prepaid without penalty on certain dates and are guaranteed by QUALCOMM Incorporated and one of its wholly-owned subsidiaries. The loan agreements contain standard covenants, which, among other things, limit actions by the subsidiaries that are party to the loan agreements, including the incurrence of loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. The loan agreements also define certain events of default, including, among other things, if certain government authorizations are revoked, terminated, withdrawn, suspended, modified or withheld.


12



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The BWA subsidiaries’ redeemable, unlisted, unsecured, non-convertible debentures (the debentures), which were issued to multiple purchasers, are denominated in Indian rupees and bear interest at an agreed-upon annual rate, which is compounded annually and reset semi-annually beginning on June 25, 2013 (10.25% at March 31, 2013) with interest due upon redemption. All of the debentures ($530 million, including accrued interest, at March 31, 2013) are due and payable in full on June 25, 2017. The debentures can be redeemed by the Company without penalty on certain dates. Additionally, each holder has the right to demand redemption of its portion of the debentures outstanding on June 25, 2013 subject to sufficient prior written notice. The holders are indemnified by QUALCOMM Incorporated and one of its wholly-owned subsidiaries.
Indemnifications. With the exception of the practices of its Qualcomm Atheros subsidiary, the Company generally does not indemnify its customers and licensees for losses sustained from infringement of third-party intellectual property rights. However, the Company is contingently liable under certain product sales, services, license and other agreements to indemnify certain customers against certain types of liability and/or damages arising from qualifying claims of patent infringement by products or services sold or provided by the Company. The Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by the Company. Under Qualcomm Atheros’ indemnification agreements, software license agreements and product sale agreements (including its standard software license agreements and standard terms and conditions of semiconductor sales), Qualcomm Atheros agrees, subject to restrictions and after certain conditions are met, to indemnify and defend its licensees and customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the licensees or customers. Through March 31, 2013, Qualcomm Atheros has received a number of claims from its direct and indirect customers and other third parties for indemnification under such agreements with respect to alleged infringement of third-party intellectual property rights by its products.
These indemnification arrangements are not initially measured and recognized at fair value because they are deemed to be similar to product warranties in that they relate to claims and/or other actions that could impair the ability of the Company’s direct or indirect customers to use the Company’s products or services. Accordingly, the Company records liabilities resulting from the arrangements when they are probable and can be reasonably estimated. Reimbursements under indemnification arrangements have not been material to the Company’s consolidated financial statements. The Company has not recorded any accrual for contingent liabilities at March 31, 2013 associated with these indemnification arrangements, other than insignificant amounts, based on the Company’s belief that additional liabilities, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time.
Purchase Obligations. The Company has agreements with suppliers and other parties to purchase inventory, other goods and services and long-lived assets. Noncancelable obligations under these agreements at March 31, 2013 for the remainder of fiscal 2013 and for each of the subsequent four years from fiscal 2014 through 2017 were approximately $3.4 billion, $447 million, $127 million, $31 million and $4 million, respectively, and $11 million thereafter. Of these amounts, for the remainder of fiscal 2013 through fiscal 2015, commitments to purchase integrated circuit product inventories comprised $3.0 billion, $348 million and $79 million, respectively.


13



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Leases. The future minimum lease payments for all capital leases and operating leases at March 31, 2013 were as follows (in millions):
 
Capital
Leases
 
Operating
Leases
 
Total
Remainder of fiscal 2013
$
1

 
$
45

 
$
46

2014
2

 
143

 
145

2015
2

 
92

 
94

2016
2

 
39

 
41

2017
2

 
31

 
33

Thereafter
38

 
57

 
95

Total minimum lease payments
$
47

 
$
407

 
$
454

Deduct: Amounts representing interest
25

 
 
 
 
Present value of minimum lease payments
22

 
 
 
 
Deduct: Current portion of capital lease obligations

 
 
 
 
Long-term portion of capital lease obligations
$
22

 
 
 
 
The Company leases certain of its land, facilities and equipment under noncancelable operating leases, with terms ranging from less than one year to 25 years and with provisions in certain leases for cost-of-living increases. The Company leases certain property under capital lease agreements primarily related to site leases that have an initial term of five to seven years with renewal options of up to five additional renewal periods. Capital lease obligations are included in other liabilities.

Note 7 — Segment Information
The Company is organized on the basis of products and services. The Company aggregates four of its divisions into the QWI segment and two of its divisions into the QSI segment. Reportable segments are as follows:
QCT segment — develops and supplies integrated circuits and system software based on CDMA, OFDMA and other technologies for use in voice and data communications, networking, application processing, multimedia and global positioning system products.
QTL segment — grants licenses or otherwise provides rights to use portions of the Company’s intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products, including, without limitation, products implementing CDMA2000, WCDMA, CDMA TDD (including TD-SCDMA), GSM/GPRS/EDGE and/or OFDMA standards and their derivatives, and QTL collects license fees as well as royalties based on sales by licensees of products incorporating or using the Company’s intellectual property.
QWI segment — comprised of:
Omnitracs division (formerly QES) — provides fleet management, satellite- and terrestrial-based two-way wireless information and position reporting and other services, software and hardware to transportation and logistics companies;
QIS division — provides content enablement services for the wireless industry and push-to-talk and other software products and services for wireless network operators;
QGOV division — provides development and other services and related products involving wireless communications technologies to government agencies and their contractors; and
QRS (Qualcomm Retail Solutions) division (formerly Firethorn) — builds and manages software applications that enable certain mobile commerce services.
QSI segment — comprised of the Company’s Qualcomm Ventures and Structured Finance & Strategic Investments divisions. QSI makes strategic investments that the Company believes will open new opportunities for its technologies, support the design and introduction of new products or services for voice and data


14



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

communications or possess unique capabilities or technology. Many of these strategic investments are in early-stage companies. QSI also holds wireless spectrum. QSI’s FLO TV division was presented as discontinued operations in fiscal 2012. All discontinued operations were attributable to Qualcomm.
The Company evaluates the performance of its segments based on earnings (loss) before income taxes (EBT) from continuing operations. Segment EBT includes the allocation of certain corporate expenses to the segments, including depreciation and amortization expense related to unallocated corporate assets. Certain income and charges are not allocated to segments in the Company’s management reports because they are not considered in evaluating the segments’ operating performance. Unallocated income and charges include certain net investment income; certain share-based compensation; and certain research and development expenses and other selling and marketing expenses that were deemed to be not directly related to the businesses of the segments. Additionally, unallocated charges include recognition of the step-up of inventories to fair value, amortization and impairment of certain intangible assets and certain other acquisition-related charges. The table below presents revenues and EBT for reportable segments (in millions):
 
QCT
 
QTL
 
QWI
 
QSI
 
Reconciling
Items
 
Total
For the three months ended:
 
 
 
 
 
 
 
 
 
 
 
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
3,916

 
$
2,057

 
$
155

 
$

 
$
(4
)
 
$
6,124

EBT
681

 
1,803

 

 
33

 
(381
)
 
2,136

March 25, 2012
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
3,059

 
$
1,723

 
$
159

 
$

 
$
2

 
$
4,943

EBT
599

 
1,540

 
(10
)
 
(99
)
 
(296
)
 
1,734

 
 
 
 
 
 
 
 
 
 
 
 
For the six months ended:
 
 
 
 
 
 
 
 
 
 
 
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
8,036

 
$
3,813

 
$
301

 
$

 
$
(7
)
 
$
12,143

EBT
1,749

 
3,335

 
(4
)
 
16

 
(633
)
 
4,463

March 25, 2012
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
6,143

 
$
3,162

 
$
311

 
$

 
$
9

 
$
9,625

EBT
1,338

 
2,808

 
(9
)
 
(133
)
 
(549
)
 
3,455

Reconciling items in the previous table were as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 31,
2013
 
March 25,
2012
 
March 31,
2013
 
March 25,
2012
Revenues
 
 
 
 
 
 
 
Nonreportable segments
$
(3
)
 
$
3

 
$
(5
)
 
$
11

Intersegment eliminations
(1
)
 
(1
)
 
(2
)
 
(2
)
 
$
(4
)
 
$
2

 
$
(7
)
 
$
9

EBT
 
 
 
 
 
 
 
Unallocated cost of equipment and services revenues
$
(93
)
 
$
(68
)
 
$
(177
)
 
$
(138
)
Unallocated research and development expenses
(204
)
 
(176
)
 
(389
)
 
(339
)
Unallocated selling, general and administrative expenses
(153
)
 
(168
)
 
(264
)
 
(283
)
Unallocated investment income, net
220

 
228

 
468

 
418

Nonreportable segments
(151
)
 
(112
)
 
(271
)
 
(207
)
 
$
(381
)
 
$
(296
)
 
$
(633
)
 
$
(549
)


15



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

QCT revenues for both the three and six months ended March 31, 2013 and March 25, 2012 included $1 million and $2 million of intersegment revenues, respectively. All other revenues for reportable segments were from external customers for all periods presented.
Amounts included in unallocated expenses related to the amortization and impairment of certain intangible assets, contract termination and the recognition of the step-up of inventories to fair value that resulted from acquisitions were as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 31,
2013
 
March 25,
2012
 
March 31,
2013
 
March 25,
2012
Unallocated cost of equipment and services revenues
$
76

 
$
51

 
$
140

 
$
102

Unallocated research and development expenses
1

 

 
1

 

Unallocated selling, general and administrative expenses
6

 
6

 
13

 
15

Segment assets are comprised of accounts receivable and inventories for all reportable segments other than QSI. QSI segment assets include marketable securities, notes receivable, wireless spectrum, other investments and all assets of consolidated subsidiaries included in QSI. Reconciling items for total consolidated assets included $1.1 billion and $1.2 billion at March 31, 2013 and September 30, 2012, respectively, of property, plant and equipment, goodwill and other assets related to the Company’s QMT division. Total segment assets also differ from total assets on a consolidated basis as a result of unallocated corporate assets primarily comprised of certain cash, cash equivalents, marketable securities, property, plant and equipment, deferred tax assets, goodwill, other intangible assets and assets of nonreportable segments. Segment assets and reconciling items were as follows (in millions):
 
March 31,
2013
 
September 30,
2012
QCT
$
3,127

 
$
2,278

QTL
115

 
63

QWI
116

 
129

QSI
1,455

 
1,424

Reconciling items
42,786

 
39,118

Total consolidated assets
$
47,599

 
$
43,012


Note 8 — Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.
Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument.
Level 3 includes financial instruments for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including the Company’s own assumptions.


16



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at March 31, 2013 (in millions):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents (1)
$
1,722

 
$
1,799

 
$

 
$
3,521

Marketable securities
 
 
 
 
 
 
 
U.S. Treasury securities and government-related securities
770

 
592

 

 
1,362

Corporate bonds and notes

 
14,095

 

 
14,095

Mortgage- and asset-backed securities

 
1,328

 
312

 
1,640

Auction rate securities

 

 
84

 
84

Common and preferred stock
1,394

 
897

 

 
2,291

Equity funds
1,173

 

 

 
1,173

Debt funds
2,372

 
3,429

 

 
5,801

Total marketable securities
5,709

 
20,341

 
396

 
26,446

Derivative instruments

 
59

 

 
59

Other investments
225

 

 

 
225

Total assets measured at fair value
$
7,656

 
$
22,199

 
$
396

 
$
30,251

Liabilities
 
 
 
 
 
 
 
Derivative instruments
$

 
$
10

 
$

 
$
10

Other liabilities
225

 

 

 
225

Total liabilities measured at fair value
$
225

 
$
10

 
$

 
$
235

(1) Includes cash equivalents of $24 million that were classified as held for sale at March 31, 2013.
Cash Equivalents, Time Deposits and Marketable Securities. The Company considers all highly liquid investments, including repurchase agreements, with original maturities of three months or less to be cash equivalents. Cash equivalents are comprised of money market funds, certificates of deposit, commercial paper, government agencies’ securities and repurchase agreements fully collateralized by government agencies’ securities.
With the exception of auction rate securities, the Company obtains pricing information from quoted market prices, pricing vendors or quotes from brokers/dealers. The Company conducts reviews of its primary pricing vendors to determine whether the inputs used in the vendor’s pricing processes are deemed to be observable. The fair value for interest-bearing securities includes accrued interest.
The fair value of U.S. Treasury securities and government-related securities, corporate bonds and notes and common and preferred stock is generally determined using standard observable inputs, including reported trades, quoted market prices, matrix pricing, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets and/or benchmark securities.
The fair value of debt and equity funds is reported at published net asset values. The Company assesses the daily frequency and size of transactions at published net asset values and/or the funds’ underlying holdings to determine whether fair value is based on observable or unobservable inputs.
The fair value of highly rated mortgage- and asset-backed securities is derived from the use of matrix pricing (prices for similar securities) or, in some cases, cash flow pricing models with observable inputs such as contractual terms, maturity, credit rating and/or securitization structure to determine the timing and amount of future cash flows. Certain mortgage- and asset-backed securities, principally those rated below AAA, may require the use of significant unobservable inputs to estimate fair value, such as default likelihood, recovery rates and prepayment speed.


17



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The fair value of auction rate securities is estimated by the Company using a discounted cash flow model that incorporates transaction details such as contractual terms, maturity and timing and amount of future cash flows, as well as assumptions related to liquidity, default likelihood and recovery, the future state of the auction rate market and credit valuation adjustments of market participants. Though certain of the securities held by the Company are pools of student loans guaranteed by the U.S. government, prepayment speeds and illiquidity discounts are considered significant unobservable inputs. These additional inputs are generally unobservable, and therefore, auction rate securities are included in Level 3.
Derivative Instruments. Derivative instruments include foreign currency option and forward contracts to manage foreign exchange risk for certain foreign currency transactions and certain balances denominated in a foreign currency; option, forward and swap contracts to acquire or reduce foreign exchange risk and/or equity, prepayment and credit risks for portfolios of marketable securities classified as trading; and warrants to purchase common stock of other companies at fixed prices. Derivative instruments that are traded on an exchange are valued using quoted market prices and are included in Level 1. Derivative instruments that are not traded on an exchange are valued using conventional calculations/models that are primarily based on observable inputs, such as foreign currency exchange rates, the Company’s stock price, volatilities and interest rates, and therefore, such derivative instruments are included in Level 2.
Other Investments and Other Liabilities. Other investments and other liabilities included in Level 1 are comprised of the Company’s deferred compensation plan liability and related assets, which consist of mutual funds classified as trading securities and included in other noncurrent assets. Other liabilities included in Level 3 in fiscal 2012 were comprised of put rights held by third parties representing interests in certain of the Company’s subsidiaries. These put rights were terminated during the third quarter of fiscal 2012 and were previously valued with a conventional option pricing model using significant unobservable inputs.
Activity between Levels of the Fair Value Hierarchy. There were no significant transfers between Level 1 and Level 2 during the six months ended March 31, 2013 or March 25, 2012. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. The following table includes the activity for marketable securities and other liabilities classified within Level 3 of the valuation hierarchy (in millions):
 
Six Months Ended
March 31, 2013
 
Six Months Ended
March 25, 2012
 
Auction Rate
Securities
 
Other Marketable
Securities
 
Auction Rate
Securities
 
Other Marketable
Securities
 
Other Liabilities
Beginning balance of Level 3
$
118

 
$
203

 
$
124

 
$
27

 
$
7

Total realized and unrealized gains or losses:
 
 
 
 
 
 
 
 
 
Included in investment income, net

 
3

 

 
1

 
(2
)
Included in other comprehensive income
1

 
3

 

 
2

 

Purchases

 
127

 

 
88

 

Sales

 
(6
)
 

 

 

Settlements
(35
)
 
(36
)
 
(4
)
 
(8
)
 

Transfers into Level 3

 
18

 

 
5

 

Ending balance of Level 3
$
84

 
$
312

 
$
120

 
$
115

 
$
5

The Company recognizes transfers into and out of levels within the fair value hierarchy at the end of the fiscal month in which the actual event or change in circumstances that caused the transfer occurs. Transfers into Level 3 during the six months ended March 31, 2013 and March 25, 2012 primarily consisted of debt securities with significant inputs that became unobservable as a result of an increased likelihood of a shortfall in contractual cash flows or a significant downgrade in credit ratings.
Nonrecurring Fair Value Measurements. The Company measures certain assets at fair value on a nonrecurring basis. These assets include cost and equity method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property, plant and equipment and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. During the six months ended March 31, 2013 and March 25, 2012, the Company did not have any other


18



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

significant assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.

Note 9 — Marketable Securities
Marketable securities were comprised as follows (in millions):
 
Current
 
Noncurrent
 
March 31,
2013
 
September 30,
2012
 
March 31,
2013
 
September 30,
2012
Trading:
 
 
 
 
 
 
 
U.S. Treasury securities and government-related securities
$
224

 
$
196

 
$
155

 
$
254

Corporate bonds and notes
282

 
283

 
321

 
176

Mortgage- and asset-backed securities

 

 
198

 
120

Total trading
506

 
479

 
674

 
550

Available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities and government-related securities
353

 
362

 
630

 
592

Corporate bonds and notes
4,881

 
4,554

 
8,611

 
7,570

Mortgage- and asset-backed securities
1,115

 
1,157

 
327

 
241

Auction rate securities

 

 
84

 
118

Common and preferred stock
23

 
57

 
2,268

 
2,030

Equity funds

 

 
1,173

 
1,126

Debt funds
2,522

 
1,958

 
2,740

 
1,716

Total available-for-sale
8,894

 
8,088

 
15,833

 
13,393

Fair value option:
 
 
 
 
 
 
 
Debt fund

 

 
539

 
520

Total marketable securities
$
9,400

 
$
8,567

 
$
17,046

 
$
14,463

The Company holds an investment in a debt fund for which the Company elected the fair value option because the Company is able to redeem its shares at net asset value, which is determined daily. The investment would have otherwise been recorded using the equity method. The debt fund has no single maturity date. At March 31, 2013, the Company had an effective ownership interest in the debt fund of 21%. During the three and six months ended March 31, 2013, increases in fair value associated with this investment of $8 million and $18 million, respectively, were recognized in net investment income. During the three and six months ended March 25, 2012, increases in fair value associated with this investment of $17 million and $22 million, respectively, were recognized in net investment income.
The Company classifies certain portfolios of debt securities that utilize derivative instruments to acquire or reduce foreign exchange and/or equity, prepayment and credit risk as trading. Net losses recognized on debt securities classified as trading still held at March 31, 2013 were $15 million and $16 million for the three and six months ended March 31, 2013, respectively. Net gains recognized on debt securities classified as trading still held at March 25, 2012 were $12 million and $10 million for the three and six months ended March 25, 2012, respectively.
At March 31, 2013, the contractual maturities of available-for-sale debt securities were as follows (in millions):
Years to Maturity
 
 
 
 
Less Than
One Year
 
One to
Five Years
 
Five to
Ten Years
 
Greater Than
Ten Years
 
No Single
Maturity
Date
 
Total
$
776

 
$
7,692

 
$
4,540

 
$
1,468

 
$
6,787

 
$
21,263

Debt securities with no single maturity date included debt funds, mortgage- and asset-backed securities and auction rate securities.


19



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company recorded realized gains and losses on sales of available-for-sale securities as follows (in millions):
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains
For the three months ended
 
 
 
 
 
March 31, 2013
$
69

 
$
(4
)
 
$
65

March 25, 2012
64

 
(4
)
 
60

 
 
 
 
 
 
For the six months ended
 
 
 
 
 
March 31, 2013
$
153

 
$
(9
)
 
$
144

March 25, 2012
100

 
(6
)
 
94

Available-for-sale securities were comprised as follows (in millions):
 
Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
March 31, 2013
 
 
 
 
 
 
 
Equity securities
$
2,669

 
$
800

 
$
(5
)
 
$
3,464

Debt securities (including debt funds)
20,673

 
617

 
(27
)
 
21,263

 
$
23,342

 
$
1,417

 
$
(32
)
 
$
24,727

September 30, 2012
 
 
 
 
 
 
 
Equity securities
$
2,599

 
$
628

 
$
(14
)
 
$
3,213

Debt securities (including debt funds)
17,714

 
573

 
(19
)
 
18,268

 
$
20,313

 
$
1,201

 
$
(33
)
 
$
21,481

The following table shows the gross unrealized losses and fair values of the Company’s investments in individual securities that are classified as available-for-sale and have been in a continuous unrealized loss position deemed to be temporary for less than 12 months and for more than 12 months, aggregated by investment category (in millions):
 
March 31, 2013
 
Less than 12 months
 
More than 12 months
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Corporate bonds and notes
$
1,661

 
$
(8
)
 
$
83

 
$
(3
)
Mortgage- and asset-backed securities
220

 
(1
)
 
13

 

Auction rate securities

 

 
83

 
(1
)
Common and preferred stock
86

 
(5
)
 
10

 

Debt funds
1,213

 
(14
)
 
4

 

 
$
3,180

 
$
(28
)
 
$
193

 
$
(4
)



20



QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
September 30, 2012
 
Less than 12 months
 
More than 12 months
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Corporate bonds and notes
$
723

 
$
(8
)
 
$
256

 
$
(9
)
Mortgage- and asset-backed securities
143

 
(1
)
 
7

 

Auction rate securities

 

 
115

 
(1
)
Common and preferred stock
105

 
(5
)
 
9

 

Equity funds
64

 
(4
)
 
36

 
(5
)
 
$
1,035

 
$
(18
)
 
$
423

 
$
(15
)
At March 31, 2013, the Company concluded that the unrealized losses on its available-for-sale securities were temporary. Further, for common and preferred stock and for equity and debt funds with unrealized losses, the Company has the ability and the intent to hold such securities until they recover, which is expected to be within a reasonable period of time. For debt securities with unrealized losses, the Company does not have the intent to sell, nor is it more likely than not that the Company will be required to sell, such securities before recovery or maturity.
The following table shows the activity for the credit loss portion of other-than-temporary impairments on debt securities held by the Company (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 31,
2013
 
March 25,
2012
 
March 31,
2013
 
March 25,
2012
Beginning balance of credit losses
$
19

 
$
46

 
$
31

 
$
46

Reductions in credit losses related to securities the Company intends to sell
(6
)
 

 
(6
)
 
(1
)
Credit losses recognized on securities previously not impaired

 
2

 

 
2

Additional credit losses recognized on securities previously impaired

 
2

 

 
3

Reductions in credit losses related to securities sold
(5
)
 
(4
)
 
(17
)
 
(4
)
Ending balance of credit losses
$
8

 
$
46

 
$
8

 
$
46




21


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This information should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of Part I of this Quarterly Report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended September 30, 2012 contained in our 2012 Annual Report on Form 10-K.
This Quarterly Report (including, but not limited to, the following section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements, including, but not limited to, statements regarding our business, financial condition, results of operations and prospects. Additionally, statements concerning future matters, such as the development of new products, enhancements of technologies, industry or regional trends, consumer demand, sales or price levels, challenges to our business model, capital expenditures, investments in research and development, strategic investments and acquisitions and other statements regarding matters that are not historical, are forward-looking statements. 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 this Quarterly Report.
Although forward-looking statements in this Quarterly Report reflect our good faith judgment, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
Overview
Recent Developments
Revenues for the second quarter of fiscal 2013 were $6.1 billion, with net income of $1.9 billion, which were impacted by the following key items:
We shipped approximately 173 million Mobile Station Modem (MSM) integrated circuits for CDMA- and OFDMA-based wireless devices, an increase of 14%, compared to 152 million MSM integrated circuits in the year ago quarter.
Total reported device sales were approximately $61.1 billion, an increase of approximately 18%, compared to approximately $51.7 billion in the year ago quarter. (1) 
Against this backdrop, the following recent developments occurred during the second quarter of fiscal 2013 with respect to key elements of our business or our industry:
Worldwide wireless connections grew by approximately 2% to reach approximately 6.6 billion. (2) 
Worldwide 3G connections (all CDMA-based) grew by approximately 4% to approximately 2.0 billion, which was approximately 30% of total wireless subscriptions, including approximately 537 million CDMA2000 1X/1xEV-DO subscriptions and approximately 1.5 billion WCDMA/HSPA/TD-SCDMA subscriptions. (2) 
(1)
Total reported device sales is the sum of all reported sales in U.S. dollars (as reported to us by our licensees) of all licensed CDMA-based, OFDMA-based and CDMA/OFDMA multimode subscriber devices (including handsets, modules, modem cards and other subscriber devices) by our licensees during a particular period (collectively, 3G/4G devices). Not all licensees report sales the same way (e.g., some licensees report sales net of permitted deductions, such as transportation, insurance and packing costs, while other licensees report sales and then identify the amount of permitted deductions in their reports), and the way in which licensees report such information may change from time to time. Total reported device sales for a particular period may include prior period activity that was not reported by the licensee until such particular period.
(2)
According to Wireless Intelligence estimates as of April 22, 2013, for the quarter ended March 31, 2013 (estimates exclude Wireless Local Loop).



22



Our Business and Operating Segments
We design, manufacture, have manufactured on our behalf and market digital communications products and services based on CDMA, OFDMA and other technologies. We derive revenues principally from sales of integrated circuit products, fixed license fees (payable in one or more installments) and ongoing royalties for use of our intellectual property, and fees for messaging and other services and related hardware sales, software development and licensing, and related services and software hosting services. Operating expenses primarily consist of cost of equipment and services revenues and research and development and selling, general and administrative expenses.
We conduct business primarily through four reportable segments: QCT, QTL, QWI and QSI. Our reportable segments are operated by QUALCOMM Incorporated and its direct and indirect subsidiaries. At the beginning of fiscal 2013, we completed a corporate reorganization in which certain assets of QUALCOMM Incorporated, as well as the stock of certain of its direct and indirect subsidiaries, were contributed to its wholly-owned subsidiary Qualcomm Technologies, Inc. (QTI). QTL continues to be operated by QUALCOMM Incorporated, which continues to own the vast majority of our patent portfolio. Substantially all of our products and services businesses, including QCT, and substantially all of our engineering, research and development functions, are operated by QTI and its subsidiaries.  Neither QTI nor any of its subsidiaries has any right, power or authority to grant any licenses or other rights under or to any patents owned by QUALCOMM Incorporated.
QCT is a leading developer and supplier of integrated circuits and system software based on CDMA, OFDMA and other technologies for use in voice and data communications, networking, application processing, multimedia and global positioning system products. QCT’s integrated circuit products and system software are sold to or licensed to manufacturers that use our products in wireless devices, particularly mobile phones, tablets, laptops, data modules, handheld wireless computers and gaming devices, access points and routers, data cards and infrastructure equipment, and in wired devices, particularly broadband gateway equipment, desktop computers, televisions and Blu-ray players. The MSM integrated circuits, which include the Mobile Data Modem, Qualcomm Single Chip and Qualcomm Snapdragon processor-based devices, perform the core baseband modem functionality in wireless devices providing voice and data communications, as well as multimedia applications and global positioning functions. In addition, our Snapdragon processors provide advanced application and graphics processing capabilities. QCT’s system software enables the other device components to interface with the integrated circuit products and is the foundation software enabling manufacturers to develop devices utilizing the functionality within the integrated circuits. QCT revenues comprised 64% and 62% of total consolidated revenues in the second quarter of fiscal 2013 and 2012, respectively, and 66% and 64% of total consolidated revenues for the first six months of fiscal 2013 and 2012, 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 been assembled into packages or modules and have completed the 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 based primarily on our proprietary designs and test programs. 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 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 model, we purchase wafers and die from semiconductor manufacturing foundries and contract with separate third-party manufacturers for probe, assembly and final test services.
QTL grants licenses or otherwise provides rights to use portions of our intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products, including, without limitation, products implementing CDMA2000, WCDMA, CDMA TDD (including TD-SCDMA), GSM/GPRS/EDGE and/or OFDMA standards and their derivatives. QTL licensing revenues are comprised of license fees as well as royalties based on sales by licensees of products incorporating or using our intellectual property. License fees are fixed amounts paid in one or more installments. Royalties are generally based upon a percentage of the wholesale (i.e., licensee’s) selling price of licensed products, net of certain permissible deductions (e.g., certain shipping costs, packing costs, VAT, etc.). QTL recognizes royalty revenues based on royalties reported by licensees during the quarter and when other revenue recognition criteria are met. Licensees, however, do not report and pay royalties owed for sales in any given quarter until after the conclusion of that quarter. QTL revenues comprised 34% and 35% of total consolidated revenues in the second quarter of fiscal 2013 and 2012, respectively, and 31% and 33% of total consolidated revenues for the first six months of fiscal 2013 and 2012, respectively. The vast majority of such revenues were generated through our licensees’ sales of CDMA2000 and WCDMA subscriber equipment products.


23


QWI, which includes our Omnitracs (formerly QES), QIS, QGOV and QRS (Qualcomm Retail Solutions, formerly Firethorn) divisions, generates revenues primarily through sales of products, services (including software development) and software aimed at the support and delivery of wireless applications. Omnitracs sells integrated wireless systems and services to transportation and logistics companies to manage their assets and workforce. QIS provides content enablement services for the wireless industry, including its Brew, Plaza and other products and services. QIS also provides QChat push-to-talk and other software products and services for wireless operators. QGOV provides development and other services and related products involving wireless communications technologies to government agencies and their contractors. QRS builds and manages software applications that enable certain mobile commerce services. QWI revenues comprised 3% of total consolidated revenues in the second quarter of both fiscal 2013 and 2012 and 2% and 3% of total consolidated revenues for the first six months of fiscal 2013 and 2012, respectively.
QSI makes strategic investments that we believe will open new opportunities for our technologies, support the design and introduction of new products and services for voice and data communications or possess unique capabilities or technology. Many of these strategic investments are in early-stage companies. QSI also holds wireless spectrum, including the broadband wireless access (BWA) spectrum held by our subsidiaries (BWA subsidiaries) that were established to operate a wireless network in India. As part of our strategic investment activities, we intend to pursue various exit strategies from each of our QSI investments at some point in the future. The assets and liabilities of the BWA subsidiaries were presented as held for sale at March 31, 2013 as a result of our agreement with Bharti Airtel Limited (Bharti), which provides that Bharti’s ownership interest in the BWA subsidiaries will increase over time to 100% if certain conditions are met.
Nonreportable segments are comprised of display and other product and services initiatives, including our QMT division. QMT continues to develop an interferometric modulator (IMOD) display technology based on micro-electro-mechanical-system (MEMS) structure combined with thin film optics.
Seasonality. Many of our products are incorporated into wireless devices that are sold to consumers, which are subject to seasonality and other fluctuations in demand. As a result, historically, QCT has tended to have stronger sales toward the end of the calendar year as manufacturers prepare for major holiday selling seasons, and QTL has tended to record higher royalty revenues in the first calendar quarter when licensees report their sales made during the fourth calendar quarter. These seasonal trends may not continue in the future.
Looking Forward
The deployment of 3G networks enables increased voice capacity and higher data rates than prior generation networks, thereby supporting more minutes of use and a wide range of mobile broadband data applications for handsets, 3G connected computing devices and other consumer electronics. According to the Global mobile Suppliers Association (GSA), as of April 2013, to complement their existing 3G networks, more than 160 wireless operators have deployed and more than 360 wireless operators are planning to deploy OFDMA-based technology, often called 4G, in new wireless spectrum to gain additional capacity for data services. As a result, we expect continued growth in the coming years in consumer demand for 3G and 3G/4G multimode products and services around the world. In addition, we expect an increasing number of devices, such as computers, consumer electronics and networking equipment, to require multiple communications technologies to support a variety of connected applications.
As we look forward to the next several months, the following items are likely to have an impact on our business:
The worldwide transition from 2G to 3G and 3G/4G networks is expected to continue, including the further expansion of 3G in emerging regions, such as China. We expect that the emergence of lower-end smartphone products will contribute to such expansion.
We expect consumer demand for advanced 3G and 3G/4G multimode devices, including smartphones and data-centric devices, to continue at a strong pace.
We expect that CDMA-based device prices will continue to vary broadly due to the increased penetration of smartphones combined with active competition throughout the world at all price tiers. Additionally, varying rates of economic growth by region and stronger growth of CDMA-based device shipments in emerging regions, as compared to developed regions, are expected to continue to impact the average and range of selling prices of CDMA-based devices.
We continue to invest significant resources toward the development of technologies and products for voice and data communications, primarily in the wireless industry, including advancements to 3G, 3G/4G and 4G LTE (an OFDMA-based standard) technologies, wireless baseband chips, our converged computing/communications


24


(Snapdragon) chips, multimedia products, software and services, as well as our IMOD and other display technologies.
In addition to the foregoing business and market-based matters, we continue to devote resources to working with and educating participants in the wireless value chain as to the benefits of our business model in promoting a highly competitive and innovative wireless industry. 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.
Further discussion of risks related to our businesses is presented in the Risk Factors included in this Quarterly Report.
Results of Operations
    Revenues (in millions)
 
Three Months Ended
 
Six Months Ended
 
March 31, 2013
 
March 25, 2012
 
Change
 
March 31, 2013
 
March 25, 2012
 
Change
Equipment and services
$
3,990

 
$
3,137

 
$
853

 
$
8,189

 
$
6,305

 
$
1,884

Licensing
2,134

 
1,806

 
328

 
3,954

 
3,320

 
634

 
$
6,124

 
$
4,943

 
$
1,181

 
$
12,143

 
$
9,625

 
$
2,518

The increases in equipment and services revenues in the second quarter and the first six months of fiscal 2013 were primarily due to increases in QCT revenues of $865 million and $1.90 billion, respectively. The increases in licensing revenues in the second quarter and the first six months of fiscal 2013 were primarily due to increases in QTL revenues of $334 million and $651 million, respectively.
    Operating Expenses (in millions)
 
Three Months Ended
 
Six Months Ended
 
March 31, 2013
 
March 25, 2012
 
Change
 
March 31, 2013
 
March 25, 2012
 
Change
Cost of equipment and services (E&S) revenues
$
2,372

 
$
1,783

 
$
589

 
$
4,609

 
$
3,537

 
$
1,072

Cost as % of E&S revenues
59
%
 
57
%
 
 
 
56
%
 
56
%
 
 
The decrease in margin percentage in the second quarter of fiscal 2013 was primarily attributable to a decrease in QCT margin percentage. Our margin percentage may fluctuate in future periods depending on the mix of products sold and services provided, competitive pricing, new product introduction costs and other factors.
 
Three Months Ended
 
Six Months Ended
 
March 31, 2013
 
March 25, 2012
 
Change
 
March 31, 2013
 
March 25, 2012
 
Change
Research and development
$
1,214

 
$
954

 
$
260

 
$
2,320

 
$
1,827

 
$
493

% of revenues
20
%
 
19
%
 
 
 
19
%
 
19
%
 
 
Selling, general, and administrative
$
661

 
$
595

 
$
66

 
$
1,248

 
$
1,098

 
$
150

% of revenues
11
%
 
12
%
 
 
 
10
%
 
11
%
 
 
Other
$

 
$
97

 
$
(97
)
 
$

 
$
97

 
$
(97
)
The dollar increases in research and development expenses in the second quarter and the first six months of fiscal 2013 were primarily attributable to increases of $213 million and $408 million, respectively, in costs related to the development of CDMA-based 3G, OFDMA-based 4G LTE and other technologies for integrated circuit and related software products and to expand our intellectual property portfolio and increases of $30 million and $60 million, respectively, in share-based compensation.


25


The dollar increase in selling, general and administrative expenses in the second quarter of fiscal 2013 was primarily attributable to increases of $31 million in employee-related expenses, $20 million in patent-related expenses and $14 million in selling and marketing expenses. The dollar increase in selling, general and administrative expenses in the first six months of fiscal 2013 was primarily attributable to increases of $61 million in employee-related expenses, $25 million in patent-related expenses and $20 million in costs related to litigation and other legal matters.
Other operating expenses for the second quarter and the first six months of fiscal 2012 included an $81 million charge related to the payment made to the Indian government concurrent with the issuance of the BWA spectrum license and a $16 million goodwill impairment charge related to our QRS division.
Net Investment Income (in millions)
 
Three Months Ended
 
Six Months Ended
 
March 31, 2013
 
March 25, 2012
 
Change
 
March 31, 2013
 
March 25, 2012
 
Change
QSI:
Interest and dividend income