

~~Class~~		~~Number of Shares~~
~~Common Stock, $0.0001 per share par value~~		~~1,215,698,926~~

QUALCOMM Incorporated

Form 10-Q

For the Quarter Ended March ~~31, 2019~~

29, 2020



	Page
PART I. FINANCIAL INFORMATION
Item 1.		Condensed Consolidated Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations	4
		Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~	5
		Condensed Consolidated Statements of Cash Flows	6
		Condensed Consolidated Statements of Stockholders’ Equity	7
		Notes to Condensed Consolidated Financial Statements	8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	3420
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	6553
Item 4.		Controls and Procedures	6553

PART II. OTHER INFORMATION
Item 1.		Legal Proceedings	6553
Item 1A.		Risk Factors	6553
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	6554
Item 3.		Defaults Upon Senior Securities	6554
Item 4.		Mine Safety Disclosures	6554
Item 5.		Other Information	6554
Item 6.		Exhibits	6655

SIGNATURES			6857

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

QUALCOMM Incorporated

~~QUALCOMM Incorporated~~

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except ~~per share data)~~par value amounts)

(Unaudited)


	March 29, 2020		September 29, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	8,403	$	11,839
Marketable securities	1,543		421
Accounts receivable, net	3,081		2,471
Inventories	1,700		1,400

Other current assets	586		634
Total current assets	15,313		16,765

Deferred tax assets	1,249		1,196
Property, plant and equipment, net	3,358		3,081
Goodwill	6,294		6,282
Other intangible assets, net	1,889		2,172
Other assets	3,835		3,461
Total assets	$	31,938	$	32,957

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	2,061	$	1,368
Payroll and other benefits related liabilities	699		1,048
Unearned revenues	529		565
Short-term debt	2,499		2,496

Other current liabilities	3,986		3,458
Total current liabilities	9,774		8,935
Unearned revenues	968		1,160
Income taxes payable	1,879		2,088
Long-term debt	13,449		13,437

Other liabilities	2,823		2,428
Total liabilities	28,893		28,048

Commitments and contingencies (Note 5)

Stockholders’ equity:

Preferred stock, $0.0001 par value; 8 shares authorized; 0ne outstanding	—		—
Common stock and paid-in capital, $0.0001 par value; 6,000 shares authorized; 1,127 and 1,145 shares issued and outstanding, respectively	—		343
Retained earnings	2,990		4,466
Accumulated other comprehensive income	55		100


Total stockholders’ equity	3,045		4,909
Total liabilities and stockholders’ equity	$	31,938	$	32,957

See accompanying notes.

March 31,
2019 September 30,
2018
ASSETS
Current assets:
Cash and cash equivalents $ 10,135
$ 11,777
Marketable securities 195
311
Accounts receivable, net 3,638
2,904
Inventories 1,725
1,693
Other current assets 631
699
Total current assets 16,324
17,384
Deferred tax assets 3,832
936
Property, plant and equipment, net 2,945
2,975
Goodwill 6,299
6,498
Other intangible assets, net 2,510
2,955
Other assets 2,113
1,970
Total assets $ 34,023
$ 32,718

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable $ 1,667
$ 1,825
Payroll and other benefits related liabilities 633
1,081
Unearned revenues 478
500
Short-term debt 998
1,005
Other current liabilities 6,741
6,978
Total current liabilities 10,517
11,389
Unearned revenues 1,330
1,620
Income taxes payable 1,849

2,312
Long-term debt 15,405
15,365
Other liabilities 1,056
1,225
Total liabilities 30,157
31,911

Commitments and contingencies (Note 6)

Stockholders’ equity:
Preferred stock, $0.0001 par value; 8 shares authorized; none outstanding —
—
Common stock and paid-in capital, $0.0001 par value; 6,000 shares authorized; 1,214 and 1,219 shares issued and outstanding, respectively 384
—
Retained earnings 3,309
542
Accumulated other comprehensive income 173
265
Total stockholders’ equity 3,866
807
Total liabilities and stockholders’ equity $ 34,023
$ 32,718

QUALCOMM Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)


	Three Months Ended						Six Months Ended
	March 29, 2020		March 31, 2019		March 29, 2020		March 31, 2019
Revenues:
Equipment and services	$	4,050	$	3,753	$	7,583	$	7,506
Licensing	1,166		1,229		2,709		2,318
Total revenues	5,216		4,982		10,292		9,824

Costs and expenses:
Cost of revenues	2,297		2,179		4,410		4,367
Research and development	1,468		1,308		2,873		2,577
Selling, general and administrative	483		573		1,011		1,100
Other	(23)		(18)		(23)		130
Total costs and expenses	4,225		4,042		8,271		8,174

Operating income	991		940		2,021		1,650
Interest expense	(146)		(162)		(294)		(317)
Investment and other (expense) income, net	(247)		28		(182)		33
Income before income taxes	598		806		1,545		1,366
Income tax (expense) benefit	(130)		(143)		(152)		365




Net income	$	468	$	663	$	1,393	$	1,731

Basic earnings per share	$	0.41	$	0.55	$	1.22	$	1.43



Diluted earnings per share	$	0.41	$	0.55	$	1.21	$	1.42



Shares used in per share calculations:
Basic	1,139		1,213		1,142		1,213
Diluted	1,151		1,217		1,155		1,220

See accompanying notes.

QUALCOMM Incorporated

~~QUALCOMM Incorporated~~

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~COMPREHENSIVE INCOME

(In ~~millions, except per share data)~~millions)

(Unaudited)


	Three Months Ended						Six Months Ended
	March 29, 2020		March 31, 2019		March 29, 2020		March 31, 2019
Net income	$	468	$	663	$	1,393	$	1,731
Other comprehensive loss, net of income taxes:
Foreign currency translation losses	(44)		(17)		(13)		(41)
Net unrealized losses on available-for-sale securities	(5)		(1)		(5)		(6)
Net unrealized (losses) gains on derivative instruments	(31)		—		(28)		16
Other (losses) gains	(1)		(8)		7		(8)
Certain reclassifications included in net income	(1)		(3)		(6)		(2)
Total other comprehensive loss	(82)		(29)		(45)		(41)
Comprehensive income	$	386	$	634	$	1,348	$	1,690

See accompanying notes.

Three Months Ended Six Months Ended
March 31,
2019 March 25,
2018 March 31,
2019 March 25,
2018
Revenues:
Equipment and services $ 3,753
$ 3,936
$ 7,506
$ 8,639
Licensing 1,229
1,284
2,318
2,616
Total revenues 4,982
5,220
9,824
11,255
Costs and expenses:
Cost of revenues 2,179
2,239
4,367
4,902
Research and development 1,308
1,402
2,577
2,822
Selling, general and administrative 573
869
1,100
1,641
Other (18 ) 310
130
1,493
Total costs and expenses 4,042
4,820
8,174
10,858
Operating income 940
400
1,650
397
Interest expense (162 ) (179 ) (317 ) (350 )
Investment and other income, net 28
96
33
211
Income before income taxes 806
317
1,366
258
Income tax (expense) benefit (143 ) 13
365
(5,911 )
Net income (loss) $ 663
$ 330
$ 1,731
$ (5,653 )

Basic earnings (loss) per share $ 0.55
$ 0.22
$ 1.43
$ (3.82 )
Diluted earnings (loss) per share $ 0.55
$ 0.22
$ 1.42
$ (3.82 )
Shares used in per share calculations:
Basic 1,213
1,482
1,213
1,479
Diluted 1,217
1,494
1,220
1,479

QUALCOMM Incorporated

~~See accompanying notes.~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Six Months Ended
	March 29, 2020		March 31, 2019
Operating Activities:
Net income	$	1,393	$	1,731
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	691		698

Income tax provision less than income tax payments	(350)		(958)


Non-cash portion of share-based compensation expense	603		452
Net gains on marketable securities and other investments	(49)		(9)
Indefinite and long-lived asset impairment charges	—		203
Impairment losses on other investments	337		69

Other items, net	(75)		(190)
Changes in assets and liabilities:
Accounts receivable, net	(607)		200
Inventories	(297)		(49)
Other assets	(71)		25
Trade accounts payable	755		(173)
Payroll, benefits and other liabilities	24		(727)
Unearned revenues	(153)		(122)
Net cash provided by operating activities	2,201		1,150
Investing Activities:
Capital expenditures	(641)		(322)
Purchases of debt and equity marketable securities	(1,312)		—
Proceeds from sales and maturities of debt and equity marketable securities	256		96






Acquisitions and other investments, net of cash acquired	(128)		(118)


Other items, net	56		83
Net cash used by investing activities	(1,769)		(261)
Financing Activities:
Proceeds from short-term debt	1,116		3,297
Repayment of short-term debt	(1,116)		(3,303)



Proceeds from issuance of common stock	174		177
Repurchases and retirements of common stock	(2,340)		(1,019)
Dividends paid	(1,415)		(1,502)
Payments of tax withholdings related to vesting of share-based awards	(232)		(143)


Other items, net	(55)		(38)
Net cash used by financing activities	(3,868)		(2,531)

Effect of exchange rate changes on cash and cash equivalents	—		—
Net decrease in total cash and cash equivalents	(3,436)		(1,642)
Total cash and cash equivalents at beginning of period	11,839		11,777
Total cash and cash equivalents at end of period	$	8,403	$	10,135

See accompanying notes.

QUALCOMM Incorporated

~~QUALCOMM Incorporated~~

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME (LOSS)~~STOCKHOLDERS’ EQUITY

(In ~~millions)~~millions, except per share data)

(Unaudited)


	Three Months Ended						Six Months Ended
	March 29, 2020		March 31, 2019		March 29, 2020		March 31, 2019
Total stockholders’ equity, beginning balance	$	4,513	$	3,617	$	4,909	$	807

Common stock and paid-in capital:
Balance at beginning of period	$	—	$	—	$	343	$	—
Common stock issued under employee benefit plans and the related tax benefits	151		150		171		177
Repurchases and retirements of common stock	(451)		—		(932)		(136)
Share-based compensation	331		237		650		486
Tax withholdings related to vesting of share-based payments	(31)		(3)		(232)		(143)

Balance at end of period	—		384		—		384

Retained earnings:
Balance at beginning of period	4,376		3,415		4,466		542
Cumulative effect of accounting changes	—		—		—		3,455
Net income	468		663		1,393		1,731
Repurchases and retirements of common stock	(1,127)		—		(1,408)		(883)
Dividends	(727)		(769)		(1,461)		(1,536)
Balance at end of period	2,990		3,309		2,990		3,309

Accumulated other comprehensive income:
Balance at beginning of period	137		202		100		265
Cumulative effect of accounting changes	—		—		—		(51)
Other comprehensive loss	(82)		(29)		(45)		(41)
Balance at end of period	55		173		55		173

Total stockholders’ equity, ending balance	$	3,045	$	3,866	$	3,045	$	3,866

Dividends per share announced	$	0.62	$	0.62	$	1.24	$	1.24

Three Months Ended Six Months Ended
March 31,
2019 March 25,
2018 March 31,
2019 March 25,
2018
Net income (loss) $ 663
$ 330
$ 1,731
$ (5,653 )
Other comprehensive (loss) income, net of income taxes:
Foreign currency translation (losses) gains (17 ) 178
(41 ) 173
Reclassification of foreign currency translation (gains) losses included in net income (loss) (2 ) —
1
—
Reclassification of net other-than-temporary losses on available-for-sale securities included in net income (loss) —
—
—
1
Net unrealized losses on other available-for-sale securities (1 ) (5 ) (6 ) (1 )
Reclassification of net realized gains on available-for-sale securities included in net income (loss) —
(8 ) (1 ) (9 )
Net unrealized (losses) gains on derivative instruments —
(7 ) 16
(6 )
Reclassification of net realized (gains) losses on derivative instruments included in net income (loss) (1 ) 2
(2 ) 3
Other losses (8 ) —
(8 ) —
Total other comprehensive (loss) income (29 ) 160
(41 ) 161
Comprehensive income (loss) $ 634
$ 490
$ 1,690
$ (5,492 )

See accompanying notes.

QUALCOMM Incorporated

~~See accompanying notes.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~QUALCOMM Incorporated~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(In millions)~~

(Unaudited)

Six Months Ended
March 31,
2019 March 25,
2018
Operating Activities:
Net income (loss) $ 1,731
$ (5,653 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense 698
751
Income tax provision (less than) in excess of income tax payments (958 ) 5,466
Non-cash portion of share-based compensation expense 452
470
Net gains on marketable securities and other investments (9 ) (73 )
Indefinite and long-lived asset impairment charges 203
33
Impairment losses on marketable securities and other investments 69
20
Other items, net (190 ) 52
Changes in assets and liabilities:
Accounts receivable, net 200
94
Inventories (49 ) 243
Other assets 25
58
Trade accounts payable (173 ) (511 )
Payroll, benefits and other liabilities (727 ) 1,453
Unearned revenues (122 ) (125 )
Net cash provided by operating activities 1,150
2,278
Investing Activities:
Capital expenditures (322 ) (411 )
Purchases of debt and equity marketable securities —
(5,758 )
Proceeds from sales and maturities of debt and equity marketable securities 92
7,659
Acquisitions and other investments, net of cash acquired (118 ) (170 )
Proceeds from other investments 39
159
Other items, net 48
2
Net cash (used) provided by investing activities (261 ) 1,481
Financing Activities:
Proceeds from short-term debt 3,297
5,563
Repayment of short-term debt (3,303 ) (4,330 )
Proceeds from issuance of common stock 177
335
Repurchases and retirements of common stock (1,019 ) (425 )
Dividends paid (1,502 ) (1,689 )
Payments of tax withholdings related to vesting of share-based awards (143 ) (196 )
Payment of purchase consideration related to RF360 joint venture —
(115 )
Other items, net (38 ) (17 )
Net cash used by financing activities (2,531 ) (874 )
Effect of exchange rate changes on cash and cash equivalents —
32
Net (decrease) increase in total cash and cash equivalents (1,642 ) 2,917
Total cash and cash equivalents at beginning of period 11,777
37,029
Total cash and cash equivalents at end of period $ 10,135
$ 39,946

Reconciliation to the condensed consolidated balance sheets
Cash and cash equivalents $ 10,135
$ 37,946
Restricted cash and restricted cash equivalents included in other assets —
2,000
Total cash and cash equivalents at end of period $ 10,135
$ 39,946

~~See accompanying notes.~~

~~QUALCOMM Incorporated~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(In millions, except per share data)~~

~~(Unaudited)~~

Three Months Ended Six Months Ended
March 31,
2019 March 25,
2018 March 31,
2019 March 25,
2018
Total stockholders’ equity, beginning balance $ 3,617
$ 23,872
$ 807
$ 30,725

Common stock and paid-in capital:
Balance at beginning of period —
265
—
274
Common stock issued under employee benefit plans and the related tax benefits 150
201
177
343
Repurchases and retirements of common stock —
(200 ) (136 ) (425 )
Share-based compensation 237
233
486
499
Tax withholdings related to vesting of share-based payments (3 ) (4 ) (143 ) (196 )
Balance at end of period 384
495
384
495

Retained earnings:
Balance at beginning of period 3,415
23,222
542
30,067
Cumulative effect of accounting changes (Note 1) —
—
3,455
—
Net income (loss) 663
330
1,731
(5,653 )
Repurchases and retirements of common stock —
—
(883 ) —
Dividends (769 ) (857 ) (1,536 ) (1,719 )
Balance at end of period 3,309
22,695
3,309
22,695

Accumulated other comprehensive income:
Balance at beginning of period 202
385
265
384
Cumulative effect of accounting changes (Note 1) —

—

(51 )
—
Other comprehensive (loss) income (29 ) 160
(41 ) 161
Balance at end of period 173
545
173
545

Total stockholders’ equity, ending balance $ 3,866
$ 23,735
$ 3,866
$ 23,735

Dividends per share announced $ 0.62
$ 0.57
$ 1.24
$ 1.14

~~See accompanying notes.~~



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

Note 1. Basis of Presentation and Significant Accounting Policies Update

Financial Statement Preparation. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all normal recurring adjustments necessary for a fair statement of the results for the interim periods. These condensed consolidated financial statements are unaudited and should be read in conjunction with our Annual Report on Form 10-K for ~~the~~our fiscal year ended September ~~30, 2018.~~29, 2019. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. We operate and report using a 52-53 week fiscal year ending on the last Sunday in September. Each of the ~~three-month~~three and ~~six-month periods~~six months ended March ~~31, 2019~~29, 2020 and March ~~25, 2018~~31, 2019 included 13 weeks and 26 weeks, respectively.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.

~~Revision of Prior Period Financial Statements.~~ As previously disclosed, in connection with the preparation of our condensed consolidated financial statements for the three months ended December 30, 2018, we identified an immaterial error related to the recognition of certain royalty revenues of our QTL (Qualcomm Technology Licensing) segment in the quarterly and annual periods in fiscal 2018 and third and fourth quarters and annual period in fiscal 2017. In accordance with SAB No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” we evaluated the error and determined that the related impact was not material to our financial statements for any prior annual or interim period, but that correcting the cumulative impact of the error would be significant to our results of operations for the three months ended December 30, 2018. Accordingly, we have revised previously reported financial information for such immaterial error, as previously disclosed in our Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2018. A summary of revisions to certain previously reported financial information presented herein for comparative purposes is included in Note 11. We will also correct previously reported financial information for such immaterial error in our future filings, as applicable.

~~Earnings (Loss) Per Common Share.~~ Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed by dividing net income by the combination of dilutive common share equivalents, comprised of shares issuable under our share-based compensation plans and shares subject to accelerated share repurchase agreements, if any, and the weighted-average number of common shares outstanding during the reporting period. Due to the net loss for the six months ended March 25, 2018, all of the common share equivalents issuable under share-based compensation plans had an anti-dilutive effect and were therefore excluded from the computation of diluted loss per share. The following table provides information about the diluted earnings (loss) per share calculation (in millions):

Three Months Ended Six Months Ended
March 31,
2019 March 25,
2018 March 31,
2019 March 25,
2018
Dilutive common share equivalents included in diluted shares 3.8
12.2
7.0
—
Shares of common stock equivalents not included because the effect would be anti-dilutive or certain performance conditions were not satisfied at the end of the period 17.2
0.1
14.4
44.9



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

~~Share-Based Compensation.~~ ~~Total share-based compensation expense, related to all of our share-based awards, was comprised as follows (in millions):~~

Three Months Ended Six Months Ended
March 31,
2019 March 25,
2018 March 31,
2019 March 25,
2018
Cost of revenues $ 7
$ 10
$ 16
$ 21
Research and development 157
151
315
307
Selling, general and administrative 57
61
121
142
Share-based compensation expense before income taxes 221
222
452
470
Related income tax benefit (30 ) (29 ) (79 ) (77 )
$ 191
$ 193
$ 373
$ 393

At March 31, 2019, total unrecognized compensation expense related to nonvested restricted stock units granted prior to that date was $1.4 billion, which is expected to be recognized over a weighted-average period of 2.2 years. At March 31, 2019, we had outstanding 30.4 million restricted stock units that contain only a service requirement and 3.1 million stock options that contain only a service requirement.

Recently Adopted Accounting ~~Pronouncements.~~Guidance.

~~Revenue Recognition:~~ Leases: In ~~May 2014,~~February 2016, the ~~Financial Accounting Standards Board (FASB)~~FASB issued new accounting guidance related to ~~revenue recognition~~leases (ASC ~~606), which~~842) that outlines a new comprehensive ~~revenue recognition~~lease accounting model and ~~supersedes most current revenue recognition accounting guidance and~~ requires ~~increased~~expanded disclosures. ~~The~~Under the new accounting guidance, ~~defines a five-step approach that requires a company~~we are required to recognize ~~revenue as control of goods or services transfers to a customer at an amount that reflects~~right-of-use assets and corresponding lease liabilities on the ~~expected consideration to be received in exchange for those goods or services.~~consolidated balance sheet. We adopted ASC ~~606~~842 in the first quarter of fiscal ~~2019~~2020 using the modified retrospective ~~transition method only to those contracts that were not completed as of October 1, 2018. We recognized~~approach, with the cumulative effect of ~~initially applying the new revenue accounting guidance~~initial adoption recorded as an adjustment to our opening ~~retained earnings.~~condensed consolidated balance sheet at September 30, 2019. We elected to not record leases with a term of 12 months or less on our consolidated balance sheet. In addition, we applied the package of practical expedients permitted under the transition guidance, which among other things, does not require reassessment of lease classification upon adoption. Prior period results have not been restated and continue to be reported in accordance with the accounting guidance in effect for those periods (ASC ~~605)~~840). ~~We have implemented new accounting policies, systems, processes and internal controls necessary to support the requirements of ASC 606.~~

Adoption of this new accounting guidance most significantly impacts the timing of sales-based royalty revenues, which are the vast majority of our QTL segment’s revenues. Prior to adoption, we recognized sales-based royalties as revenues in the period in which such royalties were reported by licensees, which was after the conclusion of the quarter in which the licensees’ sales occurred and when all other revenue recognition criteria had been met. Under the new accounting guidance, we estimate and recognize sales-based royalties in the period in which the associated sales occur, subject to certain constraints on our ability to estimate such amounts, resulting in an acceleration of revenue recognition compared to the historical method. Since we do not invoice for sales-based royalties estimated and recognized in any given quarter until after the conclusion of that quarter (which is generally the following quarter when such royalties are reported by licensees), revenues recognized from sales-based royalties results in unbilled receivables (included in accounts receivable, net on the consolidated balance sheet). The adoption of ASC 606 did not otherwise have a material impact.

The new accounting guidance also impacts the timing of recognizing certain customer incentives, which are recorded as a reduction to revenues in the period that the related revenues are earned. Prior to adoption, we accounted for certain customer incentive arrangements, including volume-related and other pricing rebates or cost reimbursements for marketing and other activities involving certain of our products and technologies, in part based on the maximum potential liability. Under the new accounting guidance, we estimate the amount of all customer incentives.



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

The following table summarizes the cumulative effects of adopting the new revenue accounting guidance (substantially all of which related to the impact to QTL’s sales-based royalties) on our condensed consolidated balance sheet at October 1, 2018 (in millions):

Balance as of September 30,
2018 Adjustment Opening Balance as of October 1,
2018
Assets
Accounts receivable, net $ 2,904
$ 957
$ 3,861
Other current assets 699
1
700
Deferred tax assets 936
(98 ) 838
Other assets 1,970
1
1,971

Liabilities
Unearned revenues, current $ 500
$ 6
$ 506
Other current liabilities 6,978
125
7,103
Unearned revenues 1,620
(110 ) 1,510

Stockholders’ equity
Retained earnings $ 542
$ 840
$ 1,382

~~The following tables summarize the impacts of adopting the new revenue accounting guidance on our condensed consolidated balance sheet and statements of operations (in millions):~~

As of March 31, 2019
Balance Sheet
As Reported
ASC 606
Adjustment ASC 605
Assets
Accounts receivable, net $ 3,638
$ (851 ) $ 2,787
Other current assets 631
(9 ) 622
Deferred tax assets 3,832
45
3,877

Liabilities
Unearned revenues, current $ 478
$ 304
$ 782
Other current liabilities 6,741
(366 ) 6,375
Unearned revenues 1,330
109
1,439

Stockholders’ equity
Retained earnings $ 3,309
$ (861 ) $ 2,448



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

Three Months Ended March 31, 2019 Six Months Ended March 31, 2019
Statements of Operations
As Reported
ASC 606
Adjustment ASC 605
As Reported
ASC 606
Adjustment ASC 605
Revenues
Equipment and services $ 3,753
$ (55 ) $ 3,698
$ 7,506
$ (70 ) $ 7,436
Licensing 1,229
(8 ) 1,221
2,318
43
2,361
Investment and other income, net 28
(1 ) 27
33
1
34
Income tax (expense) benefit (143 ) 10
(133 ) 365
4
369
Net income 663
(54 ) 609
1,731
(22 ) 1,709

Adoption of the new accounting guidance had no impact to net cash provided (used) by operating, financing or investing activities on our condensed consolidated statement of cash flows for the six months ended March 31, 2019.

~~Financial Assets:~~ In January 2016, the FASB issued new accounting guidance on classifying and measuring financial instruments, which requires that all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings in the statement of operations. Additionally, it changes the disclosure requirements for financial instruments. We adopted the new accounting guidance in the first quarter of fiscal 2019 using the modified retrospective transition method for investments in marketable securities, which have readily determinable fair values, with the cumulative effect of applying the new accounting guidance recognized as an adjustment to opening retained earnings. Upon adoption, we ~~reclassified $50~~recorded $449 million of ~~unrealized gains, net~~operating lease assets in other assets and $500 million of corresponding lease liabilities ($127 million recorded in other current liabilities and $373 million recorded in other liabilities). The difference between the operating lease assets and liabilities of $51 million primarily related to deferred rent liabilities that existed as of the ~~associated tax effects, related to our investments in marketable securities from accumulated other comprehensive income to opening retained earnings. We have applied the prospective transition method~~date of adoption. Finance leases were not material for investments in non-marketable securities, which are investments in privately held companies that do not have readily determinable fair values and will recognize, through earnings, any unrealized gains that have accumulated in the period in which there is an observable transaction, if any.

~~Hedge Instruments:~~ ~~In August 2017, the FASB issued new accounting guidance that expands and refines hedge accounting for both financial and non-financial risks, aligns the recognition and presentation~~all periods presented. Adoption of the effects of hedging instruments and hedged items in the financial statements, and includes targeted improvements related to the assessment of hedge effectiveness. The new accounting guidance also modifies disclosure requirements for hedging activities. We adopted the new accounting guidance in the first quarter of 2019 using the modified retrospective transition method and recorded a negligible adjustment to opening retained earnings. The new accounting guidance did not have a material impact on our condensed consolidated ~~financial statements.~~

~~Statement~~statements of ~~Cash Flows:~~ ~~In August 2016, the FASB issued new accounting guidance related to the classification of certain cash receipts and cash payments in the statement of~~operations or cash flows. We adopted the new accounting guidance in the first quarter of fiscal 2019 using the retrospective transition method for each period presented, which did not have a material impact on our condensed consolidated statements of cash flows.

In November 2016, the FASB issued new accounting guidance that requires companies to include restricted cash and cash equivalents as a component in total cash and cash equivalents on the statement of cash flows.Accounting Policy Update.

Leases: As a result of the ~~consolidated statement~~adoption of ~~cash flows no longer reflects transfers between cash and cash equivalents and restricted cash and cash equivalents. We adopted the new~~ASC 842, we revised our lease accounting ~~guidance in the first quarter of fiscal 2019 using the retrospective transition method, which results in certain amounts~~policy beginning in fiscal ~~2018 being adjusted to conform to the new accounting guidance. This includes restricted cash~~2020 as follows.

Operating lease assets and ~~cash equivalents held during fiscal 2018 related to funds deposited as collateral~~liabilities are recognized for outstanding letters of credit in connection with a then proposed acquisition. Restricted cash and cash equivalents related to the outstanding letters of credit totaled $2.0 billion at the end of the fourth quarter of fiscal 2017 and second quarter of fiscal 2018. There was no impact of this change on the activity presented on the condensed consolidated statement of cash flows for the six months ended March 25, 2018.

~~Income Taxes:~~ In October 2016, the FASB issued new accounting guidance that changes the accounting for the income tax effects of intra-entity transfers of assets other than inventory. Under the new accounting guidance, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or deferred tax liability, as well as the related deferred tax benefit or expense, upon receipt of the asset. We adopted the new accounting guidance in the first quarter of fiscal 2019 using the modified retrospective transition method, with the cumulative effect of applying the new accounting



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

guidance recognized as an adjustment to opening retained earnings of $2.6 billion, primarily as the result of establishing a deferred tax asset on the basis difference of certain intellectual property distributed from one of our foreign subsidiaries to a subsidiary in the United States in fiscal 2018 (Note 3). The ongoing impact of this accounting guidance will be dependent on the facts and circumstances of any transactions within its scope.

~~Recent Accounting Pronouncements Not Yet Adopted.~~

~~Leases:~~ In February 2016, the FASB issued new accounting guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease accounting guidance. The new accounting guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 ~~months. It also changes~~months based on the definition of a lease and expands the disclosure requirements of lease arrangements. We will adopt the new accounting guidance in the first quarter of fiscal 2020 and expect to use the modified retrospective approach and to elect certain practical expedients, with the cumulative effect of applying the new accounting guidance recognized as an adjustment to opening retained earnings aspresent value of the ~~effective~~future lease payments over the lease term at the commencement date. WeOperating leases are included in ~~the process of determining the effects the adoption will have~~other assets, other current liabilities and other liabilities on our consolidated ~~financial statements.~~balance sheet. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such option. We account for substantially all lease and related non-lease components together as a single lease component. Operating lease expense is recognized on a straight-line basis over the lease term.

Recent Accounting Guidance Not Yet Adopted.

Financial Assets: In June 2016, the FASB issued new accounting guidance that changes the accounting for recognizing impairments of financial assets. Under the new accounting guidance, credit losses for financial assets held at amortized cost (such as accounts receivable) will be estimated based on expected losses rather than the current incurred loss impairment model. The new accounting guidance also modifies the impairment model for available-for-sale debt securities. These changes will result in earlier recognition of credit losses, if any. The new accounting guidance generally requires the modified retrospective transition method, with the cumulative effect of applying the new accounting guidance recognized as an adjustment to opening retained earnings in the year of adoption, except for certain financial assets where the prospective transition method is required, such as available-for-sale debt securities for which an other-than-temporary impairment has been recorded. We will adopt the new accounting guidance in the first quarter of fiscal 2021, and the impact of this new

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

accounting guidance will largely depend on the composition and credit quality of our investment portfolio and accounts receivable,as well as economic conditions, at the time of adoption.

~~Accounting Policy Update.~~

~~Revenue Recognition:~~ ~~As a result of the adoption of ASC 606,~~Based on facts and factors currently known by us, we ~~revised our revenue recognition policy beginning in fiscal 2019 as follows.~~

We derive revenues principally from sales of integrated circuit products and licensing of our intellectual property. We also generate revenues by performing software hosting, software development and other services and from other product sales. The timing of revenue recognition and the amount of revenue actually recognized in each case depends upon a variety of factors, including the specific terms of each arrangement and the nature of our performance obligations.

Revenues from sales of our products are recognized upon transfer of control to the customer, which is generally at the time of shipment. Revenues from providing services are typically recognized over time as our performance obligation is satisfied. Revenues from providing services were less than 5% of total revenues for all periods presented.

We grant licenses or otherwise provide rights to use portions of our intellectual property portfolio, which, among other rights, includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. Licensees pay royalties based on their sales of products incorporating or using our licensed intellectual property and may also pay a fixed license fee in one or more installments. Sales-based royalties are generally based upon a percentage of the wholesale (i.e., licensee’s) selling price of complete licensed products, net of certain permissible deductions (including transportation, insurance, packing costs and other items). We broadly provide per unit royalty caps that apply to certain categories of complete wireless devices, namely smartphones, tablets and laptops, which in general, effectively provide for a maximum royalty amount per device. We estimate and recognize sales-based royalties on such licensed products in the period in which the associated sales occur, subject to certain constraints on our ability to estimate such royalties. Our estimates of sales-based royalties are based largely on an assessment of the volume of devices supplied into the market that incorporate or use our licensed intellectual property. We estimate sales-based royalties taking into consideration the mix of such sales on a licensee-by-licensee basis, as well as the licensees’ average wholesale prices of such products, and considers all information (historical, current and forecasted) that is reasonably available to us. Our licensees, however, do not ~~report and pay royalties owed for sales in any given quarter until after~~expect the ~~conclusion~~impact of ~~that quarter, which is generally the following quarter. As a result of recognizing revenues in the period in which the licensees’ sales occur using estimates, adjustments~~adoption to ~~revenues are required in subsequent periods to reflect changes in estimates as new information becomes available, primarily resulting from actual amounts reported by our licensees.~~



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

License agreements that require payment of license fees contain a single performance obligation that represents ongoing access to a portfolio of intellectual property over the license term since such agreements provide the licensee the right to access a portfolio of intellectual property that exists at inception of the license agreement and to updates and new intellectual property that is added to the licensed portfolio during the term of the agreement that are highly interdependent or interrelated. Since we expect to expend efforts to develop and transfer updatesbe material to our ~~licensed portfolio on an even basis, license fees are recognized as revenues on a straight-line basis over the estimated period of benefit of the license to the licensee.~~consolidated financial statements.

We account for a contract with a customer/licensee when it is legally enforceable, the parties are committed to perform their respective obligations, the rights of the parties regarding the goods and/or services to be transferred are identified, payment terms are identified, the contract has commercial substance and collectability of substantially all of the consideration is probable.

From time to time, companies initiate various strategies to attempt to renegotiate, reduce and/or eliminate their need to pay royalties to us for the use of our intellectual property. Certain licensees have disputed, underreported, underpaid, not reported and/or not paid royalties owed to us under their license agreements with us or reported to us in a manner that is not in compliance with their contractual obligations, and such licensees may continue to do so in the future. In such cases, we estimate and recognize licensing revenues only when we have a contract, as defined in ASC 606, and to the extent it is probable that a significant reversal of cumulative revenues recognized will not occur. We analyze the risk of a significant revenue reversal considering both the likelihood and magnitude of the reversal and, if necessary, constrain the amount of estimated revenues recognized in order to mitigate this risk, which may result in recognizing revenues less than amounts contractually owed to us.

We measure revenues based on the amount of consideration we expect to receive in exchange for products or services. We record reductions to revenues for customer incentive arrangements, including volume-related and other pricing rebates and cost reimbursements for marketing and other activities involving certain of our products and technologies, in the period that the related revenues are earned. The charges for such arrangements are recorded as a reduction to accounts receivable, net or as other current liabilities based on whether we have the intent and contractual right of offset. Certain of these charges are considered variable consideration and are included in the transaction price primarily based on estimating the most likely amount expected to be provided to the customer/licensee.

Revenues recognized from sales of our products and sales-based royalties are generally included in accounts receivable, net (including unbilled receivables) based on our unconditional right to payment for satisfied or partially satisfied performance obligations.

We disaggregate our revenues by segment (Note 7) and type of product and services (as presented on our consolidated statement of operations), as we believe this best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. Substantially all of QCT’s revenues consist of equipment revenues that are recognized at a point in time, and substantially all of QTL’s revenues represent licensing revenues that are recognized over time.

Revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were $398 million and $394 million for the three and six months ended March 31, 2019, respectively, and primarily relate to certain customer incentives, QTL royalty revenues recognized related to devices sold in prior periods and revenues related to a development contract with one of our equity method investees.

Unearned revenues (which are considered contract liabilities) consist primarily of license fees for intellectual property with continuing performance obligations. In the six months ended March 31, 2019, we recognized revenues of $258 million that were recorded as unearned revenues at October 1, 2018.

Remaining performance obligations, substantially all of which are included in unearned revenues, represent the aggregate amount of the transaction price of certain customer contracts yet to be recognized as revenues as of the end of the reporting period and exclude revenues related to (a) contracts that have an original expected duration of one year or less and (b) sales-based royalties (i.e., future royalty revenues) pursuant to our license agreements. Our remaining performance obligations are primarily comprised of certain customer contracts for which QTL received license fees upfront. At March 31, 2019, we had $1.8 billion of remaining performance obligations, of which $235 million, $470 million, $423 million, $416 million and $193 million was expected to be recognized as revenues for the remainder of fiscal 2019 and each of the subsequent four years from fiscal 2020 through 2023, respectively, and $77 million thereafter.



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

~~Marketable Securities and Non-Marketable Securities:~~ Prior to the adoption of the new accounting guidance in the first quarter of fiscal 2019, investments in marketable equity securities were generally classified as available-for-sale equity investments, with net unrealized gains or losses recorded as a component of accumulated other comprehensive income, net of income taxes. Beginning in fiscal 2019, all gains and losses on investments in marketable equity securities, realized and unrealized, are recognized in investment and other income, net.

Prior to the adoption of the new accounting guidance in the first quarter of fiscal 2019, investments in non-marketable equity securities were recorded at cost less impairment, if any, with any losses resulting from an impairment recognized in investment and other income, net. Beginning in fiscal 2019, investments in non-marketable equity securities are recorded at cost, less impairments (if any), adjusted for observable price changes in orderly transactions for identical or similar securities (if any). All gains and losses on investments in non-marketable equity securities, realized and unrealized, are recognized in investment and other income, net.

Note 2. Composition of Certain Financial Statement Items


Inventories (in millions)
	March 29, 2020		September 29, 2019
Raw materials	$	101	$	77
Work-in-process	802		667
Finished goods	797		656
	$	1,700	$	1,400

Accounts Receivable (in millions)
March 31,
2019 September 30,
2018
Trade, net of allowances for doubtful accounts of $47 and $56, respectively $ 2,430
$ 2,667
Unbilled receivables 1,196
201
Other 12
36
$ 3,638
$ 2,904

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

Inventories (in millions)
March 31,
2019 September 30,
2018
Raw materials $ 79
$ 72
Work-in-process 820
715
Finished goods 826
906
$ 1,725
$ 1,693

Equity Method and Non-marketable Equity Investments.The carrying values of our equity method and non-marketable equity investments are recorded in other noncurrent assets and were as follows (in millions):


	March 29, 2020		September 29, 2019
Equity method investments	$	210	$	343
Non-marketable equity investments	726		787
	$	936	$	1,130

March 31,
2019 September 30,
2018
Equity method investments $ 354
$ 402
Non-marketable equity investments 779
650
$ 1,133
$ 1,052

InThe rapid, global spread of the recent coronavirus (COVID-19) pandemic and associated containment and mitigation measures have negatively impacted the condition of economies and financial markets globally, which has negatively impacted certain companies in which we hold non-marketable equity investments, including those accounted for under the equity method, and to a lesser extent, non-marketable debt securities. Significant evaluation and judgments were required in determining if the negative effects of COVID-19 indicate that such investments were impaired, and if so, the extent of such impairment, in the second quarter of fiscal 2020. This included, among other items: (i) assessing the business impacts that COVID-19 had, and we currently expect to have in the future, on our investees, including taking into consideration the investee’s industry and geographic location and the impact to its customers, suppliers and employees, as applicable, (ii) evaluating the investees’ ability to respond to the impacts of COVID-19, including any significant deterioration in the investee’s financial condition and cash flows, as well as assessing liquidity and/or going concern risks and (iii) considering any appreciation in fair value that has not been recognized in the carrying values of such investments. Based on this evaluation, certain of our investments were impaired and written down to their estimated fair values in the second quarter of fiscal 2020 based on information currently known by us (a significant portion of which related to the full impairment of our investment in OneWeb (an equity method investee) who filed for bankruptcy in the second quarter of fiscal 2020) (Note 7). Although we believe that our judgments supporting our impairment assessments are reasonable (which relies on information reasonably available to us), the COVID-19 pandemic makes it challenging for us and our investees to estimate the future performance of our investees’ businesses. As circumstances change and/or new information becomes available, we may be required to record additional impairments in subsequent periods.


Short-term Debt (in millions)
	March 29, 2020		September 29, 2019
Commercial paper	$	499	$	499

Current portion of long-term debt	2,000		1,997
	$	2,499	$	2,496

Subsequent to March 29, 2020, we reduced the total amount available for issuance under our unsecured commercial paper program from $5.0 billion to $4.5 billion.

Revolving Credit Facility. We have an Amended and Restated Revolving Credit Facility (Revolving Credit Facility) that provides for unsecured revolving facility loans, swing line loans and letters of credit in an aggregate amount of up to $4.5

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

billion, which expires on November 8, 2021. At March 29, 2020, 0 amounts were outstanding under the Revolving Credit Facility.

Long-term Debt. At March 29, 2020 and September 29, 2019, ~~non-marketable debt and equity securities (non-cash consideration)~~we had outstanding interest rate swaps with an aggregate notional amount of $750 million and $1.8 billion, respectively, related to our May 2015 Notes. During the second quarter of fiscal 2020, we terminated interest rate swaps related to our fixed-rate 3.0% notes due May 20, 2022 resulting in a deferred gain of $19 million, which is being amortized to interest expense over the remaining term of the fixed-rate 3.0% notes due May 20, 2022. At March 29, 2020 and September 29, 2019, the aggregate fair value of ~~$98~~our remaining outstanding principal floating- and fixed-rate notes, including the current portion of long-term debt, based on Level 2 inputs, was approximately $16.7 billion and $16.5 billion, respectively.

Revenues. We disaggregate our revenues by segment (Note 6) and type of products and services (as presented on our condensed consolidated statement of operations), as we believe this best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. Substantially all of QCT’s (Qualcomm CDMA Technologies) revenues consist of equipment revenues that are recognized at a point in time, and substantially all of QTL’s (Qualcomm Technology Licensing) revenues represent licensing revenues that are recognized over time.

Revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were $150 million ~~were received~~and $398 million for the three months ended March 29, 2020 and March 31, 2019, respectively, and $178 million and $394 million for the six months ended March 29, 2020 and March 31, 2019, respectively, and primarily related to QTL royalty revenues recognized related to devices sold in prior periods, certain customer incentives and revenues related to a development contract with one of our equity method investees. ~~Since~~

Unearned revenues (which are considered contract ~~revenues were no longer constrained, such amount was recognized as revenues from a previously satisfied~~liabilities) consist primarily of license fees for intellectual property with continuing performance ~~obligation in the second quarter of fiscal 2019.~~obligations. In addition, in the second quarter of fiscal 2019, non-marketable equity securities (non-cash consideration) with a fair value of $53 million were received in connection with the sale of certain assets as part of the Cost Plan (Note 8).



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

Other Current Liabilities (in millions)
March 31,
2019 September 30,
2018
Customer incentives and other customer-related liabilities $ 3,417
$ 3,500
Accrual for EC fine (Note 6) 1,137
1,167
Income taxes payable 428
453
RF360 Holdings put and call option 1,145
1,137
Other 614
721
$ 6,741
$ 6,978

Beginning on August 4, 2019, for a period of 60 days, we have the option to acquire (and the minority owner has the option to sell) the minority ownership interest in the RF360 Holdings joint venture for $1.15 billion, and we expect one of such options to be exercised during this period. At March 31, 2019 and September 30, 2018, the accreted value of such amount was included in other current liabilities.

~~Accumulated Other Comprehensive Income.~~ ~~Changes in the components of accumulated other comprehensive income, net of income taxes, in stockholders’ equity in~~ the six months ended March 29, 2020 and March 31, 2019, we recognized revenues of $307 million and $258 million, respectively, that were recorded as ~~follows (in millions):~~unearned revenues at September 29, 2019 and October 1, 2018, respectively.

Foreign Currency Translation Adjustment Noncredit Other-than-Temporary Impairment Losses and Subsequent Changes in Fair Value for Certain Available-for-Sale Debt Securities Net Unrealized Gain (Loss) on Other Available-for-Sale Securities Net Unrealized (Loss) Gain on Derivative Instruments Other Gains Total Accumulated Other Comprehensive Income
Balance at September 30, 2018 $ 11
$ 23
$ 243
$ (13 ) $ 1
$ 265
Other comprehensive (loss) income before reclassifications (41 ) —
(6 ) 16
(8 ) (39 )
Reclassifications from accumulated other comprehensive income 1
—
(51 ) (3 ) —
(53 )
Other comprehensive (loss) income (40 ) —
(57 ) 13
(8 ) (92 )
Balance at March 31, 2019 $ (29 ) $ 23
$ 186
$ —
$ (7 ) $ 173

~~Reclassifications from accumulated other comprehensive income~~Remaining performance obligations, substantially all of which are included ~~adjustments of $51 million to~~in unearned revenues, represent the ~~opening retained earnings balance as a result~~aggregate amount of the ~~adoption~~transaction price of ~~new accounting guidance in~~certain customer contracts yet to be recognized as revenues as of the ~~first quarter~~end of the reporting period and exclude revenues related to (a) contracts that have an original expected duration of one year or less and (b) sales-based royalties (i.e., future royalty revenues) pursuant to our license agreements. Our remaining performance obligations are primarily comprised of certain customer contracts for which QTL received license fees upfront. At March 29, 2020, we had $1.5 billion of remaining performance obligations, of which $284 million, $511 million, $463 million, $202 million and $50 million was expected to be recognized as revenues for the remainder of fiscal ~~2019 related to financial instruments~~2020 and ~~hedge instruments (Note 1).Reclassifications~~each of the subsequent four years from ~~accumulated other comprehensive~~fiscal 2021 through 2024, respectively, and $26 million thereafter.

Other Income, Costs and Expenses. Other income ~~(excluding adjustments to opening retained earnings) related to available-for-sale securities were negligible~~ in the three and six months ended March ~~31, 2019 and March 25, 2018 and were recorded in investment and other income, net.~~29, 2020 consisted of a $23 million gain related to a favorable legal settlement.

~~Other Income, Costs and Expenses.~~ Other income in the three months ended March 31, 2019 included a $43 million gain due to the partial recovery of a fine imposed in fiscal 2009 resulting from our appeal of the Korea Fair Trade Commission (KFTC) ~~decision (Note 6)~~, partially offset by $25 million in net restructuring and restructuring-related charges related to our Cost Plan ~~(Note 8).~~that concluded in fiscal 2019. Other expenses in the six months ended March 31, 2019 included $204 million in net restructuring and restructuring-related charges related to our Cost Plan, partially offset by a $43 million gain due to the partial recovery of a fine we ~~previously~~ paid to the KFTC and a $31 million gain related to a favorable legal settlement.

Other expenses in the three months ended March 25, 2018 consisted of $310 million in restructuring and restructuring-related charges related to our Cost Plan. Other expenses in the six months ended March 25, 2018 also included a $1.2 billion charge related to the European Commission (EC) fine (Note 6).

QUALCOMM Incorporated

~~QUALCOMM Incorporated~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(Unaudited)~~

Investment and Other Income, Net (in millions)
Three Months Ended Six Months Ended
March 31,
2019 March 25,
2018 March 31,
2019 March 25,
2018
Interest and dividend income $ 80
$ 154
$ 155
$ 280
Net gains (losses) on marketable securities 40
3
(33 ) 13
Net gains on other investments 6
47
42
60
Impairment losses on marketable securities and other investments (60 ) (11 ) (69 ) (20 )
Net (losses) gains on derivative investments (1 ) 10
(9 ) 9
Equity in net losses of investees (36 ) (17 ) (58 ) (38 )
Net (losses) gains on foreign currency transactions (1 ) (90 ) 5
(93 )
$ 28
$ 96
$ 33
$ 211

~~Note 3. Income Taxes~~

The 2017 Tax Cuts and Jobs Act (the Tax Legislation) significantly revised the United States corporate income tax by, among other things, lowering the corporate income tax rate to 21% and imposing a one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries (the Toll Charge). The Tax Legislation fundamentally changed the taxation of multinational entities, including a shift from a system of worldwide taxation with deferral to a hybrid territorial system, featuring a participation exemption regime with current taxation of certain foreign income, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion and promote U.S. production. As a fiscal-year taxpayer, certain provisions of the Tax Legislation became effective starting at the beginning of fiscal 2019, including new taxes due on certain foreign income, such as GILTI (global intangible low-taxed income), BEAT (base-erosion and anti-abuse tax) and FDII (foreign-derived intangible income). In response to the Tax Legislation, we implemented certain tax restructuring in fiscal 2018 and 2019. As a result, without considering the effects of the agreements with Apple and its contract manufacturers signed in April 2019 (Note 12), substantially all of our income is in the U.S. and qualifies for preferential treatment as FDII, and the impact of GILTI and BEAT are negligible. Accordingly, our estimated annual effective tax rate for fiscal 2019 reflects the effects of these components of the Tax Legislation. Our annual effective tax rate for fiscal 2018 reflected a blended federal statutory rate of approximately 25%.

As a result of the Tax Legislation, in fiscal 2019, several of our foreign subsidiaries made tax elections to be treated as U.S. branches for federal income tax purposes (commonly referred to as “check-the-box” elections) effective beginning in fiscal 2018 and 2019. We believe that by treating these foreign subsidiaries as U.S. branches for federal income taxes, rather than controlled foreign corporations, we will significantly reduce the risk of being subject to GILTI and BEAT taxes. As a result of making these check-the-box elections in the first quarter of fiscal 2019, we recorded a tax benefit of $570 million due to establishing new U.S. net deferred tax assets resulting from the difference between the GAAP basis and the U.S. federal tax carryover basis of the existing assets and liabilities of those foreign subsidiaries, primarily related to customer incentive liabilities that have not been deducted for tax purposes. Additionally, during fiscal 2018, one of our foreign subsidiaries distributed certain intellectual property to a U.S. subsidiary resulting in a difference between the GAAP basis and the U.S. federal tax basis of the distributed intellectual property. Upon adoption of new accounting guidance in the first quarter of fiscal 2019, we recorded a deferred tax asset of approximately $2.6 billion, primarily related to the distributed intellectual property, with an adjustment to opening retained earnings (Note 1).

Our second quarter of fiscal 2019 results reflected an estimated annual effective income tax rate of approximately 6% benefit for fiscal 2019, which included the impact of the tax benefit of $570 million (which was recorded discretely in the first quarter) due to establishing new U.S. net deferred tax assets from making certain check-the-box elections and excluded the effects of the agreements with Apple and its contract manufacturers signed in April 2019. The estimated annual effective tax rate for fiscal 2019 also reflected benefits from our FDII deduction and research and development tax credits. The annual effective tax rate for fiscal 2018 was impacted by the combined effect of the Toll Charge, the remeasurement of deferred tax assets and liabilities and our decision to no longer indefinitely reinvest certain foreign earnings, all of which resulted from the Tax Legislation. The annual effective tax rate for fiscal 2018 was also impacted by the termination fee paid to NXP Semiconductors N.V. (NXP), the EC fine, settlement with the Taiwan Fair Trade Commission (TFTC), allocation of expenses to our U.S. operations and new Singapore tax incentives.

~~QUALCOMM Incorporated~~(Unaudited)

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


Investment and Other (Expense) Income, Net (in millions)
	Three Months Ended						Six Months Ended
	March 29, 2020		March 31, 2019		March 29, 2020		March 31, 2019
Interest and dividend income	$	47	$	78	$	107	$	143
Net gains (losses) on marketable securities	55		5		66		(19)
Net (losses) gains on other investments	(12)		6		36		42

Net (losses) gains on deferred compensation plan assets	(72)		37		(42)		(2)
Impairment losses on other investments	(265)		(60)		(337)		(69)
Net (losses) gains on derivative investments	—		(1)		1		(9)
Equity in net losses of investees	(6)		(36)		(16)		(58)
Net gains (losses) on foreign currency transactions	6		(1)		3		5

	$	(247)	$	28	$	(182)	$	33

Net gains (losses) on the revaluation of our deferred compensation plan assets are recorded within investment and other (expense) income, net and are not allocated to our segments. Corresponding offsetting amounts related to the revaluation of our deferred compensation plan liabilities are included in unallocated operating expenses (Note 6).

Note 3. Income Taxes

We estimate our annual effective income tax rate to be 12% for fiscal 2020, which is lower than the U.S. federal statutory rate, primarily due to a significant portion of our income qualifying for preferential treatment as foreign-derived intangible income (FDII) at a 13% effective tax rate and due to benefits from our research and development tax credit. The effective tax rate of ~~18%~~22% for the second quarter of fiscal ~~2019~~2020 was higher than the estimated annual effective tax rate of ~~6% benefit~~12% primarily due to ~~the~~$28 million of discrete net tax ~~benefit of $570 million, which was~~charges recorded ~~discretely~~ in the ~~first quarter.~~second quarter of fiscal 2020, principally related to foreign currency losses on a noncurrent receivable related to our refund claim of Korean withholding tax.

Unrecognized tax benefits were $228 million and $217 million at March 31, 2019 and September 30, 2018, respectively. We believe that it is reasonably possible that the total amounts of unrecognized tax benefits at March 31, 2019 may increase or decrease in the next 12 months.

The United States Treasury Department has issued proposed regulations on several provisions of the 2017 Tax ~~Legislation,~~Cuts and Jobs Act, including ~~foreign tax credits,~~ FDII ~~GILTI, BEAT~~ and interest expense deduction limitations, which ~~are expected to~~may be finalized in the next several months. When finalized, these proposed regulations may adversely affect our provision for income taxes, results of operations and/or cash flows.

Unrecognized tax benefits were $1.8 billion and $1.7 billion at March 29, 2020 and September 29, 2019, respectively, and primarily relate to our refund claim of Korean withholding tax. If successful, the refund will result in a corresponding reduction in U.S. foreign tax credits. We ~~are subject to income taxes~~expect that the total amount of unrecognized tax benefits at March 29, 2020 will increase in the ~~United States and numerous foreign jurisdictions and are currently~~next 12 months as licensees in Korea continue to withhold taxes on future payments due under ~~examination by various tax authorities worldwide, most notably in countries where we earn~~their licensing agreements at a routine return and tax authorities believe substantial value-add activities are performed. These examinations are at various stages with respect to assessments, claims, deficiencies and refunds, many of which are open for periods after fiscal 2000. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts give rise to a revision become known. As of March 31, 2019,rate higher than we believe ~~that adequate amounts~~is owed; such increase is not expected to have ~~been reserved for based~~a significant impact on ~~facts known. However, the final determination of tax audits and any related legal proceedings could materially differ from amounts reflected in~~ our income tax ~~provision and the related accruals.~~provision.

Note 4. Capital Stock

Stock Repurchase Program. On July 26, 2018, we announced a stock repurchase program authorizing us to repurchase up to $30 billion of our common stock. ~~The stock repurchase program has no expiration date.~~

In September 2018, we entered into three accelerated share repurchase agreements (ASR Agreements) with three financial institutions under which we paid an aggregate of $16.0 billion upfront and received an initial delivery of 178.4 million shares of our common stock, which were retired. The final number of shares to be repurchased will be based on the volume-weighted average stock price of our common stock during the terms of the transactions, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR Agreements and will also be retired upon delivery to us. The ASR Agreements are scheduled to terminate in early September 2019, but may terminate earlier in certain circumstances. At settlement, one or more of the financial institutions may be required to deliver additional shares of common stock to us, or under certain circumstances, we may be required to deliver shares of common stock or make a cash payment to one or more of the financial institutions, with the method of settlement at our election.

In the six months ended March ~~31, 2019~~29, 2020 and March ~~25, 2018,~~31, 2019, we repurchased and retired ~~16.8~~29.3 million and ~~6.8~~16.8 million shares for ~~$1.0~~$2.3 billion and ~~$425 million,~~$1.0 billion, respectively, before commissions. To reflect share repurchases in the consolidated balance sheet, we (i) reduce common stock for the par value of the shares, (ii) reduce paid-in capital for the amount in excess of par to zero during the quarter in which the shares are repurchased and (iii) record the residual amount, if any, to retained ~~earnings, if any.~~earnings. At March ~~31, 2019, $7.8~~29, 2020, $4.7 billion remained authorized for repurchase under our stock repurchase program.Subsequent to March 29, 2020, to maintain our financial liquidity position and flexibility, we suspended our stock repurchases, at least for the near-term, in light of COVID-19.

~~Note 5. Debt~~

~~Revolving Credit Facility.~~ ~~We have an Amended and Restated Revolving Credit Facility (Revolving Credit Facility) that provides~~Dividends. On March 10, 2020, we announced a 5% increase in our quarterly dividend per share of common stock from $0.62 to $0.65, which is effective for ~~unsecured revolving facility loans, swing line loans and letters~~dividends payable after March 26, 2020.On April 21, 2020, we announced a cash dividend of credit in an aggregate amount of up to $5.0 billion, of which $530 million and $4.47 billion will expire in February 2020 and November 2021, respectively. Proceeds from the Revolving Credit Facility, if drawn, are expected to be used for general corporate purposes. Loans under the Revolving Credit Facility will bear interest, at our option, at either the reserve-adjusted Eurocurrency Rate (determined in accordance with the Revolving Credit Facility) or the Base Rate (determined in accordance with the Revolving Credit Facility), in each case plus an applicable margin based$0.65 per share on our ~~long-term unsecured senior, non-credit enhanced debt ratings. The margins over~~common stock, payable on June 25, 2020 to stockholders of record as of the ~~reserve-adjusted Eurocurrency Rate and the Base Rate will be 0.805% and 0.00% per annum, respectively. The Revolving Credit Facility has a facility fee, which accrues at a rate~~close of ~~0.07% per annum. At March 31, 2019 and September 30, 2018, we had not borrowed any funds under the Revolving Credit Facility.~~

~~Commercial Paper Program.~~ We have an unsecured commercial paper program, which provides for the issuance of up to $5.0 billion of commercial paper. Net proceeds from this program are used for general corporate purposes. Maturities of commercial paper can range from 1 day to up to 397 days. At March 31, 2019 and September 30, 2018, we had $1.0 billion of outstanding commercial paper included in short-term debt with a weighted-average interest rate of 2.74% and 2.35%, respectively, which included fees paid to the commercial paper dealers, and weighted-average remaining days to maturity ofbusiness on June 4, 2020.

QUALCOMM Incorporated

~~QUALCOMM Incorporated~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(Unaudited)~~

~~29 days and 16 days, respectively. The carrying value of the outstanding commercial paper approximated its estimated fair value at March 31, 2019 and September 30, 2018.~~

~~Long-term Debt.~~ ~~The following table provides a summary of our long-term debt (in millions, except percentages):~~

March 31, 2019 September 30, 2018
Amount
Effective
Rate
Amount
Effective
Rate
May 2015 Notes
Floating-rate three-month LIBOR plus 0.55% notes due May 20, 2020 $ 250
3.25% $ 250
2.93%
Fixed-rate 2.25% notes due May 20, 2020 1,750
3.09% 1,750
3.13%
Fixed-rate 3.00% notes due May 20, 2022 2,000
3.51% 2,000
3.73%
Fixed-rate 3.45% notes due May 20, 2025 2,000
3.46% 2,000
3.46%
Fixed-rate 4.65% notes due May 20, 2035 1,000
4.73% 1,000
4.73%
Fixed-rate 4.80% notes due May 20, 2045 1,500
4.72% 1,500
4.72%
May 2017 Notes
Floating-rate three-month LIBOR plus 0.73% notes due January 30, 2023 500
3.55% 500
3.14%
Fixed-rate 2.60% notes due January 30, 2023 1,500
2.70% 1,500
2.70%
Fixed-rate 2.90% notes due May 20, 2024 1,500
3.01% 1,500
3.01%
Fixed-rate 3.25% notes due May 20, 2027 2,000
3.46% 2,000
3.46%
Fixed-rate 4.30% notes due May 20, 2047 1,500
4.47% 1,500
4.47%
Total principal 15,500
15,500

Unamortized discount, including debt issuance costs (79 ) (85 )
Hedge accounting fair value adjustments (16 ) (50 )
Total long-term debt $ 15,405
$ 15,365

Reported as:
Short-term debt $ —
$ —

Long-term debt 15,405
15,365

Total $ 15,405
$ 15,365

~~At March 31, 2019 and September 30, 2018, the aggregate fair value of the notes, based on Level 2 inputs, was approximately $15.4 billion and $15.1 billion, respectively.~~

We may redeem the outstanding fixed-rate notes at any time in whole, or from time to time in part, at specified make-whole premiums as defined in the applicable form of note. We may not redeem the outstanding floating-rate notes prior to maturity. The obligations under the notes rank equally in right of payment with all of our other senior unsecured indebtedness and will effectively rank junior to all liabilities of our subsidiaries.

At March 31, 2019, we had outstanding interest rate swaps with an aggregate notional amount of $1.8 billion related to the May 2015 Notes, which effectively converted approximately 43% and 50% of the fixed-rate notes due in 2020 and 2022, respectively, into floating-rate notes. The net gains and losses on the interest rate swaps, as well as the offsetting gains or losses on the related fixed-rate notes attributable to the hedged risks, are recorded as interest expense in the current period. We did not enter into interest rate swaps in connection with issuance of the May 2017 Notes.

The effective interest rates for the notes include the interest on the notes, amortization of the discount, which includes debt issuance costs, and if applicable, adjustments related to hedging. Interest is payable in arrears quarterly for the floating-rate notes and semi-annually for the fixed-rate notes. Cash interest paid related to our commercial paper program and long-term debt, net of cash received from the related interest rate swaps, was $281 million and $317 million in the six months ended March 31, 2019 and March 25, 2018, respectively.

~~Debt Covenants.~~ The Revolving Credit Facility requires that we comply with certain covenants, including one financial covenant to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization to consolidated interest expense, as defined in each of the respective agreements, of not less than three to one at the end of each fiscal quarter. We are not subject to any financial covenants under the notes nor any covenants that would prohibit us from incurring

~~QUALCOMM Incorporated~~(Unaudited)

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Earnings Per Common Share. Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed by dividing net income by the combination of the weighted-average number of dilutive common share equivalents, comprised of shares issuable under our share-based compensation plans and shares subject to accelerated share repurchase agreements, if any, and the weighted-average number of common shares outstanding during the reporting period. The following table provides information about the diluted earnings per share calculation (in millions):


	Three Months Ended			Six Months Ended
	March 29, 2020	March 31, 2019	March 29, 2020	March 31, 2019
Dilutive common share equivalents included in diluted shares	12.0	3.8	13.5	7.0
Shares of common stock equivalents not included because the effect would be anti-dilutive or certain performance conditions were not satisfied at the end of the period	0.2	17.2	0.2	14.4

additional indebtedness ranking equal to the notes, paying dividends, issuing securities or repurchasing securities issued by us or our subsidiaries. At March 31, 2019 and September 30, 2018, we were in compliance with the applicable covenants under the Revolving Credit Facility.

Note 6.5. Commitments and Contingencies

Legal and Regulatory Proceedings.

~~Apple Inc. (Apple) v. QUALCOMM Incorporated:~~ On January 20, 2017, Apple filed a complaint against us in the United States District Court for the Southern District of California seeking declarations with respect to several of our patents and alleging that we breached certain agreements and violated federal antitrust and California state unfair competition laws. In its initial complaint, Apple sought declaratory judgments of non-infringement by Apple of nine of our patents, or in the alternative, a declaration of royalties Apple must pay for the patents. Apple further sought a declaration that our sale of baseband processor chipsets exhausts our patent rights for patents embodied in those chipsets. Separately, Apple sought to enjoin us from seeking excessive royalties from Apple and to disgorge royalties paid by Apple’s contract manufacturers that the court finds were not fair, reasonable and non-discriminatory (FRAND). Apple also claimed that our refusal to make certain payments to Apple under a Business Cooperation and Patent Agreement (Cooperation Agreement) constituted a breach of contract in violation of California law and sought damages in the amount of the unpaid payments, alleged to be approximately $1 billion. In addition, Apple claimed that we have refused to deal with competitors in contravention of our agreements with applicable standard setting organizations, have used our market position to impose contractual obligations on Apple that prevented Apple from challenging our licensing practices, have tied the purchase of our CDMA-enabled and “premium” LTE-enabled chipsets to licensing certain of our patents and have required Apple to purchase baseband processor chipsets exclusively from us as a condition of our payment to Apple of certain rebates, in violation of Section 2 of the Sherman Act and the California Unfair Competition Law. Apple sought injunctive relief with respect to these claims and a judgment awarding its expenses, costs and attorneys’ fees.

On April 10, 2017, we filed our Answer and Counterclaims (amended on May 24, 2017) in response to Apple’s complaint denying Apple’s claims and asserting claims against Apple. The counterclaims against Apple include tortious interference with our long-standing Subscriber Unit License Agreements (SULAs) with third-party contract manufacturers of Apple devices, causing those contract manufacturers to withhold certain royalty payments owed to us and violate their audit obligations; breach of contract and the implied covenant of good faith and fair dealing relating to the Cooperation Agreement; unjust enrichment and declaratory relief relating to the Cooperation Agreement; breach of contract based on Apple’s failure to pay amounts owed to us under a Statement of Work relating to a high-speed feature of our baseband processor chipsets; breach of the parties’ software agreement; and violation of California Unfair Competition Law based on Apple’s threatening us to prevent us from promoting the superior performance of our own baseband processor chipsets. We also seek declaratory judgments that we have satisfied our FRAND commitments with respect to Apple, and that our SULAs with the contract manufacturers do not violate either competition law or our FRAND commitments. On June 19, 2017, Apple filed a Partial Motion to Dismiss our counterclaim for violation of the California Unfair Competition Law. The court granted that motion on November 8, 2017. On June 20, 2017, Apple filed an Answer and Affirmative Defenses to the rest of our counterclaims, and also filed an Amended Complaint reiterating all of the original claims and adding claims for declaratory judgments of invalidity of the nine patents that are subject to declaratory judgment claims in the original complaint, adding new declaratory judgment claims for non-infringement, invalidity and a declaration of royalties for nine more patents. Apple also added claims for declaratory judgments that certain of our agreements are unenforceable. On July 21, 2017, we filed an Answer to Apple’s Amended Complaint as well as a motion to dismiss the new declaratory judgment claims for non-infringement, invalidity and a declaration of royalties for the nine additional patents. The court granted our motion on November 8, 2017.

~~On May 17, 2017, we filed a complaint (captioned~~ ~~QUALCOMM Incorporated v. Compal Electronics, Inc. et al~~.) in the United States District Court for the Southern District of California against certain of Apple’s contract manufacturers, Compal Electronics, Inc. (Compal), FIH Mobile, Ltd., Hon Hai Precision Industry Co., Ltd. (together with FIH Mobile, Ltd., Foxconn), Pegatron Corporation (Pegatron) and Wistron Corporation (Wistron), asserting claims for injunctive relief, specific performance, declaratory relief and damages stemming from the defendants’ breach of contracts by ceasing the payment of royalties for iPhones and other devices which they manufacture for Apple. On July 17, 2017, Compal, Foxconn, Pegatron and Wistron each filed third-party complaints for contractual indemnity against Apple seeking to join Apple as a party to the action. On July 18, 2017, Apple filed an answer to these third-party complaints acknowledging its indemnity agreements and consenting to be joined. On that same day, the defendants filed an Answer and Counterclaims to the complaint, asserting defenses and counterclaims similar to allegations previously made by Apple in the ~~Apple Inc. v. QUALCOMM Incorporated~~



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

case discussed above. In addition, the defendants asserted certain new claims, including claims under Section 1 of the Sherman Act and California’s Cartwright Act. The defendants seek damages, declaratory relief, injunctive relief, restitution of certain royalties and other relief. Also, on July 18, 2017, Apple filed a motion to consolidate this action with the ~~Apple Inc. v. QUALCOMM Incorporated~~ ~~case. On September 13, 2017, the court granted Apple’s consolidation motion. Fact discovery is closed in these cases.~~

On August 31, 2018, Apple filed a motion for judgment on the pleadings that the court lacks subject matter jurisdiction over our counterclaim that our license offers to Apple have not violated our obligation to license standard-essential patents on FRAND terms. On March 20, 2019, the court denied Apple’s motion. Also, on August 31, 2018, Apple filed motions for partial summary judgment on the following issues: that part of our claim for Apple’s alleged tortious interference with its contract manufacturers’ agreements is barred by the statute of limitations; that our claim for damages under the Cooperation Agreement is unfounded; and that certain of our patent rights are exhausted by the sale of our baseband processor chipsets. On November 8, 2018, the court ruled on Apple’s motion regarding its alleged tortious interference, holding that Apple is not liable for tortious interference that occurred prior to January 20, 2015, but may be held liable for subsequent tortious interference. On December 18, 2018, the court denied Apple’s motion regarding patent exhaustion as moot in light of the dismissal of the claims at issue discussed below. On March 14, 2019, the court granted Apple’s motion for summary judgment against our claims for damages under the Cooperation Agreement. Amounts unpaid (and previously accrued) by us under the Cooperation Agreement were recorded in customer-related liabilities (in other current liabilities) at March 31, 2019 and September 30, 2018 (Note 2).

On September 14, 2018, we filed a motion to dismiss Apple’s declaratory judgment claims relating to the nine specific patents identified in its original complaint on the basis that we granted Apple and its contract manufacturers a covenant-not-to-sue on those patents. The judge granted our motion on November 20, 2018, which disposed of a total of 56 claims pled by Apple and its contract manufacturers, including non-infringement, validity, damages and patent exhaustion for each of the nine patents.

A jury trial commenced on April 15, 2019, and on April 16, 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties (Note 12).

On January 23, 2017, an Apple subsidiary in China filed two complaints against us in the Beijing Intellectual Property Court. On March 31, 2017, the court granted an application by Apple Inc. to join the actions as a plaintiff, and Apple amended the complaints. One of the complaints alleges a violation of China’s Anti-Monopoly Law (AML complaint); the other complaint requests a determination of the terms of a patent license between us and Apple (FRAND complaint). The AML complaint alleges that (i) we have abused our dominant position in communication standard-essential patents licensing markets and certain global baseband processor chipset markets by charging and offering royalty terms that were excessively high; (ii) we refused to license certain implementers of standardized technologies, including Apple and baseband processor chipset manufacturers; (iii) we forced Apple to use only our products and services; and (iv) we bundled licenses to standard-essential patents with licenses to non-standard-essential patents and imposed other unreasonable or discriminatory trading terms on Apple in violation of the AML. The AML complaint seeks a decree that we cease the alleged abuse of dominance, as well as damages in the amount of 1 billion Chinese renminbi (approximately $149 million based on the exchange rate on March 31, 2019). The FRAND complaint makes allegations similar to the AML complaint and further alleges that we refused to offer licensing terms for our cellular standard-essential patents consistent with our FRAND licensing commitments and failed to provide to Apple certain information about our patents. The FRAND complaint seeks (i) a declaration that the license terms offered to Apple by us for our mobile communication standard-essential patents are not compliant with FRAND; (ii) an order that we cease our actions that allegedly violate our FRAND obligations, including pricing on unfair, unreasonable and excessive terms, refusing to deal, imposing unreasonable trade conditions and failing to provide information on our patents; and (iii) a determination of FRAND-compliant license terms for our Chinese standard-essential patents. Apple also seeks its expenses in each of the cases.

On August 3, 2017, we received three additional complaints filed by an Apple subsidiary in China and Apple Inc. against us in the Beijing Intellectual Property Court. The complaints seek declaratory judgments of non-infringement of three of our patents. We filed jurisdictional and other objections to the complaints.

On November 30, 2017, Apple and certain of its Chinese subsidiaries filed three patent infringement complaints against us in the Beijing Intellectual Property Court. Apple seeks damages and costs. We have filed jurisdictional objections to the complaints.



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

On February 16, 2017, Apple and one of its Japanese subsidiaries filed four complaints against us in the Tokyo District Court. In three of the complaints, Apple seeks declaratory judgment of non-infringement by Apple of three of our patents. Apple further seeks a declaration that our patent rights with respect to those three patents are exhausted by our SULAs with the contract manufacturers of Apple’s devices as well as our sale of baseband processor chipsets. Apple also seeks an award of fees. On January 30, 2018, April 27, 2018 and July 13, 2018, the court dismissed each of Apple’s three declaratory judgment complaints, finding that Apple lacked standing based on the facts it alleged in those complaints. Apple has appealed all three decisions. On December 12, 2018, February 19, 2019 and March 4, 2019, the Intellectual Property High Court ruled in our favor on each of Apple’s appeals, finding that the Tokyo District Courts were correct in dismissing Apple’s declaratory judgment complaints. The court has yet to rule on whether Apple has standing in the remaining complaint. On May 15, 2017, we learned of the fourth complaint. In that complaint, Apple and one of its Japanese subsidiaries seek damages of 100 million Japanese yen (approximately $1 million based on the exchange rate on March 31, 2019) from us, based on allegations that we violated the Japanese Antimonopoly Act and the Japanese Civil Code. In particular, the fourth complaint alleges that (i) we hold a monopoly position in the market for baseband processor chipsets that implement certain cellular standards; (ii) we collect double royalties through our license agreements and the sale of baseband processor chipsets which exhaust certain of our patent rights; (iii) we refused to grant Apple a license on FRAND terms and forced Apple to execute a rebate agreement under unreasonable conditions; (iv) we refused to grant Apple a direct license; and (v) we demanded a license fee based on the market value of the total device. We have filed jurisdictional and other objections to this complaint.

On March 2, 2017, we learned that Apple and certain of its European subsidiaries issued a Claim Form against us in the UK High Court of Justice, Chancery Division, Patents Court on January 23, 2017. Apple subsequently filed an Amended Claim Form and Particulars of Claim. Both the Amended Claim Form and the Particulars of Claim allege several European competition law claims, including our refusal to license competing chipmakers, failure to offer Apple a direct license to our standard-essential patents on FRAND terms, demanding excessive royalties for our standard-essential patents, and demanding excessive license fees for the use of our standard-essential patents in connection with baseband processor chipsets purchased from us. Apple also seeks declarations that we are obliged to offer a direct patent license to Apple in respect of standard-essential patents actually practiced on FRAND terms and that using our baseband processor chipsets does not infringe any of our patents because we exhausted our patent rights. Finally, Apple seeks declarations that five of our European (UK) patents are invalid and not essential, and an order that each of those patents be revoked.

On April 18, 2017, Apple and one of its Taiwanese subsidiaries filed a complaint against us in the Taiwan Intellectual Property Court alleging that we have abused a dominant market position in licensing wireless standard-essential patents and selling baseband processor chipsets, including improper pricing, refusal to deal, exclusive dealing, tying, imposing unreasonable trade terms and discriminatory treatment. The complaint seeks rulings that we not use the sales price of the terminal device as the royalty base for standard-essential patents; not leverage our cellular standard-essential patents to obtain licenses of our non-standard-essential patents or demand cross-licenses without proper compensation; not refuse, reduce, delay or take any other action to limit the supply of our baseband processor chipsets to non-licensees; that we must license our standard-essential patents on FRAND terms; and that we shall not, based on standard-essential patents, seek injunctions. The complaint also seeks damages of 10 million Taiwan dollars (less than $1 million based on the exchange rate on March 31, 2019), among other relief.

~~On April 16, 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties (Note 12).~~

~~QUALCOMM Incorporated v. Apple Inc.~~: On July 6, 2017, we filed a complaint against Apple in the United States District Court for the Southern District of California asserting claims for damages and injunctive relief for infringement of six of our patents directed to a variety of features found in iPhone models. On July 7, 2017, we filed a complaint against Apple in the United States International Trade Commission (ITC) requesting that the ITC institute an investigation pursuant to Section 337 of the Tariff Act of 1930 based on Apple’s infringement of the same six patents. We sought a limited exclusion order and cease and desist order against importation of iPhone models that do not contain a Qualcomm brand baseband processor chipset. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. Apple filed an Answer and Counterclaims in the District Court case on September 26, 2017. On November 29, 2017, Apple filed a First Amended Answer and Counterclaims asserting that our Snapdragon processors infringe eight Apple patents. On August 8, 2017, the ITC issued a notice of institution of an investigation. On August 25, 2017, we withdrew allegations as to one patent in both the ITC investigation and the district court case. On April 25, 2018, we withdrew allegations as to two additional patents in the ITC investigation, but not the District Court case, in order to satisfy certain briefing limitations and to narrow the issues for hearing. The ITC investigation evidentiary hearing by the



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

Administrative Law Judge (ALJ) was held June 18-26, 2018. The ALJ’s Initial Determination on the merits was issued on September 28, 2018. The ALJ found that we had established a violation of Section 337 by Apple due to the infringement of one of the three asserted patents. However, the ALJ recommended against an exclusion order on the grounds of public interest. On October 15, 2018, the parties each filed petitions for review of portions of the ALJ’s decision by the full ITC. On December 12, 2018, the ITC announced that it would review the ALJ’s determination of violation on one patent and requested public comments on the potential impact on the public interest if an exclusion order is issued. The ITC denied review of the ALJ’s findings of no violation as to the other two patents. On March 26, 2019, the ITC issued its final determination and found the remaining patent to be invalid. The ITC’s final determination did not take a position on the public interest considerations of any potential exclusion order. On March 2, 2018, the District Court granted our motion to sever, for separate trial, Apple’s counterclaims for patent infringement against us. On February 5, 2019, the District Court granted Apple’s motion for summary judgment of non-infringement as to one of our asserted patents. Trial on the remaining three of our asserted patents began on March 4, 2019 and has concluded. The jury returned a verdict in our favor on all three patents, awarding us over $31 million in damages. Post trial proceedings are ongoing, and as a result, we did not record a gain in the second quarter of fiscal 2019. In parallel, Apple has challenged the validity of four of our patents asserted in the first ITC action and corresponding District Court case via Inter Partes Review (IPR) petitions with the United States Patent and Trademark Office (USPTO) Patent Trial and Appeal Board (PTAB). The PTAB has instituted trials on three of those patents. With respect to Apple’s patent claims against us, trial is scheduled to begin on July 15, 2019. We challenged the validity of all of Apple’s asserted patents with the PTAB. Those petitions are pending.

On November 1, 2017, we filed a complaint against Apple in San Diego Superior Court for breach of the Master Software Agreement between the companies. The complaint recounts instances when Apple failed to protect our software as required by the agreement and failed to provide sufficient information to which we are entitled under the agreement in order to understand whether other breaches have occurred. The complaint seeks specific performance of Apple’s obligations to cooperate with an audit of its handling of our software, damages and injunctive relief. Apple filed its answer to the complaint on December 19, 2017. On September 24, 2018, we filed a motion seeking to amend our complaint to add causes of action for additional contract breaches and misappropriation of trade secrets. On October 26, 2018, the court granted our motion. We filed an amended complaint on October 31, 2018 and further amended the complaint on November 15, 2018. On December 17, 2018, Apple filed a demurrer objecting to the sufficiency of the second amended complaint. On February 8, 2019, the court denied Apple’s demurrer. Trial is scheduled to begin on February 7, 2020.

On November 29, 2017, we filed three additional complaints against Apple in the United States District Court for the Southern District of California alleging infringement of a total of 16 of our patents. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. The complaints seek damages and injunctive relief. On January 22, 2018, Apple filed answers and counterclaims in each of these cases seeking declaratory judgments that the asserted patents are invalid and/or not infringed. For the case relating to the November 30, 2017 ITC investigation described below, fact discovery closed on March 13, 2019, and trial is scheduled to begin on October 21, 2019. Apple has filed IPR petitions with the PTAB challenging the validity of four of our patents asserted in the November 30, 2017 ITC action and corresponding District Court action. The PTAB has granted the petition as to one of those patents. For the cases not related to the ITC investigation, Apple has challenged all of the asserted patents in IPR proceedings filed in the PTAB. No decisions have yet been issued by the PTAB. In total, Apple has filed 50 IPRs. The PTAB has initiated proceedings in 36 of the IPRs to date. As a result of the IPR proceedings, on August 29, 2018, the court stayed those two cases pending the outcome of the IPR proceedings.

On November 30, 2017, we filed a complaint in the ITC accusing certain Apple products of infringing five of our patents. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. We seek a limited exclusion order and cease and desist order against importation of iPhone models that do not contain a Qualcomm brand baseband processor chipset. On January 2, 2018, the ITC instituted an investigation. The evidentiary hearing by the Administrative Law Judge (ALJ) took place from September 17-24, 2018 and included three of our patents. On March 26, 2019, the ALJ’s Initial Determination was issued, found a violation as to one patent and recommended a limited exclusion order and cease and desist order against iPhones that do not contain a Qualcomm brand baseband processor chipset. The target date for final determination by the ITC is July 26, 2019.

On July 17, 2017, we filed complaints against Apple and certain of its subsidiaries in the Federal Republic of Germany, asserting infringement of one of our patents in the Mannheim District Court and infringement of another patent in the Munich District Court. On October 2, 2017, we filed claim extensions in these actions against Apple and certain of its subsidiaries, asserting infringement of two additional patents in the Mannheim District Court and infringement of five additional patents in the Munich District Court. On May 28, 2018, we filed additional claim extensions in these actions against Apple and certain



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

of its subsidiaries, asserting infringement of three additional patents in the Mannheim District Court and infringement of one additional patent in the Munich District Court. The complaints seek remedies including, among other relief, declaratory relief confirming liability on the merits for damages and injunctive relief. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. Apple and/or its subsidiaries and, in some cases, also Intel have challenged the validity of the asserted patents in opposition proceedings before the European Patent Office or nullity actions before the Federal Patent Court. On October 11, 2018, the Munich District Court issued a judgment declaring one of the patents asserted on October 2, 2017 as not infringed. We have appealed that judgment. On December 20, 2018, the Munich District Court issued judgments declaring one of the patents asserted on July 17, 2017 as infringed and issued an injunction against the infringing Apple products, which would be effective following the posting of financial guarantees. On January 3, 2019, Qualcomm served the requisite financial guarantees to enforce the injunction in the amount of 1.3 billion Euro (approximately $1.5 billion based on the exchange rate at March 31, 2019). Apple and its subsidiaries appealed the judgments and requested a preliminary stay of enforcement pending the appeals. On April 9, 2019, the Munich Court of Appeals stayed the enforcement proceedings. On January 15, 2019, the Mannheim District Court issued a judgment declaring one of the patents asserted on October 2, 2017 as not infringed. On January 31, 2019, the Munich District Court issued judgments declaring two further patents (belonging to the same patent family) asserted on October 2, 2017 as not infringed. We have appealed all of these judgments. On February 25, 2019, the Mannheim District Court ordered a stay of infringement proceedings of another patent asserted on October 2, 2017, pending the decision of the Federal Patent Court on validity. On April 5, 2019, the Opposition Division of the European Patent Office revoked a patent that had been asserted on July 17, 2017 before the Mannheim District Court. We intend to appeal this decision. All other patents remain pending. Dates for the pronouncements of judgment and hearings are scheduled for various dates through September 2019.

On September 29, 2017, we filed three complaints against Apple and certain of its subsidiaries in the Beijing (China) Intellectual Property Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On May 10, 2018 and June 21, 2018, Apple filed invalidation requests with the Chinese Patent Review Board (PRB) for the three asserted patents. The PRB has issued orders upholding the validity of all three patents.

On November 13, 2017, we filed three complaints against certain of Apple’s subsidiaries in the Beijing (China) High People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief, damages and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On December 19, 2017, Apple’s subsidiaries filed invalidation requests with the PRB for the three asserted patents. PRB hearings regarding the validity of the patents were held in April and May 2018. The PRB issued rulings upholding the validity of all three patents. On May 22, 2018, Apple’s subsidiaries filed a second invalidation request with the PRB for one of the three asserted patents. The PRB held a hearing regarding this request on October 19, 2018. The PRB issued rulings on two of the second round invalidity petitions, upholding the validity of one patent based on amended claims and upholding the validity of the second patent again. The PRB has not ruled yet on Apple’s second invalidity challenge to the third patent. On November 30, 2018 and December 5, 2018, Apple appealed all three of the original validity rulings from the PRB to the Beijing IP Court.

On November 15, 2017, we filed three complaints against certain of Apple’s subsidiaries in the Fuzhou (China) Intermediate People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. Apple’s subsidiaries filed invalidation requests with the PRB on December 8, 2017 for one of the patents and December 11, 2017 for the other two patents. PRB hearings regarding the validity of the patents were held in April and May 2018. The PRB issued orders upholding the validity of two of the patents subject to Apple’s invalidity challenges. The PRB ruled that the third patent was invalid. We subsequently withdrew the infringement action in Fuzhou with respect to the third patent. We have appealed the adverse PRB ruling to the Beijing IP Court. Infringement hearings were held from August through October 30, 2018. On November 30, 2018, the court granted our motions for preliminary injunctions with respect to two of the patents and enjoined Apple’s subsidiaries from importing, selling and offering to sell the iPhone 6S through X.

On January 12, 2018, we filed three additional complaints against Apple and certain of its subsidiaries in the Fuzhou (China) Intermediate People’s Court, asserting infringement of three additional patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms.



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Also, on January 12, 2018, we filed three complaints against certain of Apple’s subsidiaries in the Jiangsu (China) High People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief, damages and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On February 5, 2018, Apple’s subsidiaries filed invalidation requests with the PRB. PRB hearings regarding the validity of the patents were held in June 2018. The PRB issued orders upholding the validity of two of the patents and an order partially upholding the validity of another patent.

On February 2, 2018, we filed three complaints against certain of Apple’s subsidiaries in the Qingdao (China) Intermediate People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On February 26, 2018, Apple’s subsidiaries filed invalidation requests with the PRB. PRB hearings regarding the validity of the patents were held in June 2018. The PRB issued orders upholding the validity of two of the patents and invalidating the third patent. We subsequently withdrew the infringement action in Qingdao with respect to the third patent. We filed an appeal of the adverse PRB ruling, and Apple filed an appeal of the other two.

Also, on February 2, 2018, we filed three complaints against certain of Apple’s subsidiaries in the Guangzhou (China) Intermediate People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On March 14, 2018, Apple’s subsidiaries filed invalidation requests with the PRB. PRB hearings regarding the validity of the patents began in July 2018. The PRB issued orders upholding the validity of two of the patents and an order invalidating the third patent. Infringement hearings for all three of the patents were held in October through December 2018. We filed a motion withdrawing the infringement action pertaining to the patent that was invalidated. We have appealed the adverse PRB decision, and Apple has appealed the other two.

On June 14, 2018, we filed three complaints against certain of Apple’s subsidiaries in the Guangdong (China) High People’s Court, asserting infringement of three of our patents. The complaints seek remedies including injunctive relief and costs. The patents have not been declared as essential to any standards organization and are not subject to commitments to license on FRAND terms. On August 13, 2018, Apple’s subsidiaries filed invalidation requests with the PRB. The PRB has held hearings regarding all three of the patents. The PRB issued an order invalidating one of the patents and has not ruled yet regarding Apple’s invalidity challenges of the other two patents.

~~On April 16, 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties (Note 12).~~

~~3226701 Canada, Inc. v. QUALCOMM Incorporated et al:~~ On November 30, 2015, a securities class action complaint was filed by purported stockholders of us in the United States District Court for the Southern District of California against us and certain of our current and former officers. On April 29, 2016, the plaintiffs filed an amended complaint. On January 27, 2017, the court dismissed the amended complaint in its entirety, granting leave to amend. On March 17, 2017, the plaintiffs filed a second amended complaint, alleging that we and certain of our current and former officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, by making false and misleading statements regarding our business outlook and product development between November 19, 2014 and July 22, 2015. The second amended complaint sought unspecified damages, interest, attorneys’ fees and other costs. On May 8, 2017, we filed a motion to dismiss the second amended complaint. On October 20, 2017, the court entered an order granting in part our motion to dismiss, and on November 29, 2017, the court entered an order granting the remaining portions of our motion to dismiss. On December 28, 2017, the plaintiffs filed an appeal to the United States Court of Appeals for the Ninth Circuit. A hearing has been scheduled for July 11, 2019. We believe the plaintiffs’ claims are without merit.

Consolidated Securities Class Action Lawsuit: On January 23, 2017 and January 26, 2017, securities class action complaints were filed by purported stockholders of us in the United States District Court for the Southern District of California against us and certain of our current and former officers and directors. The complaints alleged, among other things, that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, by making false and misleading statements and omissions of material fact in connection with certain allegations that we are or were engaged in anticompetitive conduct. The complaints sought unspecified damages, interest, fees and costs. On May 4, 2017, the court consolidated the two actions and appointed lead plaintiffs. On July 3, 2017, the lead plaintiffs filed a consolidated amended complaint asserting the same basic theories of liability and requesting the same basic relief. On September 1, 2017, we filed a motion to dismiss the consolidated amended complaint. On March 18, 2019, the court denied our motion to dismiss the complaint. ~~Discovery will commence in~~On January 15, 2020, we filed a motion for judgment on the ~~coming months.~~pleadings. The court has not yet ruled on our motion. We believe the plaintiffs’ claims are without merit.



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In re Qualcomm/Broadcom Merger Securities ~~Litigation (formerly Camp v. Qualcomm Incorporated et al):~~ Litigation: On June 8, 2018 and June 26, 2018, securities class action complaints were filed by purported stockholders of us in the United States District Court for the Southern District of California against us and two of our current officers. The complaints ~~allege,~~alleged, among other things, that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, by failing to disclose that we had submitted a notice to the Committee on Foreign Investment in the United States (CFIUS) in January 2018. The complaints ~~seek~~sought unspecified damages, interest, fees and costs. On January 22, 2019, the ~~Court~~court appointed the lead plaintiff in the ~~action and designated that the case be captioned “In re Qualcomm/Broadcom Merger Securities Litigation.”~~action. On March 18, 2019, the plaintiffs filed a consolidated complaint asserting the same basic theories of liability and requesting the same basic relief. On May 10, 2019, we filed a motion to dismiss the consolidated complaint, and on March 10, 2020, the court granted our motion. The plaintiffs have until May 11, 2020 to file an amended complaint. We believe the plaintiffs’ claims are without merit.

Consumer Class Action Lawsuit: Since January 18, 2017, a number of consumer class action complaints have been filed against us in the United States District Courts for the Southern and Northern Districts of California, each on behalf of a putative class of purchasers of cellular phones and other cellular devices. ~~Twenty-two~~Currently, twenty-two such cases ~~remain~~remained outstanding. In April 2017, the Judicial Panel on Multidistrict Litigation transferred the cases that had been filed in the Southern District of California to the Northern District of California. On May 15, 2017, the court entered an order appointing the plaintiffs’ co-lead counsel. On July 11, 2017, the plaintiffs filed a consolidated amended complaint alleging that we violated California and federal antitrust and unfair competition laws by, among other things, refusing to license standard-essential patents to our competitors, conditioning the supply of certain of our baseband chipsets on the purchaser first agreeing to license our entire patent portfolio, entering into exclusive deals with companies, including Apple Inc., and charging unreasonably high royalties that do not comply with our commitments to standard setting organizations. The complaint seeks unspecified damages and disgorgement and/or restitution, as well as an order that we be enjoined from further unlawful conduct. On August 11, 2017, we filed a motion to dismiss the consolidated amended complaint. On November 10, 2017, the court denied our motion, except to the extent that certain claims seek damages under the Sherman Antitrust Act. On July 5, 2018, the plaintiffs filed a motion for class certification, and the court granted that motion on September 27, 2018. On January 23, 2019, the ~~Ninth Circuit~~United States Court of Appeals for the Ninth Circuit (Ninth Circuit) granted us

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permission to appeal the court’s class certification order. On January 24, 2019, the court stayed the case pending our appeal. On December 2, 2019, a hearing on our appeal of the class certification order was held before the Ninth Circuit. The Ninth Circuit has not yet ruled on our appeal. We believe the plaintiffs’ claims are without merit.

Canadian Consumer Class Action Lawsuits: Since November 9, 2017, eight consumer class action complaints have been filed against us in Canada (in the Ontario Superior Court of Justice, the Supreme Court of British Columbia and the Quebec Superior Court), each on behalf of a putative class of purchasers of cellular phones and other cellular devices, alleging various violations of Canadian competition and consumer protection laws. The claims are similar to those in the ~~FTC and~~ U.S. consumer class action ~~complaints.~~complaint. The complaints seek unspecified damages. One of the complaints in the Supreme Court of British Columbia has since been discontinued by the plaintiffs. We have not yet answered the complaints. OnWe expect the Ontario and British Columbia complaints will be consolidated into one proceeding in British Columbia with a class certification hearing no earlier than late 2020. Once the certification hearing is scheduled, we expect the court to set a timetable for the exchange of evidence and briefing. As to the complaint filed in Quebec, on April 15, 2019, the Quebec Superior Court held a class certification hearing, and on April 30, 2019, the court issued an order certifying a class. We are awaiting the court to set a timetable for pre-trial steps, including discovery, as well as the exchange of expert evidence. We do not expect the trial to occur before 2022. We believe the plaintiffs’ claims are without merit.

~~Japan Fair Trade Commission (JFTC) Complaint:~~ The JFTC received unspecified complaints alleging that our business practices are, in some way, a violation of Japanese law. On September 29, 2009, the JFTC issued a cease and desist order concluding that our Japanese licensees were forced to cross-license patents to us on a royalty-free basis and were forced to accept a provision under which they agreed not to assert their essential patents against our other licensees who made a similar commitment in their license agreements with us. The cease and desist order seeks to require us to modify our existing license agreements with Japanese companies to eliminate these provisions while preserving the license of our patents to those companies. We disagree with the conclusions that we forced our Japanese licensees to agree to any provision in the parties’ agreements and that those provisions violate the Japanese Antimonopoly Act. We invoked our right under Japanese law to an administrative hearing before the JFTC. In February 2010, the Tokyo High Court granted our motion and issued a stay of the cease and desist order pending the administrative hearing before the JFTC. The JFTC held hearings on 37 different dates. On March 13, 2019, the JFTC issued a decision revoking the cease and desist order against us in its entirety.

~~Korea Fair Trade Commission (KFTC) Complaint:~~ On January 4, 2010, the KFTC issued a written decision finding that we violated Korean law by offering certain discounts and rebates for purchases of our CDMA chipsets and for including in certain agreements language requiring the continued payment of royalties after all licensed patents expired. The KFTC levied a fine of 273.2 billion Korean won (approximately $230 million), which we recorded as an expense in fiscal 2009 and paid in fiscal 2010. We appealed to the Seoul High Court, and on June 19, 2013, the Seoul High Court affirmed the KFTC’s decision. On July 4, 2013, we filed an appeal with the Korea Supreme Court. On January 31, 2019, the Korea Supreme Court reversed in part the decision of the Seoul High Court and remanded the case for further proceedings consistent with its decision. In March 2019, the KFTC refunded $56 million (including interest) to us, representing a portion of the fine we previously paid to the KFTC. In the second quarter of fiscal 2019, we recorded a gain of $43 million in other income and interest income of



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$13 million in investment and other income, net. In light of the Korea Supreme Court’s reversal in part of the decision of the Seoul High Court and the refund received from the KFTC, we expect to withdraw the case from the Seoul High Court.

Korea Fair Trade Commission (KFTC) Investigation: On March 17, 2015, the KFTC notified us that it was conducting an investigation of us relating to the Korean Monopoly Regulation and Fair Trade Act (MRFTA). On December 27, 2016, the KFTC announced that it had reached a decision in the investigation, finding that we violated provisions of the MRFTA. On January 22, 2017, we received the KFTC’s formal written decision, which found that the following conducts violate the MRFTA: (i) refusing to license, or imposing restrictions on licenses for, cellular communications standard-essential patents with competing modem chipset makers; (ii) conditioning the supply of modem chipsets to handset suppliers on their execution and performance of license agreements with us; and (iii) coercing agreement terms including portfolio license terms, royalty terms and free cross-grant terms in executing patent license agreements with handset makers. The KFTC’s decision orders us to: ~~(i)~~(a) upon request by modem chipset companies, engage in good-faith negotiations for patent license agreements, without offering unjustifiable conditions, and if necessary submit to a determination of terms by an independent third party; ~~(ii)~~(b) not demand that handset companies execute and perform under patent license agreements as a precondition for purchasing modem chipsets; ~~(iii)~~(c) not demand unjustifiable conditions in our license agreements with handset companies, and upon request renegotiate existing patent license agreements; and ~~(iv)~~(d) notify modem chipset companies and handset companies of the decision and order imposed on us and report to the KFTC new or amended agreements. According to the KFTC’s decision, the foregoing will apply to transactions between us and the following enterprises: ~~(i)~~(1) handset manufacturers headquartered in Korea and their affiliate companies; ~~(ii)~~(2) enterprises that sell handsets in or to Korea and their affiliate companies; ~~(iii)~~(3) enterprises that supply handsets to companies referred to in ~~(ii)~~(2) above and the affiliate companies of such enterprises; ~~(iv)~~(4) modem chipset manufacturers headquartered in Korea and their affiliate companies; and ~~(v)~~(5) enterprises that supply modem chipsets to companies referred to in ~~(i)~~(1), ~~(ii)~~(2) or ~~(iii)~~(3) above and the affiliate companies of such enterprises. The KFTC’s decision also imposed a fine of 1.03 trillion Korean ~~Won~~won (approximately $927 million), which we paid on March 30, 2017.

We believe that our business practices do not violate the ~~MRFTA, and on~~MRFTA. On February 21, 2017, we filed an action in the Seoul High Court to cancel the KFTC’s decision. OnThe Seoul High Court held hearings concluding on August 14, 2019 and, on December 4, 2019, announced its judgment affirming certain portions of the ~~same day, we filed an application with~~KFTC’s decision and finding other portions of the KFTC’s decision unlawful. The Seoul High Court cancelled the KFTC’s remedial orders described in (c) above, and solely insofar as they correspond thereto, the Seoul High Court ~~to stay~~cancelled the ~~decision’s~~KFTC’s remedial ~~order pending the~~orders described in (d) above. The Seoul High ~~Court’s final judgment on~~Court dismissed the remainder of our action to cancel the KFTC’s decision. On ~~September 4, 2017,~~December 19, 2019, we filed a notice of appeal to the Korea Supreme Court challenging those portions of the Seoul High Court ~~denied~~decision that are not in our ~~application~~favor. The KFTC filed a notice of appeal to ~~stay the remedial order, and on November 27, 2017,~~ the Korea Supreme Court ~~dismissed our appeal~~challenging the portions of the Seoul High ~~Court’s~~Court decision that are not in its favor. Both we and the KFTC have filed briefs on the ~~application to stay. The Seoul High~~merits. The Korea Supreme Court has not yet ruled on our ~~action to cancel~~appeal or that of the ~~KFTC’s decision.~~KFTC.

Icera Complaint to the European Commission (EC): On June 7, 2010, the EC notified and provided us with a redacted copy of a complaint filed with the EC by Icera, Inc. (subsequently acquired by Nvidia Corporation) alleging that we were engaged in anticompetitive activity. On July 16, 2015, the EC announced that it had initiated formal proceedings in this matter. On ~~December 8, 2015,~~July 18, 2019, the EC ~~announced that it had~~ issued a ~~Statement of Objections expressing its~~decision confirming their preliminary view that between 2009 and 2011, we ~~were~~ engaged in predatory pricing by selling certain baseband chipsets to two customers at prices below cost with the intention of hindering ~~competition. A Statement~~competition and imposed a fine of ~~Objections informs~~approximately 242 million euros. On October 1, 2019, we filed an appeal of the ~~subject~~

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EC’s decision with the General Court of the European Union. The court has not yet ruled on our appeal. We believe that our business practices do not violate the European Union (EU) competition rules.

In the third quarter of fiscal 2019, we recorded a charge of $275 million to other expenses related to this EC fine. We provided a financial guarantee in the first quarter of fiscal 2020 to satisfy the obligation in lieu of cash payment while we appeal the EC’s decision. The fine is accruing interest at a rate of 1.50% per annum while it is outstanding. In the fourth quarter of fiscal 2019, we designated the liability as a hedge of our net investment in certain foreign subsidiaries, with gains and losses recorded in accumulated other comprehensive income as a component of the foreign currency translation adjustment. At March 29, 2020, the liability, including related foreign currency gains and accrued interest (which, to the extent they were not related to the net investment hedge, were recorded in investment and other (expense) income, net), was $272 million and included in other current liabilities.

European Commission (EC) Investigation: On October 15, 2014, the EC notified us that it was conducting an investigation of ~~the allegations against it and provides an opportunity~~us relating to ~~respond to such allegations. It is not a determination~~Articles 101 and/or 102 of the ~~final outcome~~Treaty on the Functioning of the ~~investigation. On August 15, 2016, we submitted our response to the Statement of Objections.~~European Union (TFEU). On July ~~19, 2018,~~16, 2015, the EC announced that it had initiated formal proceedings in this matter. On January 24, 2018, the EC issued a ~~Supplementary Statement of Objections which focuses~~decision finding that pursuant to an agreement with Apple Inc. we paid significant amounts to Apple on ~~certain elements of~~ the ~~“price-cost” test applied by the EC~~condition that it exclusively use our baseband chipsets in its smartphones and tablets, reducing Apple’s incentives to ~~assess the extent to which we sold~~source baseband chipsets from our competitors and harming competition and innovation for certain baseband chipsets, ~~allegedly below cost.~~and imposed a fine of 997 million euros. On ~~October 22,~~April 6, 2018, we ~~submitted~~filed an appeal of the EC’s decision with the General Court of the European Union. The court has not yet ruled on our ~~response~~appeal. We believe that our business practices do not violate the EU competition rules.

In the first quarter of fiscal 2018, we recorded a charge of $1.2 billion to other expenses related to this EC fine. We provided financial guarantees in the third quarter of fiscal 2018 to satisfy the obligation in lieu of cash payment while we appeal the EC’s decision. The fine is accruing interest at a rate of 1.50% per annum while it is outstanding. In the first quarter of fiscal 2019, we designated the liability as a hedge of our net investment in certain foreign subsidiaries, with gains and losses recorded in accumulated other comprehensive income as a component of the foreign currency translation adjustment. At March 29, 2020, the liability, including related foreign currency gains and accrued interest (which, to the ~~Supplementary Statement of Objections.~~ extent they were not related to the net investment hedge, were recorded in investment and other (expense) income, net), was $1.1 billion and included in other current liabilities.

European Commission (EC) Investigation regarding Radio Frequency Front Ends (RFFE): On ~~January 10,~~December 3, 2019, we received a Request for Information from the EC ~~held a hearing regarding~~notifying us that it is investigating whether we engaged in anti-competitive behavior in the ~~Supplementary Statement of Objections and~~European Union (EU)/European Economic Area (EEA) by leveraging our ~~response~~market position in 5G baseband processors in the RFFE space. We have responded to ~~it.~~the Request for Information. If a violation is found, a broad range of remedies is potentially available to the EC, including imposing a fine (of up to 10% of our annual revenues) and/or injunctive relief prohibiting or restricting certain business practices. It is difficult to predict the outcome of this matter or what remedies, if any, may be imposed by the EC. We believe that our business practices do not violate the ~~European Union (EU) competition rules.~~

~~European Commission (EC) Investigation:~~ On October 15, 2014, the EC notified us that it was conducting an investigation of us relating to Articles 101 and/or 102 of the Treaty on the Functioning of the European Union (TFEU). On July 16, 2015, the EC announced that it had initiated formal proceedings in this matter. On December 8, 2015, the EC announced that it had issued a Statement of Objections expressing its preliminary view that, pursuant to an agreement with Apple Inc., since 2011, we paid significant amounts to Apple on the condition that it exclusively use our baseband chipsets in its smartphones and tablets. This conduct allegedly reduced Apple’s incentives to source baseband chipsets from our competitors and harmed competition and innovation for certain baseband chipsets. On January 24, 2018, the EC issued a decision finding that certain terms of that agreement violate EU competition law and imposed a fine of 997 million Euros. On



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
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April 6, 2018, we filed an appeal of the EC’s decision with the General Court of the European Union. The court has not yet ruled on our appeal. We believe that our business practices do not violate the EU competition rules.

We recorded a charge of $1.2 billion to other expenses related to the EC fine in the first quarter of fiscal 2018. We provided financial guarantees in the third quarter of fiscal 2018 to satisfy the obligation in lieu of cash payment while we appeal the EC’s decision. The fine is accruing interest at a rate of 1.50% per annum while it is outstanding. As of October 1, 2018, we have designated the liability as a hedge of our net investment in certain foreign subsidiaries, with gains and losses recorded in accumulated other comprehensive income as a component of the foreign currency translation adjustment. At March 31, 2019, the liability, including related foreign currency gains and accrued interest (which, to the extent they were not related to the net investment hedge, were recorded in investment and other income, net), was $1.14 billion and included in other current liabilities.

United States Federal Trade Commission (FTC) v. QUALCOMM Incorporated: On September 17, 2014, the FTC notified us that it was conducting an investigation of us relating to Section 5 of the Federal Trade Commission Act (FTCA). On January 17, 2017, the FTC filed a complaint against us in the United States District Court for the Northern District of California alleging that we were engaged in anticompetitive conduct and unfair methods of competition in violation of Section 5 of the FTCA by conditioning the supply of cellular modem chipsets on the purchaser first agreeing to a license to our cellular standard-essential patents, paying incentives to purchasers of cellular modem chipsets to induce them to accept certain license terms, refusing to license our cellular standard-essential patents to our competitors and entering into alleged exclusive dealing arrangements with Apple Inc. The complaint ~~seeks~~sought a permanent injunction against our alleged violations of the FTCA and other unspecified ancillary equitable relief. ~~A fine is not an available remedy in this matter, and the FTC has not sought monetary remedies.~~ On August 30, 2018, the FTC moved for partial summary judgment that our commitments to license our cellular standard-essential patents to the Alliance for Telecommunications Industry Solutions (ATIS) and the Telecommunications Industry Association (TIA) require us to make licenses available to rival sellers of cellular modem chipsets. On November 6, 2018, the ~~District Court~~court granted the FTC’s partial summary judgment motion. Trial was held January 4-29, 2019.

On ~~November 29, 2018,~~May 21, 2019, the court issued an Order setting forth its Findings of Fact and Conclusions of Law. The court concluded that we had monopoly power in the CDMA and premium-tier Long Term Evolution (LTE) cellular modem chip markets, and that we had used that power in these two markets to engage in anticompetitive acts, including (1) using threats of lack of access to cellular modem chip supply to coerce OEMs to accept license terms that include unreasonably high royalty rates; (2) refusing to license our cellular standard-essential patents to competitors selling cellular modem chips; and

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(3) entering into exclusive dealing arrangements with OEMs that foreclosed our rivals. The court further found that the ~~FTC filed a Joint Pretrial Statement in which~~royalties we charge OEMs are unreasonably high and reflect the ~~FTC indicated that at trial it would seek a declaration~~use of our monopoly power over CDMA and ~~adjudication~~premium-tier LTE cellular modem chips rather than just the value of our patents. The court concluded that our unreasonably high royalties constitute an anticompetitive surcharge on cellular modem chips sold by our competitors, which increases the effective price of our competitors’ cellular modem chips, reduces their margins and results in exclusivity. The court also found that our practice of not licensing competitors’ cellular modem chips violated our commitments to certain standard-development organizations and a duty under the antitrust laws to license competing cellular modem chip makers and helped us maintain our royalties at unreasonably high levels. Finally, the court found that incentive funds entered into with certain OEMs further harmed competing cellular modem chip makers’ ability to undermine our monopoly position, prevented rivals from entering the market and restricted the sales of those competitors that do enter. The court concluded that the combined effect of our conduct, ~~violates~~together with our monopoly power, harmed the ~~FTCA~~competitive process.

The court imposed the following injunctive relief: (1) we must not condition the supply of cellular modem chips on a customer’s patent license status, and ~~seek permanent injunctive and other equitable relief, including an order that would at least (i) require us to:~~we must negotiate or renegotiate license terms with ~~licensees~~customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of cellular modem ~~chipset~~chip supply or associated technical ~~software~~support or ~~other support; submit~~access to ~~arbitral or judicial dispute resolution to determine reasonable royalties and other license terms should a licensee choose to pursue such a resolution;~~software; (2) we must make exhaustive cellular standard-essential patent licenses available to cellular modem ~~chipset~~chip suppliers on ~~FRAND~~fair, reasonable and non-discriminatory (FRAND) terms and submit, as necessary, to arbitral or judicial dispute resolution to determine such terms; ~~and adhere to certain compliance and monitoring procedures; and (ii) prohibit us from: conditioning the supply of cellular modem chipsets on a customer’s patent-license status; discriminating~~(3) we may not enter into express or retaliating against cellular modem chipset customers or cellular modem chipset suppliers because of a customer’s license status or a dispute over license terms; making payments or providing other value to a customer contingent on the customer’s agreement to license terms; entering into exclusive-dealingde facto exclusive dealing agreements for the supply of cellular modem ~~chipsets; or interfering~~chips; and (4) we may not interfere with the ability of ~~customers~~any customer to communicate with a government agency about a potential law enforcement or regulatory matter. ~~Trial was held January 4-29, 2019.~~ The court also ordered us to submit to compliance and monitoring procedures for a period of seven years and to report to the FTC ~~alleged at trial~~on an annual basis regarding our compliance with the above remedies.

We disagree with the court’s conclusions, interpretation of the facts and application of the law. On May 31, 2019, we filed with the court a Notice of Appeal to the United States Court of Appeals for the Ninth Circuit (Ninth Circuit). On July 8, 2019, we filed a Motion for Partial Stay of Injunction Pending Appeal and a Consent Motion to Expedite Appeal in the Ninth Circuit. On August 23, 2019, the Ninth Circuit granted our Motion. Thus, pending the resolution of the appeal in the Ninth Circuit or until further order of the Ninth Circuit, the portions of the court’s injunction requiring that we ~~have monopoly power in the markets for both CDMA and premium-tier LTE~~must (i) make exhaustive cellular standard-essential patent licenses available to cellular modem ~~chipsets~~chip suppliers and ~~have acted anticompetitively in violation~~(ii) not condition the supply of either Section 1 or Section 2 of the Sherman Act, or Section 5 of the FTCA to maintain our monopoly power in one or both of these alleged markets by employing four business practices. These practices include (i) our longstanding practice of requiring a license to our cellular standard-essential patents for a particular cellular standard before selling cellular modem ~~chipsets that~~chips on a customer’s patent license status and must negotiate or renegotiate license terms with customers are ~~used in cellular devices that implement such cellular standards; (ii) providing incentive payments~~stayed. On July 10, 2019, the Ninth Circuit granted our Motion to ~~certain licensees in order to induce them to agree to~~Expedite Appeal. On February 13, 2020, the Ninth Circuit heard oral argument, but has not yet ruled on our preferred license terms; (iii) not exhaustively licensing our cellular standard-essential patents to companies that make, use or sell cellular modem chipsets; and (iv) entering into a now-expired contract that conditioned certain payments to Apple on its not launching a new device that used a non-Qualcomm brand cellular modem chipset. In asserting that we have acted anticompetitively, the FTC asserts that our historical royalty rates are too high to be reasonable, and that amounts over a reasonable rate act as a surcharge on cellular modem chipset transactions taking place between OEMs and our competitors, and this surcharge weakens our competitors by raising the price OEMs must pay for such competitors’ cellular modem chipsets. We believe the FTC’s claims and request for injunctive relief are without merit.appeal.

Contingent losses and other considerations: We will continue to vigorously defend ourself in the foregoing matters. However, litigation and investigations are inherently uncertain, and we face difficulties in evaluating or estimating likely outcomes or ranges of possible loss in antitrust and trade regulation investigations in particular. Other than with respect to the EC ~~fine,~~fines, we have ~~not~~0t recorded any accrual at March ~~31, 2019~~29, 2020 for contingent losses associated with these matters based on our



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

belief that losses, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time. The unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations, financial condition or cash flows. For example, if some or all of our license agreements are declared invalid or unenforceable and we are required to renegotiate these license agreements, or if as part of a settlement we agree to renegotiate certain of our license agreements, we may not receive, or may not be able to recognize, any licensing or royalty revenues on the impacted license agreements unless and until we enter into new license agreements. We are engaged in numerous other legal actions not described above arising in the ordinary course of our business and, while there can be no assurance, believe that the ultimate outcome of these other legal actions will not have a material adverse effect on our business, results of operations, financial condition or cash flows.

Indemnifications. We generally do not indemnify our customers, licensees and ~~licensees~~suppliers for losses sustained from infringement of third-party intellectual property rights. However, we are contingently liable under certain ~~product sales, services, license and other~~ agreements to defend and/or indemnify certain customers, ~~chipset foundries~~licensees and ~~semiconductor assembly and test service providers~~suppliers against certain types of liability and/or damages arising from ~~qualifying claims~~the infringement of ~~patent, copyright, trademark or trade secret infringement by products or services sold or provided by us, or by~~third-party intellectual property ~~provided by us to chipset foundries and semiconductor assembly and test service providers.~~rights. Our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments made by us.

~~Through March 31, 2019, we have received a number of claims from our direct~~Claims and ~~indirect customers and other third parties for indemnification under such agreements with respect to alleged infringement of third-party intellectual property rights by our products. Reimbursements~~reimbursements under indemnification arrangements have not been material to our consolidated financial statements. At March 29, 2020, accruals for contingent liabilities associated with these indemnification arrangements were negligible. We have not recorded ~~any accrual~~accruals for ~~contingent liabilities at March 31, 2019 associated with these~~certain claims under indemnification arrangements based on our belief that additional liabilities, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time.

~~Purchase Obligations and~~

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Operating ~~Leases~~. We have agreements with suppliers and other parties to purchase inventory, other goods and services and long-lived assets. Integrated circuit product inventory obligations represent purchase commitments for raw materials, semiconductor die, finished goods and manufacturing services, such as wafer bump, probe, assembly and final test. Under our manufacturing relationships with our foundry suppliers and assembly and test service providers, cancelation of outstanding purchase commitments is generally allowed but requires payment of costs incurred through the date of cancelation, and in some cases, incremental fees related to capacity underutilization. Leases. We lease certain of our land, facilities and equipment under ~~noncancelable~~ operating leases, with terms ranging from less than one year to 1520 years, some of which include options to extend for up to 20 years. At March 29, 2020, other assets included $475 million of operating lease assets, with corresponding lease liabilities of $132 million recorded in other current liabilities and $389 million recorded in other liabilities.

Operating lease expense for the three and six months ended March 29, 2020 was $44 million and $88 million, respectively, and $35 million and $72 million for the three and six months ended March 31, 2019, respectively. Cash paid under our operating leases was $74 million for the six months ended March 29, 2020. As of March 29, 2020, the weighted-average remaining lease term and weighted-average discount rate for operating leases were 6.0 years and ~~with provisions in certain leases for cost-of-living increases.~~4%, respectively.

~~Obligations~~At March 29, 2020, future lease payments under our ~~purchase agreements, which primarily relate to integrated circuit product inventory obligations, and~~ operating leases were as follows (in millions):


	Operating Leases
Remainder of fiscal 2020	$	76
2021	130
2022	109
2023	66
2024	47
Thereafter	172
Total future lease payments	600
Imputed interest	(79)
Total lease liability balance	$	521

At September 29, 2019,future minimum lease payments under our noncancelable operating leases ~~at March 31, 2019~~under ASC 840 were as follows (in millions):


	Operating Leases
2020	$	138
2021	97
2022	66
2023	31
2024	18
Thereafter	35
Total	$	385

Purchase Obligations Operating Leases
Remainder of fiscal 2019 $ 2,948
$ 74
2020 637
112
2021 326
84
2022 92
54
2023 52
25
Thereafter 17
38
Total $ 4,072
$ 387

~~Other Commitments.~~ At March 31, 2019, we committed to fund certain strategic investments up to $226 million, of which $32 million is expected to be funded in fiscal 2020. The remaining commitments do not have fixed funding dates and are subject to certain conditions. Commitments represent the maximum amounts to be funded under these arrangements; actual funding may be in lesser amounts or not at all.

In March 2018, our RF360 Holdings joint venture entered into an agreement for a build-to-suit construction project with a third-party lessor for the development of a manufacturing facility located in Singapore. The agreement includes a long-term



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

lease commitment with a noncancelable 10-year term commencing upon completion of the construction project. At March 31, 2019, the minimum lease commitment under the agreement based on the noncancelable term was $88 million.

Note 7.6. Segment Information

We are organized on the basis of products and services and have three reportable segments. We conduct business primarily through our QCT ~~(Qualcomm CDMA Technologies)~~ semiconductor business and our QTL ~~(Qualcomm Technology Licensing)~~ licensing business. QCT develops and supplies integrated circuits and system software based on CDMA, OFDMA and other technologies for use in mobile devices, wireless networks, devices used in the Internet of Things (IoT), broadband gateway equipment, consumer electronic devices and automotive telematics and infotainment systems. QTL grants licenses to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture, ~~and~~ sale or use of certain wireless products. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments and includes revenues and related costs associated with development contracts with an equity method investee. We also have nonreportable segments, including ~~Qualcomm~~QGOV (Qualcomm Government ~~Technologies or QGOV (formerly Qualcomm Cyber Security Solutions)~~Technologies) and other ~~wireless~~ technology and service initiatives.

We evaluate the performance of our segments based on earnings (loss) before income taxes (EBT). ~~In fiscal 2018, all~~Segment EBT includes the allocation of certain corporate expenses to the ~~costs~~segments, including depreciation and amortization expense related to ~~pre-commercial research and development of 5G technologies, of which we recorded $115 million and $216 million in the second quarter and first six months of fiscal 2018, respectively, were included in~~ unallocated corporate ~~research~~assets. Certain income and ~~development expenses. Beginning~~charges are not allocated to segments in our management reports because they are not considered in evaluating the ~~first quarter of fiscal 2019, all research~~segments’ operating performance. Unallocated income and ~~development costs associated with 5G technologies are included in segment results. Additionally, beginning in the first quarter of fiscal 2019,~~charges include certain interest expense, certain net investment income, certain share-based compensation, gains and losses on our deferred compensation plan liabilities and related assets and certain research and ~~development costs associated with early research~~development expenses, selling, general and ~~development~~

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

administrative expenses and other expenses or income that were ~~historically included in our QCT segment are allocated~~deemed to our QTL segment. The net effect of these changes negatively impacted QTL’s EBT by $119 million and $241 million in the second quarter and first six months of fiscal 2019, respectively. QCT's EBT was positively impacted by $32 million and $44 million in the second quarter and first six months of fiscal 2019, respectively.

During the first quarter of fiscal 2019, we combined our Small Cells business, which sells products designed for the implementation of small cells to address the challenge of meeting the increased demand for mobile data, into our QCT segment. Revenues and operating resultsbe not directly related to the ~~Small Cells business were included in nonreportable segments through~~businesses of the ~~end~~segments. Additionally, unallocated charges include recognition of ~~fiscal 2018. Prior period segment information has not been adjusted~~the step-up of inventories and property, plant and equipment to ~~conform to the new segment presentation as such adjustments are insignificant.~~fair value, amortization of certain intangible assets and certain other acquisition-related charges, third-party acquisition and integration services costs and certain other items, which may include major restructuring and restructuring-related costs, goodwill and long-lived asset impairment charges and litigation settlements and/or damages.

The table below presents revenues, EBT and total assets for reportable segments (in millions):


	Three Months Ended						Six Months Ended
	March 29, 2020		March 31, 2019		March 29, 2020		March 31, 2019
Revenues
QCT	$	4,100	$	3,722	$	7,719	$	7,461
QTL	1,072		1,122		2,477		2,141
QSI	10		98		30		125
Reconciling items	34		40		66		97
Total	$	5,216	$	4,982	$	10,292	$	9,824
EBT
QCT	$	667	$	542	$	1,145	$	1,140
QTL	671		674		1,689		1,264
QSI	(208)		17		(210)		25
Reconciling items	(532)		(427)		(1,079)		(1,063)
Total	$	598	$	806	$	1,545	$	1,366


														March 29, 2020		September 29, 2019
	Three Months Ended						Six Months Ended
	March 31, 2019			March 25, 2018			March 31, 2019			March 25, 2018
Revenues
Assets													Assets
QCT	$	3,722		$	3,897		$	7,461		$	8,548		QCT	$	3,286	$	2,307
QTL	1,122			1,219			2,141			2,485			QTL	1,465		1,541
QSI	98			30			125			60			QSI	1,281		1,708
Reconciling items	40			74			97			162			Reconciling items	25,906		27,401
Total	$	4,982		$	5,220		$	9,824		$	11,255		Total	$	31,938	$	32,957
EBT
QCT	$	542		$	608		$	1,140		$	1,563
QTL	674			809			1,264			1,664
QSI	17			40			25			51
Reconciling items	(427		)	(1,140		)	(1,063		)	(3,020		)
Total	$	806		$	317		$	1,366		$	258

Segment assets are comprised of accounts receivable and inventories for all reportable segments other than QSI. QSI segment assets include certain non-marketable equity instruments, receivables and other investments. Total segment assets differ from total assets on a consolidated basis as a result of unallocated corporate assets primarily comprised of certain cash, cash equivalents, marketable and non-marketable securities, property, plant and equipment, deferred tax assets, goodwill, intangible assets, operating lease assets, noncurrent income taxes receivables, deferred compensation plan assets and assets of nonreportable segments.

QCT accounts receivable increased by 75% in the first six months of fiscal 2020 from $908 million to $1.59 billion, primarily driven by an increase in revenues combined with the timing of integrated circuit shipments during the quarter and a decrease in the relative proportion of customer incentive arrangements that are recorded in accounts receivable. QCT inventories increased by 21% in the first six months of fiscal 2020 from $1.40 billion to $1.70 billion, primarily driven by the ramp in 5G.

At March 29, 2020, 26% of total accounts receivable included royalties from Guangdong OPPO Mobile Telecommunications Corp., Ltd. (Oppo) and BBK Communication Technology Co., Ltd. (vivo) (who were previously disclosed as two key Chinese licensees), primarily from sales made in the last four fiscal quarters (including amounts that are not yet due) under license agreements that expired on March 31, 2020. We entered into new long-term, world-wide patent license agreements with these licensees, effective as of April 1, 2020, covering 3G/4G/5G multimode devices. We also reached agreements with these licensees to provide for payment of amounts due under the license agreements that expired on March 31, 2020 and for which certain of such amounts for prior periods were withheld while good faith negotiations

QUALCOMM Incorporated

~~QUALCOMM Incorporated~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

occurred. The licensees have agreed to make full payment in the near term according to agreed upon payment schedules. These licensees/customers continue to make timely payments on purchases of integrated circuit products. NaN reversals of revenues were recognized in the second quarter of fiscal 2020 as a result of these agreements.

March 31,
2019 September 30,
2018
Assets
QCT $ 2,948
$ 3,041
QTL 2,405
1,472
QSI 1,393
1,279
Reconciling items 27,277
26,926
Total $ 34,023
$ 32,718
QSI segment assets, which primarily consist of non-marketable and marketable equity investments, decreased by 25% in the first six months of fiscal 2020 from $1.71 billion to $1.28 billion, primarily due to certain impairment losses on other investments (Note 2) and the sale of certain marketable equity investments.

Reconciling items for revenues and EBT in the previous table were as follows (in millions):


	Three Months Ended						Six Months Ended
	March 29, 2020		March 31, 2019		March 29, 2020		March 31, 2019
Revenues
Nonreportable segments	$	34	$	40	$	66	$	97




	$	34	$	40	$	66	$	97
EBT


Unallocated cost of revenues	$	(84)	$	(104)	$	(175)	$	(218)
Unallocated research and development expenses	(216)		(190)		(475)		(337)
Unallocated selling, general and administrative expenses	(56)		(84)		(172)		(148)
Unallocated other income (expenses) (Note 2)	23		18		23		(130)
Unallocated interest expense	(145)		(159)		(293)		(313)
Unallocated investment and other (expense) income, net	(30)		109		52		130
Nonreportable segments	(24)		(17)		(39)		(47)

	$	(532)	$	(427)	$	(1,079)	$	(1,063)

Three Months Ended Six Months Ended
March 31,
2019 March 25,
2018 March 31,
2019 March 25,
2018
Revenues
Nonreportable segments $ 40
$ 74
$ 97
$ 162
$ 40
$ 74
$ 97
$ 162
EBT
Unallocated cost of revenues $ (104 ) $ (111 ) $ (218 ) $ (228 )
Unallocated research and development expenses (190 ) (271 ) (337 ) (551 )
Unallocated selling, general and administrative expenses (84 ) (258 ) (148 ) (420 )
Unallocated other income (expenses) (Note 2) 18
(310 ) (130 ) (1,493 )
Unallocated interest expense (159 ) (179 ) (313 ) (348 )
Unallocated investment and other income, net 109
82
130
206
Nonreportable segments (17 ) (93 ) (47 ) (186 )
$ (427 ) $ (1,140 ) $ (1,063 ) $ (3,020 )

~~Unallocated acquisition-related expenses were comprised as follows (in millions):~~

Three Months Ended Six Months Ended
March 31,
2019 March 25,
2018 March 31,
2019 March 25,
2018
Cost of revenues $ 99
$ 102
$ 202
$ 208
Research and development expenses 1
2
2
3
Selling, general and administrative expenses 7
214
14
290

~~Note 8. Cost Plan~~

In the second quarter of fiscal 2018, we announced a Cost Plan designed to align our cost structure to our long-term margin targets. As part of this plan, we initiated a series of targeted actions across our businesses with the objective to reduce annual costs by $1 billion, excluding incremental costs resulting from any future acquisition of a business. Actions taken under this plan have been completed and have resulted in us achieving substantially all of this target in fiscal 2019 based on our run rate exiting the second quarter of fiscal 2019, excluding litigation costs that are in excess of the baseline spend.

During the six months ended March 31, 2019, we recorded net restructuring and restructuring-related charges related to our Cost Plan of $204 million in other expenses. This consisted of restructuring-related charges of $156 million, primarily related to asset impairment charges (and included a $45 million net gain from the sale of certain assets related to wireless electric vehicle charging applications and the sale of our mobile health nonreportable segment), and restructuring charges of $48 million, primarily related to severance and consulting costs. Since inception of the Cost Plan, we have incurred a total of $892 million in net restructuring and restructuring-related charges. The remaining restructuring and restructuring-related charges to be incurred related to the plan are expected to be negligible.



~~QUALCOMM Incorporated~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

The restructuring accrual, a portion of which was included in payroll and other benefits related liabilities with the remainder included in other current liabilities, is expected to be substantially paid within the next 12 months. At March 31, 2019 and September 30, 2018, the restructuring accrual was $25 million and $83 million, respectively.

Note 9.7. Fair Value Measurements

The following table presents our fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at March ~~31, 2019~~29, 2020 (in millions):


	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	2,898	$	4,529	$	—	$	7,427
Marketable securities:
U.S. Treasury securities and government-related securities	—		3		—		3
Corporate bonds and notes	—		1,253		—		1,253

Mortgage- and asset-backed and auction rate securities	—		48		33		81

Equity securities	239		—		—		239

Total marketable securities	239		1,304		33		1,576
Derivative instruments	—		9		—		9
Other investments	404		—		39		443
Total assets measured at fair value	$	3,541	$	5,842	$	72	$	9,455
Liabilities

Derivative instruments	$	—	$	29	$	—	$	29
Other liabilities	405		—		39		444
Total liabilities measured at fair value	$	405	$	29	$	39	$	473

Level 1 Level 2 Level 3 Total
Assets
Cash equivalents $ 4,830
$ 3,560
$ —
$ 8,390
Marketable securities:
Corporate bonds and notes —
51
—
51
Auction rate securities —
—
35
35
Equity securities 145
—
—
145
Total marketable securities 145
51
35
231
Derivative instruments —
12
—
12
Other investments 398
—
63
461
Total assets measured at fair value $ 5,373
$ 3,623
$ 98
$ 9,094
Liabilities
Derivative instruments $ —
$ 20
$ —
$ 20
Other liabilities 399
—
76
475
Total liabilities measured at fair value $ 399
$ 20
$ 76
$ 495

Activity ~~between Levels~~within Level 3 of the Fair Value Hierarchy. ~~There were no transfers of marketable securities into or out of Level 3 during the six months ended March 31, 2019 and March 25, 2018.~~ Other investments and other liabilities included in Level 3 at March ~~31, 2019~~29, 2020 were comprised of non-marketable debt instruments ~~issued by private companies~~ and contingent consideration related to business combinations, respectively. ~~There were no transfers~~Activity for marketable securities, other investments and other liabilities classified within Level 3 of the valuation hierarchy was insignificant during the six months ended March 29, 2020, which was primarily related to

QUALCOMM Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

impairments of certain of our non-marketable debt instruments ~~or contingent consideration amounts into or out~~(Note 2) and purchases of ~~Level 3 during~~non-marketable debt instruments, and the six months ended March 31, 2019, ~~and March 25, 2018.~~which was primarily related to the issuance of a non-marketable debt instrument by a private company.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis. We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities include equity method and non-marketable equity investments, 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 29, 2020, certain of our non-marketable equity investments were written down to their estimated fair values, which was recorded as a component of impairment losses on other investments in investment and other expense, net (Note 2). For a significant portion of these impairments, the estimated fair values resulted in a full write-off of the carrying values. The estimation of fair values was judgmental in nature and involved the use of significant estimates and assumptions. We determined these fair value measurements primarily using a market approach and key inputs and assumptions included estimated market value of assets, ability of investees to access additional financing or otherwise continue as a going concern and liquidation and other rights of the securities we hold.

During the six months ended March 31, 2019, certain intangible assets and goodwill were written down to their estimated fair ~~values (Note 8).~~values. We also measured certain non-marketable equity securities received as non-cash consideration at fair value on a nonrecurring ~~basis (Note 2).~~ basis. We determined these fair value measurements using market and income approaches and key inputs and assumptions included projected cash flows, estimated selling prices, volatility and the rights of the securities we hold.

The estimation of fair value required the use of significant unobservable inputs, and as a result, the fair value measurements were classified as Level 3. During the six months ended March ~~31, 2019~~29, 2020 and March ~~25, 2018,~~31, 2019, we did not have any other significant assets or liabilities that were measured at fair value on a nonrecurring basis.

Note ~~10.~~8. Marketable Securities

We classify marketable securities as current or noncurrent based on the nature of the securities and their availability for use in current operations. Our marketable securities were comprised as follows (in millions):


										Current						Noncurrent (1)
										March 29, 2020		September 29, 2019		March 29, 2020		September 29, 2019

	Current				Noncurrent (1)
	March 31, 2019		September 30, 2018		March 31, 2019		September 30, 2018
Available-for-sale debt securities:									Available-for-sale debt securities:
U.S. Treasury securities and government-related securities									U.S. Treasury securities and government-related securities	$	3	$	—	$	—	$	—
Corporate bonds and notes	$	51	$	144	$	—	$	—	Corporate bonds and notes	1,253		4		—		—
Auction rate securities	—		—		35		35

Mortgage- and asset-backed and auction rate securities									Mortgage- and asset-backed and auction rate securities	48		—		33		35

Total available-for-sale debt securities	51		144		35		35		Total available-for-sale debt securities	1,304		4		33		35

Equity securities	144		167		1		—		Equity securities	239		417		—		1

Total marketable securities	$	195	$	311	$	36	$	35	Total marketable securities	$	1,543	$	421	$	33	$	36


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	QCOM	Nasdaq Stock Market


	March 29, 2020
Years to Maturity
Less than one year	$	813
One to five years	443


No single maturity date	81
Total	$	1,337



	Three Months Ended March 25, 2018							Six Months Ended March 25, 2018
	As reported		Adjustment			As revised		As reported			Adjustment			As revised
Net income (loss)	$	363	$	(33	)	$	330	$	(5,590	)	$	(63	)	$	(5,653	)
Total comprehensive income (loss)	523		(33		)	490		(5,429		)	(63		)	(5,492		)



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Balance as of September 30, 2018		Adjustment			Opening Balance as of October 1, 2018
Assets
Accounts receivable, net	$	2,904	$	957		$	3,861
Other current assets	699		1			700
Deferred tax assets	936		(98		)	838
Other assets	1,970		1			1,971

Liabilities
Unearned revenues, current	$	500	$	6		$	506
Other current liabilities	6,978		125			7,103
Unearned revenues	1,620		(110		)	1,510

Stockholders’ equity
Retained earnings	$	542	$	840		$	1,382



	As of March 31, 2019
Balance Sheet	As Reported ASC 606		Adjustment			ASC 605
Assets
Accounts receivable, net	$	3,638	$	(851	)	$	2,787
Other current assets	631		(9		)	622
Deferred tax assets	3,832		45			3,877

Liabilities
Unearned revenues, current	$	478	$	304		$	782
Other current liabilities	6,741		(366		)	6,375
Unearned revenues	1,330		109			1,439

Stockholders’ equity
Retained earnings	$	3,309	$	(861	)	$	2,448



	Three Months Ended March 31, 2019									Six Months Ended March 31, 2019
Statements of Operations	As Reported ASC 606			Adjustment			ASC 605			As Reported ASC 606		Adjustment			ASC 605
Revenues
Equipment and services	$	3,753		$	(55	)	$	3,698		$	7,506	$	(70	)	$	7,436
Licensing	1,229			(8		)	1,221			2,318		43			2,361
Investment and other income, net	28			(1		)	27			33		1			34
Income tax (expense) benefit	(143		)	10			(133		)	365		4			369
Net income	663			(54		)	609			1,731		(22		)	1,709



Accounts Receivable (in millions)
	March 31, 2019		September 30, 2018
Trade, net of allowances for doubtful accounts of $47 and $56, respectively	$	2,430	$	2,667
Unbilled receivables	1,196		201
Other	12		36
	$	3,638	$	2,904



Other Current Liabilities (in millions)
	March 31, 2019		September 30, 2018
Customer incentives and other customer-related liabilities	$	3,417	$	3,500
Accrual for EC fine (Note 6)	1,137		1,167
Income taxes payable	428		453
RF360 Holdings put and call option	1,145		1,137
Other	614		721
	$	6,741	$	6,978



	Foreign Currency Translation Adjustment			Noncredit Other-than-Temporary Impairment Losses and Subsequent Changes in Fair Value for Certain Available-for-Sale Debt Securities		Net Unrealized Gain (Loss) on Other Available-for-Sale Securities			Net Unrealized (Loss) Gain on Derivative Instruments			Other Gains			Total Accumulated Other Comprehensive Income
Balance at September 30, 2018	$	11		$	23	$	243		$	(13	)	$	1		$	265
Other comprehensive (loss) income before reclassifications	(41		)	—		(6		)	16			(8		)	(39		)
Reclassifications from accumulated other comprehensive income	1			—		(51		)	(3		)	—			(53		)
Other comprehensive (loss) income	(40		)	—		(57		)	13			(8		)	(92		)
Balance at March 31, 2019	$	(29	)	$	23	$	186		$	—		$	(7	)	$	173



		March 31, 2019				September 30, 2018
		Amount			Effective Rate	Amount			Effective Rate
May 2015 Notes
	Floating-rate three-month LIBOR plus 0.55% notes due May 20, 2020	$	250		3.25%	$	250		2.93%
	Fixed-rate 2.25% notes due May 20, 2020	1,750			3.09%	1,750			3.13%
	Fixed-rate 3.00% notes due May 20, 2022	2,000			3.51%	2,000			3.73%
	Fixed-rate 3.45% notes due May 20, 2025	2,000			3.46%	2,000			3.46%
	Fixed-rate 4.65% notes due May 20, 2035	1,000			4.73%	1,000			4.73%
	Fixed-rate 4.80% notes due May 20, 2045	1,500			4.72%	1,500			4.72%
May 2017 Notes
	Floating-rate three-month LIBOR plus 0.73% notes due January 30, 2023	500			3.55%	500			3.14%
	Fixed-rate 2.60% notes due January 30, 2023	1,500			2.70%	1,500			2.70%
	Fixed-rate 2.90% notes due May 20, 2024	1,500			3.01%	1,500			3.01%
	Fixed-rate 3.25% notes due May 20, 2027	2,000			3.46%	2,000			3.46%
	Fixed-rate 4.30% notes due May 20, 2047	1,500			4.47%	1,500			4.47%
	Total principal	15,500				15,500
	Unamortized discount, including debt issuance costs	(79		)		(85		)
	Hedge accounting fair value adjustments	(16		)		(50		)
	Total long-term debt	$	15,405			$	15,365
Reported as:
	Short-term debt	$	—			$	—
	Long-term debt	15,405				15,365
	Total	$	15,405			$	15,365



	Purchase Obligations		Operating Leases
Remainder of fiscal 2019	$	2,948	$	74
2020	637		112
2021	326		84
2022	92		54
2023	52		25
Thereafter	17		38
Total	$	4,072	$	387



	As of September 30, 2018
	As reported		Adjustment			As revised
Deferred tax assets (non-current)	$	904	$	32		$	936
Total assets	32,686		32			32,718
Other current liabilities	6,825		153			6,978
Total current liabilities	11,236		153			11,389
Total liabilities	31,758		153			31,911
Retained earnings	663		(121		)	542
Total stockholders’ equity	928		(121		)	807
Total liabilities and stockholders’ equity	32,686		32			32,718



	Six Months Ended March 25, 2018
	As reported			Reclassification adjustment (1)			Revision adjustment			As revised
Operating Activities:
Net loss	$	(5,590	)	$	—		$	(63	)	$	(5,653	)
Income tax provision in excess of (less than) income tax payments	5,477			—			(11		)	5,466
Interest expense in excess of interest payments	207			(207		)	—			—
Other items, net	46			6			—			52
Other assets	70			(12		)	—			58
Payroll, benefits and other liabilities	1,166			213			74			1,453
Net cash provided by operating activities	2,278			—			—			2,278


•	The transition of wireless networks and devices to 3G/4G (CDMA-single mode, OFDMA-single mode and CDMA/OFDMA multi-mode) continued around the world. 3G/4G connections grew sequentially by approximately 3% to approximately 5.7 billion, which was approximately 73% of total mobile connections at the end of the second quarter of fiscal 2019.⁽¹⁾


~~(1)~~	~~According to GSMA Intelligence estimates as of April 29, 2019 (estimates excluded Wireless Local Loop).~~


Revenues (in millions)	Revenues (in millions)														Revenues (in millions)
	Three Months Ended							Six Months Ended								Three Months Ended										Six Months Ended
	March 31, 2019		March 25, 2018		Change			March 31, 2019		March 25, 2018		Change				March 29, 2020		March 31, 2019		Change		March 29, 2020		March 31, 2019		Change
Equipment and services	$	3,753	$	3,936	$	(183	)	$	7,506	$	8,639	$	(1,133	)	Equipment and services	$	4,050	$	3,753	$	297	$	7,583	$	7,506	$	77
Licensing	1,229		1,284		(55		)	2,318		2,616		(298		)	Licensing	1,166		1,229		(63)		2,709		2,318		391
	$	4,982	$	5,220	$	(238	)	$	9,824	$	11,255	$	(1,431	)		$	5,216	$	4,982	$	234	$	10,292	$	9,824	$	468


-	~~$227 million in lower equipment and services revenues from our QCT segment~~


-	~~$97 million in lower licensing revenues from our QTL segment~~


-	~~$1.1 billion in lower equipment and services revenues from our QCT segment~~


-	~~$344 million in lower licensing revenues from our QTL segment~~



Costs and Expenses (in millions)
	Three Months Ended									Six Months Ended
	March 31, 2019			March 25, 2018			Change			March 31, 2019			March 25, 2018			Change
Cost of revenues	$	2,179		$	2,239		$	(60	)	$	4,367		$	4,902		$	(535	)
Gross margin	56		%	57		%				56		%	56		%


Costs and Expenses (in millions, except percentages)
	Three Months Ended														Six Months Ended
	March 29, 2020			March 31, 2019			Change		March 29, 2020			March 31, 2019			Change
Cost of revenues	$	2,297		$	2,179		$	118	$	4,410		$	4,367		$	43
Gross margin	56		%	56		%			57		%	56		%


-	~~$92 million decrease primarily driven by actions under our Cost Plan, partially offset by higher costs related to the development of 5G wireless and integrated circuit technologies~~


-	~~$244 million decrease primarily~~ +$213 million increase driven ~~by actions under our Cost Plan, partially offset~~ by higher ~~costs related to the development of 5G wireless and integrated circuit technologies~~


-	~~$217 million in lower professional fees and costs, primarily driven by Broadcom’s withdrawn takeover proposal in fiscal 2018~~


-	~~$24 million in lower employee-related expenses, primarily driven by actions under our Cost Plan~~


-	~~$285 million in lower professional fees and costs, primarily driven by Broadcom’s withdrawn takeover proposal in fiscal 2018 and our proposed acquisition of NXP Semiconductors N.V. in fiscal 2018~~


-	~~$72 million in lower employee-related expenses, primarily driven by actions under our Cost Plan~~


-	~~$45 million in bad debt expense recorded in the first quarter of fiscal 2018~~


+	~~$43 million gain due to the partial recovery of a fine imposed in fiscal 2009 resulting from our appeal of the Korea Fair Trade Commission (KFTC) decision~~


+	$204 million net charges related to our Cost Plan, which included $249 million in restructuring and restructuring-related charges, partially offset by a $45 million net gain from the sale of certain assets related to wireless electric vehicle charging applications and the sale of our mobile health nonreportable segment