Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value amounts)
(Unaudited)
December 25, 2022September 25, 2022
ASSETS
Current assets:
Cash and cash equivalents$4,808$2,773
Marketable securities3,4303,609
Accounts receivable, net3,9605,643
Inventories6,9326,341
Held for sale assets721733
Other current assets1,2471,625
Total current assets21,09820,724
Deferred tax assets2,0921,803
Property, plant and equipment, net5,2155,168
Goodwill10,56610,508
Other intangible assets, net1,7961,882
Held for sale assets1,1991,200
Other assets8,0487,729
Total assets$50,014$49,014
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable$2,562$3,796
Payroll and other benefits related liabilities1,4601,486
Unearned revenues289369
Short-term debt1,4461,945
Held for sale liabilities646581
Other current liabilities3,6783,689
Total current liabilities10,08111,866
Unearned revenues105144
Income taxes payable1,4721,472
Long-term debt15,43113,537
Held for sale liabilities111119
Other liabilities4,0043,863
Total liabilities31,20431,001
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; 1,119 and 1,121 shares issued and outstanding, respectively—195
Retained earnings18,51717,840
Accumulated other comprehensive income (loss)293(22)
Total stockholders’ equity18,81018,013
Total liabilities and stockholders’ equity$50,014$49,014
See accompanying notes.
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended
December 25, 2022December 26, 2021
Revenues:
Equipment and services$7,784$8,682
Licensing1,6792,023
Total revenues9,46310,705
Costs and expenses:
Cost of revenues4,0444,303
Research and development2,2511,930
Selling, general and administrative623608
Other80—
Total costs and expenses6,9986,841
Operating income2,4653,864
Interest expense(170)(139)
Investment and other income, net76140
Income from continuing operations before income taxes2,3713,865
Income tax expense(98)(466)
Income from continuing operations2,2733,399
Discontinued operations, net of income taxes(38)—
Net income$2,235$3,399
Basic earnings (loss) per share:
Continuing operations$2.02$3.02
Discontinued operations(0.03)—
Net income$1.99$3.02
Diluted earnings (loss) per share:
Continuing operations$2.01$2.98
Discontinued operations(0.03)—
Net income$1.98$2.98
Shares used in per share calculations:
Basic1,1221,124
Diluted1,1311,142
See accompanying notes.
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months Ended
December 25, 2022December 26, 2021
Net income$2,235$3,399
Other comprehensive income (loss), net of income taxes:
Foreign currency translation gains (losses)162(42)
Net unrealized gains (losses) on available-for-sale debt securities14(19)
Net unrealized gains on derivative instruments1192
Other reclassifications included in net income20(11)
Total other comprehensive income (loss)315(70)
Comprehensive income$2,550$3,329
See accompanying notes.
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended
December 25, 2022December 26, 2021
Operating Activities:
Net income from continuing operations$2,273$3,399
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense398406
Income tax provision (less than) in excess of income tax payments(120)272
Share-based compensation expense634496
Net gains on marketable securities and other investments(25)(103)
Other items, net(33)(25)
Changes in assets and liabilities:
Accounts receivable, net1,694(454)
Inventories(476)(638)
Other assets409(1,504)
Trade accounts payable(1,264)781
Payroll, benefits and other liabilities(286)(495)
Unearned revenues(81)(78)
Net cash used by operating activities from discontinued operations(28)—
Net cash provided by operating activities3,0952,057
Investing Activities:
Capital expenditures(398)(583)
Purchases of debt and equity marketable securities(22)(517)
Proceeds from sales and maturities of debt and equity marketable securities2191,133
Acquisitions and other investments, net of cash acquired(29)(238)
Proceeds from sales of property, plant and equipment111—
Proceeds from other investments493
Other items, net(18)—
Net cash used by investing activities(133)(112)
Financing Activities:
Proceeds from short-term debt1,458710
Repayment of short-term debt(1,955)(710)
Proceeds from long-term debt1,880—
Repurchases and retirements of common stock(1,270)(1,178)
Dividends paid(842)(765)
Payments of tax withholdings related to vesting of share-based awards(309)(500)
Other items, net23(3)
Net cash used by financing activities(1,015)(2,446)
Effect of exchange rate changes on cash and cash equivalents27(8)
Net increase (decrease) in total cash and cash equivalents1,974(509)
Total cash and cash equivalents at beginning of period (including $326 million classified as held for sale at September 25, 2022)3,0997,116
Total cash and cash equivalents at end of period (including $265 million classified as held for sale at December 25, 2022)$5,073$6,607

See accompanying notes.

QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except per share data)
(Unaudited)
Three Months Ended
December 25, 2022December 26, 2021
Total stockholders’ equity, beginning balance$18,013$9,950
Common stock and paid-in capital:
Balance at beginning of period$195$—
Common stock issued under employee benefit plans381
Repurchases and retirements of common stock(591)(22)
Share-based compensation667521
Tax withholdings related to vesting of share-based payments(309)(500)
Balance at end of period——
Retained earnings:
Balance at beginning of period17,8409,822
Net income2,2353,399
Repurchases and retirements of common stock(679)(1,156)
Dividends(879)(790)
Balance at end of period18,51711,275
Accumulated other comprehensive income (loss):
Balance at beginning of period(22)128
Other comprehensive income (loss)315(70)
Balance at end of period29358
Total stockholders’ equity, ending balance$18,810$11,333
Dividends per share announced$0.75$0.68

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 our fiscal year ended September 25, 2022. 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 months ended December 25, 2022 and December 26, 2021 included 13 weeks.

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.

Note 2. Composition of Certain Financial Statement Items

Inventories (in millions)
December 25, 2022September 25, 2022
Raw materials$228$221
Work-in-process3,6473,329
Finished goods3,0572,791
$6,932$6,341

Revenues. We disaggregate our revenues by segment (Note 7), by products and services (as presented on our condensed consolidated statement of operations), and for our QCT (Qualcomm CDMA Technologies) segment, by revenue stream, which is based on the industry and application in which our products are sold (as presented below). Beginning in the first quarter of fiscal 2023, QCT RFFE (radio frequency front-end) revenues, which were previously presented as a separate revenue stream, are now included within our Handset, Automotive and internet of things (IoT) revenue streams, as applicable, based on the industry and application in which the related RFFE products are sold. Prior period information has been recast to reflect this change. RFFE revenues include revenues from the sale of 4G, 5G sub 6 and 5G millimeter wave RFFE products (a substantial portion of which relate to mobile handsets) and exclude radio frequency transceiver components. This change aligns with changes made to our internal reporting of revenues. We believe this change provides a more meaningful presentation in understanding QCT revenues going forward, as we expect RFFE revenues to correspond with trends in Handsets, Automotive and IoT (as applicable) and is more consistent with how our revenue diversification is viewed externally. In certain cases, the determination of QCT revenues by industry and application requires the use of certain assumptions. Substantially all of QCT’s 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 and are principally from royalties generated through our licensees’ sales of mobile handsets.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

QCT revenue streams were as follows (in millions):

Three Months Ended
December 25, 2022December 26, 2021
Handsets (1)$5,754$6,989
Automotive (2)456288
IoT (3)1,6821,570
Total QCT revenues$7,892$8,847

(1) Includes revenues from products sold for use in mobile handsets.

(2) Includes revenues from products sold for use in automobiles, including connectivity, digital cockpit and advanced driver assistance systems (ADAS) and automated driving (AD).

(3) Primarily includes products sold for use in the following industries and applications: consumer (including computing, voice and music and extended reality (XR)), edge networking (including mobile broadband and wireless access points) and industrial (including handhelds, retail, transportation and logistics and utilities).

Revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were as follows (in millions):

Three Months Ended
December 25, 2022 (1)December 26, 2021 (2)
Revenues recognized from previously satisfied performance obligations$199$242

(1) Primarily related to certain QCT sales-based royalty revenues related to system software and certain QCT customer incentives.

(2) Primarily related to certain QCT sales-based royalty revenues related to system software, QTL royalty revenues recognized related to devices sold in prior periods (including adjustments to prior period royalty estimates, which includes the impact of the reporting by our licensees of actual royalties due) and certain QCT customer incentives.

Unearned revenues (which are considered contract liabilities) consist primarily of certain customer contracts for which QCT received fees upfront and QTL license fees for intellectual property with continuing performance obligations. In the three months ended December 25, 2022 and December 26, 2021, we recognized revenues of $173 million and $187 million, respectively, that were recorded as unearned revenues at September 25, 2022 and September 26, 2021, respectively.

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 QCT received fees upfront and certain customer contracts for which QTL received license fees upfront. At December 25, 2022, we had $577 million of remaining performance obligations, of which $301 million, $201 million, $65 million, $6 million and $1 million is expected to be recognized as revenues for the remainder of fiscal 2023 and each of the subsequent four years from fiscal 2024 through 2027, respectively, and $3 million thereafter.

Concentrations. A significant portion of our revenues are concentrated with a small number of customers/licensees of our QCT and QTL segments. The comparability of customer/licensee concentrations for the interim periods presented are impacted by the timing of customer/licensee device launches and/or innovation cycles and other seasonal trends, among other fluctuations in demand. Revenues from each customer/licensee that were 10% or greater of total revenues were as follows:

Three Months Ended
December 25, 2022December 26, 2021
Customer/licensee (y)34%26%
Customer/licensee (z)1419
QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Other Expenses. Other expenses in the three months ended December 25, 2022 consisted of $80 million in restructuring charges, substantially all of which related to accrued severance costs, resulting from certain cost reduction initiatives during the quarter. Additionally, in the second quarter of fiscal 2023, we committed to take additional actions to reduce our operating expenses. As a result, we currently expect to incur additional restructuring charges in the second quarter of fiscal 2023 of approximately $80 million, substantially all of which relate to cash severance payments.

Investment and Other Income, Net (in millions)
Three Months Ended
December 25, 2022December 26, 2021
Interest and dividend income$55$17
Net gains on marketable securities1117
Net gains on other investments—93
Net gains on deferred compensation plan assets2613
Impairment losses on other investments(14)(1)
Net gains (losses) on derivative instruments9(13)
Equity in net (losses) earnings of investees(8)7
Net (losses) gains on foreign currency transactions(3)7
$76$140

Note 3. Income Taxes

We estimate our annual effective income tax rate to be 9% for fiscal 2023, which is lower than the U.S. federal statutory rate, primarily due to (i) a significant portion of our income qualifying for preferential treatment as foreign-derived intangible income (FDII) at a 13% effective tax rate, which includes certain benefits discussed below from the new requirement to capitalize research and development expenditures for federal income tax purposes, (ii) benefits from our federal research and development tax credit and (iii) benefits related to foreign currency gains on a noncurrent receivable related to our refund claim of Korean withholding tax. Our effective tax rate of 4% for the first quarter of fiscal 2023 was lower than our estimated annual effective tax rate of 9% primarily due to $150 million of net discrete tax benefits, which principally related to foreign currency gains on a noncurrent receivable related to our refund claim of Korean withholding tax. Our effective tax rate of 12% for the first quarter of fiscal 2022 included $103 million of discrete net tax benefits, which principally related to excess tax benefits associated with share-based awards that vested in the first fiscal quarter.

Beginning in fiscal 2023, for federal income tax purposes, we are required to capitalize and amortize domestic research and development expenditures over five years and foreign research and development expenditures over fifteen years (such expenditures were previously deducted as incurred). Our cash flows from operations will be adversely affected due to significantly higher cash tax payments. However, since the resulting deferred tax asset is established at the statutory rate of 21% (rather than the effective tax rate of 13% to 16% after considering the FDII deduction), capitalization favorably affects our provision for income taxes and results of operations. The adverse cash flow impact and favorable tax provision impact will diminish in future years as capitalized research and development expenditures continue to amortize.

Unrecognized tax benefits were $2.2 billion at both December 25, 2022 and September 25, 2022 and primarily related 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 expect that the total amount of unrecognized tax benefits at December 25, 2022 will increase in the next 12 months as licensees in Korea continue to withhold taxes on future payments due under their licensing agreements at a rate higher than we believe is owed; such increase is not expected to have a significant impact on our income tax provision.

Note 4. Capital Stock

Stock Repurchase Program. On October 12, 2021, we announced a $10.0 billion stock repurchase program. The stock repurchase program has no expiration date. At December 25, 2022, $6.8 billion remained authorized for repurchase under our stock repurchase program. Since December 25, 2022, we repurchased and retired 5 million shares of common stock for $531 million.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Shares Outstanding. Shares of common stock outstanding at December 25, 2022 were as follows (in millions):

Balance at September 25, 20221,121
Issued9
Repurchased(11)
Balance at December 25, 20221,119

Dividends. On January 18, 2023, we announced a cash dividend of $0.75 per share on our common stock, payable on March 23, 2023 to stockholders of record as of the close of business on March 2, 2023.

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 common shares outstanding and the weighted-average number of dilutive common share equivalents, comprised of shares issuable under our share-based compensation plans, during the reporting period. The following table provides information about the diluted earnings per share calculation (in millions):

Three Months Ended
December 25, 2022December 26, 2021
Dilutive common share equivalents included in diluted shares918
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 period5—

Note 5. Debt

Long-term Debt. In November 2022, we issued unsecured fixed-rate notes, consisting of $700 million of fixed-rate 5.40% notes and $1.2 billion of fixed-rate 6.00% notes (collectively, November 2022 Notes) that mature on May 20, 2033 and May 20, 2053, respectively. The net proceeds from the November 2022 Notes were used to repay $946 million of fixed-rate notes and $500 million of floating-rate notes that matured in January 2023 and the excess will be used for general corporate purposes.

The following table provides a summary of our long-term debt:

December 25, 2022September 25, 2022
MaturitiesAmount (in millions)Effective RateMaturitiesAmount (in millions)Effective Rate
May 2015 Notes2025 - 2045$3,8653.46% - 4.73%2025 - 2045$3,8653.46% - 4.73%
May 2017 Notes2023 - 20475,8602.66% - 5.17%2023 - 20475,8602.68% - 4.46%
May 2020 Notes2030 - 20502,0002.95% - 3.30%2030 - 20502,0002.97% - 3.30%
August 2020 Notes2028 - 20322,2072.48% - 3.53%2028 - 20322,2072.50% - 3.52%
May 2022 Notes2032 - 20521,5003.14% - 4.26%2032 - 20521,5003.13% - 4.26%
November 2022 Notes2033 - 20531,9003.44% - 4.99%—
Total principal17,33215,432
Unamortized discount, including debt issuance costs(258)(241)
Hedge accounting fair value adjustments(197)(208)
Total long-term debt$16,877$14,983
Reported as:
Short-term debt$1,446$1,446
Long-term debt15,43113,537
Total$16,877$14,983
QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

At December 25, 2022, the aggregate fair value of our outstanding floating- and fixed-rate notes, based on Level 2 inputs, was approximately $16.1 billion.

Interest Rate Swaps. At September 25, 2022, we had outstanding forward-starting interest rate swaps with an aggregate notional amount, denominated in U.S. dollars, of $1.6 billion. During the first quarter of fiscal 2023, in connection with the issuance of the November 2022 Notes, we terminated these swaps, and the related gains of $334 million are being reclassified from accumulated comprehensive income to being recorded as a reduction to interest expense over the hedged portions of the related debt.

Commercial Paper Program. We have an unsecured commercial paper program, which provides for the issuance of up to $4.5 billion of commercial paper. At December 25, 2022 and September 25, 2022, we had no amounts and $499 million, respectively, of outstanding commercial paper recorded as short-term debt.

Note 6. Commitments and Contingencies

Legal and Regulatory Proceedings.

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 then 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. On July 3, 2017, the 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, and on March 18, 2019, the court denied our motion. On January 15, 2020, we filed a motion for judgment on the pleadings, which the court denied on February 3, 2022. On May 23, 2022, the plaintiffs filed a motion for class certification, and a hearing on the motion was held on October 19, 2022. The court has not yet ruled on the motion. We believe the plaintiffs’ claims are without merit.

Consumer Class Action Lawsuits: Beginning in January 2017, a number of consumer class action complaints were 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. 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 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 sought unspecified damages and disgorgement and/or restitution, as well as an order that we be enjoined from further unlawful conduct. On July 5, 2018, the plaintiffs filed a motion for class certification, and on September 27, 2018, the court granted that motion. We appealed the district court’s class certification order to the United States Court of Appeals for the Ninth Circuit (Ninth Circuit), and on September 29, 2021, the Ninth Circuit vacated the class certification order, ruling that the district court had failed to correctly assess the propriety of applying California law to a nationwide class. The Ninth Circuit remanded the case to the district court and instructed the court to consider the effect of United States Federal Trade Commission (FTC) v. QUALCOMM Incorporated (which the Ninth Circuit decided in favor of Qualcomm in August 2020) on this case. On June 10, 2022, the plaintiffs filed an amended complaint, limiting the proposed class to California residents rather than a nationwide class. On August 1, 2022, we filed a motion to dismiss the amended complaint, and on November 15, 2022, the court held a hearing on our motion. On January 6, 2023, the court issued an order granting in part and denying in part our motion to dismiss. The order preserved the plaintiffs’ claims related to exclusive dealing under California antitrust and unfair competition laws and dismissed the remainder of the plaintiffs’ claims, which were related to our licensing practices. We believe the plaintiffs’ claims are without merit.

Since November 2017, several other consumer class action complaints have been filed against us in Canada (in the Supreme Court of British Columbia and the Quebec Superior Court), Israel (in the Haifa District Court) and the United Kingdom (in the Competition Appeal Tribunal), each on behalf of a putative class of purchasers of cellular phones and other cellular devices, alleging violations of certain of those countries’ competition and consumer protection laws. The claims in

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

these complaints are similar to those in the U.S. consumer class action complaints. The complaints seek damages. We believe the plaintiffs’ claims are without merit.

ParkerVision, Inc. v. QUALCOMM Incorporated: On May 1, 2014, ParkerVision filed a complaint against us in the United States District Court for the Middle District of Florida alleging that certain of our products infringed seven ParkerVision patents. On August 21, 2014, ParkerVision amended the complaint, alleging that we infringed 11 ParkerVision patents and sought damages and injunctive and other relief. ParkerVision subsequently reduced the number of patents asserted to three. The asserted patents are now expired, and injunctive relief is no longer available. ParkerVision continues to seek damages related to the sale of many of our radio frequency (RF) products sold between 2008 and 2018. On March 23, 2022, the court entered judgment in our favor on all claims and closed the case. On April 20, 2022, ParkerVision filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. We believe that ParkerVision’s claims are without merit.

Arm Ltd. v. QUALCOMM Incorporated: On August 31, 2022, Arm Ltd. (ARM) filed a complaint against us in the United States District Court for the District of Delaware. Our subsidiaries Qualcomm Technologies, Inc. and NuVia, Inc. (Nuvia) are also named in the complaint. The complaint alleges that following our acquisition of Nuvia, we and Nuvia breached Nuvia’s Architecture License Agreement with ARM (the Nuvia ALA) by failing to comply with the termination obligations under the Nuvia ALA. The complaint seeks specific performance, including that we cease all use of and destroy any technology that was developed under the Nuvia ALA, including processor core technology. ARM also contends that we violated the Lanham Act through trademark infringement and false designation of origin through unauthorized use of ARM’s trademarks and seeks associated injunctive and declaratory relief. ARM further seeks exemplary or punitive damages, costs, expenses and reasonable attorney’s fees, and equitable relief addressing any infringement occurring after entry of judgment. We believe ARM’s claims are without merit.

On September 30, 2022, we filed our Answer and Counterclaim in response to ARM’s complaint denying ARM’s claims. Our counterclaim seeks a declaratory judgment that we did not breach the Nuvia ALA or the Technology License Agreement between Nuvia and ARM and that, following the acquisition of Nuvia, our architected cores (including all further developments, iterations or instantiations of the technology we acquired from Nuvia), server System-on-Chip (SoC) and compute SoC are fully licensed under our existing Architecture License Agreement and Technology License Agreement with ARM (the ARM-Qualcomm Agreements). We further seek an order enjoining ARM from making any claim that our products are not licensed under the ARM-Qualcomm Agreements, are not ARM-compliant or that we are prohibited from using ARM’s marks in the marketing of any such products. On October 26, 2022, we filed an Amended Counterclaim seeking additional declaratory relief that certain statements ARM is making in the marketplace concerning our rights under the ARM-Qualcomm Agreements are false, and that ARM has no right to prevent us from shipping our products, which are validly licensed. Trial is scheduled to begin on September 23, 2024.

Korea Fair Trade Commission (KFTC) Investigation (2015): 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: (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; (b) not demand that handset companies execute and perform under patent license agreements as a precondition for purchasing modem chipsets; (c) not demand unjustifiable conditions in our license agreements with handset companies and, upon request, renegotiate existing patent license agreements; and (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: (1) handset manufacturers headquartered in Korea and their affiliate companies; (2) enterprises that sell handsets in or to Korea and their affiliate companies; (3) enterprises that supply handsets to companies referred to in (2) above and the affiliate companies of such enterprises; (4) modem chipset manufacturers headquartered in Korea and their affiliate companies; and (5) enterprises that supply modem chipsets to companies referred to in (1), (2) or (3) above and the affiliate companies of such enterprises.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The KFTC’s decision also imposed a fine of 1.03 trillion Korean won (approximately $927 million), which we paid on March 30, 2017.

On February 21, 2017, we filed an action in the Seoul High Court to cancel the KFTC’s decision. The Seoul High Court held hearings concluding on August 14, 2019, and on December 4, 2019, announced its judgment affirming certain portions of the 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 cancelled the KFTC’s remedial orders described in (d) above. The Seoul High Court dismissed the remainder of our action to cancel the KFTC’s decision. On December 19, 2019, we filed a notice of appeal to the Korea Supreme Court challenging those portions of the Seoul High Court decision that are not in our favor. The KFTC filed a notice of appeal to the Korea Supreme Court challenging the portions of the Seoul High Court decision that are not in its favor. Both we and the KFTC have filed briefs on the merits. The Korea Supreme Court has not yet ruled on our appeal or that of the KFTC. We believe that our business practices do not violate the MRFTA.

Korea Fair Trade Commission (KFTC) Investigation (2020): On June 8, 2020, the KFTC informed us that it was conducting an investigation of us relating to the MRFTA. The KFTC has not provided a formal notice on the scope of its investigation, but we believe it concerns our business practices in connection with our sale of RFFE components. We continue to cooperate with the KFTC as it conducts its investigation. If a violation is found, a broad range of remedies is potentially available to the KFTC, including imposing a fine (of up to 3% of our sales in the relevant markets during the alleged period of violation) 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 KFTC. We believe that our business practices do not violate the MRFTA.

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 July 18, 2019, the EC issued a decision finding that between 2009 and 2011, we engaged in predatory pricing by selling certain baseband chipsets to two customers at prices below cost with the intention of hindering competition and imposed a fine of approximately 242 million euros. On October 1, 2019, we filed an appeal of the EC’s decision with the General Court of the European Union. A hearing on our appeal is scheduled for March 13-15, 2023. 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 the 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 and included in other current liabilities.

Contingent Losses and Other Considerations: We will continue to vigorously defend ourselves 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, particularly in antitrust and trade regulation investigations. Other than with respect to the EC fine related to the Icera Complaint to the European Commission, we have not recorded any accrual at December 25, 2022 for contingent losses associated with these matters based on our belief that losses, while reasonably possible, are not probable. Further, any possible amount or 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. We are engaged in numerous other legal actions not described above arising in the ordinary course of our business (for example, proceedings relating to employment matters or the initiation or defense of proceedings relating to intellectual property rights) and, while there can be no assurance, we 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.

Note 7. Segment Information

We are organized on the basis of products and services and have three reportable segments. Our operating segments reflect the way our businesses and management/reporting structure are organized internally and the way our Chief Operating Decision Maker (CODM), who is our CEO, reviews financial information, makes operating decisions and assesses business performance. We also consider, among other items, the way budgets and forecasts are prepared and reviewed and the basis on which executive compensation is determined, as well as the similarities and the level of centralized resource planning within

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

our operating segments, such as the nature of products, the level of shared products, technology and other resources, production processes and customer base. We conduct business primarily through our QCT semiconductor business and our QTL licensing business. QCT develops and supplies integrated circuits and system software based on 3G/4G/5G and other technologies, including RFFE, for use in mobile devices; automotive systems for connectivity, digital cockpit and ADAS/AD; and IoT including consumer electronic devices; industrial devices; and edge networking products. QTL grants licenses or otherwise provides rights to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments. We also have nonreportable segments, including QGOV (Qualcomm Government Technologies) and our cloud AI inference processing initiative.

Our CODM allocates resources to and evaluates the performance of our segments based on revenues and earnings (loss) before income taxes (EBT). Segment EBT includes the allocation of certain corporate expenses to the segments, including depreciation and amortization expense related to unallocated corporate assets. Certain income and charges are not allocated to segments in our management reports because they are not considered in evaluating the segments’ operating performance. Unallocated income and 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 expenses, certain selling, general and administrative expenses and other expenses or income that were deemed to be not directly related to the businesses of the segments. Additionally, unallocated charges include recognition of the step-up of inventories and property, plant and equipment to 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, asset impairment charges and awards, settlements and/or damages arising from legal or regulatory matters. Our CODM does not evaluate our operating segments using discrete asset information.

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

Three Months Ended
December 25, 2022December 26, 2021
Revenues
QCT$7,892$8,847
QTL1,5241,818
QSI78
Reconciling items4032
Total$9,463$10,705
EBT
QCT$2,183$3,114
QTL1,1171,406
QSI(8)122
Reconciling items(921)(777)
Total$2,371$3,865
QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

Three Months Ended
December 25, 2022December 26, 2021
Revenues
Nonreportable segments$40$32
$40$32
EBT
Unallocated cost of revenues$(65)$(53)
Unallocated research and development expenses(522)(453)
Unallocated selling, general and administrative expenses(167)(152)
Unallocated other expenses (Note 2)(80)—
Unallocated interest expense(170)(139)
Unallocated investment and other income, net8723
Nonreportable segments(4)(3)
$(921)$(777)

Note 8. Acquisitions

Veoneer. On October 4, 2021, we and SSW Partners, a New York-based investment partnership, entered into a definitive agreement to acquire Veoneer, Inc. (Veoneer). The transaction closed on April 1, 2022 (the Closing Date). Total cash consideration paid in the transaction was $4.7 billion, consisting of (i) $4.6 billion paid in respect of Veoneer’s outstanding capital stock and equity awards and amounts paid to settle Veoneer’s convertible senior notes (which were converted at the election of the note holders and settled in cash in the third quarter of fiscal 2022) and (ii) a $110 million termination fee paid to Magna International Inc. (Magna) in the first quarter of fiscal 2022. We funded substantially all of the cash consideration payable in the transaction in exchange for (i) the Arriver business (which SSW transferred to us shortly after the Closing Date) and (ii) the right to receive a majority of the proceeds upon the sale of the Non-Arriver businesses by SSW Partners. We intend to incorporate Arriver’s computer vision, drive policy and driver assistance technologies into our Snapdragon automotive platform to deliver an integrated software SoC ADAS platform for automakers and Tier-1 automotive suppliers. SSW Partners retained Veoneer’s Tier-1 automotive supplier businesses, primarily consisting of the Active Safety and the Restraint Control Systems businesses (the Non-Arriver businesses), which it intends to sell in multiple transactions.

We have agreed to provide certain funding of approximately $300 million to the Non-Arriver businesses while SSW Partners sells these businesses, of which approximately $150 million of funding remained available to the Non-Arriver businesses at December 25, 2022. Such amounts, along with cash retained in the Non-Arriver businesses, are expected to be used to fund working and other near-term capital needs, as well as certain costs incurred in connection with the close of the acquisition.

Although we do not own or operate the Non-Arriver businesses, we have determined that we are the primary beneficiary, within the meaning of the Financial Accounting Standards Board (FASB) accounting guidance related to consolidation (ASC 810), of these businesses under the variable interest model. Factors considered in reaching this conclusion included, among others: (i) our involvement in the design of and our funding of substantially all of the total cash consideration payable in the transaction and (ii) our obligations to absorb losses and rights to receive returns from the Non-Arriver businesses.

In December 2022, Magna entered into a definitive agreement to acquire the Active Safety business from SSW Partners for approximately $1.5 billion in cash, subject to working capital and other purchase price adjustments. The sale is subject to certain regulatory approvals and other customary closing conditions. We expect that SSW Partners will complete the sale of both Non-Arriver businesses within fiscal 2023, subject to any required regulatory approvals and other closing conditions being met. Accordingly, the assets and liabilities of the Non-Arriver businesses (the majority of which relate to the Active Safety business) are consolidated and presented as held for sale on our balance sheet, and the operating results are presented as discontinued operations.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Our accounting purchase price was approximately $4.3 billion, substantially all of which relates to our share of cash consideration at close for the outstanding common shares of Veoneer and the Magna termination fee and excludes Veoneer’s convertible senior notes that are reflected as an assumed liability.

We have finalized the purchase price allocation, except for certain tax matters. Accordingly, the preliminary purchase price allocation shown below could change during the remainder of the measurement period (which will not exceed 12 months from the Closing Date). The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values was as follows (in millions):

Cash$30
Current held for sale assets, net of costs to sell (1)626
Completed technology-based intangible assets349
In-process research and development (IPR&D)298
Goodwill2,789
Noncurrent held for sale assets (1)1,186
Other assets333
Total assets5,611
Current held for sale liabilities (1)(677)
Convertible senior notes(352)
Noncurrent held for sale liabilities (1)(128)
Other liabilities(203)
Total liabilities(1,360)
Net assets acquired$4,251

(1) Held for sale assets and liabilities relate to the Non-Arriver businesses and were measured at fair value less costs to sell (including SSW Partners’ estimated return with respect to the sale proceeds of the Non-Arriver businesses), which was estimated using a market approach based on significant inputs that were not observable. In the fourth quarter of fiscal 2022, we finalized and adjusted the valuation of the Non-Arriver businesses upward by $229 million and recorded an offsetting adjustment to decrease goodwill for this amount. The Non-Arriver businesses’ assets are not available to be used to settle our obligations, and the Non-Arriver businesses’ creditors do not have recourse to us. SSW Partners owns and operates the Non-Arriver businesses, and its funding of the purchase price for Veoneer was recorded as a component of held for sale liabilities. The underlying classes of assets and liabilities held for sale have not been presented because such amounts are not material.

Goodwill related to this transaction was allocated to our QCT segment, and $471 million of which is expected to be deductible for tax purposes. Goodwill is primarily attributable to assembled workforce and certain synergies expected to arise after the acquisition. Completed technology-based intangible assets will be amortized on a straight-line basis over the weighted-average useful life of nine years. IPR&D relates to a single project that is expected to be completed in fiscal 2025. Upon completion, we expect the IPR&D to be amortized over its useful life of seven years. We valued the completed technology and IPR&D using an income approach based on significant unobservable inputs.

The Non-Arriver businesses are presented as discontinued operations on a one quarter reporting lag. Pro forma results of operations have not been presented because the effects of this acquisition were not material to our consolidated results of operations. The cash flows generated from (used by) the Non-Arriver businesses are reflected as discontinued operations and are classified as operating, investing and financing activities in the consolidated statements of cash flows. Investing and financing activities from discontinued operations reported in the first quarter of fiscal 2023 were not material.

QUALCOMM Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 9. Fair Value Measurements

The following table presents our fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at December 25, 2022 (in millions):

Level 1Level 2Level 3Total
Assets
Cash equivalents$2,255$754$—$3,009
Marketable securities:
Corporate bonds and notes—3,185—3,185
Equity securities139——139
Mortgage- and asset-backed securities—90—90
U.S. Treasury securities and government-related securities—16—16
Total marketable securities1393,291—3,430
Derivative instruments—39—39
Other investments697—22719
Total assets measured at fair value$3,091$4,084$22$7,197
Liabilities
Derivative instruments$—$289$—$289
Other liabilities697——697
Total liabilities measured at fair value$697$289$—$986

Note 10. Marketable Securities

Our marketable securities were all classified as current and were comprised as follows (in millions):

December 25, 2022September 25, 2022
Available-for-sale debt securities:
Corporate bonds and notes$3,185$3,330
Mortgage- and asset-backed securities9099
U.S. Treasury securities and government-related securities1616
Total available-for-sale debt securities3,2913,445
Equity securities139164
Total marketable securities$3,430$3,609

The contractual maturities of available-for-sale debt securities were as follows (in millions):

December 25, 2022
Years to Maturity
Less than one year$1,260
One to five years1,941
No single maturity date90
Total$3,291

Debt securities with no single maturity date included mortgage- and asset-backed securities.

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