QUALCOMM Announces First Quarter Fiscal 2007 Results
Revenues $2.02 Billion, Diluted EPS $0.38
Pro Forma Revenues $2.02 Billion, Diluted EPS $0.43
QUALCOMM Reaffirms Most Recent Fiscal 2007 Revenue and Pro Forma Earnings Guidance
SAN DIEGO, Jan. 24 /PRNewswire-FirstCall/ -- QUALCOMM Incorporated (Nasdaq: QCOM) today announced results for the first quarter of fiscal 2007 ended December 31, 2006.
Total QUALCOMM (GAAP) First Quarter Results
Total QUALCOMM results are reported in accordance with generally accepted accounting principles (GAAP).
* Revenues: $2.02 billion, up 16 percent year-over-year and 1 percent
sequentially.
* Net income: $648 million, up 5 percent year-over-year and 6 percent
sequentially.
* Diluted earnings per share: $0.38, up 6 percent year-over-year and
6 percent sequentially.
* Effective tax rate: 17 percent for the quarter. Fiscal 2007 estimated
tax rate of approximately 21 percent.
* Estimated share-based compensation: $87 million, net of tax, up
6 percent year-over-year and 14 percent sequentially.
* Operating cash flow: $789 million, up 32 percent year-over-year;
39 percent of revenues.
* Return of capital to stockholders: in the quarter, dividends announced
totaled $198 million, or $0.12 per share, which were paid on January 4,
2007, and $96 million related to the repurchase of our common stock.
QUALCOMM Pro Forma First Quarter Results
Pro forma results exclude the QUALCOMM Strategic Initiatives (QSI) segment, certain estimated share-based compensation, certain tax adjustments related to prior years and acquired in-process research and development (R&D) expense.
* Revenues: $2.02 billion, up 16 percent year-over-year and 1 percent
sequentially.
* Net income: $722 million, up 8 percent year-over-year and 2 percent
sequentially.
* Diluted earnings per share: $0.43, up 10 percent year-over-year and
2 percent sequentially; excludes $0.01 loss per share attributable to
the QSI segment, $0.05 loss per share attributable to estimated
share-based compensation and $0.02 earnings per share attributable to
certain tax adjustments related to prior years. (The sum of pro forma
earnings per share and items excluded do not equal total QUALCOMM
(GAAP) earnings per share due to rounding).
* Effective tax rate: 24 percent for the quarter. Fiscal 2007
estimated tax rate of approximately 25 percent.
* Free cash flow: $544 million, up 2 percent year-over-year; 27 percent
of revenues. (Defined as net cash from operating activities less
capital expenditures).
Detailed reconciliations between total QUALCOMM (GAAP) results and QUALCOMM pro forma results, and cash flow are included at the end of this news release. Prior period reconciliations are presented on our Investor Relations web page at www.qualcomm.com.
"Our results this quarter were driven by record 3G handset and chipset shipments," said Dr. Paul E. Jacobs, chief executive officer of QUALCOMM. "The worldwide migration to CDMA-based technologies is accelerating as we continue to execute with our partners to drive innovations into the marketplace."
"An increasing number of subscribers and enterprise customers are benefiting from 3G's higher data rates enabling new applications including multimedia, 3D gaming, downloadable navigation and access to the wireless Internet. It is evident that the innovation and competition our business model enables has benefited wireless consumers, operators and manufacturers globally."
"Based on our current outlook for CDMA-based handset shipments, we are pleased to reaffirm our calendar year 2007 forecast which represents approximately 28% year-over-year growth. We are also reaffirming our most recent fiscal 2007 revenue and pro forma diluted earnings per share guidance as adjusted by our recently announced acquisitions."
Cash and Marketable Securities
QUALCOMM's cash, cash equivalents and marketable securities totaled approximately $10.5 billion at the end of the first quarter of fiscal 2007, compared to $9.9 billion at the end of fiscal 2006 and $9.4 billion a year ago. On January 12, 2007, we announced a cash dividend of $0.12 per common share payable on March 30, 2007 to stockholders of record at the close of business on March 2, 2007.
Estimated Share-Based Compensation
Total QUALCOMM (GAAP) net income for the first quarter of fiscal 2007 included estimated share-based compensation, net of tax, of $87 million, or $0.05 per share, compared to $82 million, or $0.05 per share in the prior year quarter.
Research and Development
Estimated Total
QUALCOMM Share-Based QUALCOMM
($ in millions) Pro Forma Compensation QSI (GAAP)
First quarter fiscal 2007 $365 $58 $17 $440
As a % of revenue 18% 22%
First quarter fiscal 2006 $273 $52 $15 $340
As a % of revenue 16% 20%
Year-over-year change ($) 34% 12% 13% 29%
Pro forma R&D expenses increased 34 percent year-over-year, primarily due to additional engineering resources for the development of integrated circuit products and other initiatives to support low-cost phones, multimedia applications, high-speed wireless Internet access and multi-mode, multi-band, multi-network products and technologies.
Selling, General and Administrative
Estimated Total
QUALCOMM Share-Based QUALCOMM
($ in millions) Pro Forma Compensation QSI (GAAP)
First quarter fiscal 2007 $282 $62 $25 $369
As a % of revenue 14% 18%
First quarter fiscal 2006 $168 $58 $13 $239
As a % of revenue 10% 14%
Year-over-year change ($) 68% 7% 92% 54%
Pro forma selling, general and administrative (SG&A) expenses increased 68 percent year-over-year, largely attributable to increases in legal fees and employee related expenses. The year-over-year increase in QSI SG&A expenses is primarily related to MediaFLO(TM) USA.
Effective Income Tax Rate
Our fiscal 2007 effective income tax rates are estimated to be 21 percent for total QUALCOMM (GAAP) and 25 percent for QUALCOMM pro forma, compared to fiscal 2006 effective income tax rates of 22 percent for total QUALCOMM (GAAP) and 26 percent for QUALCOMM pro forma. During the first quarter of fiscal 2007, the federal research and development tax credit that expired on December 31, 2005 was extended by Congress for a period of two years beyond the prior expiration date. We recorded a tax benefit of $33 million, or $0.02 diluted earnings per share, related to fiscal 2006 in the first quarter of fiscal 2007 due to this retroactive extension. The effective tax rate for the first quarter of fiscal 2007 for total QUALCOMM (GAAP) was 17%, primarily as a result of this benefit. Our first quarter fiscal 2007 QUALCOMM pro forma results exclude this tax benefit attributable to fiscal 2006.
QUALCOMM Strategic Initiatives
The QSI segment includes our strategic investments, including our MediaFLO USA subsidiary, and related income and expenses. Total QUALCOMM (GAAP) results for the first quarter of fiscal 2007 include $0.01 loss per share for the QSI segment. The first quarter of fiscal 2007 QSI results included $42 million in operating expenses, primarily related to MediaFLO USA.
Business Outlook
The following statements are forward-looking and actual results may differ materially. Please see "Note Regarding Forward-Looking Statements" at the end of this news release for a description of certain risk factors and QUALCOMM's annual and quarterly reports on file with the Securities and Exchange Commission (SEC) for a more complete description of risks. Due to their nature, certain income and expense items, such as realized investment gains or losses in QSI, gains and losses on certain derivative instruments or asset impairments, cannot be accurately forecast. Accordingly, the Company excludes forecasts of such items from its business outlook, and actual results may vary materially from the business outlook if the Company incurs any such income or expense items. Estimated share-based compensation in future periods may vary materially from the business outlook as the methodology used to calculate this estimate is dependent on a variety of assumptions which are subject to market fluctuations and other factors.
The following table summarizes total QUALCOMM (GAAP) and QUALCOMM pro forma guidance for the second fiscal quarter and fiscal year 2007 based on the current business outlook. The pro forma business outlook provided below is presented consistent with the presentation of pro forma results provided elsewhere herein.
Our license agreement with Nokia Corp. expires in part on April 9, 2007, with Nokia having an option exercisable through the end of 2008 to extend the agreement. The table includes a footnote to size our estimate of the risk, approximately $0.04 to $0.06 diluted earnings per share, of Nokia not paying royalties in the fourth quarter of fiscal 2007 for June quarter shipments. Nokia has publicly stated that they intend to continue to use our patents but not pay royalties after the expiration of their rights under those patents on April 9, 2007 should a new license agreement (or extension of the existing agreement) not be reached by that time. As a result, under generally accepted accounting principles, we will be unable to record royalty revenue attributable to Nokia's sales until a court awards damages or agreement with Nokia is reached. If we cannot conclude an extension or a new license agreement beyond April 9, 2007, Nokia's rights to sell certain subscriber products (such as cellular phones and wireless personal digital assistant devices) under most of our patents will expire, as will our rights to sell integrated circuits under Nokia's patents. We intend to pursue and obtain injunctions against Nokia's sales as well as damages (which will include interest from the date of infringement) for Nokia's unlicensed sales after April 9, 2007. While we will continue to work with Nokia to see if we can reach an agreement, there is no guarantee that we will be able to successfully resolve this matter before April 9, 2007 on terms which we find acceptable and little progress has been made to date. If we are unable to reach agreement, and Nokia continues to use our unlicensed intellectual property, we will aggressively pursue all our legal and business options and assume that Nokia will do likewise.
The following estimates are approximations and are based on the current
business outlook:
Business Outlook Summary
SECOND FISCAL QUARTER
Current Guidance
Q2'06 Q2'07
Results Estimates(1)
QUALCOMM Pro Forma
Revenues $1.83B $2.0B - $2.1B
Year-over-year change increase 9% - 15%
Diluted earnings per share (EPS) $0.41 $0.42 - $0.44
Year-over-year change increase 2% - 7%
Total QUALCOMM (GAAP)
Revenues $1.83B $2.0B - $2.1B
Year-over-year change increase 9% - 15%
Diluted earnings per share (EPS) $0.34 $0.35 - $0.37
Year-over-year change increase 3% - 9%
Diluted EPS attributable to QSI ($0.01) ($0.02)
Diluted EPS attributable to estimated
share-based compensation ($0.05) ($0.05)
Diluted EPS attributable to
in-process R&D ($0.01) n/a
Metrics
MSM Shipments approx. 49M approx. 55M - 57M
CDMA/WCDMA handset units shipped approx. 67M* approx. 82M - 86M*
CDMA/WCDMA handset unit wholesale
average selling price approx. $208* approx. $217*
*Shipments in Dec. quarter, reported in Mar. quarter
FISCAL YEAR
Prior Guidance Current Guidance
FY 2006 FY 2007 FY 2007
Results Estimates(2)(3) Estimates(2)
QUALCOMM Pro Forma
Revenues $7.53B $8.1B - $8.6B
Year-over-year change increase 8% - 14% Reaffirm Prior
Diluted earnings Revenue
per share (EPS) $1.64 $1.72 - $1.77 and EPS Guidance
Year-over-year change increase 5% - 8%
Total QUALCOMM (GAAP)
Revenues $7.53B $8.1B - $8.6B Reaffirm Prior
Year-over-year change increase 8% - 14% Revenue Guidance
Diluted earnings
per share (EPS) $1.44 $1.41 - $1.46 $1.44 - $1.49
Year-over-year change decrease 2% - increase 1% even - increase 3%
Diluted EPS
attributable to
in-process R&D ($0.01) n/a n/a
Diluted EPS
attributable to
QSI ($0.02) ($0.11) ($0.10)
Diluted EPS
attributable to
estimated
share-based
compensation ($0.19) ($0.20) ($0.20)
Diluted EPS
attributable to
tax items
related to
prior years $0.02 n/a $0.02
Metrics
Fiscal year*
CDMA/WCDMA
handset unit
wholesale
average
selling
price approx. $215 approx. $205 approx. $210
*Shipments in Sept. to June quarters, reported in Dec. to Sept. quarters
CALENDAR YEAR Handset Estimates
Prior Guidance Current Guidance
Calendar 2006 Calendar 2006
CDMA/WCDMA handset unit shipments Estimates Estimates
March quarter approx. 66M approx. 66M
June quarter approx. 70M approx. 70M
September quarter approx. 74M - 76M approx. 76M
December quarter not provided approx. 82M - 86M
Calendar year range (approx.) 290M - 298M 294M - 298M
Midpoint Midpoint
CDMA/WCDMA units approx. 294M approx. 296M
CDMA units approx. 196M approx. 198M
WCDMA units approx. 98M approx. 98M
Prior Guidance Current Guidance
Calendar 2007 Calendar 2007
CDMA/WCDMA handset unit shipments Estimates Estimates
March quarter not provided not provided
June quarter not provided not provided
September quarter not provided not provided
December quarter not provided not provided
Calendar year range (approx.) 368M - 388M
Midpoint Reaffirm Prior
CDMA/WCDMA units approx. 378M Calendar 2007
CDMA units approx. 203M Guidance
WCDMA units approx. 175M
(1) Current Q2'07 estimates incorporate the expected results related to
acquisitions completed in the first quarter of fiscal 2007.
(2) FY 2007 estimates do not reflect the potential adverse impact on our
results, approximately $0.04 to $0.06 diluted earnings per share, of
Nokia not paying royalties in the fourth quarter of fiscal 2007 for
June quarter shipments. Further details are included in the
introductory paragraph which precedes this Business Outlook table.
(3) Prior Guidance presented above incorporates the $0.04 dilution
estimate for FY 2007 provided on December 3, 2006 related to the
acquisitions completed in the first quarter of fiscal 2007.
Sums may not equal totals due to rounding.
Results of Business Segments
The following tables, which present segment information, have been adjusted to reflect the 2007 segment presentation (Notes 1 and 2) (in millions, except per share data):
First Quarter - Fiscal Year 2007
Reconciling
Segments QCT(1) QTL(1) QWI(2) Items(1)(2)(3)
Revenues $1,230 $600 $188 $1
Change from prior year 19% 14% 5% N/M
Change from prior quarter 7% (9%) (4%) N/M
EBT $316 $498 $20 $118
Change from prior year (7%) 4% 18% N/M
Change from prior quarter (2%) (16%) (23%) N/M
Net income (loss)
Change from prior year
Change from prior quarter
Diluted EPS
Change from prior year
Change from prior quarter
Diluted shares used
Estimated Total
QUALCOMM Pro Share-Based Tax QUALCOMM
Segments Forma Compensation(4) Items(5) QSI(6) (GAAP)
Revenues $2,019 $-- $-- $-- $2,019
Change from
prior year 16% -- -- -- 16%
Change from
prior quarter 1% -- -- -- 1%
EBT $952 $(130) $-- $(43) $779
Change from
prior year 5% N/M N/M N/M 6%
Change from
prior quarter (1%) N/M N/M N/M (4%)
Net income (loss) $722 $(86) $33 $(21) $648
Change from
prior year 8% N/M N/M N/M 5%
Change from
prior quarter 2% N/M N/M N/M 6%
Diluted EPS $0.43 $(0.05) $0.02 $(0.01) $0.38
Change from
prior year 10% N/M N/M N/M 6%
Change from
prior quarter 2% N/M N/M N/M 6%
Diluted shares
used 1,685 1,685 1,685 1,685 1,685
Fourth Quarter - Fiscal Year 2006
Reconciling
Segments QCT(1) QTL(1) QWI(2) Items(1)(2)(3)
Revenues $1,147 $661 $196 $(5)
EBT 323 591 26 21
Net income (loss)
Diluted EPS
Diluted shares used
Estimated Total
QUALCOMM Pro Share-Based Tax In-Process QUALCOMM
Segments Forma Compensation(4) Items(7) R&D(8) QSI(6) (GAAP)
Revenues $1,999 $-- $-- $-- $-- $1,999
EBT 961 (127) -- (1) (23) 810
Net income
(loss) 705 (76) (16) (1) 2 614
Diluted EPS $0.42 $(0.05) $(0.01) $-- $-- $0.36
Diluted
shares
used 1,693 1,693 1,693 1,693 1,693 1,693
First Quarter - Fiscal Year 2006
Reconciling
Segments QCT(1) QTL(1) QWI(2) Items(1)(2)(3)
Revenues $1,033 $526 $179 $3
EBT 338 479 17 72
Net income (loss)
Diluted EPS
Diluted shares used
Estimated Total
QUALCOMM Pro Share-Based Tax QUALCOMM
Segments Forma Compensation(4) Items(9) QSI(6) (GAAP)
Revenues $1,741 $-- $-- $-- $1,741
EBT 906 (122) -- (48) 736
Net income
(loss) 667 (82) 56 (21) 620
Diluted EPS $0.39 $(0.05) $0.03 $(0.01) $0.36
Diluted
shares
used 1,702 1,702 1,702 1,702 1,702
Second Quarter - Fiscal Year 2006
Reconciling
Segments QCT(1) QTL(1) QWI(2) Items(1)(2)(3)
Revenues $1,018 $640 $178 $(2)
EBT 291 587 16 68
Net income (loss)
Diluted EPS
Diluted shares used
Estimated Total
QUALCOMM Pro Share-Based In-Process QUALCOMM
Segments Forma Compensation(4) R&D(8) QSI(6) (GAAP)
Revenues $1,834 $-- $-- $-- $1,834
EBT 962 (120) (21) (36) 785
Net income
(loss) 706 (78) (21) (14) 593
Diluted EPS $0.41 $(0.05) $(0.01) $(0.01) $0.34
Diluted
shares
used 1,721 1,721 1,721 1,721 1,721
Twelve Months - Fiscal Year 2006
Reconciling
Segments QCT(1) QTL(1) QWI(2) Items(1)(2)(3)
Revenues $4,332 $2,467 $731 $(4)
EBT $1,298 $2,233 $78 $197
Net income (loss)
Diluted EPS
Diluted shares used
Estimated Total
QUALCOMM Pro Share-Based Tax Items In-Process QUALCOMM
Segments Forma Compensation(4) (7)(9) R&D(8) QSI (GAAP)
Revenues $7,526 $-- $-- $-- $-- $7,526
EBT $3,806 $(495) $-- $(22) $(133) $3,156
Net income
(loss) $2,804 $(320) $40 $(22) $(32) $2,470
Diluted EPS $1.64 $(0.19) $0.02 $(0.01) $(0.02) $1.44
Diluted
shares
used 1,711 1,711 1,711 1,711 1,711 1,711
(1) During the first quarter of fiscal 2007, the Company reassessed the
intersegment royalty charged to QCT by QTL and determined that the
royalty should be eliminated starting in fiscal 2007 for management
reporting purposes to, among other reasons, recognize other value
that QTL has increasingly been realizing from QCT. As a result, QCT
did not record a royalty to QTL in the first quarter of fiscal 2007,
and prior period segment information has been adjusted in the same
manner for comparative purposes.
(2) During the first quarter of fiscal 2007, the Company reorganized the
QUALCOMM Wireless Systems (QWS) division, which sells products and
services to Globalstar, into the QWBS division in the QWI segment.
Revenues and operating results relating to the QWS business were
included in reconciling items through the end of fiscal 2006. Prior
period segment information has been adjusted to conform to the new
segment presentation.
(3) Reconciling items related to revenues consist primarily of other
nonreportable segment revenues less intersegment eliminations.
Reconciling items related to earnings before taxes consist primarily
of certain investment income, research and development expenses and
marketing expenses that are not allocated to the segments for
management reporting purposes, nonreportable segment results and the
elimination of intercompany profit.
(4) Certain share-based compensation is included in operating expenses
as part of employee-related costs but is not allocated to our
segments as such costs are not considered relevant by management in
evaluating segment performance. Estimated share-based compensation,
presented above and excluded from pro forma results, does not include
$1 million, net of tax, related to share-based awards granted under
the executive bonus program.
(5) During the first quarter of fiscal 2007, the federal R&D tax credit
that expired on December 31, 2005 was extended by Congress for a
period of two years beyond the prior expiration date. We recorded
a tax benefit of $33 million, or $0.02 diluted earnings per share,
related to fiscal 2006 in the first quarter of fiscal 2007 due to
this retroactive extension. The effective tax rate for the first
quarter of fiscal 2007 for total QUALCOMM (GAAP) was 17% primarily as
a result of this benefit. Our first quarter fiscal 2007 QUALCOMM pro
forma results exclude this tax benefit attributable to 2006.
(6) At fiscal year-end, the sum of the quarterly tax provisions for each
column, including QSI, equals the annual tax provisions for each
column computed in accordance with GAAP. In interim quarters, the
tax provision for the QSI operating segment is computed by
subtracting the tax provision for QUALCOMM pro forma, the tax
adjustment column and the tax provision related to estimated
share-based compensation from the tax provision for total QUALCOMM
(GAAP).
(7) During the fourth quarter of fiscal 2006, the Company refined its
estimate of R&D costs allocable to the Company's foreign operations
to reflect actual results and updated its forecast of future benefits
under an intercompany cost sharing agreement. Due to this
adjustment, the effective tax rate in the fourth quarter of fiscal
2006 for total QUALCOMM (GAAP) includes $33 million of tax expense,
or $0.02 per diluted share, related to fiscal 2004. In addition,
the Company recorded a $17 million tax benefit, or $0.01 diluted
earnings per share, related to the impact of prior year tax audits
completed during the fourth quarter of fiscal 2006. For fiscal 2006
pro forma presentation, results were adjusted to exclude these tax
adjustments related to prior years.
(8) During fiscal 2006, the Company recorded $22 million of expenses
related to acquired in-process R&D associated with three
acquisitions completed during the year. $21 million of this expense
was recorded in the second quarter of fiscal 2006 and $1 million was
recorded in the fourth quarter of fiscal 2006. For fiscal 2006 pro
forma presentation, results were adjusted to exclude these expenses.
(9) During the first quarter of fiscal 2006, the Company recorded a
$56 million tax benefit, or $0.03 diluted earnings per share, related
to the expected impact of prior year tax audits completed during that
quarter. For fiscal 2006 pro forma presentation, results were
adjusted to exclude this tax adjustment attributable to prior years.
N/M - Not Meaningful
Sums may not equal totals due to rounding.
Conference Call
QUALCOMM's first quarter fiscal 2007 earnings conference call will be broadcast live on January 24, 2007 beginning at 1:45 p.m. Pacific Standard Time (PST) on the Company's web site at: www.qualcomm.com. This conference call may contain forward-looking financial information. The conference call will include a discussion of "non-GAAP financial measures" as that term is defined in Regulation G. The most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company's financial results prepared in accordance with GAAP, as well as the other material financial and statistical information to be discussed in the conference call, will be posted on the Company's Investor Relations web site at www.qualcomm.com immediately prior to commencement of the call. A taped audio replay will be available via telephone on January 24, 2007 beginning at approximately 5:30 p.m. (PST) through February 7, 2007 at 9:00 p.m. (PST). To listen to the replay, U.S. callers may dial (800) 642-1687 and international callers may dial (706) 645-9291. U.S. and international callers should use reservation number 4455735. An audio replay of the conference call will be available on the Company's web site at www.qualcomm.com for two weeks following the live call.
Editor's Note: If you would like to view the web slides that accompany this earnings release and conference call, please view the QUALCOMM Investor Relations website at http://investor.qualcomm.com/results.cfm .
QUALCOMM Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and services based on CDMA and other advanced technologies. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 2006 FORTUNE 500(R) company traded on The Nasdaq Stock Market(R) under the ticker symbol QCOM.
Note Regarding Use of Non-GAAP Financial Measures
The Company presents pro forma financial information that is used by management (i) to evaluate, assess and benchmark the Company's operating results on a consistent and comparable basis, (ii) to measure the performance and efficiency of the Company's ongoing core operating businesses, including the QUALCOMM CDMA Technologies, QUALCOMM Technology Licensing and QUALCOMM Wireless & Internet segments, and (iii) to compare the performance and efficiency of these segments against each other and against competitors outside the Company. Pro forma measurements of the following financial data are used by the Company's management: revenues, R&D expenses, SG&A expenses, total operating expenses, operating income, net investment income, income before income taxes, effective tax rate, net income, diluted earnings per share, operating cash flow and free cash flow. Management is able to assess what it believes is a more meaningful and comparable set of financial performance measures for the Company and its business segments by eliminating the episodic impact of strategic investments in QSI and items such as acquired in-process R&D, as well as the inherent, non-operational volatility of share-based compensation. As a result, management compensation decisions and the review of executive compensation by the Compensation Committee of the Board of Directors focus primarily on pro forma financial measures applicable to the Company and its business segments.
Pro forma information used by management excludes the QUALCOMM Strategic Initiatives (QSI) segment, certain estimated share-based compensation, certain tax adjustments related to prior years and acquired in-process R&D expense. The QSI segment is excluded because the Company expects to exit its strategic investments at various times and the effects of fluctuations in the value of such investments are viewed by management as unrelated to the Company's operational performance. Estimated share-based compensation, other than amounts related to share-based awards granted under the executive bonus program, is excluded because management views the valuation of options and other share-based compensation as theoretical and unrelated to the Company's operational performance as it is affected by factors that are subject to change on each grant date, including the Company's stock price, stock market volatility, expected option life, risk-free interest rates and expected dividend payouts in future years. Moreover, it is not an expense that requires or will require cash payment by the Company. Certain tax adjustments related to prior years are excluded in order to provide a clearer understanding of the Company's ongoing tax rate and after tax earnings. Acquired in-process R&D expense in fiscal 2006 is excluded because such expense is incurred infrequently and is viewed by management as unrelated to the operating activities of the Company's ongoing core businesses.
The Company presents free cash flow, defined as net cash provided by operating activities less capital expenditures, to facilitate an understanding of the amount of cash flow generated that is available to grow its business and to create long-term shareholder value. The Company believes that this presentation is useful in evaluating its operating performance and financial strength. In addition, management uses this measure to value the Company and to compare its operating performance with other companies in the industry.
The non-GAAP pro forma financial information presented herein should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. In addition, pro forma is not a term defined by GAAP, and, as a result, the Company's measure of pro forma results might be different than similarly titled measures used by other companies. Reconciliations between total QUALCOMM (GAAP) results and QUALCOMM pro forma results and total QUALCOMM (GAAP) cash flow and QUALCOMM pro forma cash flow are presented herein.
Note Regarding Forward-Looking Statements
In addition to the historical information contained herein, this news release contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks associated with: the rate of development, deployment and commercial acceptance of CDMA-based networks and CDMA-based technology, including CDMA2000 1X, 1xEV-DO, WCDMA and HSDPA both domestically and internationally; our dependence on major customers and licensees; attacks on our licensing business model, including results of current and future litigation as well as actions of governmental or quasi-governmental bodies, and the costs we incur in connection therewith; fluctuations in the demand for CDMA-based products, services or applications; foreign currency fluctuations; strategic loans, investments and transactions the Company has or may pursue; our dependence on third party manufacturers and suppliers; our ability to maintain and improve operational efficiencies and profitability; the development, deployment and commercial acceptance of the MediaFLO USA network and FLO(TM) technology; as well as the other risks detailed from time-to-time in the Company's SEC reports.
(C) 2007 QUALCOMM Incorporated. All rights reserved. QUALCOMM is a registered trademark of QUALCOMM Incorporated. CDMA2000(R) is a registered trademark of the Telecommunications Industry Association. All other trademarks are the property of their respective owners.
QUALCOMM Contact:
John Gilbert
Vice President of Investor and Industry Analyst Relations
1-(858) 658-4813 (ph) 1-(858) 651-9303 (fax)
e-mail: ir@qualcomm.com
QUALCOMM Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
THIS SCHEDULE IS TO ASSIST THE READER IN RECONCILING FROM
PRO FORMA RESULTS TO TOTAL QUALCOMM RESULTS
(In millions, except per share data)
(Unaudited)
Three Months Ended December 31, 2006
Estimated Total
QUALCOMM Share-Based QUALCOMM
Pro Forma Compensation(a) Tax Items QSI (GAAP)
Revenues:
Equipment and
services $1,342 $-- $-- $-- $1,342
Licensing and
royalty fees 677 -- -- -- 677
Total
revenues 2,019 -- -- -- 2,019
Operating expenses:
Cost of
equipment
and services
revenues 624 10 -- -- 634
Research and
development 365 58 -- 17 440
Selling,
general and
administrative 282 62 -- 25 369
Total
operating
expenses 1,271 130 -- 42 1,443
Operating income
(loss) 748 (130) -- (42) 576
Investment
income, net 204(b) -- -- (1)(c) 203
Income (loss)
before income
taxes 952 (130) -- (43) 779
Income tax
(expense)
benefit (230)(d) 44 33 22(e) (131)(d)
Net income
(loss) $722 $(86) $33 $(21) $648
Earnings (loss)
per common share:
Diluted $0.43 $(0.05) $0.02 $(0.01) $0.38
Shares used in
per share
calculations:
Diluted 1,685 1,685 1,685 1,685 1,685
Supplemental
Financial Data:
Operating Cash Flow $834 $(32)(g) $-- $(13) $789
Operating Cash Flow
as a % of Revenues 41% 39%
Free Cash Flow (f) $544 $(32)(g) $-- $(45) $467
Free Cash Flow
as a % of Revenues 27% 23%
(a) Estimated share-based compensation presented above and excluded
from pro forma results does not include $1 million, net of tax,
related to share-based awards granted under the executive bonus
program.
(b) Includes $142 million in interest and dividend income related to
cash, cash equivalents and marketable securities, which are not
part of the Company's strategic investment portfolio, and
$63 million in net realized gains on investments, partially offset
by $1 million in interest expense.
(c) Includes $1 million in losses on derivatives, $1 million in interest
expense and $1 million in other-than-temporary losses on investments,
partially offset by $1 million in net realized gains on investments
and $1 million in interest and dividend income.
(d) The first quarter of fiscal 2007 tax rates are approximately 17% for
total QUALCOMM (GAAP) and approximately 24% for QUALCOMM pro forma.
(e) At fiscal year-end, the sum of the quarterly tax provisions for each
column, including QSI, will equal the annual tax provisions for each
column computed in accordance with GAAP. In interim quarters, the
tax provision for the QSI operating segment is computed by
subtracting the tax provision for QUALCOMM pro forma and the tax
provision related to estimated share-based compensation from the
tax provision for total QUALCOMM (GAAP).
(f) Free Cash Flow is calculated as net cash provided by operating
activities less capital expenditures. Reconciliation of these
amounts is included in the Reconciliation of Pro Forma Free Cash
Flows to Net Cash Provided by Operating Activities for Total
QUALCOMM for the three months ended December 31, 2006, included
herein.
(g) Tax benefits from stock options exercised during the quarter.
QUALCOMM Incorporated
RECONCILIATION OF PRO FORMA FREE CASH FLOWS TO
TOTAL QUALCOMM (GAAP) NET CASH PROVIDED BY OPERATING ACTIVITIES
AND OTHER SUPPLEMENTAL DISCLOSURES
(In millions)
(Unaudited)
Three Months Ended December 31, 2006
Estimated Total
QUALCOMM Share-Based QUALCOMM
Pro Forma Compensation QSI (GAAP)
Net cash provided (used)
by operating activities $834 $(32)(a) $(13) $789
Less: capital expenditures (290) -- (32) (322)
Free cash flow $544 $(32) $(45) $467
Other supplemental
cash disclosures:
Cash transfers from
QSI(1) $7 $-- $(7) $--
Cash transfers to
QSI(2) (95) -- 95 --
Net cash transfers
from (to)/from QSI $(88) $-- $88 $--
(1) Cash from loan payments and sale of equity securities.
(2) Funding for strategic debt and equity investments and other QSI
operating expenses.
Three Months Ended December 25, 2005
Estimated Total
QUALCOMM Share-Based QUALCOMM
Pro Forma Compensation QSI (GAAP)
Net cash provided (used)
by operating activities $713 $(101)(a) $(16) $596
Less: capital
expenditures (182) -- (31) (213)
Free cash flow $531 $(101) $(47) $383
(a) Tax benefits from stock options exercised during the period.
QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
ASSETS
December 31, September 24,
2006 2006
Current assets:
Cash and cash equivalents $2,649 $1,607
Marketable securities 3,298 4,114
Accounts receivable, net 693 700
Inventories 330 250
Deferred tax assets 229 235
Other current assets 180 143
Total current assets 7,379 7,049
Marketable securities 4,598 4,228
Property, plant and equipment, net 1,559 1,482
Goodwill 1,320 1,230
Deferred tax assets 441 512
Other assets 1,041 707
Total assets $16,338 $15,208
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $471 $420
Payroll and other benefits related liabilities 205 273
Dividend payable 198 --
Unearned revenue 253 197
Other current liabilities 631 532
Total current liabilities 1,758 1,422
Unearned revenue 144 141
Other liabilities 261 239
Total liabilities 2,163 1,802
Stockholders' equity:
Preferred stock, $0.0001 par value;
issuable in series; 8 shares authorized;
none outstanding at December 31, 2006 and
September 24, 2006 -- --
Common stock, $0.0001 par value;
6,000 shares authorized;
1,655 and 1,652 shares issued and outstanding
at December 31, 2006 and September 24, 2006,
respectively -- --
Paid-in capital 7,427 7,242
Retained earnings 6,549 6,100
Accumulated other comprehensive income 199 64
Total stockholders' equity 14,175 13,406
Total liabilities and stockholders' equity $16,338 $15,208
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended
December 31, December 25,
2006 2005
Revenues:
Equipment and services $1,342 $1,150
Licensing and royalty fees 677 591
Total revenues 2,019 1,741
Operating expenses:
Cost of equipment and services revenues 634 517
Research and development 440 340
Selling, general and administrative 369 239
Total operating expenses 1,443 1,096
Operating income 576 645
Investment income, net 203 91
Income before income taxes 779 736
Income tax expense (131) (116)
Net income $648 $620
Basic earnings per common share $0.39 $0.38
Diluted earnings per common share $0.38 $0.36
Shares used in per share calculations:
Basic 1,653 1,645
Diluted 1,685 1,702
Dividends per share paid $-- $--
Dividends per share announced $0.12 $0.09
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended
December 31, December 25,
2006 2005
Operating Activities:
Net income $648 $620
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 91 58
Non-cash portion of share-based
compensation expense 130 122
Incremental tax benefits from
stock options exercised (32) (101)
Net realized gains on marketable securities
and other investments (64) (20)
Equity in losses of investees -- 20
Non-cash income tax expense 54 104
Other items, net 5 (16)
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (9) (171)
Inventories (81) (18)
Other assets (98) 16
Trade accounts payable 47 87
Payroll, benefits and other liabilities 38 (86)
Unearned revenue 60 (19)
Net cash provided by operating activities 789 596
Investing Activities:
Capital expenditures (322) (213)
Purchases of available-for-sale securities (1,673) (3,318)
Proceeds from sale of available-for-sale
securities 2,436 2,160
Other investments and acquisitions,
net of cash acquired (220) (6)
Other items, net (2) 4
Net cash provided (used) by investing activities 219 (1,373)
Financing Activities:
Proceeds from issuance of common stock 97 181
Repurchase and retirement of common stock (96) --
Incremental tax benefits from stock options
exercised 32 101
Net cash provided by financing activities 33 282
Effect of exchange rate changes on cash 1 2
Net increase (decrease) in cash and
cash equivalents 1,042 (493)
Cash and cash equivalents at beginning of period 1,607 2,070
Cash and cash equivalents at end of period $2,649 $1,577
SOURCE QUALCOMM Incorporated
Released January 24, 2007