QUALCOMM Announces Record Second Quarter Fiscal 2007 Results
Revenues $2.22 Billion, Diluted EPS $0.43
Pro Forma Revenues $2.22 Billion, Diluted EPS $0.50
Financial Guidance Increased for Fiscal 2007
SAN DIEGO, April 25 /PRNewswire-FirstCall/ -- QUALCOMM Incorporated (Nasdaq: QCOM) today announced record results for the second quarter of fiscal 2007 ended April 1, 2007.
Total QUALCOMM (GAAP) Second Quarter Results
Total QUALCOMM results are reported in accordance with generally accepted accounting principles (GAAP).
* Revenues: $2.22 billion, up 21 percent year-over-year and 10 percent
sequentially.
* Net income: $726 million, up 22 percent year-over-year and 12 percent
sequentially.
* Diluted earnings per share: $0.43, up 26 percent year-over-year and
13 percent sequentially.
* Effective tax rate: 22 percent for the quarter. Fiscal 2007 estimated
tax rate of approximately 21 percent.
* Estimated share-based compensation: $84 million, net of tax, up
8 percent year-over-year and down 3 percent sequentially.
* Operating cash flow: $991 million, up 11 percent year-over-year;
45 percent of revenues.
* Return of capital to stockholders: $438 million, including
$398 million, or $0.24 per share, of cash dividends paid (relating
to dividends declared in the first and second quarters) and $40 million
to repurchase 1.0 million shares of our common stock.
QUALCOMM Pro Forma Second 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: $2.22 billion, up 21 percent year-over-year and 10 percent
sequentially.
* Net income: $838 million, up 19 percent year-over-year and 16 percent
sequentially.
* Diluted earnings per share: $0.50, up 22 percent year-over-year and
16 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 $0.01 loss per share attributable to
acquired in-process R&D.
* Effective tax rate: 24 percent for the quarter and estimated for
fiscal 2007.
* Free cash flow: $1.09 billion, up 15 percent year-over-year;
49 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.
"We are pleased to report that the 3G CDMA-based market continues to grow at a rapid pace. Our results reflect strong year-over-year growth in CDMA2000(R) and WCDMA chipsets and handsets driving record revenue and earnings per share," said Dr. Paul E. Jacobs, chief executive officer of QUALCOMM. "Based on our current outlook, thanks primarily to stronger than expected chipset demand across our product portfolio and higher CDMA2000 handset shipments, we are raising our fiscal 2007 revenue and earnings per share guidance."
"Focused execution by QUALCOMM and its partners resulted in many exciting achievements this quarter. The MediaFLO(TM) USA service was commercially launched by Verizon Wireless and AT&T/Cingular announced their plan to launch services later this year. The GSM Association selected LG's phone, powered by a QUALCOMM chipset, as the '3G for All' winner to enable feature rich WCDMA handsets at lower prices. In addition, we announced the expansion of our single chip product line to include EV-DO Rev. A, providing a low cost mobile broadband solution. The innovation and competition enabled by our business model continues to provide manufacturers, operators and subscribers compelling devices, applications and services globally."
Cash and Marketable Securities
QUALCOMM's cash, cash equivalents and marketable securities totaled approximately $11.3 billion at the end of the second quarter of fiscal 2007, compared to $10.5 billion at the end of the first quarter of fiscal 2007 and $10.2 billion a year ago. During the second quarter of fiscal 2007, we announced a 17 percent increase in our quarterly dividend from $0.12 to $0.14 per share. A cash dividend of $0.14 per share is payable on June 29, 2007 to stockholders of record at the close of business on June 1, 2007.
Estimated Share-Based Compensation
Total QUALCOMM (GAAP) net income for the second quarter of fiscal 2007 included estimated share-based compensation, net of tax, of $84 million, or $0.05 per share, compared to $78 million, or $0.05 per share in the prior year quarter.
Research and Development
Estimated Total
QUALCOMM Share-Based In-Process QUALCOMM
($ in millions) Pro Forma Compensation R&D QSI (GAAP)
Second quarter
fiscal 2007 $370 $58 $10 $16 $454
As a % of revenue 17% 20%
Second quarter
fiscal 2006 $302 $52 $21 $15 $390
As a % of revenue 16% 21%
Year-over-year
change ($) 23% 12% (52%) 7% 16%
Pro forma R&D expenses increased 23 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. QSI R&D expenses are primarily related to MediaFLO USA.
Selling, General and Administrative
Estimated Total
QUALCOMM Share-Based QUALCOMM
($ in millions) Pro Forma Compensation QSI (GAAP)
Second quarter
fiscal 2007 $301 $59 $25 $385
As a % of revenue 14% 17%
Second quarter
fiscal 2006 $188 $58 $17 $263
As a % of revenue 10% 14%
Year-over-year
change ($) 60% 2% 47% 46%
Pro forma selling, general and administrative (SG&A) expenses increased 60 percent year-over-year, largely attributable to increases in legal fees, employee related expenses and bad debt expense. The year-over-year increase in QSI SG&A expenses is primarily related to MediaFLO USA.
Effective Income Tax Rate
Our fiscal 2007 effective income tax rate is estimated to be 21 percent for total QUALCOMM (GAAP), consistent with our prior estimate. The second quarter tax rate of 22 percent for total QUALCOMM (GAAP) is higher than the estimated annual effective income tax rate due primarily to $33 million of tax benefits recorded in the first quarter of fiscal 2007 related to the retroactive extension of the federal research and development tax credit. Our fiscal 2007 QUALCOMM pro forma effective income tax rate is estimated to be 24 percent, compared to our previous estimate of 25 percent. This decrease in our pro forma estimated annual rate is primarily due to an increase in forecasted earnings taxed at less than the United States federal tax rate.
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 second quarter of fiscal 2007 include $0.01 loss per share for the QSI segment. The second quarter of fiscal 2007 QSI results included $50 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 third 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 third quarter and fiscal 2007 guidance includes the anticipated positive impact to QTL revenue resulting from an arbitration decision in April 2007 in our favor against Ericsson and Sony Ericsson for underpaying royalties to us under the terms of the license agreement with us. Under the arbitration order, we will receive $30 million for subscriber unit sales from 2004 through the first quarter of calendar 2006. In addition, royalty payments from the first quarter of calendar 2006 to the present, and going forward, will be made in accordance with the arbitrators' decision providing a positive impact on revenues and earnings.
We are engaged in multiple disputes with Nokia Corp. including litigation over Nokia's obligation to pay royalties for the use of certain of our patents. As a result, under generally accepted accounting principles, we do not expect to be able to record royalty revenue attributable to Nokia's sales starting in the fourth quarter of fiscal 2007 until an arbitrator (or court) awards damages or the disputes are otherwise resolved by agreement with Nokia. We had previously estimated the potential impact of non-payment of royalties from Nokia in the fourth quarter of fiscal 2007 for June quarter shipments to be approximately $0.04 to $0.06 diluted earnings per share. Our current estimate of royalties which we believe will be owed from Nokia in the fourth quarter of fiscal 2007 for June quarter shipments is approximately $0.04 to $0.05 diluted earnings per share, which we have excluded from our current fiscal 2007 guidance.
The following estimates are approximations and are based on the current
business outlook:
Business Outlook Summary
THIRD FISCAL QUARTER
Current Guidance
Q3'06 Q3'07
Results Estimates
QUALCOMM Pro Forma
Revenues $1.95B $2.2B - $2.3B
Year-over-year change increase 13% - 18%
Diluted earnings per share (EPS) $0.42 $0.50 - $0.52
Year-over-year change increase 19% - 24%
Total QUALCOMM (GAAP)
Revenues $1.95B $2.2B - $2.3B
Year-over-year change increase 13% - 18%
Diluted earnings per share (EPS) $0.37 $0.43 - $0.45
Year-over-year change increase 16% - 22%
Diluted EPS attributable to QSI $0.00 ($0.02)
Diluted EPS attributable to estimated
share-based compensation ($0.05) ($0.05)
Metrics
MSM Shipments approx. 55M approx. 62M - 65M
CDMA/WCDMA handset units shipped approx. 66M* approx. 81M - 85M*
CDMA/WCDMA handset unit wholesale
average selling price approx. $213* approx. $213*
*Shipments in Mar. quarter,
reported in June quarter
FISCAL YEAR
Prior Guidance Current Guidance
FY 2006 FY 2007 FY 2007
Results Estimates(1) Estimates(2)
QUALCOMM Pro Forma
Revenues $7.53B $8.1B - $8.6B $8.4B - $8.7B
Year-over-year change increase 8% - 14% increase 12% - 16%
Diluted earnings
per share (EPS) $1.64 $1.72 - $1.77 $1.84 - $1.88
Year-over-year change increase 5% - 8% increase 12% - 15%
Total QUALCOMM (GAAP)
Revenues $7.53B $8.1B - $8.6B $8.4B - $8.7B
Year-over-year change increase 8% - 14% increase 12% - 16%
Diluted earnings
per share (EPS) $1.44 $1.44 - $1.49 $1.57 - $1.61
Year-over-year change even - increase 3% increase 9% - 12%
Diluted EPS
attributable
to in-process R&D ($0.01) n/a ($0.01)
Diluted EPS
attributable
to QSI ($0.02) ($0.10) ($0.09)
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 $0.02 $0.02
Metrics
Fiscal year*
CDMA/WCDMA
handset unit
wholesale
average
selling price approx. $215 approx. $210 approx. $208
*Shipments in Sept.
to June quarters,
reported in Dec.
to Sept. quarters
CALENDAR YEAR Handset Estimates
Prior Guidance Current Guidance
CDMA/WCDMA handset Calendar 2007 Calendar 2007
unit shipments Calendar 2006 Estimates Estimates
March quarter approx. 66M not provided approx. 81M - 85M
June quarter approx. 70M not provided not provided
September quarter approx. 76M not provided not provided
December quarter approx. 91M not provided not provided
Calendar year range
(approx.) 301M 368M - 388M 373M - 393M
Midpoint Midpoint Midpoint
CDMA/WCDMA units approx. 301M approx. 378M approx. 383M
CDMA units approx. 200M approx. 203M approx. 208M
WCDMA units approx. 101M approx. 175M approx. 175M
(1) Prior FY 2007 estimates did not reflect the potential adverse impact
on our results of Nokia not paying royalties in the fourth quarter
of fiscal 2007 for June quarter shipments. Our prior estimate of such
impact was approximately $0.04 to $0.06 diluted earnings per share.
(2) Current FY 2007 estimates do not reflect the potential opportunity of
Nokia paying royalties in the fourth quarter of fiscal 2007 for
June quarter shipments. Our current estimate of such opportunity is
approximately $0.04 to $0.05 diluted earnings per share.
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 (Note 1) (in millions, except per share data):
Second Quarter - Fiscal Year 2007
Reconciling
Segments QCT QTL QWI Items(2)
Revenues $1,259 $759 $198 $5
Change from prior year 24% 19% 11% N/M
Change from prior quarter 2% 27% 5% N/M
EBT $368 $636 $ 20 $82
Change from prior year 26% 8% 25% N/M
Change from prior quarter 16% 28% 0% N/M
Estimated Total
QUALCOMM Share-Based In-Process QUALCOMM
Segments Pro Forma Compensation(3) R&D QSI(4) (GAAP)
Revenues $2,221 $-- $-- $-- $2,221
Change from
prior year 21% 21%
Change from
prior quarter 10% 10%
EBT $1,106 $(126) $(10) $(42) $928
Change from
prior year 15% 5% (52%) 17% 18%
Change from
prior quarter 16% (3%) N/M (2%) 19%
Net income (loss) $838 $(83) $(9) $(20) $726
Change from
prior year 19% 6% (57%) 43% 22%
Change from
prior quarter 16% (3%) N/M (5%) 12%
Diluted EPS $0.50 $(0.05) $(0.01) $(0.01) $0.43
Change from
prior year 22% 0% 0% 0% 26%
Change from
prior quarter 16% 0% N/M 0% 13%
Diluted shares
used 1,693 1,693 1,693 1,693 1,693
First Quarter - Fiscal Year 2007
Reconciling
Segments QCT QTL QWI Items(2)
Revenues $1,230 $600 $188 $1
EBT 316 498 20 118
Estimated Total
QUALCOMM Share-Based Tax QUALCOMM
Segments Pro Forma Compensation(3) Items(5) QSI(4) (GAAP)
Revenues $2,019 $-- $-- $-- $2,019
EBT 952 (130) -- (43) 779
Net income (loss) 722 (86) 33 (21) 648
Diluted EPS $0.43 $(0.05) $0.02 $(0.01) $0.38
Diluted shares
used 1,685 1,685 1,685 1,685 1,685
Second Quarter - Fiscal Year 2006
Reconciling
Segments QCT(1)* QTL(1)* QWI(1)* Items(1)(2)*
Revenues $1,018 $640 $178 $(2)
EBT 291 587 16 68
Estimated Total
QUALCOMM Share-Based In-Process QUALCOMM
Segments Pro Forma Compensation(3) R&D QSI(4) (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
Third Quarter - Fiscal Year 2006
Reconciling
Segments QCT(1)* QTL(1)* QWI(1)* Items(1)(2)*
Revenues $1,133 $640 $178 $--
EBT 346 576 18 36
Estimated Total
QUALCOMM Share-Based QUALCOMM
Segments Pro Forma Compensation(3) QSI(4) (GAAP)
Revenues $1,951 $-- $-- $1,951
EBT 976 (126) (26) 824
Net income (loss) 726 (83) -- 643
Diluted EPS $0.42 $(0.05) $-- $0.37
Diluted shares used 1,728 1,728 1,728 1,728
Twelve Months - Fiscal Year 2006
Reconciling
Segments QCT(1)* QTL(1)* QWI(1)* Items(1)(2)*
Revenues $4,332 $2,467 $731 $(4)
EBT 1,298 2,233 78 197
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Segments Pro Forma Compensation(3) Items R&D QSI(4) (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
Six Months - Fiscal Year 2007
Reconciling
Segments QCT QTL QWI Items(2)
Revenues $2,490 $1,359 $387 $4
Change from prior year 21% 17% 8% N/M
EBT $684 $1,134 $40 $200
Change from prior year 9% 6% 21% N/M
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Segments Pro Forma Compensation(3) Items(5) R&D QSI(4) (GAAP)
Revenues $4,240 $-- $-- $-- $-- $4,240
Change from
prior year 19% 19%
EBT $2,058 $(257) $-- $(10) $(85) $1,706
Change from
prior year 10% 6% (52%) 1% 12%
Net income
(loss) $1,560 $(169) $33 $(9) $(42) $1,373
Change from
prior year 14% 6% (41%) (57%) 20% 13%
Diluted EPS $0.92 $(0.10) $0.02 $(0.01) $(0.02) $0.81
Change from
prior year 15% 11% (33%) 0% 0% 14%
Diluted
shares
used 1,689 1,689 1,689 1,689 1,689 1,689
Six Months - Fiscal Year 2006
Reconciling
Segments QCT(1)* QTL(1)* QWI(1)* Items(1)(2)*
Revenues $2,051 $1,165 $357 $2
EBT 629 1,066 33 140
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Segments Pro Forma Compensation(3) Items R&D QSI(4) (GAAP)
Revenues $3,575 $-- $-- $-- $-- $3,575
EBT 1,868 (242) -- (21) (84) 1,521
Net income 1,373 (160) 56 (21) (35) 1,213
Diluted EPS $0.80 $(0.09) $0.03 $(0.01) $(0.02) $0.71
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. As a result, QCT did not record a royalty to
QTL in the first six months of fiscal 2007. The Company also
reorganized the QUALCOMM Wireless Systems (QWS) division into the
QWBS division within the QWI segment. Revenues and operating results
relating to QWS 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.
(2) 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.
(3) Certain share-based compensation is included in operating expenses as
part of employee-related costs but is not allocated to the Company's
segments as such costs are not considered relevant by management in
evaluating segment performance.
(4) 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 provisions related to estimated share-based compensation
and in-process R&D from the tax provision for total QUALCOMM (GAAP).
(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. The Company
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. The first quarter fiscal 2007 QUALCOMM pro
forma results exclude this tax benefit attributable to 2006.
N/M - Not Meaningful
Sums may not equal totals due to rounding.
*As adjusted to conform to 2007 segment presentation
Conference Call
QUALCOMM's second quarter fiscal 2007 earnings conference call will be broadcast live on April 25, 2007 beginning at 1:45 p.m. Pacific Daylight Time (PDT) 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 April 25, 2007 beginning at approximately 5:30 p.m. (PDT) through June 25, 2007 at 9:00 p.m. (PDT). 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 1486859. 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. 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 the share-based compensation 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 is excluded because such expense 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 evaluate the Company's performance, 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 and arbitration proceedings 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 (GAAP) RESULTS
(In millions, except per share data)
(Unaudited)
Three Months Ended April 1, 2007
Estimated Total
QUALCOMM Share-Based In-Process QUALCOMM
Pro Forma Compensation(a) R&D QSI (GAAP)
Revenues:
Equipment and
services $1,370 $-- $-- $-- $1,370
Licensing and
royalty fees 851 -- -- -- 851
Total
revenues 2,221 -- -- -- 2,221
Operating
expenses:
Cost of
equipment
and services
revenues 616 9 -- 9 634
Research and
development 370 58 10 16 454
Selling,
general and
administrative 301 59 -- 25 385
Total
operating
expenses 1,287 126 10 50 1,473
Operating income
(loss) 934 (126) (10) (50) 748
Investment income,
net 172(b) -- -- 8(c) 180
Income (loss)
before income
taxes 1,106 (126) (10) (42) 928
Income tax
(expense)
benefit (268)(d) 43 1 22(e) (202)(d)
Net income (loss) $838 $(83) $(9) $(20) $726
Earnings (loss)
per common share:
Diluted $0.50 $(0.05) $(0.01) $(0.01) $0.43
Shares used in
per share
calculations:
Diluted 1,693 1,693 1,693 1,693 1,693
Supplemental
Financial Data:
Operating
Cash Flow $1,159 $(87)(g) $(10) $(71) $991
Operating
Cash Flow as a
% of Revenues 52% 45%
Free Cash
Flow (f) $1,087 $(87)(g) $(10) $(91) $899
Free Cash Flow
as a % of
Revenues 49% 40%
(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 $125 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 $49 million in
net realized gains on investments, partially offset by $1 million in
other-than-temporary losses on investments and $1 million in interest
expense.
(c) Includes $6 million in net realized gains on investments and
$3 million in interest and dividend income, partially offset by
$1 million in interest expense.
(d) The second quarter of fiscal 2007 tax rates are approximately 22% 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 provisions
related to estimated share-based compensation and in-process R&D 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
Total QUALCOMM Net Cash Provided by Operating Activities for the
three months ended April 1, 2007, included herein.
(g) Incremental tax benefits from stock options exercised during the
period.
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THIS SCHEDULE IS TO ASSIST THE READER IN RECONCILING FROM
PRO FORMA RESULTS TO TOTAL QUALCOMM (GAAP) RESULTS
(In millions, except per share data)
(Unaudited)
Six Months Ended April 1, 2007
Estimated Tax In- Total
QUALCOMM Share-Based Adjust- Process QUALCOMM
Pro Forma Compensation(a) ment R&D QSI (GAAP)
Revenues:
Equipment
and
services $2,712 $-- $-- $-- $-- $2,712
Licensing
and
royalty
fees 1,528 -- -- -- -- 1,528
4,240 -- -- -- -- 4,240
Operating
expenses:
Cost of
equipment
and
services
revenues 1,239 20 -- -- 9 1,268
Research
and
development 737 115 -- 10 33 895
Selling,
general and
admini-
strative 582 122 -- -- 50 754
Total
operating
expenses 2,558 257 -- 10 92 2,917
Operating
income (loss) 1,682 (257) -- (10) (92) 1,323
Investment
income
(expense),
net 376(b) -- -- -- 7(c) 383
Income (loss)
before income
taxes 2,058 (257) -- (10) (85) 1,706
Income tax
(expense)
benefit (498) 88 33 1 43(e) (333)(d)
Net income
(loss) $1,560 $(169) $33 $(9) $(42) $1,373
Earnings (loss)
per common
share:
Diluted $0.92 $(0.10) $0.02 $(0.01) $(0.02) $0.81
Shares used
in per share
calculations:
Diluted 1,689 1,689 1,689 1,689 1,689 1,689
Supplemental
Financial
Data:
Operating
Cash Flow $1,994 $(119)(g) $-- $(10) $(85) $1,780
Operating
Cash Flow
as a % of
Revenue 47% 42%
Free Cash
Flow (f) $1,633 $(119)(g) $-- $(10) $(138) $1,366
Free Cash
Flow
as a % of
Revenue 39% 32%
(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 $266 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, $112 million in net
realized gains on investments, partially offset by $1 million in
other-than-temporary losses on investments and $1 million in interest
expense.
(c) Includes $7 million in net realized gains on investments and
$4 million in interest and dividend income, partially offset by
$2 million in interest expense, $1 million in other-than-temporary
losses on investments and $1 million in losses on derivatives.
(d) The tax rate of 20% for the first six months of fiscal 2007 for total
QUALCOMM (GAAP) is lower than the estimated annual effective tax rate
of 22% due primarily to $33 million of tax benefits recorded in the
first quarter related to the retroactive extension of the federal
research and development tax credit.
(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, the tax adjustment column
and the tax provisions related to estimated share-based compensation
and in-process R&D 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 Total QUALCOMM Net Cash Provided by Operating Activities for the
six months ended April 1, 2007, included herein.
(g) Incremental tax benefits from stock options exercised during the
period.
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 April 1, 2007
Estimated Total
QUALCOMM Share-Based In-Process QUALCOMM
Pro Forma Compensation R&D QSI (GAAP)
Net cash
provided
(used) by
operating
activities $1,159 $(87)(a) $(10) $(71) $991
Less: capital
expenditures (72) -- -- (20) (92)
Free cash flow $1,087 $(87) $(10) $(91) $899
Other
supplemental
cash
disclosures:
Cash transfers
from QSI (1) $7 $-- $-- $(7) $--
Cash transfers
to QSI (2) (99) -- -- 99 --
Net cash
transfers $(92) $-- $-- $92 $--
Six Months Ended April 1, 2007
Estimated Total
QUALCOMM Share-Based In-Process QUALCOMM
Pro Forma Compensation R&D QSI (GAAP)
Net cash
provided
(used) by
operating
activities $1,994 $(119)(a) $(10) $(85) $1,780
Less: capital
expenditures (361) -- -- (53) (414)
Free cash flow $1,633 $(119) $(10) $(138) $1,366
Other
supplemental
cash
disclosures:
Cash transfers
from QSI (1) $13 $-- $-- $(13) $--
Cash transfers
to QSI (2) (194) -- -- 194 --
Net cash
transfers $(181) $-- $-- $181 $--
(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 March 26, 2006
Estimated Total
QUALCOMM Share-Based In-Process QUALCOMM
Pro Forma Compensation R&D QSI (GAAP)
Net cash
provided
(used) by
operating
activities $1,072 $(172)(a) $-- $(11) $889
Less: capital
expenditures (125) -- -- (36) (161)
Free cash flow $947 $(172) $-- $(47) $728
Six Months Ended March 26, 2006
Estimated Total
QUALCOMM Share-Based In-Process QUALCOMM
Pro Forma Compensation R&D QSI (GAAP)
Net cash
provided
(used) by
operating
activities $1,785 $(273)(a) $-- $(27) $1,485
Less: capital
expenditures (307) -- -- (67) (374)
Free cash flow $1,478 $(273) $-- $(94) $1,111
(a) Incremental tax benefits from stock options exercised during the
period.
QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
ASSETS
April 1, September 24,
2007 2006
Current assets:
Cash and cash equivalents $3,353 $1,607
Marketable securities 3,198 4,114
Accounts receivable, net 714 700
Inventories 347 250
Deferred tax assets 232 235
Other current assets 234 143
Total current assets 8,078 7,049
Marketable securities 4,751 4,228
Property, plant and equipment, net 1,582 1,482
Goodwill 1,320 1,230
Deferred tax assets 486 512
Other assets 1,037 707
Total assets $17,254 $15,208
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $566 $420
Payroll and other benefits related liabilities 240 273
Unearned revenue 289 197
Income taxes payable 298 137
Other current liabilities 433 395
Total current liabilities 1,826 1,422
Unearned revenue 151 141
Other liabilities 247 239
Total liabilities 2,224 1,802
Stockholders' equity:
Preferred stock, $0.0001 par value;
issuable in series; 8 shares authorized;
none outstanding at April 1, 2007 and
September 24, 2006 -- --
Common stock, $0.0001 par value;
6,000 shares authorized; 1,665 and 1,652
shares issued and outstanding at
April 1, 2007 and September 24, 2006,
respectively -- --
Paid-in capital 7,758 7,242
Retained earnings 7,075 6,100
Accumulated other comprehensive income 197 64
Total stockholders' equity 15,030 13,406
Total liabilities and stockholders' equity $17,254 $15,208
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
April 1, March 26, April 1, March 26,
2007 2006 2007 2006
Revenues:
Equipment and services $1,370 $1,122 $2,712 $2,271
Licensing and royalty fees 851 712 1,528 1,304
Total revenues 2,221 1,834 4,240 3,575
Operating expenses:
Cost of equipment and
services revenues 634 521 1,268 1,037
Research and development 454 390 895 731
Selling, general and
administrative 385 263 754 502
Total operating expenses 1,473 1,174 2,917 2,270
Operating income 748 660 1,323 1,305
Investment income, net 180 125 383 216
Income before income taxes 928 785 1,706 1,521
Income tax expense (202) (192) (333) (308)
Net income $726 $593 $1,373 $1,213
Basic earnings per common
share $0.44 $0.36 $0.83 $0.73
Diluted earnings per common
share $0.43 $0.34 $0.81 $0.71
Shares used in per share
calculations:
Basic 1,659 1,664 1,656 1,655
Diluted 1,693 1,721 1,689 1,711
Dividends per share paid $0.24 $0.18 $0.24 $0.18
Dividends per share announced $0.12 $0.09 $0.24 $0.18
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended Six Months Ended
April 1, March 26, April 1, March 26,
2007 2006 2007 2006
Operating Activities:
Net income $726 $593 $1,373 $1,213
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 93 63 184 121
Non-cash portion of share-based
compensation expense 127 120 257 242
Incremental tax benefits from
stock options exercised (87) (172) (119) (273)
Net realized gains on
marketable securities and
other investments (55) (40) (119) (60)
Non-cash income tax expense 131 116 229 220
Other items, net 2 22 8 26
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (8) 157 (17) (14)
Inventories (17) (21) (98) (39)
Other assets (57) 5 (155) 21
Trade accounts payable 87 19 134 106
Payroll, benefits and other
liabilities 7 21 1 (65)
Unearned revenue 42 6 102 (13)
Net cash provided by operating
activities 991 889 1,780 1,485
Investing Activities:
Capital expenditures (92) (161) (414) (374)
Purchases of available-for-sale
securities (1,908) (2,744) (3,581) (6,062)
Proceeds from sale of
available-for-sale
securities 1,909 2,283 4,345 4,443
Other investments and
acquisitions, net of cash
acquired (7) (264) (227) (270)
Other items, net 3 41 1 45
Net cash (used) provided by
investing activities (95) (845) 124 (2,218)
Financing Activities:
Proceeds from issuance of common
stock 158 287 255 468
Incremental tax benefits from
stock options exercised 87 172 119 273
Dividends paid (398) (298) (398) (298)
Repurchase and retirement of
common stock (40) -- (136) --
Net cash (used) provided by
financing activities (193) 161 (160) 443
Effect of exchange rate changes
on cash 1 (3) 2 (1)
Net increase (decrease) in cash and
cash equivalents 704 202 1,746 (291)
Cash and cash equivalents at
beginning of period 2,649 1,577 1,607 2,070
Cash and cash equivalents at
end of period $3,353 $1,779 $3,353 $1,779
SOURCE QUALCOMM Incorporated
Released April 25, 2007