QUALCOMM Announces Record Third Quarter Fiscal 2007 Results
Revenues $2.33 Billion, Diluted EPS $0.47
Pro Forma Revenues $2.33 Billion, Diluted EPS $0.55
Financial Guidance Increased for Fiscal 2007
SAN DIEGO, July 25 /PRNewswire-FirstCall/ -- QUALCOMM Incorporated (Nasdaq: QCOM) today announced record results for the third quarter of fiscal 2007 ended July 1, 2007.
Total QUALCOMM (GAAP) Third Quarter Results
Total QUALCOMM results are reported in accordance with generally accepted accounting principles (GAAP).
* Revenues: $2.33 billion, up 19 percent year-over-year and 5 percent
sequentially.
* Net income: $798 million, up 24 percent year-over-year and 10 percent
sequentially.
* Diluted earnings per share: $0.47, up 27 percent year-over-year and 9
percent sequentially.
* Effective tax rate: 18 percent for the quarter. Fiscal 2007 estimated
tax rate of approximately 19 percent.
* Estimated share-based compensation: $76 million, net of tax, down 8
percent year-over-year and 10 percent sequentially.
* Operating cash flow: $988 million, up 21 percent year-over-year; 42
percent of revenues.
* Return of capital to stockholders: $363 million in the third quarter,
including $234 million of cash dividends, or $0.14 per share, and $129
million to repurchase 3.1 million shares of our common stock.
QUALCOMM Pro Forma Third 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: $2.33 billion, up 19 percent year-over-year and 5 percent
sequentially.
* Net income: $934 million, up 29 percent year-over-year and 11 percent
sequentially.
* Diluted earnings per share: $0.55, up 31 percent year-over-year and 10
percent sequentially; excludes $0.04 loss per share attributable to the
QSI segment and $0.04 loss per share attributable to certain estimated
share-based compensation.
* Effective tax rate: 21 percent for the quarter. Fiscal 2007 estimated
tax rate of approximately 23 percent.
* Free cash flow: $977 million, up 23 percent year-over-year; 42 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 had another tremendous quarter, providing market validation for the innovative products and solutions delivered by our employees and partners worldwide," said Dr. Paul E. Jacobs, chief executive officer of QUALCOMM. "The fundamental drivers of our business remain very strong. Our record revenue and earnings this quarter reflect continued worldwide demand for innovative third-generation devices and services. We shipped a record 65 million CDMA-based MSM(TM) chipsets in the third quarter representing strong year-over-year growth in both 1xEV-DO and WCDMA. Strong March quarter handset shipments demonstrate the continued global adoption of CDMA-based technologies with over 30% growth from the year ago quarter."
"In addition to continued excellent business and financial performance, we also see traction for our initiatives to expand the wireless market. Multiple WCDMA operators have adopted the BREW platform, our MediaFLO(TM) system continues to grow as we expand our service footprint in the United States and conduct new trials around the world, and our Snapdragon(TM) processor is building momentum in the computing and consumer electronics markets."
"While we continue to execute well and the future of CDMA-based technology is very bright, we are also expending a great amount of time and resources defending our business model. In the most recent quarter, we have made progress in some of these battles, while losing ground in others. We were disappointed with the rulings on behalf of Broadcom, both in the California litigation and in front of the ITC. We continue to believe that the rulings were wrong and are pursuing all avenues to reverse and to mitigate the effect of those rulings, including working with our partners who may obtain a license from Broadcom. While we are increasing our guidance for the year, ITC and litigation outcomes are uncertain and could have a material impact on our business and results of operations."
Cash and Marketable Securities
QUALCOMM's cash, cash equivalents and marketable securities totaled approximately $12.3 billion at the end of the third quarter of fiscal 2007, compared to $11.3 billion at the end of the second quarter of fiscal 2007 and $9.5 billion a year ago. As of July 1, 2007, $2.6 billion remains authorized for repurchases under our stock repurchase program, net of put options outstanding. On July 13, 2007, we announced a cash dividend of $0.14 per share payable on September 28, 2007 to stockholders of record at the close of business on August 31, 2007.
Estimated Share-Based Compensation
Total QUALCOMM (GAAP) net income for the third quarter of fiscal 2007
includes estimated share-based compensation, net of tax, of $76 million, or
$0.04 per diluted share, compared to $83 million, or $0.05 per diluted share
in the prior year quarter.
Research and Development
Estimated Total
QUALCOMM Share-Based QUALCOMM
($ in millions) Pro Forma Compensation QSI (GAAP)
Third quarter fiscal 2007 $385 $50 $19 $454
As a % of revenue 17% 20%
Third quarter fiscal 2006 $322 $56 $17 $395
As a % of revenue 17% 20%
Year-over-year change ($) 20% (11%) 12% 15%
Pro forma R&D expenses increased 20 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 related to MediaFLO USA.
Selling, General and Administrative
Estimated Total
QUALCOMM Share-Based QUALCOMM
($ in millions) Pro Forma Compensation QSI (GAAP)
Third quarter fiscal 2007 $307 $54 $40 $401
As a % of revenue 13% 17%
Third quarter fiscal 2006 $214 $60 $19 $293
As a % of revenue 11% 15%
Year-over-year change ($) 43% (10%) 111% 37%
Pro forma selling, general and administrative (SG&A) expenses increased 43 percent year-over-year, largely attributable to increases in costs related to litigation and other legal matters and employee related expenses. The year- over-year increase in QSI SG&A expenses is primarily related to MediaFLO USA cooperative marketing expenses.
Effective Income Tax Rate
Our fiscal 2007 effective income tax rate is estimated to be 19 percent for total QUALCOMM (GAAP) compared to our prior estimate of 21 percent. Our fiscal 2007 QUALCOMM pro forma effective income tax rate is estimated to be 23 percent, compared to our previous estimate of 24 percent. The third quarter QUALCOMM (GAAP) and pro forma effective tax rates of 18 percent and 21 percent, respectively, are lower than the expected annual effective tax rates primarily due to our estimate of additional foreign 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 third quarter of fiscal 2007 include $0.04 loss per share for the QSI segment. The third quarter of fiscal 2007 QSI results include $95 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, asset impairments or the impact of the resolution of income tax audits, 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. In addition, our outlook provides for legal costs which are reasonably consistent with our experience over the past year but does not include any provision for the consequences of injunctions or significant damages or costs related to litigation matters, including support we may agree to provide to our customers. Although Verizon announced it has entered into a license agreement with Broadcom eliminating risk of not being able to import handsets using our chips for use in Verizon's network, a comprehensive settlement between us and Broadcom is unlikely given Broadcom's insistence on terms which could have a material impact on our licensing business. As a result, over the next few months, we will be defending ourselves from Broadcom's attempts to obtain an injunction precluding the sale of certain of our chips sold in handsets for use in the U.S. other than in Verizon's network.
The following table summarizes total QUALCOMM (GAAP) and QUALCOMM pro forma guidance for the fourth fiscal quarter and fiscal 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.
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. Our estimate of royalties which we believe will be owed by Nokia in the fourth quarter of fiscal year 2007 for June quarter shipments is approximately $0.05 diluted earnings per share, which we have excluded from our current fourth fiscal quarter and fiscal 2007 guidance, compared to our prior estimate of approximately $0.04 to $0.05 diluted earnings per share.
The following estimates are approximations and are based on the current
business outlook:
Business Outlook Summary
FOURTH FISCAL QUARTER
Current Guidance
Q4'06 Q4'07
Results Estimates (1)
QUALCOMM Pro Forma
Revenues $2.00B $2.15B - $2.25B
Year-over-year change increase 8% - 13%
Diluted earnings per share (EPS) $0.42 $0.48 - $0.50
Year-over-year change increase 14% - 19%
Total QUALCOMM (GAAP)
Revenues $2.00B $2.15B - $2.25B
Year-over-year change increase 8% - 13%
Diluted earnings per share (EPS) $0.36 $0.41 - $0.43
Year-over-year change increase 14% - 19%
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. 56M approx. 65M - 68M
CDMA/WCDMA handset units
shipped(2) approx. 70M* approx. 90M - 94M*
CDMA/WCDMA handset unit wholesale
average selling price (2) approx. $223* approx. $222*
* Shipments in June quarter,
reported in Sept. quarter
FISCAL YEAR
Prior Current
Guidance Guidance
FY 2006 FY 2007 FY 2007
Results Estimates(1) Estimates(1)
QUALCOMM Pro Forma
Revenues $7.53B $8.4B - $8.7B $8.72B - $8.82B
Year-over-year change increase 12% - 16% increase 16% - 17%
Diluted earnings per
share (EPS) $1.64 $1.84-$1.88 $1.95 - $1.97
Year-over-year change increase 12% - 15% increase 19% - 20%
Total QUALCOMM (GAAP)
Revenues $7.53B $8.4B - $8.7B $8.72B - $8.82B
Year-over-year change increase 12% - 16% increase 16% - 17%
Diluted earnings per
share (EPS) $1.44 $1.57 - $1.61 $1.69 - $1.71
Year-over-year change increase 9% - 12% increase 17% - 19%
Diluted EPS
attributable to
in-process R&D ($0.01) ($0.01) ($0.01)
Diluted EPS
attributable
to QSI ($0.02) ($0.09) ($0.08)
Diluted EPS
attributable to
estimated
share-based
compensation ($0.19) ($0.20) ($0.19)
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 (2) approx. $215 approx. $208 approx. $216
* Shipments in
Sept. to June
quarters,
reported in
Dec. to Sept.
quarters
CALENDAR YEAR Handset Estimates(2)
Prior Guidance Current Guidance
CDMA/WCDMA handset Calendar 2007 Calendar 2007
unit shipments Calendar 2006 Estimates Estimates
March quarter approx. 66M approx. 81M - 85M approx. 88M
June quarter approx. 70M not provided approx. 90M - 94M
September quarter approx. 76M not provided not provided
December quarter approx. 91M not provided not provided
Calendar year range
(approx.) 301M 373M - 393M 378M - 398M
Midpoint Midpoint Midpoint
CDMA/WCDMA units approx. 301M approx. 383M approx. 388M
CDMA units approx. 200M approx. 208M approx. 208M
WCDMA units approx. 101M approx. 175M approx. 180M
(1) These 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 $0.05 diluted earnings per share, compared to our prior
estimate of approximately $0.04 to $0.05 diluted earnings per share.
(2) CDMA/WCDMA handset unit shipments and average selling prices are
provided for the total market.
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):
Third Quarter - Fiscal Year 2007
Reconciling
Segments QCT QTL QWI Items(2)
Revenues $1,367 $766 $196 $(4)
Change from prior year 21% 20% 10% N/M
Change from prior quarter 9% 1% (1%) N/M
EBT $439 $668 $18 $52
Change from prior year 27% 16% 0% N/M
Change from prior quarter 19% 5% (10%) 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 Share-Based QUALCOMM
Segments Pro Forma Compensation(3) QSI(4) (GAAP)
Revenues $2,325 $-- $-- $2,325
Change from
prior year 19% 19%
Change from
prior quarter 5% 5%
EBT $1,177 $(114) $(91) $972
Change from
prior year 21% (10%) 250% 18%
Change from
prior quarter 6% (10%) 117% 5%
Net income (loss) $934 $(75) $(61) $798
Change from
prior year 29% (10%) N/M 24%
Change from
prior quarter 11% (10%) 205% 10%
Diluted EPS $0.55 $(0.04) $(0.04) $0.47
Change from
prior year 31% (20%) N/M 27%
Change from
prior quarter 10% (20%) 300% 9%
Diluted
shares used 1,704 1,704 1,704 1,704
Second Quarter - Fiscal Year 2007
Reconciling
Segments QCT QTL QWI Items (2)
Revenues $1,259 $759 $198 $5
EBT $368 $636 $20 $82
Net income (loss)
Diluted EPS
Diluted shares used
Estimated
QUALCOMM Share-Based In-process Total
Segments Pro Forma Compensation(3) R&D QSI (4) (GAAP)
Revenues $2,221 $-- $-- $-- $2,221
EBT $1,106 $(126) $(10) $(42) $928
Net income
(loss) $838 $(83) $(9) $(20) $726
Diluted EPS $0.50 $(0.05) $(0.01) $(0.01) $0.43
Diluted shares
used 1,693 1,693 1,693 1,693 1,693
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
Net income (loss)
Diluted EPS
Diluted shares used
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
Fourth Quarter - Fiscal Year 2006
Reconciling
Segments QCT(1)* QTL(1)* QWI(1)* Items(1)(2)*
Revenues $1,147 $661 $196 $(5)
EBT 323 591 26 21
Net income (loss)
Diluted EPS
Diluted shares used
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Segments Pro Forma Compensation(3) Items R&D QSI(4) (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
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
Net income (loss)
Diluted EPS
Diluted shares used
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
Nine Months - Fiscal Year 2007
Reconciling
Segments QCT QTL QWI Items(2)
Revenues $3,856 $2,125 $583 $1
Change from prior year 21% 18% 9% N/M
EBT $1,123 $1,803 $58 $250
Change from prior year 15% 10% 14% N/M
Net income (loss)
Change from prior year
Diluted EPS
Change from prior year
Diluted shares used
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Segments Pro Forma Compensation(3) Items(5) R&D QSI(4) (GAAP)
Revenues $6,565 $-- $-- $-- $-- $6,565
Change from
prior year 19% 19%
EBT $3,234 $(370) $-- $(10) $(176) $2,678
Change from
prior year 14% 1% (52%) 60% 14%
Net income
(loss) 2,494 (244) 33 (9) (103) $2,171
Change from
prior year 19% 0% (41%) (57%) 203% 17%
Diluted EPS $1.47 $(0.14) $0.02 $(0.01) $(0.06) $1.28
Change from
prior year 20% 0% (33%) 0% 200% 19%
Diluted
shares
used 1,694 1,694 1,694 1,694 1,694 1,694
Nine Months - Fiscal Year 2006
Reconciling
Segments QCT(1)* QTL(1)* QWI(1)* Items(1)(2)*
Revenues $3,184 $1,806 $535 $2
EBT 975 1,642 51 177
Net income
Diluted EPS
Diluted shares used
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Segments Pro Forma Compensation(3) Items R&D QSI(4) (GAAP)
Revenues $5,527 $-- $-- $-- $-- $5,527
EBT 2,845 (368) -- (21) (110) 2,346
Net income 2,098 (243) 56 (21) (34) 1,856
Diluted EPS $1.22 $(0.14) $0.03 $(0.01) $(0.02) $1.08
Diluted
shares
used 1,717 1,717 1,717 1,717 1,717 1,717
(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 nine 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 intersegment 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 excluded 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 third quarter fiscal 2007 earnings conference call will be broadcast live on July 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 July 25, 2007 beginning at approximately 5:30 p.m. (PDT) through August 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 6342604. 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: To view the web slides that accompany this earnings release and conference call, please go to 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 2007 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 using pro forma information. 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 generally 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; outcomes of audits by taxing authorities; 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 July 1, 2007
Estimated Total
QUALCOMM Share-Based QUALCOMM
Pro Forma Compensation(a) QSI (GAAP)
Revenues:
Equipment and
services $1,484 $-- $-- $1,484
Licensing and
royalty fees 841 -- -- 841
Total revenues 2,325 -- -- 2,325
Operating expenses:
Cost of equipment
and services
revenues 642 10 36 688
Research and
development 385 50 19 454
Selling, general and
administrative 307 54 40 401
Total operating
expenses 1,334 114 95 1,543
Operating income
(loss) 991 (114) (95) 782
Investment income, net 186 (b) -- 4 (c) 190
Income (loss) before
income taxes 1,177 (114) (91) 972
Income tax (expense)
benefit (243)(d) 39 30 (e) (174)(d)
Net income (loss) $934 $(75) $(61) $798
Earnings (loss) per
common share:
Diluted $0.55 $(0.04) $(0.04) $0.47
Shares used in per share
calculations:
Diluted 1,704 1,704 1,704 1,704
Supplemental Financial
Data:
Operating Cash Flow $1,122 $(80) (g) $(54) $988
Operating Cash Flow as
a % of Revenues 48% 42%
Free Cash Flow (f) $977 $(80) (g) $(66) $831
Free Cash Flow as a % of
Revenues 42% 36%
(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 $143 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, $41 million in net
realized gains on investments and $2 million in gains on derivative
instruments related to decreases in the fair value of the put option
liabilities related to our share repurchase program.
(c) Includes $12 million in net realized gains on investments and $2
million in interest and dividend income, partially offset by $8
million in other-than-temporary losses on investments, $1 million in
interest expense and $1 million in losses on derivative instruments.
(d) The third quarter of fiscal 2007 tax rates are approximately 18% for
total QUALCOMM (GAAP) and approximately 21% 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 (GAAP) Net Cash Provided by Operating
Activities and Other Supplemental Disclosures for the three months
ended July 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)
Nine Months Ended July 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 $4,196 $-- $-- $-- $-- $4,196
Licensing
and royalty
fees 2,369 -- -- -- -- 2,369
Total
revenues 6,565 -- -- -- -- 6,565
Operating
expenses:
Cost of
equipment
and services
revenues 1,882 29 -- -- 45 1,956
Research and
development 1,120 166 -- 10 52 1,348
Selling, general
and
administrative 890 175 -- -- 90 1,155
Total
operating
expenses 3,892 370 -- 10 187 4,459
Operating
income
(loss) 2,673 (370) -- (10) (187) 2,106
Investment
income
(expense), net 561(b) -- -- -- 11(c) 572
Income (loss)
before income
taxes 3,234 (370) -- (10) (176) 2,678
Income tax
(expense)
benefit (740) 126 33 1 73(e) (507)(d)
Net income
(loss) $2,494 $(244) $33 $(9) $(103) $2,171
Earnings (loss)
per common share:
Diluted $1.47 $(0.14) $0.02 $(0.01) $(0.06) $1.28
Shares used in
per share
calculations:
Diluted 1,694 1,694 1,694 1,694 1,694 1,694
Supplemental
Financial
Data:
Operating Cash
Flow $3,116 $(199)(g) $-- $(10) $(139) $2,768
Operating
Cash Flow
as a % of
Revenue 47% 42%
Free Cash
Flow(f) $2,610 $(199)(g) $-- $(10) $(204) $2,197
Free Cash
Flow as a
% of Revenue 40% 33%
(a) Estimated share-based compensation presented above and excluded from
pro forma results does not include $2 million, net of tax, related to
share-based awards granted under the executive bonus program.
(b) Includes $409 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, $154 million in net
realized gains on investments and $2 million in gains on derivative
instruments related to decreases in the fair value of the put option
liabilities related to our share repurchase program, partially offset
by $2 million in other-than-temporary losses on investments and $2
million in interest expense.
(c) Includes $19 million in net realized gains on investments and $6
million in interest and dividend income, partially offset by $9
million in other-than-temporary losses on investments, $3 million in
interest expense and $2 million in losses on derivative instruments.
(d) The tax rate of 19% for the first nine months of fiscal 2007 for
total QUALCOMM (GAAP) is consistent with the estimated annual
effective tax rate.
(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 (GAAP) Net Cash Provided by Operating
Activities and Other Supplemental Disclosures for the nine months
ended July 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 July 1, 2007
Estimated Total
QUALCOMM Share-Based QUALCOMM
Pro Forma Compensation QSI (GAAP)
Net cash provided
(used) by
operating
activities $1,122 $(80)(a) $(54) $988
Less: capital
expenditures (145) -- (12) (157)
Free cash flow $977 $(80) $(66) $831
Other supplemental
cash disclosures:
Cash transfers
from QSI (1) $40 $-- $(40) $--
Cash transfers
to QSI (2) (70) -- 70 --
Net cash
transfers $(30) $-- $30 $--
Nine Months Ended July 1, 2007
Estimated Total
QUALCOMM Share-Based In-Process QUALCOMM
Pro Forma Compensation R&D QSI (GAAP)
Net cash provided
(used) by
operating
activities $3,116 $(199)(a) $(10) $(139) $2,768
Less: capital
expenditures (506) -- -- (65) (571)
Free cash flow $2,610 $(199) $(10) $(204) $2,197
Other
supplemental
cash disclosures:
Cash transfers
from QSI(1) $53 $-- $-- $(53) $--
Cash transfers
to QSI(2) (264) -- -- 264 --
Net cash
transfers $(211) $-- $-- $211 $--
(1) Cash from loan payments and sale of equity securities.
(2) Funding for strategic debt and equity investments, capital
expenditures and other QSI operating expenses.
Three Months Ended June 25, 2006
Estimated Total
QUALCOMM Share-Based QUALCOMM
Pro Forma Compensation QSI (GAAP)
Net cash provided
(used) by
operating activities $954 $(103)(a) $(35) $816
Less: capital
expenditures (159) -- (23) (182)
Free cash flow $795 $(103) $(58) $634
Nine Months Ended June 25, 2006
Estimated Total
QUALCOMM Share-Based QUALCOMM
Pro Forma Compensation QSI (GAAP)
Net cash provided
(used) by operating
activities $2,739 $(376)(a) $(62) $2,301
Less: capital
expenditures (466) -- (90) (556)
Free cash flow $2,273 $(376) $(152) $1,745
(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
July 1, September 24,
2007 2006
Current assets:
Cash and cash equivalents $3,716 $1,607
Marketable securities 3,592 4,114
Accounts receivable, net 764 700
Inventories 396 250
Deferred tax assets 185 235
Other current assets 395 143
Total current assets 9,048 7,049
Marketable securities 4,954 4,228
Property, plant and equipment,
net 1,631 1,482
Goodwill 1,322 1,230
Deferred tax assets 451 512
Other assets 1,040 707
Total assets $18,446 $15,208
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $566 $420
Payroll and other benefits
related liabilities 255 273
Unearned revenue 275 197
Income taxes payable 303 137
Other current liabilities 707 395
Total current liabilities 2,106 1,422
Unearned revenue 146 141
Other liabilities 262 239
Total liabilities 2,514 1,802
Stockholders' equity:
Preferred stock, $0.0001 par
value; issuable in series;
8 shares authorized; none
outstanding at July 1, 2007
and September 24, 2006 -- --
Common stock, $0.0001 par
value; 6,000 shares
authorized; 1,672 and 1,652 shares
issued and outstanding at
July 1, 2007 and September 24,
2006, respectively -- --
Paid-in capital 8,034 7,242
Retained earnings 7,640 6,100
Accumulated other
comprehensive income 258 64
Total stockholders' equity 15,932 13,406
Total liabilities and
stockholders' equity $18,446 $15,208
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
July 1, June 25, July 1, June 25,
2007 2006 2007 2006
Revenues:
Equipment and services $1,484 $1,240 $4,196 $3,512
Licensing and royalty fees 841 711 2,369 2,015
Total revenues 2,325 1,951 6,565 5,527
Operating expenses:
Cost of equipment and
services revenues 688 559 1,956 1,596
Research and development 454 395 1,348 1,126
Selling, general and
administrative 401 293 1,155 795
Total operating expenses 1,543 1,247 4,459 3,517
Operating income 782 704 2,106 2,010
Investment income, net 190 120 572 336
Income before income taxes 972 824 2,678 2,346
Income tax expense (174) (181) (507) (490)
Net income $798 $643 $2,171 $1,856
Basic earnings per common
share $0.48 $0.38 $1.31 $1.12
Diluted earnings per common
share $0.47 $0.37 $1.28 $1.08
Shares used in per share
calculations:
Basic 1,670 1,675 1,661 1,661
Diluted 1,704 1,728 1,694 1,717
Dividends per share paid $0.14 $0.12 $0.38 $0.30
Dividends per share announced $0.14 $0.12 $0.38 $0.30
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended Nine Months Ended
July 1, June 25, July 1, June 25,
2007 2006 2007 2006
Operating Activities:
Net income $798 $643 $2,171 $1,856
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 99 69 283 190
Non-cash portion of share-based
compensation expense 114 126 371 368
Incremental tax benefits from
stock options exercised (80) (103) (199) (376)
Net realized gains on marketable
securities and other investments (53) (34) (173) (94)
Non-cash income tax expense 136 155 365 375
Other items, net 15 22 16 57
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (45) (126) (62) (140)
Inventories (49) (42) (147) (81)
Other assets 10 3 (137) 15
Trade accounts payable (7) 34 127 140
Payroll, benefits and other
liabilities 68 45 69 (20)
Unearned revenue (18) 24 84 11
Net cash provided by operating
activities 988 816 2,768 2,301
Investing Activities:
Capital expenditures (157) (182) (571) (556)
Purchases of available-for-sale
securities (2,340) (3,548) (5,921) (9,610)
Proceeds from sale of available-
for-sale securities 1,909 3,473 6,254 7,916
Other investments and acquisitions,
net of cash acquired (3) (120) (230) (390)
Change in collateral held under
securities lending (153) -- (153) --
Other items, net 12 34 13 79
Net cash used by investing
activities (732) (343) (608) (2,561)
Financing Activities:
Proceeds from issuance of common
stock 220 155 474 623
Incremental tax benefits from stock
options exercised 80 103 199 376
Dividends paid (234) (202) (632) (500)
Change in obligation under
securities lending 153 -- 153 --
Proceeds from put options 17 11 17 11
Repurchase and retirement of common
stock (129) (1,165) (264) (1,165)
Net cash provided (used) by
financing activities 107 (1,098) (53) (655)
Effect of exchange rate changes on
cash -- 1 2 --
Net increase (decrease) in cash and
cash equivalents 363 (624) 2,109 (915)
Cash and cash equivalents at
beginning of period 3,353 1,779 1,607 2,070
Cash and cash equivalents at end of
period $3,716 $1,155 $3,716 $1,155
SOURCE QUALCOMM Incorporated
Released July 25, 2007