Qualcomm Announces Third Quarter Fiscal 2011 Results
Revenues $3.6 Billion
GAAP EPS $0.61, Non-GAAP EPS $0.73
-- Raises Fiscal 2011 Revenue and Non-GAAP Earnings Guidance --
SAN DIEGO, July 20, 2011 /PRNewswire-FirstCall/ -- Qualcomm Incorporated (Nasdaq: QCOM), a leading developer and innovator of advanced wireless technologies, products and services, today announced results for the third quarter of fiscal 2011 ended June 26, 2011.
"Qualcomm delivered strong year-over-year results again this quarter as our business performed well across all key guidance metrics. In addition, we successfully completed the acquisition of Atheros, positioning us to further expand our opportunities going forward," said Dr. Paul E. Jacobs, chairman and CEO of Qualcomm. "Looking forward, we continue to see healthy growth in CDMA-based device shipments of approximately 18 percent in calendar year 2011, and we are pleased to be raising our revenue and Non-GAAP earnings guidance for the fiscal year, driven primarily by strong global smartphone adoption and the addition of Atheros."
Third Quarter Results (GAAP)
-- Revenues: (1) $3.62 billion, up 34 percent year-over-year (y-o-y) and
down 6 percent sequentially.
-- Operating income: (1) $1.11 billion, up 25 percent y-o-y and down 22
percent sequentially.
-- Net income: (2) $1.04 billion, up 35 percent y-o-y and 4 percent
sequentially.
-- Diluted earnings per share: (2) $0.61, up 30 percent y-o-y and 3 percent
sequentially.
-- Effective tax rate: (1) 23 percent for the quarter.
-- Operating cash flow: $1.26 billion, up 33 percent y-o-y; 35 percent of
revenues.
-- Return of capital to stockholders: $360 million, or $0.215 per share, of
cash dividends paid.
(1) The results of FLO TV™ are presented as discontinued operations, and prior period amounts have been adjusted accordingly. Revenues, operating expenses, operating income, earnings before tax (EBT) and effective tax rate throughout this news release are from continuing operations (i.e., before discontinued operations and the adjustment for noncontrolling interests), unless otherwise stated.
(2) Net income and diluted earnings per share throughout this news release are attributable to Qualcomm (i.e., after discontinued operations and adjustment for noncontrolling interests), unless otherwise stated.
Non-GAAP Third Quarter Results
Non-GAAP results exclude the Qualcomm Strategic Initiatives (QSI) segment, certain share-based compensation, certain tax items that are not related to the current year and certain acquisition-related items. Starting with acquisitions completed in the third quarter of fiscal 2011, we changed our methodology for reporting Non-GAAP results to exclude the recognition of the step-up of inventories to fair value and amortization of certain intangible assets, in addition to our historical practice of excluding acquired in-process research and development (R&D) expense. Third quarter of fiscal 2011 Non-GAAP results excluded $45 million related to the step-up of inventories to fair value and $32 million in amortization of intangible assets that resulted from the acquisition of Atheros Communications, Inc. (Atheros).
-- Revenues: $3.62 billion, up 34 percent y-o-y and down 6 percent
sequentially.
-- Operating income: $1.39 billion, up 41 percent y-o-y and down 16 percent
sequentially.
-- Net income: $1.24 billion, up 32 percent y-o-y and down 14 percent
sequentially.
-- Diluted earnings per share: $0.73, up 28 percent y-o-y and down 15
percent sequentially. The current quarter excludes $0.01 earnings per
share attributable to the QSI segment, $0.09 loss per share attributable
to certain share-based compensation and $0.04 loss per share
attributable to acquisition-related items.
-- Effective tax rate: 21 percent for the quarter.
-- Free cash flow: $1.16 billion, up 22 percent y-o-y; 32 percent of
revenues (defined as net cash from operating activities less capital
expenditures).
Detailed reconciliations between results reported in accordance with generally accepted accounting principles (GAAP) and Non-GAAP results are included at the end of this news release.
In the comparisons summarized above for the third quarter of fiscal 2011, the following should be noted: results for the second quarter of fiscal 2011 included $401 million in revenues related to prior quarters as a result of agreements entered into with two licensees to settle disputes and $120 million in impairment charges related to our Firethorn division, including $114 million in goodwill impairment.
Third Quarter Key Business Metrics
-- CDMA-based Mobile Station Modem™ (MSM™) shipments: 120 million
units, up 17 percent y-o-y and 2 percent sequentially.
-- March quarter total reported device sales: approximately $36.4 billion,
up 44 percent y-o-y and down 9 percent sequentially.
o March quarter estimated CDMA-based device shipments: approximately 170
to 174 million units, at an estimated average selling price of
approximately $209 to $215 per unit.
Cash and Marketable Securities
Our cash, cash equivalents and marketable securities totaled $20.2 billion at the end of the third quarter of fiscal 2011, compared to $22.1 billion at the end of the second quarter of fiscal 2011 and $17.6 billion a year ago. Upon the close of the Atheros acquisition on May 24, 2011, we paid $3.1 billion in cash, net of the cash acquired. On July 13, 2011, we announced a cash dividend of $0.215 per share payable on September 23, 2011 to stockholders of record as of August 26, 2011.
Research and Development
Share-Based
($ in millions) Non-GAAP Compensation QSI GAAP
Third quarter fiscal 2011 $ 661 $ 95 $ 1 $ 757
As a % of revenues 18% 21%
Third quarter fiscal 2010* $ 546 $ 72 $ 5 $ 623
As a % of revenues 20% 23%
Year-over-year change ($) 21% 32% N/M 22%
*As adjusted for discontinued operations
N/M - Not Meaningful
Non-GAAP R&D expenses increased 21 percent y-o-y primarily due to an increase in costs related to the development of integrated circuit products, next generation technologies and other initiatives to support the acceleration of advanced wireless products and services.
Selling, General and Administrative
Acquisition-
Share-Based Related
($ in millions) Non-GAAP Compensation Items QSI GAAP
Third quarter fiscal 2011 $ 365 $ 84 $ 18 $ 8 $ 475
As a % of revenues 10% 13%
Third quarter fiscal 2010* $ 321 $ 63 $ - $ (52) $ 332
As a % of revenues 12% 12%
Year-over-year change ($) 14% 33% N/M N/M 43%
*As adjusted for discontinued operations
Non-GAAP selling, general and administrative (SG&A) expenses increased 14 percent y-o-y primarily due to an increase in employee-related costs. QSI SG&A expenses for the third quarter of fiscal 2010 included a $62 million gain on the sale of our Australia spectrum license.
Effective Income Tax Rate
Our fiscal 2011 effective income tax rates are estimated to be 20 percent for GAAP and 21 percent for Non-GAAP. Our fiscal 2011 estimated GAAP tax rate increased from our prior estimate of 17 percent primarily as a result of the reclassification of tax benefits to discontinued operations and lower foreign earnings related to the step-up of acquired Atheros assets to fair value. The third quarter GAAP tax rate of 23 percent was a result of this increase in the estimated annual effective tax rate.
During the fourth quarter of fiscal 2011, we reached agreement with the California Franchise Tax Board on a component of our fiscal 2006 through 2010 tax returns. As a result of this agreement, we expect to record a $44 million tax benefit that will be excluded from our fourth quarter fiscal 2011 Non-GAAP results. This estimated benefit, which is included in our guidance, will reduce our fiscal 2011 estimated GAAP tax rate from 20 percent to 19 percent.
Qualcomm Strategic Initiatives
The QSI segment makes strategic investments in early-stage and other companies and in wireless spectrum, such as the Broadband Wireless Access spectrum won in the India auction. QSI also includes the discontinued operations of our FLO TV subsidiary. GAAP results for the third quarter of fiscal 2011 included $0.01 earnings per share for the QSI segment. During the third quarter of fiscal 2011, in connection with the presentation of the FLO TV business as discontinued operations and the requirement to compute the tax effect of discontinued operations on a discrete basis, we recorded a tax benefit of $43 million for tax benefits related to losses incurred in the first and second quarter of fiscal 2011 that were previously included in the calculation of the estimated annual effective tax rate.
Business Outlook
The following statements are forward looking and actual results may differ materially. The "Note Regarding Forward-Looking Statements" at the end of this news release provides a description of certain risks that we face, and our annual and quarterly reports on file with the Securities and Exchange Commission (SEC) provide a more complete description of risks.
Our outlook does not include provisions for future asset impairments or for pending legal matters, other than future legal amounts that are probable and estimable. Further, due to their nature, certain income and expense items, such as realized investment gains or losses, or gains and losses on certain derivative instruments, cannot be accurately forecast. Accordingly, we only include such items in our business outlook to the extent they are reasonably certain; however, actual results may vary materially from the business outlook.
The following table summarizes GAAP and Non-GAAP guidance based on the current business outlook. The Non-GAAP business outlook presented below is consistent with the presentation of Non-GAAP results included elsewhere herein.
Qualcomm's Business Outlook Summary
FOURTH FISCAL QUARTER
Q4 FY10 Current Guidance
Results Q4 FY11 Estimates
Revenues $2.95B $3.86B - $4.16B
Year-over-year change increase 31% - 41%
Non-GAAP Diluted earnings per share $0.68 $0.75 - $0.80
(EPS)
Year-over-year change increase 10% - 18%
Diluted EPS attributable to QSI ($0.05) $0.00
Diluted EPS attributable to ($0.07) ($0.10)
share-based compensation
Diluted EPS attributable to $0.00 ($0.07)
acquisition-related items
Diluted EPS attributable to certain ($0.02) $0.02
tax items (1)
GAAP Diluted EPS $0.53 $0.60 - $0.65
Year-over-year change increase 13% - 23%
Metrics
MSM shipments approx. 111M approx. 120M -
125M
Year-over-year change increase 8% - 13%
Total reported device sales (2) $28.3B* $38.0B - $41.0B*
Year-over-year change increase 34% - 45%
*Est. sales in June quarter, reported
in September quarter
FISCAL YEAR
FY 2010 Prior Guidance Current Guidance
Results(3) FY 2011 Estimates FY 2011 Estimates
Revenues $10.98B $14.1B - $14.7B $14.7B - $15.0B
Year-over-year increase 28% - increase 34% - 37%
change 34%
Non-GAAP Diluted $2.46 $3.05 - $3.13 $3.15 - $3.20
EPS
Year-over-year increase 24% - increase 28% - 30%
change 27%
Diluted EPS ($0.13) ($0.22) ($0.22)
attributable to QSI
Diluted EPS ($0.27) ($0.33) ($0.35)
attributable to
share-based
compensation
Diluted EPS $0.00 $0.00 ($0.12)
attributable to
acquisition-related
items
Diluted EPS ($0.10) $0.01 $0.04
attributable to
certain tax items
(1)
GAAP Diluted EPS $1.96 $2.51 - $2.59 $2.50 - $2.55
Year-over-year increase 28% - increase 28% - 30%
change 32%
Metrics
Est. fiscal year* approx $183 - approx $199 - approx $204 - $210
CDMA-based device $189 $209
average selling
price range (2)
*Shipments in Sept.
to June quarters,
reported in Dec. to
Sept. quarters
CALENDAR YEAR Device
Estimates (2)
Calendar 2010 Prior Guidance Current Guidance
Estimates Calendar 2011 Calendar 2011
Estimates Estimates
Est. CDMA-based
device shipments
March quarter approx. 134M - not provided approx. 170M -
138M 174M
June quarter approx. 153M - not provided not provided
157M
September quarter approx. 165M - not provided not provided
169M
December quarter approx. 195M - not provided not provided
200M
Est. Calendar year 646M - 663M 750M - 800M 750M - 800M
range (approx.)
Midpoint Midpoint Midpoint
Est. total approx. 655M approx. 775M approx. 775M
CDMA-based units
Est. CDMA units approx. 238M approx. 250M approx. 245M
Est. WCDMA units approx. 417M approx. 525M approx. 530M
(1) During the fourth quarter of fiscal 2011, we reached agreement with the
California Franchise Tax Board on a component of our fiscal 2006 through
2010 tax returns. As a result of this agreement, we expect to record a $44
million tax benefit that will be excluded from our fourth quarter fiscal
2011 Non-GAAP results.
(2) Total reported device sales is the sum of all reported sales in U.S.
dollars (as reported to us by our licensees) of all licensed CDMA-based
subscriber devices (including handsets, modules, modem cards and other
subscriber devices) by our licensees during a particular period. The
reported quarterly estimated ranges of ASPs and unit shipments are
determined based on the information as reported to us by our licensees
during the relevant period and our own estimates of the selling prices and
unit shipments for licensees that do not provide such information. Not all
licensees report sales, selling prices and/or unit shipments the same way
(e.g., some licensees report selling prices net of permitted deductions,
such as transportation, insurance and packing costs, while other licensees
report selling prices and then identify the amount of permitted deductions
in their reports), and the way in which licensees report such information
may change from time to time. Total reported device sales, estimated unit
shipments and estimated ASPs for a particular period may include prior
period activity that is reported with the activity for the particular
period.
(3) As adjusted to reflect the reclassification of revenues related to FLO TV
to discontinued operations.
Sums may not equal totals due to rounding.
Results of Business Segments
The following tables have been adjusted to reflect discontinued operations (Note 5) (in millions,
except per share data):
Acquisition-
Non-GAAP Tax Related
Reconciling Share-Based Items Items QSI
SEGMENTS QCT QTL QWI Items (1) Non-GAAP Compensation* (2) (3) (4)* GAAP
Q3 - FISCAL 2011
Revenues $2,194 $1,257 $164 $8 $3,623 $ - $ - $ - $ - $3,623
Change 30% 48% 1% N/M 34% 34%
from
prior
year
Change 12% (28%) 4% N/M (6%) (6%)
from
prior
quarter
Operating $1,393 ($193) - ($77) ($10) $1,113
income
(loss)
Change 41% (33%) N/A N/M 25%
from
prior
year
Change (16%) 3% N/M 41% (22%)
from
prior
quarter
EBT $430 $1,092 ($13) $65 $1,574 ($193) - ($77) ($30) $1,274
Change 6% 62% N/M N/M 36% (33%) N/A N/M 18%
from
prior
year
Change 3% (31%) N/M N/M (16%) 3% N/M 35% (21%)
from
prior
quarter
EBT as a 20% 87% N/M N/M 43% N/M N/M N/M 35%
% of
revenues
Discontinued operations, net of tax (5) $ - $ - $ - $ - $44 $44
Net 1,240 (147) (4) (73) 19 1,035
income
(loss)
Change 32% (32%) N/M N/A N/M 35%
from
prior
year
Change (14%) (1%) N/M N/M N/M 4%
from
prior
quarter
Diluted $0.73 ($0.09) $- ($0.04) $0.01 $0.61
EPS
Change 28% (29%) N/M N/A N/M 30%
from
prior
year
Change (15%) - N/M N/M N/M 3%
from
prior
quarter
Diluted 1,709 1,709 1,709 1,709 1,709 1,709
shares
used
Q2 - FISCAL 2011
Revenues $1,962 $1,746 $157 $5 $3,870 $ - $ - $ - $ - $3,870
Operating 1,652 (199) - (6) (17) 1,430
income
(loss)
EBT 417 1,575 (135) 13 1,870 (199) - (6) (46) 1,619
Discontinued operations, net of tax (5) - (2) - - (267) (269)
Net 1,450 (146) (3) (6) (296) 999
income
(loss)
Diluted $0.86 ($0.09) $ - $ - ($0.18) $0.59
EPS
Diluted 1,689 1,689 1,689 1,689 1,689 1,689
shares
used
Q1 - FISCAL 2011
Revenues $2,116 $1,057 $172 $3 $3,348 $ - $ - $ - $ - $3,348
Operating 1,416 (169) - - - 1,247
income
(loss)
EBT 640 892 - 128 1,660 (169) - - (21) 1,470
Discontinued operations, net of tax (5) - (2) - - (80) (82)
Net 1,345 (116) 28 - (87) 1,170
income
(loss)
Diluted $0.82 ($0.07) $0.02 $ - ($0.05) $0.71
EPS
Diluted 1,648 1,648 1,648 1,648 1,648 1,648
shares
used
Q4 - FISCAL 2010
Revenues $1,860 $921 $171 $ - $2,952 $ - $ - $ - $ - $2,952
Operating 1,130 (157) - - (15) 958
income
(loss)
EBT 519 754 (2) 90 1,361 (157) - - (32) 1,172
Discontinued operations, net of tax (5) - (3) - - (70) (73)
Net 1,105 (120) (40) - (80) 865
income
(loss)
Diluted $0.68 ($0.07) ($0.02) $ - ($0.05) $0.53
EPS
Diluted 1,621 1,621 1,621 1,621 1,621 1,621
shares
used
Q3 - FISCAL 2010
Revenues $1,691 $847 $162 $ - $2,700 $ - $ - $ - $ - $2,700
Operating 991 (145) - - 47 893
income
(loss)
EBT 404 673 6 78 1,161 (145) - - 60 1,076
Discontinued operations, net of tax (5) - (3) - - (62) (65)
Net 936 (111) (54) - (4) 767
income
(loss)
Diluted $0.57 ($0.07) ($0.03) $ - $ - $0.47
EPS
Diluted 1,642 1,642 1,642 1,642 1,642 1,642
shares
used
Acquisition-
Non-GAAP Tax Related
Reconciling Share-Based Items Items QSI
SEGMENTS QCT QTL QWI Items (1) Non-GAAP Compensation* (2) (3) (4)* GAAP
Q2 - FISCAL 2010
Revenues $1,537 $974 $152 ($2) $2,661 $ - $ - $ - $ - $2,661
Operating 1,065 (150) - (3) (16) 896
income
(loss)
EBT 344 821 (1) 94 1,258 (150) - (3) (16) 1,089
Discontinued operations, net of tax (5) - (3) - - (75) (78)
Net 989 (98) (33) (3) (81) 774
income
(loss)
Diluted $0.59 ($0.06) ($0.02) $ - ($0.05) $0.46
EPS
Diluted 1,678 1,678 1,678 1,678 1,678 1,678
shares
used
Q1 - FISCAL 2010
Revenues $1,608 $917 $142 $1 $2,668 $ - $ - $ - $ - $2,668
Operating 1,134 (147) - - (7) 980
income
(loss)
EBT 425 772 9 104 1,310 (147) - - (7) 1,156
Discontinued operations, net of tax (5) - (3) - - (54) (57)
Net 1,041 (114) (32) - (54) 841
income
(loss)
Diluted $0.62 ($0.07) ($0.02) $ - ($0.03) $0.50
EPS
Diluted 1,691 1,691 1,691 1,691 1,691 1,691
shares
used
9 MONTHS - FISCAL 2011
Revenues $6,272 $4,061 $493 $ 14 $10,840 $ - $ - $ - $ - $10,840
Change 30% 48% 8% N/M 35% 35%
from
prior
year
Operating $4,461 ($561) - ($83) ($28) $3,789
income
(loss)
Change 40% (27%) N/M N/M 37%
from
prior
year
EBT $1,487 $3,559 ($147) $205 $5,104 ($561) - ($83) ($97) $4,363
Change 27% 57% N/M N/M 37% (27%) N/M N/M 31%
from
prior
year
Discontinued operations, net of tax (5) $ - ($4) - - ($303) ($307)
Net 4,036 (410) 21 (79) (364) 3,204
income
(loss)
Change 36% (27%) N/M N/M N/M 35%
from
prior
year
Diluted $2.40 ($0.24) $0.01 ($0.05) ($0.22) $1.90
EPS
Change 35% (26%) N/M N/M N/M 33%
from
prior
year
Diluted 1,682 1,682 1,682 1,682 1,682 1,682
shares
used
9 MONTHS - FISCAL 2010
Revenues $4,835 $2,738 $456 $ 1 $8,030 $ - $ - $ - $ - $8,030
Operating 3,189 (441) - (3) 25 2,770
income
(loss)
EBT 1,173 2,266 14 274 3,727 (441) - (3) 39 3,322
Discontinued operations, net of tax (5) - (8) - - (192) (200)
Net 2,967 (322) (119) (3) (141) 2,382
income
(loss)
Diluted $1.78 ($0.19) ($0.07) $ - ($0.08) $1.43
EPS
Diluted 1,670 1,670 1,670 1,670 1,670 1,670
shares
used
12 MONTHS - FISCAL 2010
Revenues $6,695 $3,659 $628 $ - $10,982 $ - $ - $ - $ - $10,982
Operating 4,316 (597) - (3) 11 3,727
income
(loss)
EBT 1,693 3,020 12 361 5,086 (597) - (3) 7 4,493
Discontinued operations, net of tax (5) - (11) - - (262) (273)
Net 4,071 (442) (159) (3) (220) 3,247
income
(loss)
Diluted $2.46 ($0.27) ($0.10) $ - ($0.13) $1.96
EPS
Diluted 1,658 1,658 1,658 1,658 1,658 1,658
shares
used
(1) Non-GAAP reconciling items related to revenues consist primarily of other
nonreportable segment revenues less intersegment eliminations. Non-GAAP
reconciling items related to earnings before taxes consist primarily of
certain investment income or losses, interest expense, research and
development expenses, sales and marketing expenses and other operating
expenses that are not allocated to the segments for management reporting
purposes, nonreportable segment results and the elimination of intersegment
profit.
(2) During the first quarter of fiscal 2011, we recorded a tax benefit of $32
million related to fiscal 2010 due to the retroactive reenactment of the
federal R&D tax credit. Also, during the first, second and third quarter of
fiscal 2011, we recorded $3 million, $3 million and $4 million,
respectively, in state tax expense because deferred revenue related to the
license agreement signed in the first quarter of fiscal 2010 with Samsung
is taxable in fiscal 2011 but the resulting deferred tax asset will reverse
in future years when our state tax rate will be lower. Our first, second
and third quarter fiscal 2011 Non-GAAP results exclude these items.
(3) Beginning in the third quarter of fiscal 2011, Non-GAAP results exclude
certain items related to acquisitions. During the third quarter of fiscal
2011, Non-GAAP results excluded $45 million related to the step-up of
inventories to fair value and $32 million in amortization of intangible
assets that resulted from the acquisition of Atheros.
(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 Non-GAAP tax
provision, the tax items column and the tax provision related to
share-based compensation from the GAAP tax provision.
(5) During fiscal 2011, we shut down the FLO TV business and network. The
results of FLO TV are presented as discontinued operations, and prior
period amounts have been adjusted accordingly.
* As adjusted for discontinued operations
N/M – Not Meaningful
N/A – Not Applicable
Sums may not equal totals due to rounding.
Conference Call
Qualcomm's third quarter fiscal 2011 earnings conference call will be broadcast live on July 20, 2011, beginning at 1:45 p.m. Pacific Time (PT) on the Company's web site at: www.qualcomm.com. This conference call may contain forward-looking financial information and 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 20, 2011, beginning at approximately 5:00 p.m. PT through August 20, 2011 at 9:00 p.m. PT. 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 78821001. An audio replay of the conference call will be available on the Company's web site at www.qualcomm.com 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 (Nasdaq: QCOM) is a world leader in 3G and next-generation mobile technologies. For more than 25 years, Qualcomm ideas and inventions have driven the evolution of wireless communications, connecting people more closely to information, entertainment and each other. Today, Qualcomm technologies are powering the convergence of mobile communications and consumer electronics, making wireless devices and services more personal, affordable and accessible to people everywhere. For more information, please visit www.qualcomm.com
Note Regarding Use of Non-GAAP Financial Measures
The Non-GAAP 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, "Non-GAAP" is not a term defined by GAAP, and, as a result, the Company's measure of Non-GAAP results might be different than similarly titled measures used by other companies. Reconciliations between GAAP results and Non-GAAP results are presented herein.
The Company presents Non-GAAP 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. Non-GAAP 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 (loss), net investment income (loss), income (loss) before income taxes, effective tax rate, net income (loss), diluted earnings (loss) 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 Non-GAAP 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 Non-GAAP financial measures applicable to the Company and its business segments.
Non-GAAP information used by management excludes the QSI segment, certain share-based compensation, certain tax items and certain acquisition-related items. 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. Share-based compensation, other than amounts related to share-based awards granted under a bonus program that may result in the issuance of unrestricted shares of the Company's common stock, is excluded because management views such share-based compensation as unrelated to the Company's operational performance. Further, share-based compensation related to stock options is affected by factors that are subject to change, including the Company's stock price, stock market volatility, expected option life, risk-free interest rates and expected dividend payouts in future years. Certain tax items that were recorded in reported earnings in each fiscal year presented, but were unrelated to the fiscal year in which they were recorded, are excluded in order to provide a clearer understanding of the Company's ongoing Non-GAAP tax rate and after tax earnings. In fiscal 2011, the Company began excluding the benefit of retroactive extensions of the federal R&D tax credit from Non-GAAP results because the Company does not include the potential extension of the credit in its business outlook due to uncertainty as to whether and when the federal R&D tax credit will be retroactively extended. In addition to its historical practice of excluding acquired in-process research and development expenses from Non-GAAP results, the Company began excluding recognition of the step-up of inventories to fair value and amortization of certain intangible assets starting with acquisitions completed in the third quarter of fiscal 2011. These certain acquisition-related items are excluded and no longer allocated to the Company's segments because management has concluded that such expenses should not be considered when assessing segment performance as they are unrelated to the operating activities of the Company's ongoing core businesses. In addition, these charges are significantly impacted by the size and timing of acquisitions, potentially obscuring period to period comparisons of the Company's operating businesses. We believe this practice also conforms to the approach taken by many other leading technology companies.
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 stockholder 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.
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 deployment and adoption of, and demand for, our technologies in communications, products and services; the uncertainty of global economic conditions and its potential impact on demand for our products, services or applications and the value of our marketable securities; competition; 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, including potentially damaged relationships with customers and operators who may be impacted by the results of these proceedings; our dependence on third-party manufacturers and suppliers; foreign currency fluctuations; strategic investments and transactions we have or may pursue; defects or errors in our products and services; the development and commercial success of our QMT division's mirasol® display technology; as well as the other risks detailed from time-to-time in our SEC reports, including the report on Form 10-K for the year ended September 26, 2010 and the most recent Form 10-Q. We undertake no obligation to update, or continue to provide information with respect to, any forward-looking statement or risk factor, whether as a result of new information, future events or otherwise.
Qualcomm is a registered trademark of Qualcomm Incorporated. Mobile Station Modem, MSM, and FLO TV are trademarks of Qualcomm Incorporated. mirasol is a registered trademark of Qualcomm MEMS Technologies, Inc. CDMA2000 is a registered trademark of the Telecommunications Industry Association (TIA USA). All other trademarks are the property of their respective owners.
Qualcomm Contact:
Warren Kneeshaw
Phone: 1-858-658-4813
e-mail: ir@qualcomm.com
Qualcomm Incorporated
Supplemental Information for the Three Months Ended June 26, 2011
(Unaudited)
Acquisition-
Non-GAAP Share-Based Tax Related GAAP
Results Compensation Items Items (a) QSI Results
($ in
millions
except per
share data)
Cost of
Sales $ 1,204 $ 14 $ - $ 59 $ 1 $ 1,278
R&D 661 95 - - 1 757
SG&A 365 84 - 18 8 475
Operating
income
(loss) 1,393 (193) - (77) (10) 1,113
Investment
income
(loss), net 181 (b) - - - (20) (c) 161
Tax rate 21% 24% N/A N/M N/M 23%
Net income
(loss) $ 1,240 $ (147) $ (4) (d) $ (73) $ 19 $ 1,035
Diluted
earnings
(loss) per
share (EPS) $ 0.73 $ (0.09) $ - $ (0.04) $ 0.01 $ 0.61
Operating
cash flow $ 1,379 $ (35) $ - $ - $ (80) $ 1,264
Operating
cash flow
as % of
revenues 38% N/A N/A N/A N/A 35%
Free cash
flow (e) $ 1,160 $ (35) $ - $ - $ (80) $ 1,045
Free cash
flow as a %
of revenues 32% N/A N/A N/A N/A 29%
(a) Beginning in the third quarter of fiscal 2011, Non-GAAP results exclude
certain items related to acquisitions. During the third quarter of fiscal
2011, Non-GAAP results excluded $45 million related to the step-up of
inventories to fair value and $32 million in amortization of intangible
assets that resulted from the acquisition of Atheros.
(b) Included $117 million in interest and dividend income related to cash, cash
equivalents and marketable securities, which were not part of the Company's
strategic investments, and $72 million in net realized gains on
investments, partially offset by $5 million in other-than-temporary losses
on investments and $3 million in interest expense.
(c) Included $25 million in interest expense and $5 million in
other-than-temporary losses on investments, partially offset by $10 million
in interest and dividend income related to cash, cash equivalents and
marketable securities.
(d) Included $4 million in state tax expense because deferred revenue related
to the license agreement signed in the first quarter of fiscal 2010 with
Samsung is taxable in fiscal 2011 but the resulting deferred tax asset will
reverse in future years when our state tax rate will be lower.
(e) Free cash flow is calculated as net cash provided by operating activities
less capital expenditures. Reconciliation of these amounts is included in
the "Reconciliation of Non-GAAP Free Cash Flows to Net Cash Provided by
Operating Activities (GAAP) and Other Supplemental Disclosures" for the
three months ended June 26, 2011, included herein.
N/M – Not Meaningful
N/A – Not Applicable
Sums may not equal totals due to rounding.
Qualcomm Incorporated
Supplemental Information for the Nine Months Ended June 26, 2011
(Unaudited)
Acquisition-
Non-GAAP Share-Based Tax Related GAAP
Compensation
Results (a) Items Items (b) QSI (a) Results
($ in
millions
except per
share data)
Cost of
Sales $ 3,272 $ 44 $ - $ 59 $ 5 $ 3,380
R&D 1,855 277 - 6 6 2,144
SG&A 1,138 240 - 18 17 1,413
Operating
income
(loss) 4,461 (c) (561) - (83) (28) 3,789
Investment
income
(loss),
net 643 (d) - - - (69) (e) 574
Tax rate 21% 28% N/A N/M N/M 20%
Net income
(loss) $ 4,036 $ (410) $ 21 (f) $ (79) $ (364) $ 3,204
Diluted
earnings
(loss) per
share $
(EPS) $ 2.40 $ (0.24) $ 0.01 (0.05) $ (0.22) $ 1.90
Operating
cash flow $ 3,532 $ (167) $ - $ - $ (285) $ 3,080
Operating
cash flow
as % of
revenues 33% N/A N/A N/A N/A 28%
Free cash
flow (g) $ 3,138 $ (167) $ - $ - $ (291) $ 2,680
Free cash
flow as a
% of
revenues 29% N/A N/A N/A N/A 25%
(a) During fiscal 2011, the Company shut down the FLO TV business and network.
The results of FLO TV are presented as discontinued operations, and prior
period amounts have been adjusted accordingly.
(b) Beginning in the third quarter of fiscal 2011, Non-GAAP results exclude
certain items related to acquisitions. During the third quarter of fiscal
2011, Non-GAAP results excluded $45 million related to the step-up of
inventories to fair value and $32 million in amortization of intangible
assets that resulted from the acquisition of Atheros. In addition, during
the first nine months of fiscal 2011, Non-GAAP results excluded $6 million
in acquired in-process research and development expense.
(c) During the first nine months of fiscal 2011, we recorded impairment charges
of $120 million related to our Firethorn division, including $114 million
in goodwill impairment.
(d) Included $369 million in interest and dividend income related to cash, cash
equivalents and marketable securities, which were not part of our strategic
investments, and $302 million in net realized gains on investments,
partially offset by $16 million in other-than-temporary losses on
investments and $11 million in interest expense.
(e) Included $72 million in interest expense, $10 million in
other-than-temporary losses on investments and $5 million in equity in
losses of investees, partially offset by $15 million in interest and
dividend income related to cash, cash equivalents and marketable securities
and $1 million in net realized gains on investments.
(f) Included a tax benefit of $32 million related to fiscal 2010 due to the
retroactive reenactment of the federal R&D tax credit and $10 million in
state tax expense because deferred revenue related to the license agreement
signed in the first quarter of fiscal 2010 with Samsung is taxable in
fiscal 2011 but the resulting deferred tax asset will reverse in future
years when our state tax rate will be lower.
(g) 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 Non-GAAP Free Cash Flows to Net Cash Provided by
Operating Activities (GAAP) and Other Supplemental Disclosures" for the
nine months ended June 26, 2011, included herein.
N/M – Not Meaningful
N/A – Not Applicable
Sums may not equal totals due to rounding.
Qualcomm Incorporated
Reconciliation of Non-GAAP Free Cash Flows to
Net Cash Provided by Operating Activities (GAAP)
and Other Supplemental Disclosures
(In millions)
(Unaudited)
Three Months Ended June 26, 2011
Share-Based
Non-GAAP Compensation QSI GAAP
Net cash provided (used) by
operating activities $ 1,379 $ (35) (a) $ (80) $ 1,264
Less: capital expenditures (219) - - (219)
Free cash flow $ 1,160 $ (35) $ (80) $ 1,045
Revenues $ 3,623 $ - $ - $ 3,623
Free cash flow as a % of revenues 32% N/A N/M 29%
Other supplemental cash
disclosures:
Cash transfers from QSI $ (4) $ - $ 4 $ -
Cash transfers to QSI (b) (89) - 89 -
Net cash transfers $ (93) $ - $ 93 $ -
Nine Months Ended June 26, 2011
Share-Based
Non-GAAP Compensation QSI GAAP
Net cash provided (used) by
operating activities $ 3,532 $ (167) (a) $ (285) $ 3,080
Less: capital expenditures (394) - (6) (400)
Free cash flow $ 3,138 $ (167) $ (291) $ 2,680
Revenues $ 10,840 $ - $ - $ 10,840
Free cash flow as a % of revenues 29% N/A N/M 25%
Other supplemental cash
disclosures:
Cash transfers from QSI (c) $ 67 $ - $ (67) $ -
Cash transfers to QSI (b) (330) - 330 -
Net cash transfers $ (263) $ - $ 263 $ -
Three Months Ended June 27, 2010
Share-Based
Non-GAAP Compensation QSI GAAP
Net cash provided (used) by
operating activities $ 1,051 $ (3) (a) $ (97) $ 951
Less: capital expenditures (97) - (20) (117)
Free cash flow $ 954 $ (3) $ (117) $ 834
Nine Months Ended June 27, 2010
Share-Based
Non-GAAP Compensation QSI GAAP
Net cash provided (used) by
operating activities $ 3,297 $ (34) (a) $ (280) $ 2,983
Less: capital expenditures (249) - (64) (313)
Free cash flow $ 3,048 $ (34) $ (344) $ 2,670
(a) Incremental tax benefits from stock options exercised during the period.
(b) Primarily funding for strategic debt and equity investments and QSI
operating expenses.
(c) Cash primarily from the issuance of subsidiary shares to noncontrolling
interests.
N/M - Not Meaningful
N/A - Not Applicable
Qualcomm Incorporated
Reconciliation of Non-GAAP Tax Rate to GAAP Tax Rate
(in millions)
(Unaudited)
Three Months Ended June 26, 2011
Acquisition-
Non-GAAP Share-Based Tax Related GAAP
Results Compensation Items (a) Items QSI (b) Results
Income (loss)
from
continuing
operations
before income
taxes $ 1,574 $ (193) $ - $ (77) $ (30) $ 1,274
Income tax
(expense)
benefit (334) 46 (4) 4 (1) (289)
Income from
continuing
operations $ 1,240 $ (147) $ (4) $ (73) $ (31) $ 985
Tax rate 21% 24% N/A N/M N/M 23%
Nine Months Ended June 26, 2011
Acquisition-
Non-GAAP Share-Based Tax Related GAAP
Results Compensation Items (a) Items QSI (b) Results
Income (loss)
from
continuing
operations
before income
taxes $ 5,104 $ (561) $ - $ (83) $ (97) $ 4,363
Income tax
(expense)
benefit (1,068) 155 21 4 26 (862)
Income from
continuing
operations $ 4,036 $ (406) $ 21 $ (79) $ (71) $ 3,501
Tax rate 21% 28% N/A N/M N/M 20%
(a) During the first quarter of fiscal 2011, we recorded a tax benefit of $32
million related to fiscal 2010 due to the retroactive reenactment of the
federal R&D tax credit. Also, during the first, second and third quarter of
fiscal 2011, we recorded $3 million, $3 million and $4 million,
respectively, in state tax expense because deferred revenue related to the
license agreement signed in the first quarter of fiscal 2010 with Samsung
is taxable in fiscal 2011 but the resulting deferred tax asset will reverse
in future years when our state tax rate will be lower.
(b) 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 Non-GAAP tax
provision, the tax items column and the tax provision related to
share-based compensation from the GAAP tax provision.
N/M – Not Meaningful
Sums may not equal totals due to rounding
Qualcomm Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
ASSETS
June 26, September 26,
2011 2010
Current assets:
Cash and cash equivalents $ 5,746 $ 3,547
Marketable securities 4,982 6,732
Accounts receivable, net 832 730
Inventories 753 528
Deferred tax assets 310 321
Other current assets 210 275
Total current assets 12,833 12,133
Marketable securities 9,493 8,123
Deferred tax assets 1,884 1,922
Assets held for sale 746 -
Property, plant and equipment, net 2,267 2,373
Goodwill 3,195 1,488
Other intangible assets, net 3,098 3,022
Other assets 1,584 1,511
Total assets $ 35,100 $ 30,572
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 761 $ 764
Payroll and other benefits related liabilities 568 467
Unearned revenues 541 623
Loans payable 1,092 1,086
Income taxes payable 84 1,443
Other current liabilities 1,418 1,085
Total current liabilities 4,464 5,468
Unearned revenues 3,630 3,485
Other liabilities 705 761
Total liabilities 8,799 9,714
Stockholders' equity:
Qualcomm Incorporated (Qualcomm) Stockholders' equity:
Preferred stock, $0.0001 par value; issuable in series;
8 shares authorized; none outstanding at June 26, 2011
and September 26, 2010 - -
Common stock, $0.0001 par value; 6,000 shares
authorized;
1,677 and 1,612 shares issued and outstanding at June
26, 2011 and September 26, 2010, respectively - -
Paid-in capital 10,011 6,856
Retained earnings 15,516 13,305
Accumulated other comprehensive income 744 697
Total Qualcomm stockholders' equity 26,271 20,858
Noncontrolling interests 30 -
Total stockholders' equity 26,301 20,858
Total liabilities and stockholders equity $ 35,100 $ 30,572
Qualcomm Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
June 26, June 27, June 26, June 27,
2011 2010* 2011 2010*
Revenues:
Equipment and services $ 2,297 $ 1,766 $ 6,550 $ 5,021
Licensing and royalty fees 1,326 934 4,290 3,009
Total revenues 3,623 2,700 10,840 8,030
Operating expenses:
Cost of equipment and services revenues 1,278 852 3,380 2,375
Research and development 757 623 2,144 1,822
Selling, general and administrative 475 332 1,413 1,063
Goodwill impairment - - 114 -
Total operating expenses 2,510 1,807 7,051 5,260
Operating income 1,113 893 3,789 2,770
Investment income, net 161 183 574 552
Income from continuing operations
before income taxes 1,274 1,076 4,363 3,322
Income tax expense (289) (244) (862) (740)
Income from continuing operations 985 832 3,501 2,582
Discontinued operations, net of income
taxes 44 (65) (307) (200)
Net Income 1,029 767 3,194 2,382
Net loss attributable to noncontrolling
interests 6 - 10 -
Net income attributable to Qualcomm $ 1,035 $ 767 $ 3,204 $ 2,382
Basic earnings (loss) per share
attributable to Qualcomm:
Continuing operations $ 0.59 $ 0.51 $ 2.13 $ 1.56
Discontinued operations 0.03 (0.04) (0.19) (0.12)
Net income $ 0.62 $ 0.47 $ 1.94 $ 1.44
Diluted earnings (loss) per share
attributable to Qualcomm:
Continuing operations $ 0.58 $ 0.51 $ 2.09 $ 1.55
Discontinued operations 0.03 (0.04) (0.19) (0.12)
Net income $ 0.61 $ 0.47 $ 1.90 $ 1.43
Shares used in per share calculations:
Basic 1,673 1,629 1,650 1,654
Diluted 1,709 1,642 1,682 1,670
Dividends per share announced $ 0.215 $ 0.190 $ 0.595 $ 0.530
*As adjusted for discontinued
operations
Qualcomm Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended Nine Months Ended
June 26, June 27, June 26, June 27,
2011 2010 2011 2010
Operating Activities:
Net income $ 1,029 $ 767 $ 3,194 $ 2,382
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization 185 166 820 495
Goodwill impairment - - 114 -
Revenues related to non-monetary
exchanges (31) (31) (93) (99)
Income tax provision in excess of (less
than) income tax payments 116 86 (1,218) 80
Non-cash portion of share-based
compensation expense 193 149 568 453
Incremental tax benefit from stock
options exercised (35) (3) (167) (34)
Net realized gains on marketable
securities and other investments (73) (92) (304) (274)
Net impairment losses on marketable
securities and other investments 10 29 26 102
Other items, net 5 (66) 23 (70)
Changes in assets and liabilities, net
of effects of acquisitions:
Accounts receivable, net (2) (126) 21 (91)
Inventories 38 (45) (43) 7
Other assets (17) (1) (36) (71)
Trade accounts payable (46) 104 (191) 23
Payroll, benefits and other liabilities (59) 78 210 (161)
Unearned revenues (49) (64) 156 241
Net cash provided by operating
activities 1,264 951 3,080 2,983
Investing Activities:
Capital expenditures (219) (117) (400) (313)
Advanced payment on spectrum - (1,064) - (1,064)
Purchases of available-for-sale
securities (2,426) (2,569) (8,271) (7,049)
Proceeds from sale of available-for-sale
securities 3,888 3,113 9,355 7,354
Atheros acquisition, net of cash
acquired (3,130) - (3,130) -
Other acquisitions and investments, net
of cash acquired (6) (17) (95) (45)
Other items, net (45) 85 (22) 121
Net cash used by investing activities (1,938) (569) (2,563) (996)
Financing Activities:
Borrowing under loans payable - 1,064 1,260 1,064
Repayment of loans payable - - (1,260) -
Proceeds from issuance of common stock 368 35 2,392 519
Proceeds from issuance of subsidiary
shares to noncontrolling interests - - 62 -
Incremental tax benefit from stock
options exercised 35 3 167 34
Repurchase and retirement of common
stock - (1,178) - (2,893)
Dividends paid (360) (309) (985) (872)
Other items, net 10 (1) 36 (2)
Net cash provided (used) by financing
activities 53 (386) 1,672 (2,150)
Effect of exchange rate changes on cash - (8) 10 (13)
Net (decrease) increase in cash and cash
equivalents (621) (12) 2,199 (176)
Cash and cash equivalents at beginning
of period 6,367 2,553 3,547 2,717
Cash and cash equivalents at end of
period $ 5,746 $ 2,541 $ 5,746 $ 2,541
SOURCE Qualcomm Incorporated
Released July 20, 2011