Qualcomm Announces Fourth Quarter and Fiscal 2010 Results
Fiscal 2010 Revenues $11 Billion, EPS $1.96
Non-GAAP EPS $2.46
Reports Record MSM Shipments and Record EPS
SAN DIEGO, Nov. 3, 2010 /PRNewswire-FirstCall/ -- Qualcomm Incorporated (Nasdaq: QCOM), a leading developer and innovator of advanced wireless technologies, products and services, today announced results for the fourth fiscal quarter and year ended September 26, 2010.
"I am very pleased with our performance this year as we delivered record earnings per share and record MSM chipset volumes," said Dr. Paul E. Jacobs, chairman and CEO of Qualcomm. "Our outlook includes strong revenue and earnings growth in fiscal 2011. In the coming year, we expect continued strong growth in CDMA-based device shipments, including smartphones and other data-centric devices, driven by the global adoption of 3G and accelerating consumer demand for wireless data. With our industry-leading chipset roadmap, broad licensing program and increasing number of global partners, we are well positioned to take advantage of these industry trends."
GAAP Results
Qualcomm results are reported in accordance with generally accepted accounting principles (GAAP).
Fourth Quarter Fiscal 2010
-- Revenues: $2.95 billion, up 10 percent year-over-year (y-o-y) and 9
percent sequentially.
-- Operating income: $837 million, up 40 percent y-o-y and 6 percent
sequentially.
-- Net income: $865 million, up 8 percent y-o-y and 13 percent
sequentially.
-- Diluted earnings per share: $0.53, up 10 percent y-o-y and 13 percent
sequentially.
-- Effective tax rate: 17 percent.
-- Operating cash flow: $1.09 billion, down 17 percent y-o-y; 37 percent of
revenues.
-- Return of capital to stockholders: $427 million, including $305 million,
or $0.19 per share, of cash dividends paid, and $122 million to
repurchase 3.5 million shares of our common stock.
Fiscal 2010
-- Revenues: $10.99 billion, up 6 percent y-o-y.
-- Operating income: $3.28 billion, up 47 percent y-o-y.
-- Net income: $3.25 billion, up 104 percent y-o-y.
-- Diluted earnings per share: $1.96, up 106 percent y-o-y.
-- Effective tax rate: 20 percent.
-- Operating cash flow: $4.08 billion, down 43 percent y-o-y; 37 percent of
revenues.
-- Return of capital to stockholders: $4.19 billion, including $1.18
billion, or $0.72 per share, of cash dividends paid, and $3.02 billion
to repurchase 79.8 million shares of our common stock.
Non-GAAP 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 acquired in-process research and development (R&D) expense.
Fourth Quarter Fiscal 2010
-- Revenues: $2.95 billion, up 10 percent y-o-y and 9 percent sequentially.
-- Operating income: $1.13 billion, up 36 percent y-o-y and 14 percent
sequentially.
-- Net income: $1.11 billion, up 36 percent y-o-y and 18 percent
sequentially.
-- Diluted earnings per share: $0.68, up 42 percent y-o-y and 19 percent
sequentially. The current quarter excludes $0.05 loss per share
attributable to the QSI segment, $0.07 loss per share attributable to
certain share-based compensation and $0.02 loss per share attributable
to certain tax items (the sum of Non-GAAP earnings per share and items
excluded do not equal GAAP earnings per share due to rounding).
-- Effective tax rate: 19 percent.
-- Free cash flow: $1.11 billion, down 14 percent y-o-y; 38 percent of
revenues (defined as net cash from operating activities less capital
expenditures).
Fiscal 2010
-- Revenues: $10.98 billion, up 6 percent y-o-y.
-- Operating income: $4.32 billion, up 37 percent y-o-y.
-- Net income: $4.07 billion, up 86 percent y-o-y.
-- Diluted earnings per share: $2.46, up 88 percent y-o-y. The current
fiscal year excludes $0.13 loss per share attributable to the QSI
segment, $0.27 loss per share attributable to certain share-based
compensation and $0.10 loss per share attributable to certain tax items.
-- Effective tax rate: 20 percent.
-- Free cash flow: $4.16 billion, down 40 percent y-o-y; 38 percent of
revenues.
Detailed reconciliations between results reported in accordance with GAAP and Non-GAAP results are included at the end of this news release.
In the year-over-year comparisons summarized above, the following should be noted: fiscal 2009 results (GAAP and Non-GAAP) included a $783 million charge related to a litigation settlement and patent agreement with Broadcom Corporation, including $35 million recorded in the fourth quarter of 2009; both the fourth quarter and fiscal 2009 results (GAAP and Non-GAAP) also included a $230 million charge related to the Korea Fair Trade Commission fine; GAAP results in fiscal 2009 included a $155 million tax benefit related to prior years as a result of tax audits; net income was favorably impacted in fiscal 2010 (GAAP and Non-GAAP) due to a significant increase in net investment income; and fiscal 2009 operating and free cash flow included the receipt of a $2.5 billion payment related to the license and settlement agreements with Nokia.
Key Business Metrics
Fourth Quarter Fiscal 2010
-- CDMA-based Mobile Station Modem™ (MSM™) shipments: approximately 111
million units, up 22 percent y-o-y and 8 percent sequentially.
-- Total reported device sales*: approximately $28.3 billion, up 14 percent
y-o-y and 12 percent sequentially.
o Estimated CDMA-based device shipments*: approximately 153 to 157
million units at an estimated average selling price of approximately
$179 to $185 per unit.
Fiscal 2010
-- CDMA-based MSM shipments: approximately 399 million units, up 26 percent
y-o-y.
-- Total reported device sales*: approximately $105.7 billion, up 7 percent
y-o-y.
o Estimated CDMA-based device shipments*: approximately 561 to 577
million units at an estimated average selling price of approximately
$183 to $189 per unit.
*Royalties are recognized when reported, generally one quarter following shipment.
Cash and Marketable Securities
Our cash, cash equivalents and marketable securities totaled approximately $18.4 billion at the end of the fourth quarter of fiscal 2010, compared to $17.6 billion at the end of the third quarter of fiscal 2010 and $17.7 billion a year ago. On October 13, 2010, we announced a cash dividend of $0.19 per share payable on December 22, 2010 to stockholders of record as of November 24, 2010.
Research and Development
Share-Based
($ in millions) Non-GAAP Compensation QSI GAAP
Fourth quarter fiscal 2010 $ 547 $ 79 $ 30 $ 656
As a % of revenues 19% N/M 22%
Fourth quarter fiscal 2009 $ 518 $ 71 $ 25 $ 614
As a % of revenues 19% N/M 23%
Year-over-year change ($) 6% 11% 20% 7%
N/M - Not Meaningful
Non-GAAP R&D expenses increased 6 percent y-o-y primarily due to an increase in costs related to the development of integrated circuit products, next-generation CDMA and OFDMA technologies and other initiatives to support the acceleration of advanced wireless products and services. QSI R&D expenses were primarily related to our FLO TV™ subsidiary.
Selling, General and Administrative
Share-Based
($ in millions) Non-GAAP Compensation QSI GAAP
Fourth quarter fiscal 2010 $ 364 $ 70 $ 37 $ 471
As a % of revenues 12% N/M 16%
Fourth quarter fiscal 2009 $ 300 $ 66 $ 24 $ 390
As a % of revenues 11% N/M 14%
Year-over-year change ($) 21% 6% 54% 21%
Non-GAAP selling, general and administrative (SG&A) expenses increased 21 percent y-o-y primarily due to an increase in legal and patent-related costs. QSI SG&A expenses were primarily related to FLO TV.
Effective Income Tax Rate
Our fiscal 2010 effective income tax rates were 20 percent for both GAAP and Non-GAAP. The fiscal 2010 GAAP effective tax rate included tax expense of $137 million because deferred revenue related to the 2008 license and settlement agreements with Nokia was taxable in fiscal 2010, but the resulting deferred tax asset will reverse in future years when our state tax rate, based on the legislation in effect during fiscal 2010, will be lower. The fiscal 2010 GAAP effective tax rate also included $20 million of tax expense as a result of prior year tax audits completed during the fiscal year. The tax expense related to these items was excluded from our Non-GAAP results to provide a clearer understanding of our ongoing tax rate and after tax earnings.
Qualcomm Strategic Initiatives
The QSI segment manages our strategic investment activities, including FLO TV, and makes strategic investments in early-stage companies and in wireless spectrum, such as the Broadband Wireless Access (BWA) spectrum recently won in the auction in India. GAAP results for the fourth quarter fiscal 2010 included a $0.05 loss per share for the QSI segment. The fourth quarter fiscal 2010 QSI results included $132 million in operating expenses primarily related to FLO TV. In June 2010, in connection with the India BWA spectrum purchase, we entered into a bank loan agreement that is payable in full in Indian rupees in December 2010. At the end of the fourth quarter fiscal 2010, the carrying value of the loan was $1.09 billion.
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 the consequences of injunctions, damages or fines related to any pending legal matters unless awarded or imposed by a court, governmental entity or other regulatory body. 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.
We have commenced a restructuring plan under which we expect to exit the current FLO TV service business. In addition to our ongoing operating costs, we expect to incur restructuring charges related to this plan in the range of $125 million to $175 million in fiscal 2011, which are primarily related to certain contractual obligations and are included in our fiscal 2011 outlook included herein. Additionally, we continue to evaluate strategic options for the FLO TV business, which include, but are not limited to, operating the FLO TV network under a new wholesale service; sale to, or joint venture with, a third party; and/or the sale of the spectrum licenses and the discontinuance of the operation of the network. Additional charges, including impairment of assets, may be incurred as we continue to evaluate or implement these strategic options or if we are unable to generate adequate future cash flows associated with this business.
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 elsewhere herein.
The following estimates are approximations and are based on the current business outlook:
Qualcomm's Business Outlook Summary
FIRST FISCAL
QUARTER
Q1 FY10 Current Guidance
Results Q1 FY11 Estimates
Non-GAAP
Revenues $2.67B $3.05B - $3.35B
Year-over-year
change increase 14% - 26%
Diluted earnings
per share (EPS) $0.62 $0.70 - $0.74
Year-over-year
change increase 13% - 19%
GAAP
Revenues $2.67B $3.05B - $3.35B
Year-over-year
change increase 14% - 25%
Diluted EPS $0.50 $0.58 - $0.62
Year-over-year
change increase 16% - 24%
Diluted EPS
attributable to
QSI ($0.03) ($0.05)
Diluted EPS
attributable to
share-based
compensation ($0.07) ($0.07)
Diluted EPS
attributable to
certain tax items ($0.02) $0.00
Metrics
MSM shipments approx. 92M approx. 115M - 119M
Year-over-year
change increase 25% - 29%
Total reported
device sales (1) $24.5B* $31.5B - $33.5B*
Year-over-year
change increase 29% - 37%
Est. CDMA-based
devices shipped
(1) approx. 126M- 130M* not provided
Est. CDMA-based
device average
selling price (1) approx. $189-$195* not provided
*Est. sales in
September quarter,
reported in
December quarter
FISCAL YEAR
FY 2010 Current Guidance
Results FY 2011 Estimates
Non-GAAP
Revenues $10.98B $12.4B - $13.0B
Year-over-year
change increase 13% - 18%
Operating Income $4.32B $4.8B - $5.3B
Year-over-year
change increase 11% - 23%
Diluted EPS $2.46 $2.63 - $2.77
Year-over-year
change increase 7% - 13%
GAAP
Revenues $10.99B $12.4B - $13.0B
Year-over-year
change increase 13% - 18%
Operating Income $3.28B $3.6B - $4.1B
Year-over-year
change increase 10% - 25%
Diluted EPS $1.96 $2.08 - $2.22
Year-over-year
change increase 6% - 13%
Diluted EPS
attributable to
QSI ($0.13) ($0.22)
Diluted EPS
attributable to
share-based
compensation ($0.27) ($0.32)
Diluted EPS
attributable to
certain tax items ($0.10) ($0.01)
CALENDAR YEAR
Device Estimates
(1)
Prior Guidance Current Guidance Current Guidance
Calendar 2010 Calendar 2010 Calendar 2011
Estimates Estimates Estimates
Est. CDMA-based
device shipments
March quarter approx. 134M - 138M approx. 134M - 138M not provided
June quarter not provided approx. 153M - 157M not provided
September quarter not provided not provided not provided
December quarter not provided not provided not provided
Est. Calendar year
range (approx.) 600M - 650M 625M - 650M 740M - 790M
Midpoint Midpoint Midpoint
Est. total
CDMA-based units approx. 625M approx. 638M approx. 765M
Est. CDMA units approx. 236M approx. 241M approx. 250M
Est. WCDMA units approx. 389M approx. 397M approx. 515M
(1) 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. For results using assumptions in effect for quarters prior to the second quarter of fiscal 2010, please refer to the "Changes to QTL Metrics" table of our April 21, 2010 earnings release that was furnished to the Securities and Exchange Commission on Form 8-K.
Results of Business Segments (in millions, except per share data):
Non-GAAP
Reconciling Non- Share-Based Tax In-
Items (1) GAAP Compensation Items Process GAAP
SEGMENTS QCT QTL QWI (5) (5) (2) (3) R&D QSI (4) (5)
Q4 -
FISCAL
2010
Revenues $1,860 $921 $171 $ - $2,952 $ - $ - $ - $ - $2,952
Change
from
prior
year 9% 10% 17% N/M 10% (100%) 10%
Change
from
prior
quarter 10% 9% 6% N/M 9% (100%) 9%
Operating
income
(loss) $1,130 ($161) $ - $ - ($132) $837
Change
from
prior
year 36% (9%) N/A (53%) 40%
Change
from
prior
quarter 14% (8%) N/A N/M 6%
EBT $519 $754 ($2) $90 $1,361 ($161) $ - $ - ($153) $1,047
Change
from
prior
year 2% 9% N/M N/M 38% (9%) N/A (61%) 41%
Change
from
prior
quarter 28% 12% N/M N/M 17% (8%) N/A N/M 8%
EBT as a
% of
revenues 28% 82% (1%) N/M 46% N/M N/A N/M 35%
Net
income
(loss) $1,105 ($120) ($40) $ - ($80) $865
Change
from
prior
year 36% (41%) N/M N/A (3%) 8%
Change
from
prior
quarter 18% (8%) N/M N/A N/M 13%
Diluted
EPS $0.68 ($0.07) ($0.02) $ - $(0.05) $0.53
Change
from
prior
year 42% (40%) N/M N/A 0% 10%
Change
from
prior
quarter 19% 0% N/M N/A N/M 13%
Diluted
shares
used 1,621 1,621 1,621 1,621 1,621 1,621
Q3 -
FISCAL
2010
Revenues $1,691 $847 $162 $ - $2,700 $ - $ - $ - $6 $2,706
Operating
income
(loss) 991 (149) - - (50) 792
EBT 404 673 6 78 1,161 (149) - - (41) 971
Net
income
(loss) 936 (111) (54) - (4) 767
Diluted
EPS $0.57 ($0.07) ($0.03) $ - $ - $0.47
Diluted
shares
used 1,642 1,642 1,642 1,642 1,642 1,642
Q1 -
FISCAL
2010
Revenues $1,608 $917 $142 $1 $2,668 $ - $ - $ - $2 $2,670
Operating
income
(loss) 1,134 (151) - - (104) 879
EBT 425 772 9 104 1,310 (151) - - (107) 1,052
Net
income
(loss) 1,041 (114) (32) - (54) 841
Diluted
EPS $0.62 ($0.07) $(0.02) $ - ($0.03) $0.50
Diluted
shares
used 1,691 1,691 1,691 1,691 1,691 1,691
Q4 -
FISCAL
2009
Revenues $1,699 $837 $146 $1 $2,683 $ - $ - $ - $7 $2,690
Operating
income
(loss) 831 (148) - - (86) 597
EBT 508 693 (5) (211) 985 (148) - - (95) 742
Net
income
(loss) 811 (85) 155 - (78) 803
Diluted
EPS $0.48 ($0.05) $ 0.09 $ - ($0.05) $0.48
Diluted
shares
used 1,688 1,688 1,688 1,688 1,688 1,688
12 MONTHS
- FISCAL
2010
Revenues $6,695 $3,659 $628 $ - $10,982 $ - $ - $ - $9 $10,991
Change
from
prior
year 9% 1% (2%) N/M 6% (69%) 6%
Operating
income
(loss) $4,316 ($614) $ - ($3) ($416) $3,283
Change
from
prior
year 37% (5%) N/M (23%) 47%
EBT $1,693 $3,020 $12 $361 $5,086 ($614) $ - ($3) ($435) $4,034
Change
from
prior
year 17% (2%) (40%) N/M 68% (5%) N/M (20%) 94%
Net
income
(loss) $4,071 ($442) ($159) ($3) ($220) $3,247
Change
from
prior
year 86% 3% N/M N/M 13% 104%
Diluted
EPS $2.46 ($0.27) ($0.10) $ - ($0.13) $1.96
Change
from
prior
year 88% 0% N/M N/M 13% 106%
Diluted
shares
used 1,658 1,658 1,658 1,658 1,658 1,658
12 MONTHS
- FISCAL
2009
Revenues $6,135 $3,605 $641 $6 $10,387 $ - $ - $ - $29 $10,416
Operating
income
(loss) 3,153 (584) - (6) (337) 2,226
EBT 1,441 3,068 20 (1,502) 3,027 (584) - (6) (361) 2,076
Net
income
(loss) 2,187 (455) 118 (6) (252) 1,592
Diluted
EPS $1.31 ($0.27) $0.07 $ - ($0.15) $0.95
Diluted
shares
used 1,673 1,673 1,673 1,673 1,673 1,673
(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) 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. (3) During the first, second, third and fourth quarters of fiscal 2010, the Company recorded $32 million, $33 million, $32 million and $40 million in state tax expense, respectively, or $0.02 diluted loss per share for each quarter, because deferred revenue related to the license and settlement agreements with Nokia was taxable in fiscal 2010 but the resulting deferred tax asset will reverse in future years when the Company's state tax rate, based on the legislation in effect during fiscal 2010, will be lower. During the third quarter of fiscal 2010, the Company recorded $22 million of tax expense, or $0.01 diluted loss per share, as a result of prior year tax audits completed during the third quarter. (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) Fiscal 2009 results included a $783 million charge related to a litigation settlement and patent agreement with Broadcom Corporation, including $748 million recorded in the second quarter of fiscal 2009 and $35 million recorded in the fourth quarter of 2009. The fourth quarter of fiscal 2009 results also included a $230 million charge related to the Korea Fair Trade Commission fine. N/M – Not Meaningful N/A – Not Applicable Sums may not equal totals due to rounding.
Conference Call
Qualcomm's fourth quarter fiscal 2010 earnings conference call will be broadcast live on November 3, 2010 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 November 3, 2010, beginning at approximately 5:30 p.m. PT through December 3, 2010 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 17283098. 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 next-generation mobile technologies. For 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 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 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. 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. 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 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.
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 wireless networks and of wireless communications, equipment and services, including CDMA2000 1X, 1xEV-DO, WCDMA, HSPA, TD-SCDMA and OFDMA, both domestically and internationally; 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 success of the FLO TV service business and MediaFLO™ technology; the development and commercial success of the 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. The Company undertakes 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. FLO TV and MediaFLO 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 Incorporated
Supplemental Information for the Three Months Ended September 26, 2010
(Unaudited)
Non-GAAP Share-Based Tax GAAP
Results Compensation Items QSI Results
($ in millions except per share
data)
R&D $547 $79 $ - $30 $656
SG&A 364 70 - 37 471
Operating income (loss) 1,130 (161) - (132) 837
Investment income (loss), net 231 - - (21)(a) 210
Tax rate 19% N/M N/M N/M 17%
Net income (loss) $1,105 ($120) ($40)(b) ($80) $865
Diluted earnings (loss) per
share (EPS) $0.68 ($0.07) ($0.02) ($0.05) $0.53
Operating Cash Flow $1,214 ($11)(c) $ - ($110) $1,093
Operating Cash Flow as % of
Revenues 41% N/A N/A N/M 37%
Free Cash Flow (d) $1,113 ($11)(c) $ - ($122) $980
Free Cash Flow as a % of
Revenues 38% N/A N/A N/M 33%
(a) The Company's strategic investment activities included $25 million in interest expense and $7 million in other-than-temporary losses on investments, partially offset by $7 million in gains on derivative instruments, $3 million in interest and dividend income related to cash, cash equivalents and marketable securities and $1 million in net realized gains on investments. (b) During the fourth quarter of fiscal 2010, the Company recorded a $40 million state tax expense, or $0.02 diluted loss per share, because deferred revenue related to the license and settlement agreements with Nokia was taxable in fiscal 2010 but the resulting deferred tax asset will reverse in future years when the Company's state tax rate, based on the legislation in effect during fiscal 2010, will be lower. (c) Incremental tax benefits from stock options exercised during the period. (d) Free Cash Flow is calculated as net cash provided by operating activities less capital expenditures. Reconciliation of these amounts is included in the "Reconciliation of Non-GAAP Free Cash Flows to Net Cash Provided by Operating Activities (GAAP) and Other Supplemental Disclosures" for the three months ended September 26, 2010, included herein. N/M – Not Meaningful N/A – Not Applicable Sums may not equal totals due to rounding.
Qualcomm Incorporated
Supplemental Information for the Twelve Months Ended September 26, 2010
(Unaudited)
Non-GAAP Share-Based Tax In-Process GAAP
Results Compensation Items R&D QSI Results
($ in millions
except per share
data)
R&D $2,142 $300 $ - $3 $104 $2,549
SG&A 1,268 272 - - 102 1,642
Operating income
(loss) 4,316 (614) - (3) (416) 3,283
Investment income (19)(a)
(loss), net 770 - - - 751
Tax rate 20% 28% N/M N/A 45% 20%
Net income (loss) $4,071 ($442) ($159)(b) ($3) ($220) $3,247
Diluted earnings
(loss) per share
(EPS) $2.46 ($0.27) ($0.10) $ - ($0.13) $1.96
Operating Cash Flow $4,511 ($45)(c) $ - $ - ($390) $4,076
Operating Cash Flow
as % of Revenues 41% N/A N/A N/A N/M 37%
Free Cash Flow (d) $4,161 ($45)(c) $ - $ - ($466) $3,650
Free Cash Flow as a
% of Revenues 38% N/A N/A N/A N/M 33%
(a) The Company's strategic investment activities included $42 million in interest expense, $15 million in other-than-temporary losses on investments and $3 million in equity in losses of investees, partially offset by $26 million in net realized gains on investments, $8 million in interest and dividend income related to cash, cash equivalents and marketable securities and $7 million in gains on derivative instruments. (b) During fiscal 2010, the Company recorded (i) a $137 million state tax expense, or $0.08 diluted loss per share, because deferred revenue related to the license and settlement agreements with Nokia was taxable in fiscal 2010 but the resulting deferred tax asset will reverse in future years when the Company's state tax rate, based on the legislation in effect during fiscal 2010, will be lower, and (ii) a $22 million tax expense, or $0.01 diluted loss per share, as a result of prior year tax audits completed during fiscal 2010. (c) Incremental tax benefits from stock options exercised during the period. (d) 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 twelve months ended September 26, 2010, included herein. N/M – Not Meaningful N/A – Not Applicable
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 September 26, 2010
Share-Based Tax In-Process
Non-GAAP Compensation Items R&D QSI GAAP
Net cash
provided (used)
by operating
activities $ 1,214 $ (11) (a) $ - $ - $ (110) $ 1,093
Less: capital
expenditures (101) - - - (12) (113)
Free cash flow $ 1,113 $ (11) $ - $ - $ (122) $ 980
Revenues 2,952 - - - - 2,952
Free Cash Flow
as a % of
Revenues 38% N/A N/A N/A N/M 33%
Other
supplemental
cash
disclosures:
Cash transfers
from QSI (1) $ 2 $ - $ - $ - $ (2) $ -
Cash transfers
to QSI (2) (144) - - - 144 -
Net cash
transfers $ (142) $ - $ - $ - $ 142 $ -
Twelve Months Ended September 26, 2010
Share-Based Tax In-Process
Non-GAAP Compensation Items R&D QSI GAAP
Net cash
provided (used)
by operating
activities $ 4,511 $ (45) (a) $ - $ - $ (390) $ 4,076
Less: capital
expenditures (350) - - - (76) (426)
Free cash flow $ 4,161 $ (45) $ - $ - $ (466) $ 3,650
Revenues 10,982 - - - 9 10,991
Free Cash Flow
as a % of
Revenues 38% N/A N/A N/A N/M 33%
Other
supplemental
cash
disclosures:
Cash transfers
from QSI (3) $ 119 $ - $ - $ - $ (119) $ -
Cash transfers
to QSI (2) (520) - - - 520 -
Net cash
transfers $ (401) $ - $ - $ - $ 401 $ -
Three Months Ended September 27, 2009
Share-Based Tax In-Process
Non-GAAP Compensation Items R&D QSI GAAP
Net cash
provided (used)
by operating
activities $ 1,411 $ (25) (a) $ - $ - $ (65) $ 1,321
Less: capital
expenditures (117) - - - (27) (144)
Free cash flow $ 1,294 $ (25) $ - $ - $ (92) $ 1,177
Twelve Months Ended September 27, 2009
Share-Based Tax In-Process
Non-GAAP Compensation Items R&D QSI GAAP
Net cash
provided (used)
by operating
activities $ 7,556 $ (79) (a) $ - $ - $ (305) $ 7,172
Less: capital
expenditures (649) - - - (112) (761)
Free cash flow $ 6,907 $ (79) $ - $ - $ (417) $ 6,411
(a) Incremental tax benefits from stock options exercised during the period.
(1) Cash from sale of equity investments.
(2) Primarily funding for strategic debt and equity investments, capital
expenditures and other QSI operating expenses.
(3) Cash from sale of equity investments and Australia spectrum license.
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 September 26, 2010
Non-GAAP Share-Based In-Process GAAP
Compensation R&D
Results Tax Items QSI(a) Results
Income (loss)
before income
taxes $1,361 ($161) $ - $ - ($153) $1,047
Income tax
(expense)
benefit (256) 41 (40) - 73 (182)
Net income
(loss) $1,105 ($120) ($40) $ - ($80) $865
Tax rate 19% 25% N/M N/M N/M 17%
Twelve Months Ended September 26, 2010
Non-GAAP Share-Based In-Process GAAP
Compensation R&D
Results Tax Items QSI Results
Income (loss)
before income
taxes $5,086 ($614) $ - ($3) ($435) $4,034
Income tax
(expense)
benefit (1,015) 172 (159) - 215 (787)
Net income
(loss) $4,071 ($442) ($159) ($3) ($220) $3,247
Tax rate 20% 28% N/M N/M 49% 20%
(a) 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
Qualcomm Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
ASSETS
September 26, September 27,
2010 2009
Current assets:
Cash and cash equivalents $ 3,547 $ 2,717
Marketable securities 6,732 8,352
Accounts receivable, net 730 700
Inventories 528 453
Deferred tax assets 321 149
Other current assets 275 199
Total current assets 12,133 12,570
Marketable securities 8,123 6,673
Deferred tax assets 1,922 843
Property, plant and equipment, net 2,373 2,387
Goodwill 1,488 1,492
Other intangible assets, net 3,022 3,065
Other assets 1,511 415
Total assets $ 30,572 $ 27,445
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 764 $ 636
Payroll and other benefits related liabilities 467 480
Unearned revenues 623 441
Loan payable to banks 1,086 -
Income taxes payable 1,443 29
Other current liabilities 1,085 1,227
Total current liabilities 5,468 2,813
Unearned revenues 3,485 3,464
Other liabilities 761 852
Total liabilities 9,714 7,129
Stockholders' equity:
Preferred stock, $0.0001 par value; issuable in
series;
8 shares authorized; none outstanding at
September 26, 2010 and September 27, 2009 - -
Common stock, $0.0001 par value; 6,000 shares
authorized;
1,612 and 1,669 shares issued and outstanding at
September 26, 2010 and September 27, 2009,
respectively - -
Paid-in capital 6,856 8,493
Retained earnings 13,305 11,235
Accumulated other comprehensive income 697 588
Total stockholders' equity 20,858 20,316
Total liabilities and stockholders' equity $ 30,572 $ 27,445
Qualcomm Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
September 26, September 27, September 26, September 27,
2010 2009 2010 2009
Revenues:
Equipment and
services $ 1,950 $ 1,769 $ 6,980 $ 6,466
Licensing and
royalty fees 1,002 921 4,011 3,950
Total revenues 2,952 2,690 10,991 10,416
Operating expenses:
Cost of equipment
and services
revenues 988 824 3,517 3,181
Research and
development 656 614 2,549 2,440
Selling, general and
administrative 471 390 1,642 1,556
Litigation
settlement, patent
license
and other related
items - 35 - 783
KFTC fine - 230 - 230
Total operating
expenses 2,115 2,093 7,708 8,190
Operating income 837 597 3,283 2,226
Investment income
(loss), net 210 145 751 (150)
Income before income
taxes 1,047 742 4,034 2,076
Income tax (expense)
benefit (182) 61 (787) (484)
Net income $ 865 $ 803 $ 3,247 $ 1,592
Basic earnings per
common share $ 0.54 $ 0.48 $ 1.98 $ 0.96
Diluted earnings per
common share $ 0.53 $ 0.48 $ 1.96 $ 0.95
Shares used in per
share calculations:
Basic 1,608 1,666 1,643 1,656
Diluted 1,621 1,688 1,658 1,673
Dividends per share
paid $ 0.19 $ 0.17 $ 0.72 $ 0.66
Dividends per share
announced $ 0.19 $ 0.17 $ 0.72 $ 0.66
Qualcomm Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended Twelve Months Ended
September 26, September 27, September 26, September 27,
2010 2009 2010 2009
Operating
Activities:
Net income $ 865 $ 803 $ 3,247 $ 1,592
Adjustments to
reconcile net income
to net cash provided
by
operating
activities:
Depreciation and
amortization 171 175 666 635
Revenues related to
non-monetary
exchanges (31) (29) (130) (114)
Income tax provision
in excess of income
tax payments 36 (255) 116 (33)
Non-cash portion of
share-based
compensation expense 159 148 612 584
Non-cash portion of
interest and
dividend income (7) (24) (24) (68)
Incremental tax
benefit from stock
options exercised (11) (25) (45) (79)
Net realized gains
on marketable
securities and other
investments (131) (80) (405) (137)
Impairment losses on
marketable
securities and other
investments 23 46 125 763
Other items, net 13 14 (40) 36
Changes in assets
and liabilities, net
of effects of
acquisitions:
Accounts receivable,
net 73 366 (18) 3,083
Inventories (87) (74) (80) 69
Other assets 11 (41) (60) (58)
Trade accounts
payable 125 65 148 57
Payroll, benefits
and other
liabilities (68) 273 (229) 984
Unearned revenues (48) (41) 193 (142)
Net cash provided by
operating activities 1,093 1,321 4,076 7,172
Investing
Activities:
Capital expenditures (113) (144) (426) (761)
Advance payment on
spectrum - - (1,064) -
Purchases of
available-for-sale
securities (1,924) (3,946) (8,973) (10,443)
Proceeds from sale
of
available-for-sale
securities 3,086 1,668 10,440 5,274
Purchases of other
marketable
securities (850) - (850) -
Cash received for
partial settlement
of investment
receivables 1 - 34 349
Other investments
and acquisitions,
net of cash acquired (49) (7) (94) (54)
Change in collateral
held under
securities lending - - - 173
Other items, net 6 (1) 94 5
Net cash provided
(used) by investing
activities 157 (2,430) (839) (5,457)
Financing
Activities:
Borrowing under loan
payable to banks - - 1,064 -
Proceeds from
issuance of common
stock 170 366 689 642
Incremental tax
benefit from stock
options exercised 11 25 45 79
Repurchase and
retirement of common
stock (122) - (3,016) (285)
Dividends paid (305) (283) (1,177) (1,093)
Change in
obligations under
securities lending - - - (173)
Other items, net (9) (3) (10) (3)
Net cash (used)
provided by
financing activities (255) 105 (2,405) (833)
Effect of exchange
rate changes on cash 11 - (2) (5)
Net increase
(decrease) in cash
and cash equivalents 1,006 (1,004) 830 877
Cash and cash
equivalents at
beginning of period 2,541 3,721 2,717 1,840
Cash and cash
equivalents at end
of period $ 3,547 $ 2,717 $ 3,547 $ 2,717
SOURCE Qualcomm Incorporated
Released November 3, 2010