QUALCOMM Announces First Quarter Fiscal 2006 Results
San Diego (ots/PRNewswire)
- Revenues US$1.74 Billion, Diluted EPS US$0.36
- Pro Forma Revenues US$1.74 Billion, Diluted EPS US$0.39
- Reaffirms Fiscal 2006 GuidanceQUALCOMM Incorporated (Nasdaq: QCOM) today announced results for its first quarter of fiscal 2006 ended December 25, 2005.
Total QUALCOMM (GAAP) First Quarter Results:
Total QUALCOMM results are reported in accordance with Generally Accepted Accounting Principles (GAAP).
- Revenues: US$1.74 billion, up 25 percent year-over-year and 12 percent
sequentially.
- Net income: US$620 million, up 21 percent year-over-year and 15 percent
sequentially.
- Diluted earnings per share: US$0.36, up 20 percent year-over-year and
13 percent sequentially.
- Effective tax rate: 16 percent for the quarter. Fiscal 2006 estimated
tax rate of approximately 22 percent.
- Estimated share-based compensation: US$82 million, net of tax.
- Operating cash flow: US$596 million, up 50 percent year-over-year;
34 percent of revenue.
- Return of capital to stockholders: In the quarter, we announced a new
US$2.5 billion stock repurchase program to replace the prior program
which had US$1 billion of repurchase authority remaining, and announced
dividends totaling US$148 million, or US$0.09 per share, which were
paid on January 4, 2006.QUALCOMM Pro Forma First Quarter Results:
Pro forma results exclude the QUALCOMM Strategic Initiatives (QSI) segment, estimated share-based compensation and tax benefits related to prior years.
- Revenues: US$1.74 billion, up 25 percent year-over-year and 12 percent
sequentially.
- Net income: US$667 million, up 41 percent year-over-year and 23 percent
sequentially.
- Diluted earnings per share: US$0.39, up 39 percent year-over-year and
22 percent sequentially, excludes US$0.01 loss per share attributable
to the QSI segment, US$0.05 loss per share attributable to estimated
share-based compensation and US$0.03 earnings per share attributable to
tax benefits related to prior years.
- Effective tax rate: 26 percent for the quarter and estimated for fiscal
2006.
- Free cash flow: US$531 million, up 93 percent year-over-year; 30
percent of revenue. (Defined as net cash from operating activities less
capital expenditures)Detailed reconciliations between total QUALCOMM (GAAP) results and QUALCOMM pro forma results and cash flows 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 delivered record first quarter revenue and strong year-over-year growth led by demand for our chips," said Dr. Paul E. Jacobs, CEO of QUALCOMM. "I'm pleased to see continued execution on our product roadmaps as we partner with manufacturers, operators and developers to bring new innovations to market. In emerging wireless markets like China and India, demand for low-end CDMA phones is increasing; in more established markets like the United States, South Korea, Japan and Europe, subscribers continue to migrate and upgrade to feature rich 3G devices and services."
"Looking forward, we expect continued growth of CDMA2000(R) 1xEV-DO products in North America, Japan, South Korea and Latin America. We remain encouraged by the consumer uptake of WCDMA services in Japan and Europe, and will continue working closely with operators during their ongoing WCDMA and HSDPA network deployment and optimization efforts. We remain well positioned to capitalize on the growth of 3G, thanks to the extensive value chain of partnerships that exists to rapidly bring new innovations to consumers and enterprise customers."
"QUALCOMM has a proven history of bringing the most advanced wireless technologies to market for large-scale deployments. The recent closure of the Flarion acquisition enhances QUALCOMM's strong position in OFDMA and further demonstrates our commitment to consistently add to our intellectual property (IP) portfolio through internal research and development and acquisition. Our research and development activities combined with our unique business model help enable our partners to supply wireless products and services with new features and functionality that drive incremental revenue growth for the industry."
Cash and Marketable Securities
QUALCOMM's cash, cash equivalents and marketable securities totaled approximately US$9.4 billion at the end of the first quarter of fiscal 2006, compared to US$8.7 billion at the end of the prior quarter and US$8.0 billion a year ago. On January 12, 2006, we announced a quarterly cash dividend of US$0.09 per common share, payable on March 24, 2006 to stockholders of record on February 24, 2006.
Estimated Share-Based Compensation
In the first quarter of fiscal 2006, we adopted revised Statement of Financial Accounting Standards No. 123, Share-Based Payment (FAS 123R), Which requires that share-based compensation be recorded in our financial statements. Historically, this had been identified in the footnote disclosures to our financial statements in accordance with FAS 123. We have implemented FAS 123R using the modified prospective method. Under this method, prior periods are not revised for comparative purposes. Our share-based compensation is estimated utilizing a lattice binomial option valuation model and has been classified in the appropriate categories of our operating expenses. However, estimated share-based compensation is not allocated to our business segments because we do not consider it relevant when evaluating the operating performance of our business segments, and is also excluded from QUALCOMM pro forma results. Total QUALCOMM (GAAP) net income for the first quarter of fiscal 2006 included estimated share-based compensation of US$82 million, net of tax, or US$0.05 per share.
Research and Development
(US$ in millions) Estimated Total
QUALCOMM Share-Based QUALCOMM
Pro Forma Compensation QSI (GAAP)
First quarter fiscal 2006 $273 $52 $15 $340
First quarter fiscal 2005 $219 $-- $9 $228
Year-over-year change 25% 67% 49%Pro forma research and development (R&D) expenses increased 25 percent year-over-year, primarily due to additional engineering resources for the development of integrated circuit products and other initiatives to support low-cost phones, multimedia applications, high-speed wireless access and multimode, multiband, multinetwork products and technologies, including CDMA2000, 1xEV-DO, WCDMA, HSDPA, GSM/GPRS/EDGE and OFDMA, and the development of our iMoD display products. QSI R&D expenses increased year-over-year primarily due to increased expenses related to MediaFLO USA.
Selling, General and Administrative
(US$ in millions) Estimated Total
QUALCOMM Share-Based QUALCOMM
Pro Forma Compensation QSI (GAAP)
First quarter fiscal 2006 $168 $58 $13 $239
First quarter fiscal 2005 $143 $-- $5 $148
Year-over-year change 17% 160% 61%Pro forma selling, general and administrative (SG&A) expenses increased 17 percent year-over-year, largely attributable to increases in employee related expenses to support our growing worldwide customer base, and professional fees related to legal and patent activities. QSI SG&A expenses increased year-over-year primarily due to increased expenses related to MediaFLO USA.
Effective Income Tax Rate
Our fiscal 2006 effective income tax rate is estimated to be approximately 22 percent, compared to 24 percent in fiscal 2005. Our fiscal 2006 QUALCOMM pro forma effective tax rate is estimated to be approximately 26 percent, compared to 30 percent in fiscal 2005. The decrease in our fiscal 2006 estimated annual effective tax rates compared to our fiscal 2005 tax rates for both total QUALCOMM (GAAP) and QUALCOMM pro forma is primarily the result of projected increased foreign earnings in 2006 taxed at a lower rate. A benefit of approximately US$0.03 per share was recorded in the first quarter of fiscal 2006 related to the expected impact of prior year tax audits completed during the quarter. This benefit reduced the rate for the first quarter of fiscal 2006 for total QUALCOMM (GAAP) to approximately 16 percent. For fiscal 2006 QUALCOMM pro forma presentation we excluded this US$0.03 diluted earnings per share benefit to provide a clearer understanding of our ongoing tax rate and after tax earnings.
QUALCOMM Strategic Initiatives
The QSI segment includes our strategic investments and related income and expenses. Total QUALCOMM (GAAP) results for the first quarter of fiscal 2006 include US$0.01 loss per share for the QSI segment compared to US$0.02 diluted earnings per share for the first quarter of fiscal 2005. The first quarter fiscal 2006 QSI results include US$28 million of operating expenses, primarily related to MediaFLO USA, and US$20 million of equity in losses of investees.
Business Outlook
The following statements are forward-looking and actual results may differ materially. Please see "Note Regarding Forward-Looking Statements" at the end of this news release for a description of certain risk factors and QUALCOMM's annual and quarterly reports on file with the Securities and Exchange Commission (SEC) for a more complete description of risks. Due to their nature, certain income and expense items, such as realized investment gains or losses in QSI, gains and losses on certain derivative instruments or asset impairments, cannot be accurately forecast. Accordingly, the Company excludes forecasts of such items from its business outlook, and actual results may vary materially from the business outlook if the Company incurs any such income or expense items.
Although estimated share-based compensation is included in the business outlook for total QUALCOMM (GAAP), actual estimated share-based compensation recorded under FAS 123R may vary materially from the business outlook as the methodology used to calculate this estimate is dependent on a variety of assumptions which are subject to market fluctuations and other variable factors. A pro forma business outlook is provided below consistent with the presentation of pro forma results provided elsewhere herein and also excludes in-process R&D expense related to acquisitions completed in the second quarter of fiscal 2006.
We continue to expect strong revenue, earnings and cash flow growth in 2006 and are reaffirming our fiscal 2006 revenue and earnings guidance for total QUALCOMM (GAAP), QUALCOMM pro forma and our 2006 calendar year handset guidance.
The following estimates are approximations and are based on the current business outlook:
Business Outlook Summary
All figures in US$
SECOND QUARTER
Current Guidance
Q2'05 Q2'06
Results Estimates
QUALCOMM Pro Forma
Revenues $1.37B $1.63B - $1.73B
Year-over-year change increase 19% - 27%
Diluted earnings per
share (EPS) $0.29 $0.35 - $0.37
Year-over-year change increase 21% - 28%
Total QUALCOMM (GAAP)
Revenues $1.37B $1.63B - $1.73B
Year-over-year change increase 19% - 27%
Diluted earnings per share (EPS) $0.31 $0.28 - $0.30
Year-over-year change decrease 3% - 10%
Diluted EPS attributable to
in-process R&D n/a ($0.01)
Diluted EPS attributable to QSI ($0.01) ($0.01)
Diluted EPS attributable to
estimated share-based compensation n/a ($0.05)
EPS attributable to tax benefit
related to prior years $0.03 n/a
Metrics
MSM Shipments approx. 37M 44M - 46M
CDMA/WCDMA handset units shipped approx. 52M(i) 59M - 61M(i)
CDMA/WCDMA handset unit wholesale
average selling price approx. $207(i) $209(i)
(i)Shipments in Dec. quarter, reported in Mar. quarter
FISCAL YEAR
Prior Current
Guidance Guidance
FY 2005 FY 2006 FY 2006
Results Estimates Estimates
QUALCOMM Pro Forma
Revenues $5.67B $6.7B - $7.1B $6.7B - $7.1B
Year-over-year
change increase 18% - 25% increase 18% - 25%
Diluted earnings
per share (EPS) $1.16 $1.43 - $1.47 $1.43 - $1.47
Year-over-year
change increase 23% - 27% increase 23% - 27%
Total QUALCOMM (GAAP)
Revenues $5.67B $6.7B - $7.1B $6.7B - $7.1B
Year-over-year
change increase 18% - 25% increase 18% - 25%
Diluted earnings
per share (EPS) (1) $1.26 $1.19 - $1.23 $1.19 - $1.23
Year-over-year
change decrease 2% - 6% decrease 2% - 6%
Diluted EPS
attributable to
in-process R&D n/a n/a ($0.01)
Diluted EPS
attributable to QSI $0.06 ($0.06) ($0.06)
Diluted EPS
attributable
to estimated
share-based
compensation n/a ($0.18) ($0.20)
Diluted EPS
attributable
to tax benefit
related to
prior years $0.04 $0.00 $0.03
Metrics
Fiscal year(ii)
CDMA/WCDMA
handset unit
wholesale average
selling price approx. $215 approx. $210 approx. $210
(ii)Shipments in Sep. to June quarters, reported in Dec. to Sep.
quarters
CALENDAR YEAR Handset Estimates
Prior Current Prior Current
Guidance Guidance Guidance Guidance
CDMA/WCDMA Calendar Calendar Calendar Calendar
handset unit 2005 2005 2006 2006
shipments Estimates Estimates Estimates Estimates
March quarter
actuals approx. 43M approx. 43M not provided not provided
June quarter
actuals approx. 48M approx. 48M not provided not provided
September
quarter 51M - 53M approx. 52M not provided not provided
December
quarter not provided 59M - 61M not provided not provided
Calendar year
range 200M - 205M 202M - 204M 255M - 270M 255M - 270M
Midpoint Midpoint Midpoint Midpoint
CDMA/WCDMA units 202M 203M 262M 262M
CDMA units 158M 158M 176M 176M
WCDMA units 44M 45M 86M 86M
(1) The dilution per share related to the acquired in-process R&D and
the increased estimated share-based compensation for fiscal 2006
are offset by tax benefits related to prior years, and as a result,
fiscal 2006 guidance for total QUALCOMM has not changed from our
prior guidance. Results of Business Segments
(US dollars in millions, except per share data):
First Quarter - Fiscal Year 2006
QUALCOMM
Reconciling Pro
Segments QCT QTL QWI Items (1) Forma
Revenues $1,033 $564 $166 $(22) $1,741
Change from prior year 19% 41% 4% N/M 25%
Change from prior quarter 13% 13% (2%) N/M 12%
EBT $300 $517 $17 $72 $906
Change from prior year 24% 44% 6% N/M 36%
Change from prior quarter 13% 15% (19%) N/M 11%
Net income (loss) 667
Change from prior year 41%
Change from prior quarter 23%
Diluted EPS $0.39
Change from prior year 39%
Change from prior quarter 22%
Diluted shares used 1,702
First Quarter - Fiscal Year 2006
Estimated Total
Share-Based Tax QUALCOMM
Compensation(2) Adjustment(3) QSI (GAAP)
Segments
Revenues $-- $-- $-- $1,741
Change from prior year -- -- -- 25%
Change from prior quarter -- -- -- 12%
EBT $(122) $-- $(48) $736
Change from prior year N/M -- N/M 5%
Change from prior quarter N/M -- N/M (6%)
Net income (loss) (82) 56 (21) 620
Change from prior year N/M N/M N/M 21%
Change from prior quarter N/M N/M N/M 15%
Diluted EPS $(0.05) $0.03 $(0.01) $0.36
Change from prior year N/M N/M N/M 20%
Change from prior quarter N/M N/M N/M 13%
Diluted shares used 1,702 1,702 1,702 1,702
Fourth Quarter - Fiscal Year 2005
Total
Reconciling QUALCOMM QUALCOMM
Segments QCT QTL QWI Items(1) Pro Forma QSI (GAAP)
Revenues $912 $497 $170 $(19) $1,560 $-- $1,560
EBT 266 451 21 75 813 (27) $786
Net income (loss) 543 (5) $538
Diluted EPS $0.32 $-- $0.32
Diluted shares used 1,686 1,686 1,686
First Quarter - Fiscal Year 2005
Reconciling Total
Items QUALCOMM QUALCOMM
Segments QCT QTL QWI (1) Pro Forma QSI (GAAP)
Revenues $865 $400 $159 $(34) $1,390 $-- $1,390
EBT 242 358 16 48 664 40 $704
Net income 474 39 $513
Diluted EPS $0.28 $0.02 $0.30
Diluted
shares used 1,704 1,704 1,704
Second Quarter -- Fiscal Year 2005
Reconciling
Segments QCT QTL QWI Items(1)
Revenues $746 $493 $151 $(25)
EBT 158 448 8 52
Net income (loss)
Diluted EPS
Diluted shares used
Second Quarter -- Fiscal Year 2005
Total
QUALCOMM Tax QUALCOMM
Segments Pro Forma Adjustments(4) QSI (GAAP)
Revenues $1,365 $-- $-- $1,365
EBT 666 -- (33) $633
Net income (loss) 487 55 (10) $532
Diluted EPS $0.29 $0.03 $(0.01) $0.31
Diluted shares used 1,704 1,704 1,704 1,704
Twelve Months -- Fiscal Year 2005
Reconciling
Segments QCT QTL QWI Items (1)
Revenues $3,290 $1,839 $644 $(100)
EBT 852 1,663 57 227
Net income
Diluted EPS
Diluted shares used
Twelve Months -- Fiscal Year 2005
Tax Total
Segments QUALCOMM Adjustments QUALCOMM
Pro Forma (4)(5) QSI (GAAP)
Revenues $5,673 $-- $-- $5,673
EBT 2,799 -- 10 $2,809
Net income 1,970 71 102 $2,143
Diluted EPS $1.16 $0.04 $0.06 $1.26
Diluted shares used 1,694 1,694 1,694 1,694 (1) Reconciling items related to revenues consist primarily of other
non-reportable segment revenues less intersegment eliminations.
Reconciling items related to earnings before taxes consist primarily
of corporate expenses, charges that are not allocated to the
segments for management reporting purposes, unallocated net
investment income, non-reportable segment results, interest expense
and the elimination of intercompany profit.
(2) During the first quarter of fiscal 2006, the Company adopted the
fair value recognition provisions of FAS 123R using a modified
prospective application. Under this method, prior periods are not
revised for comparative purposes. Share-based compensation is
included in operating expenses as part of employee-related costs but
is not allocated to our segments as these estimated costs are not
considered relevant by management in evaluating segment performance.
(3) During the first quarter of fiscal 2006, the Company recorded a
US$56 million tax benefit, or US$0.03 per share, related to the
Expected impact of prior year tax audits completed during the
quarter. For fiscal 2006 pro forma presentation, results have been
adjusted to exclude this tax benefit attributable to prior years.
(4) During the second quarter of fiscal 2005, the Company decreased its
estimate of R&D costs allocable to the Company's foreign operations
under an intercompany cost sharing agreement. Due to this change in
estimate, the effective tax rate in the second quarter for total
QUALCOMM (GAAP) included a US$55 million benefit, or US$0.03 diluted
earnings per share, related to fiscal 2004. For fiscal 2005 pro
forma presentation, results have been adjusted to exclude the tax
benefit attributable to fiscal 2004.
(5) During the third quarter of fiscal 2005, the Company made an
election to compute its California tax on the basis of its U.S.
operations only, which resulted in a US$38 million tax benefit. Our
effective tax rate in the third quarter of fiscal 2005 for total
QUALCOMM (GAAP) includes a US$16 million tax benefit, or US$0.01
Diluted earnings per share, for this California tax election related
to fiscal 2004. For fiscal 2005 pro forma presentation, results have
been adjusted to exclude the tax benefit attributable to fiscal 2004.
N/M - Not Meaningful
Sums may not equal totals due to rounding. Business Segment Information
QUALCOMM CDMA Technologies (QCT)
- QCT shipped a new record of approximately 47 million MSM chips to
customers worldwide during the first quarter of fiscal 2006, compared
to approximately 39 million units in the same quarter of fiscal 2005
and approximately 40 million units in the fourth quarter of fiscal
2005. As previously reported, we have surpassed 2 billion cumulative
chip shipments since we shipped the first CDMA MSM chip in 1996.
- We announced our DMMX (DO Multicarrier Multilink eXtensions) and HMMX
(HSDPA Multicarrier Multilink eXtensions) platforms to support the
long-term roadmaps of EV-DO and HSDPA.
- The number of 3G CDMA-based devices commercially available
incorporating our MSMs continues to grow at an accelerating pace, with
154 1xEV-DO and 55 WCDMA commercial advanced 3G devices launched to
date.
- We actively supported the world's first widespread High-Speed Downlink
Packet Access (HSDPA) deployment recently launched by Cingular Wireless
in the United States in December 2005. We worked with several leading
device manufacturers to develop and validate multiple mobile devices
for the HSDPA network, including certain models based on our
MSM6275(TM) chipset.
QUALCOMM Technology Licensing (QTL)
- In the first quarter of fiscal 2006, three new licensees entered into
CDMA subscriber equipment license agreements. One of the three
agreements was with a WCDMA licensee in China, bringing the total WCDMA
agreements with Chinese manufacturers to seven, all at our standard
royalty rates.
- Licensee information for the fourth quarter of fiscal 2005 as reported
by licensees in the first quarter of fiscal 2006:
-- Worldwide shipments of approximately 52 million CDMA2000 and WCDMA
subscriber units at an average selling price of approximately
US$215 were reported.
-- We estimate WCDMA royalties contributed approximately 40 percent of
total royalties reported compared to approximately 32 percent in
the year ago quarter and approximately 41 percent reported in the
prior quarter.
-- 22 handset suppliers actively supplied WCDMA products, compared to
17 reported in the fourth quarter of fiscal 2005.
-- 48 handset suppliers actively supplied CDMA2000 1x and 1xEV-DO
products, compared to 46 reported in the fourth quarter of
fiscal 2005.
QUALCOMM Wireless & Internet Group (QWI)
QUALCOMM Internet Services (QIS)
- As of January 25, 2006, 59 wireless operators were offering BREW
services in 28 countries, including new customers obtained as part of
our ELATA acquisition.
- Through December 2005, three operators, including ALLTEL, O2 and Sprint
have entered into agreements to license the uiOne user interface
offering.
QUALCOMM Wireless Business Solutions(R) (QWBS)
- We shipped approximately 11,800 satellite-based systems (OmniTRACS(R),
EutelTRACS(TM) and TruckMAIL(TM)) in the first quarter of fiscal 2006
compared to approximately 13,300 in the first quarter of fiscal 2005
and approximately 11,000 in the fourth quarter of fiscal 2005. This
brings the cumulative total satellite-based systems shipped worldwide
to more than 578,000.
- We shipped approximately 15,100 terrestrial-based systems
(OmniExpress(R), GlobalTRACS(R) and T2 Untethered TrailerTRACS(TM)) in
the first quarter of fiscal 2006 compared to approximately 11,600
terrestrial-based systems in the first quarter of fiscal 2005 and
approximately 17,500 terrestrial-based systems in the fourth quarter of
fiscal 2005. This brings the cumulative total terrestrial-based
systems shipped worldwide to more than 100,000.
QUALCOMM Strategic Initiatives (QSI)
MediaFLO USA
- In December 2005, we announced plans to work with Verizon Wireless to
bring its customers real-time mobile video over the MediaFLO(TM) USA
network. We expect Verizon Wireless will be the first wireless service
provider to use the MediaFLO USA network to deliver mobile TV services.
- In January 2006, we conducted a live, over-the-air demonstration of FLO
Technology with LG Electronics MobileComm (LG) and Samsung Electronics
Co., Ltd., during the 2006 International Consumer Electronics Show in
Las Vegas. The demonstrations were the first featuring FLO Technology
on handsets from major device manufacturers.
Other
- In the second quarter of fiscal 2006, we completed the acquisition of
Flarion Technologies, Inc., a developer of OFDMA technology.
- In the second quarter of fiscal 2006 we also completed the acquisition
of Berkana Wireless Inc., a fabless semiconductor company, that
provides complementary metal oxide semiconductor (CMOS) radio frequency
integrated circuits (RFICs).Conference Call
QUALCOMM's first quarter fiscal 2006 earnings conference call will be broadcast live on January 25, 2006 beginning at 2:30 p.m. Pacific Standard Time on the Company's web site at: www.qualcomm.com. This conference call may contain forward-looking financial information. The conference call will include a discussion of "non-GAAP financial measures" as that term is defined in Regulation G. The most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company's financial results prepared in accordance with GAAP, as well as the other material financial and statistical information to be discussed in the conference call, will be posted on the Company's Investor Relations web site at www.qualcomm.com immediately prior to commencement of the call. A taped audio replay will be available via telephone on January 25, 2006 beginning at approximately 5:30 p.m. (PST) through February 8, 2006 at 5:30 p.m. (PST). To listen to the replay, U.S. callers may dial +1-800-642-1687 and international callers may dial +1-706-645-9291. U.S. and international callers should use reservation number 4046245. 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.
QUALCOMM Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and services based on the Company's CDMA digital technology. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 2005 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 excludes the QUALCOMM Strategic Initiatives (QSI) segment, estimated share-based compensation, tax benefits related to prior years, and acquired in-process R&D expense. Pro forma financial measures used by the Company's management include pro forma revenues, pro forma cost of equipment and services revenues, pro forma R&D expenses, pro forma SG&A expenses, pro forma total operating expenses, pro forma operating income (loss), pro forma net investment income, pro forma income before income taxes, pro forma income tax expense, pro forma effective tax rate, pro forma diluted earnings per share, pro forma operating cash flow, and pro forma free cash flow. Pro forma information is used by management to evaluate, assess and benchmark the Company's operating results, and the Company believes that pro forma reporting represents relevant and useful information that is widely used by analysts, investors and other interested parties in its industry.
The Company's management uses pro forma financial information excluding QSI and share-based compensation to evaluate, assess and benchmark the Company's operating results because the effects of fluctuations in the Value of investments and share-based compensation are viewed by management as unrelated to the Company's operational performance, and share-based compensation is not an expense that requires or will require cash payment by the Company. QSI results relate to strategic investments for which the Company has exit strategies of varying durations. The Company believes That financial data excluding the QSI segment and the estimate of share-based compensation provides investors with meaningful information about the Company's ongoing core operating businesses, including QUALCOMM CDMA Technologies, QUALCOMM Technology Licensing and QUALCOMM Wireless & Internet. This presentation is also useful to investors in evaluating performance on a basis that is consistent and comparable with periods prior to the adoption of FAS 123R in the first quarter of fiscal 2006.
The Company presents pro forma results excluding certain tax benefits related to prior years to provide management, as well as investors, a clearer understanding of its ongoing tax rate and after tax earnings. The Company believes that this presentation is useful in evaluating performance on a consistent and comparable basis.
The Company presents pro forma financial information for fiscal 2006 excluding acquired in-process R&D expense to evaluate, assess and benchmark the Company's operating performance because acquired in-process R&D expense is viewed by management as unrelated to the operating activities of the Company's ongoing core businesses. Management believes that this presentation Is useful to evaluate performance on a consistent and comparable basis.
The Company's management uses pro forma cash flow information including marketable securities to analyze increases and decreases in certain of its liquid assets, comprised of cash, cash equivalents and marketable securities. Management views certain marketable securities as liquid assets available to fund operations, which result from cash management strategies designed to increase yields. However, these marketable securities do not meet the definition of cash equivalents in accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows." Since the GAAP statements of cash flows reconcile the Company's beginning and ending cash and cash equivalents balances, the purchases and sales of marketable securities are presented as inflows and outflows. For purposes of internal analysis of the Company's cash position, management does not view these transactions as inflows and outflows from the business, but as cash management transactions. If required, most of such investments could be settled relatively quickly as additional cash resources are needed. The Company believes that this non-GAAP presentation is a helpful measure of the Company's liquidity.
The Company presents free cash flow, defined as net cash provided by operating activities less capital expenditures, for the first quarter of fiscal 2006 and 2005, 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 and investors use this measure to value the Company and to compare its operating performance with other companies in the industry.
The non-GAAP pro forma financial information presented herein should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. In addition, pro forma is not a term defined by GAAP, and, as a result, the Company's measure of pro forma results might be different than similarly titled measures used by other companies. Reconciliations between total QUALCOMM (GAAP) results and QUALCOMM pro forma results and total QUALCOMM (GAAP) cash flow and QUALCOMM pro forma changes in cash, cash equivalents and marketable securities 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; fluctuations in the demand For CDMA-based products, services or applications; foreign currency fluctuations; strategic loans, investments and transactions the Company has or may pursue; our dependence on third party manufacturers and suppliers; our ability to maintain and improve operational efficiencies and profitability; developments in current and future litigation, the development, deployment and commercial acceptance of the MediaFLO USA network and FLO technology; as well as the other risks detailed from time-to-time in the Company's SEC reports.
QUALCOMM, Mobile Station Modem, MSM, FLO, MediaFLO, MSM6275, OmniTRACS, EutelTRACS, TruckMAIL, OmniExpress, GlobalTRACS, T2 Untethered TrailerTRACS and BREW are trademarks and/or service marks 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:
Bill Davidson
Vice President, Investor Relations
+1-858-658-4813 (ph) +1-858-651-9303 (fax)
e-mail: ir@qualcomm.com
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THIS SCHEDULE IS TO ASSIST THE READER IN RECONCILING FROM
PRO FORMA RESULTS TO TOTAL QUALCOMM RESULTS
(In US$ millions, except per share data)
(Unaudited)
Three Months Ended December 25, 2005
Estimated Total
QUALCOMM Share-Based Tax QUALCOMM
Pro Forma Compensation Adjustment QSI (GAAP)
Revenues:
Equipment and
services $1,150 $-- $-- $-- $1,150
Licensing and
royalty fees 591 -- -- -- 591
1,741 -- -- -- 1,741
Operating expenses:
Cost of equipment
and services
revenues 505 12 -- -- 517
Research and
development 273 52 -- 15 340
Selling, general
and
administrative 168 58 -- 13 239
Total operating
expenses 946 122 -- 28 1,096
Operating income
(loss) 795 (122) (28) 645
Investment income
(expense), net 111(a) -- -- (20)(b) 91
Income (loss) before
income taxes 906 (122) -- (48) 736
Income tax (expense)
benefit (239)(c) 40 56 27 (116)(c)
Net income (loss) $667 $(82) $56 $(21) $620
Earnings (loss)
per common share:
Diluted $0.39 $(0.05) $0.03 $(0.01) $0.36
Shares used in
per share
calculations:
Diluted 1,702 1,702 1,702 1,702 1,702
Supplemental
Financial
Data:
Operating Cash Flow $713 $(101)(e) $-- $(16) $596
Operating Cash Flow
as a % of Revenue 41% 34%
Free Cash Flow (d) $531 $(101)(e) $-- $(47) $383
Free Cash Flow as
a % of Revenue 30% 22% (a) Includes US$91 million in interest income related to cash, cash
equivalents and marketable securities, which are not part of the
Company's strategic investment portfolio, US$20 million in net
realized gains on marketable securities and US$4 million in net gains
on derivative instruments, partially offset by US$3 million in other-
than-temporary losses on marketable securities and US$1 million of
interest expense.
(b) Includes US$20 million in equity in losses of investees.
(c) The first quarter of fiscal 2006 tax rate of 16% for total QUALCOMM
(GAAP) is lower than the estimated annual effective tax rate of 22%
due primarily to US$56 million of tax benefits recorded in the first
quarter related to the expected impact of prior year tax audits
completed in the quarter. The fiscal year 2006 estimated effective
tax rate is approximately 22% for total QUALCOMM (GAAP) and
approximately 26% for QUALCOMM pro forma.
(d) Free Cash Flow is calculated as net cash provided by operating
activities less capital expenditures. Reconciliation of these
amounts is included in the Condensed Consolidated Statements of Cash
Flows and Marketable Securities for the three months ended
December 25, 2005, included herein.
(e) Tax benefits from stock options exercised during the quarter. QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND MARKETABLE SECURITIES
THIS SCHEDULE IS TO ASSIST THE READER IN RECONCILING PRO FORMA CASH FLOWS
FROM CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES TO TOTAL QUALCOMM
CASH FLOWS
(In US$ millions)
(Unaudited)
Three Months Ended December 25, 2005
Estimated Total
QUALCOMM Share-Based Tax QUALCOMM
Pro Forma Compensation Adjustment QSI (GAAP)
Earnings before
taxes,
depreciation,
amortization
and other
adjustments (1) $927 $(101)(b) $-- $(27) $799
Working capital
changes and taxes
paid (2) (214) -- -- 11 (203)
Net cash provided
(used) by operating
activities 713 (101) -- (16) 596
Capital
expenditures (182) -- -- (31) (213)
Free cash flow
(Net cash provided
by operating
activities less
capital
expenditures) 531 (101) -- (47) 383
Net additional
share capital 181 -- -- -- 181
Tax benefits
from stock
options exercised
during the quarter -- 101(b) -- -- 101
Other investments
and acquisitions (4) -- -- (2) (6)
Other items, net 3 -- -- 3 6
Changes in fair
value and other
changes to
marketable
securities 49 -- -- 6 55
Marketable
securities pending
settlement (3) -- -- -- (3)
Transfer from
QSI (3) 8 -- -- (8) --
Transfer to
QSI (4) (54) -- -- 54 --
Net increase in
cash, cash
equivalents and
marketable
securities (5) $711 $-- $-- $6 $717
(1) Reconciliation
to GAAP:
Net income
(loss) $667 $(82) $56 $(21) $620
Share-based
compensation -- 82 -- -- 82
Other non-cash
adjustments (a) 268 (101)(b) (56) (6) 105
Net realized
gains on
marketable
securities
and other
investments (20) -- -- -- (20)
Net taxes paid 12 -- -- -- 12
Earnings before
taxes,
depreciation,
amortization
and other
adjustments $927 $(101) $-- $(27) $799
(2) Reconciliation
to GAAP:
Increase in
cash resulting
from changes
in working
capital $(202) $-- $-- $11 $(191)
Net taxes paid (12) -- -- -- (12)
Working capital
changes and
taxes paid $(214) $-- $-- $11 $(203)
(3) Cash from loan
payments and
sale of equity
securities.
(4) Funding for
strategic debt
and equity
investments and
other QSI
operating expenses.
(5) Reconciliation to
GAAP cash flow
statement:
Net increase
in cash and cash
equivalents
(GAAP) $(493) $-- $-- $-- $(493)
Plus: Net
purchases of
marketable
securities 1,158 -- -- -- 1,158
Plus: Net
increase in
fair value
and other
changes to
marketable
securities 49 -- -- 6 55
Less: Net
decrease in
marketable
securities
pending
settlement (3) -- -- -- (3)
Net increase in
cash, cash
equivalents and
marketable
securities $711 $-- $-- $6 $717
(a) See detail on the following page.
(b) Tax benefits from stock options exercised during the quarter.
QUALCOMM Incorporated
SUPPLEMENTAL DETAIL TO THE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND MARKETABLE
SECURITIES
(In US$ millions)
(Unaudited)
Three Months Ended December 25, 2005
Estimated Total
QUALCOMM Share Based Tax QUALCOMM
Pro Forma Compensation Adjustment QSI (GAAP)
(a) Other non-cash
adjustments
are comprised
of:
Depreciation
and amortization $57 $-- $-- $1 $58
Gain or loss on
derivative
instruments (4) -- -- -- (4)
Other-than-temporary
losses on
marketable
securities and
other investments 3 -- -- -- 3
Equity in losses
of investees -- -- -- 20 20
Tax benefits from
stock options
exercised during
the quarter -- (101) -- -- (101)
Non-cash income
tax expense
(benefit) 227 -- (56) (27) 144
Other non-cash
charges and
(credits) (15) -- -- -- (15)
Total non-cash
adjustments $268 $(101) $(56) $(6) $105 RECONCILIATION OF PRIOR YEAR PRO FORMA FREE CASH FLOW
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
(In US$ millions)
(Unaudited)
Three Months Ended December 26, 2004
Total
QUALCOMM QUALCOMM
Pro Forma QSI (GAAP)
Net cash provided by operating
activities $387 $10 $397
Capital expenditures (112) (76) (188)
Free cash flow (Net cash provided
by operating activities less
capital expenditures) $275 $(66) $209
QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In US$ millions, except per share data)
(Unaudited)
ASSETS
December 25, September 25,
2005 2005
Current assets:
Cash and cash equivalents $1,577 $2,070
Marketable securities 5,407 4,478
Accounts receivable, net 728 544
Inventories 195 177
Deferred tax assets 351 343
Other current assets 141 179
Total current assets 8,399 7,791
Marketable securities 2,414 2,133
Property, plant and equipment,
net 1,154 1,022
Goodwill 571 571
Deferred tax assets 405 444
Other assets 486 518
Total assets $13,429 $12,479
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $431 $376
Payroll and other benefits
related liabilities 179 196
Dividends payable 148 --
Unearned revenue 149 163
Other current liabilities 253 335
Total current
liabilities 1,160 1,070
Unearned revenue 141 146
Other liabilities 156 144
Total liabilities 1,457 1,360
Stockholders' equity:
Preferred stock, $0.0001 par
value; issuable in series;
8 shares authorized; none
outstanding at
December 25, 2005 and
September 25, 2005,
respectively -- --
Common stock, $0.0001 par
value; 6,000 shares
authorized; 1,650 and 1,641
shares issued and outstanding
at December 25, 2005 and
September 25, 2005,
respectively -- --
Paid-in capital 7,134 6,753
Retained earnings 4,800 4,328
Accumulated other
comprehensive income 38 38
Total stockholders'
equity 11,972 11,119
Total liabilities and
stockholders' equity $13,429 $12,479
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In US$ millions, except per share data)
(Unaudited)
Three Months Ended
December 25, December 26,
2005 2004
Revenues:
Equipment and services $1,150 $978
Licensing and royalty fees 591 412
1,741 1,390
Operating expenses:
Cost of equipment and
services revenues 517 430
Research and development 340 228
Selling, general and
administrative 239 148
Total operating expenses 1,096 806
Operating income 645 584
Investment income, net 91 120
Income before income taxes 736 704
Income tax expense (116) (191)
Net income $620 $513
Basic earnings per common share $0.38 $0.31
Diluted earnings per common
share $0.36 $0.30
Shares used in per share
calculations:
Basic 1,645 1,639
Diluted 1,702 1,704
Dividends per share announced $0.09 $0.07SAN DIEGO, January 25 /PRNewswire/ --
Web site: http://www.qualcomm.com
Contact:
Bill Davidson, Vice President, Investor Relations of QUALCOMM
Incorporated, +1-858-658-4813, fax, +1-858-651-9303, ir@qualcomm.com;
NOTE TO EDITORS: If you would like additional information on
QUALCOMM, please view the QUALCOMM press room at
http://www.qualcomm.com/press/index.html.