QUALCOMM Announces Fourth Quarter and Fiscal 2006 Results
San Diego, November 2 (ots/PRNewswire)
Fiscal 2006 Revenues US$7.53 Billion, EPS US$1.44
Pro Forma Fiscal 2006 Revenues US$7.53 Billion, EPS US$1.64
Record Fiscal Year Revenues, Net Income and Operating Cash FlowsQUALCOMM Incorporated (Nasdaq: QCOM) today announced results for the fourth fiscal quarter and fiscal 2006 year ended September 24, 2006.
Total QUALCOMM (GAAP) Results:
Total QUALCOMM results are reported in accordance with Generally Accepted Accounting Principles (GAAP).
Fourth Quarter
- Revenues: US$2.00 billion, up 28 percent year-over-year and 2 percent
sequentially.
- Net income: US$614 million, up 14 percent year-over-year and down
5 percent sequentially.
- Diluted earnings per share: US$0.36, up 13 percent year-over-year and
down 3 percent sequentially.
- Effective tax rate: 24 percent.
- Estimated share-based compensation: US$76 million, net of tax.
- Operating cash flow: US$952 million, up 1 percent year-over-year;
48 percent of revenue.
- Return of capital to stockholders: US$528 million, including
US$198 million, or US$0.12 per share, of cash dividends and US$330
million, net of related premiums received, to repurchase 7.6 million
shares of our common stock.
Fiscal 2006
- Revenues: US$7.53 billion, up 33 percent year-over-year.
- Net income: US$2.47 billion, up 15 percent year-over-year.
- Diluted earnings per share: US$1.44, up 14 percent year-over-year.
- Effective tax rate: 22 percent.
- Estimated share-based compensation: US$320 million, net of tax.
- Operating cash flow: US$3.25 billion, up 21 percent year-over-year;
43 percent of revenue.
- Return of capital to stockholders: US$2.19 billion, including
US$698 million, or US$0.42 per share, of cash dividends and US$1.49
billion, net of related premiums received, to repurchase 34.0 million
shares of our common stock.QUALCOMM Pro Forma Results:
Pro forma results exclude the QUALCOMM Strategic Initiatives (QSI) segment, estimated share-based compensation, certain tax adjustments related to prior years and acquired in-process research and development (R&D) expense.
Fourth Quarter
- Revenues: US$2.00 billion, up 28 percent year-over-year and 2 percent
sequentially.
- Net income: US$705 million, up 30 percent year-over-year and down
3 percent sequentially.
- Diluted earnings per share: US$0.42, up 31 percent year-over-year and
even sequentially; excludes US$0.05 loss per share attributable to
estimated share-based compensation and US$0.01 loss per share
attributable to certain tax adjustments related to prior years.
- Effective tax rate: 27 percent.
- Free cash flow: US$907 million, up 8 percent year-over-year; 45 percent
of revenue. (Defined as net cash from operating activities less
capital expenditures).
Fiscal 2006
- Revenues: US$7.53 billion, up 33 percent year-over-year.
- Net income: US$2.80 billion, up 42 percent year-over-year.
- Diluted earnings per share: US$1.64, up 41 percent year-over-year;
excludes US$0.02 loss per share related to the QSI segment, US$0.19
loss per share attributable to estimated share-based compensation,
US$0.02 net earnings per share attributable to certain tax adjustments
related to prior years and US$0.01 loss per share related to acquired
in-process R&D expense.
- Effective tax rate: 26 percent.
- Free cash flow: US$3.18 billion, up 42 percent year-over-year;
42 percent of revenue.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.
"Our record performance in fiscal 2006 was a direct result of the focus and innovation delivered by the employees of QUALCOMM and the success of our partners," said Dr. Paul E. Jacobs, chief executive officer of QUALCOMM. "We achieved record revenues, net income and operating cash flow. We shipped a record 207 million MSM(TM) chips in fiscal 2006 -- up from 151 million in fiscal 2005. As of September 2006, there were approximately 402 million subscribers using third generation (3G) CDMA-based networks worldwide as compared to approximately 273 million at the same point in 2005."
"3G networks with mobile broadband capability are now widely deployed across the globe, enhancing opportunities to gain new 3G subscribers and for the migration of existing second generation subscribers to 3G. Looking forward to fiscal 2007, our key priorities will be working with our existing chipset customers to improve their market share, winning new customers for our chipset and software solutions, and continuing to expand the base of 3G wireless networks."
"The competition resulting from our business model has led to continual decreases in selling prices of handsets and significant technology advancements which enable further cost reduction and new revenue streams for our partners. Our Company has built the most valuable and widely licensed portfolio of intellectual property in the wireless industry, which we have consistently made available to all on fair and non-discriminatory terms. We will take the necessary actions to ensure that the technology advances embodied in our intellectual property portfolio are protected and that we are fairly compensated for their use. We will continue to fund an expensive but necessary battle to defend our business in the interest of our shareholders."
Cash and Marketable Securities
QUALCOMM's cash, cash equivalents and marketable securities totaled approximately US$9.9 billion at the end of the fourth quarter of fiscal 2006, compared to US$9.5 billion at the end of the prior quarter and US$8.7 billion a year ago. On October 5, 2006, we announced a cash dividend of US$0.12 per common share payable on January 4, 2007 to stockholders of record at the close of business on December 7, 2006.
Estimated Share-Based Compensation
In the first quarter of fiscal 2006, we adopted the 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. We implemented FAS 123R using the modified prospective method. Under this method, prior periods are not revised for comparative purposes. Estimated share-based compensation is included in operating expenses, however, it is not allocated to business segments or included in pro forma results because we do not consider it relevant when evaluating the operating performance of our business. Total QUALCOMM (GAAP) net income for the fourth quarter of fiscal 2006 included estimated share-based compensation of US$76 million, net of tax, or US$0.05 per share.
Research and Development
Estimated In-Process Total
QUALCOMM Share-Based R&D QUALCOMM
(US$ in millions) Pro Forma Compensation Expense QSI (GAAP)
Fourth quarter
fiscal 2006 $338 $56 $1 $16 $411
As a % of revenue 17% 21%
Fourth quarter
fiscal 2005 $255 $-- $-- $16 $271
As a % of revenue 16% 17%
Year-over-year
change ($) 33% 52%Pro forma R&D expenses increased 33 percent year-over-year, primarily due to additional engineering resources for the development of integrated circuit products and other initiatives to support low-cost phones, multimedia applications, high-speed wireless Internet access and multi-mode, multi-band, multi-network products and technologies, including CDMA2000(R) 1X, 1xEV-DO, EV-DO Revision A, EV-DO Revision B, WCDMA (including GSM/GPRS/EDGE), HSDPA, HSUPA and OFDMA, and the development of our iMoD(TM) display products using MEMS technology.
Selling, General and Administrative
Estimated Total
QUALCOMM Share-Based QUALCOMM
(US$ in millions) Pro Forma Compensation QSI (GAAP)
Fourth quarter fiscal 2006 $237 $62 $22 $321
As a % of revenue 12% 16%
Fourth quarter fiscal 2005 $168 $-- $10 $178
As a % of revenue 11% 11%
Year-over-year change ($) 41% 120% 80%Pro forma selling, general and administrative (SG&A) expenses increased 41 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 activities. The year-over-year increase in QSI SG&A expenses is primarily related to MediaFLO(TM) USA.
Effective Income Tax Rate
Our fiscal 2006 effective income tax rates are 22 percent for total QUALCOMM (GAAP) and 26 percent for QUALCOMM pro forma, which are unchanged from our previous estimates.
QUALCOMM Strategic Initiatives
The QSI segment includes our strategic investments, including our MediaFLO USA subsidiary, and related income and expenses. Total QUALCOMM (GAAP) results for the fourth quarter of fiscal 2006 included break-even results for the QSI segment consistent with the fourth quarter of fiscal 2005. The fourth quarter of fiscal 2006 QSI results included US$38 million in operating expenses, primarily related to MediaFLO USA, partially offset by US$12 million in realized gains on investments. Results for the QSI segment in the fourth quarter of fiscal 2006 reflect tax benefits as a result of QSI's loss before taxes and realized gains on investments that increased our forecasted utilization of capital loss carryforwards.
Business Outlook
The following statements are forward-looking and actual results may differ materially. Please see "Note Regarding Forward-Looking Statements" at the end of this news release for a description of certain risk factors and QUALCOMM's annual and quarterly reports on file with the Securities and Exchange Commission (SEC) for a more complete description of risks. Due to their nature, certain income and expense items, such as realized investment gains or losses in QSI, gains and losses on certain derivative instruments or asset impairments, cannot be accurately forecast. Accordingly, the Company excludes forecasts of such items from its business outlook, and actual results may vary materially from the business outlook if the Company incurs any such income or expense items. Estimated share-based compensation in future periods may vary materially from the business outlook as the methodology used to calculate this estimate is dependent on a variety of assumptions which are subject to market fluctuations and other factors.
The following table summarizes total QUALCOMM (GAAP) and QUALCOMM pro forma guidance for the first fiscal quarter and fiscal year 2007 based on the current business outlook. The pro forma business outlook provided below is presented consistent with the presentation of pro forma results provided elsewhere herein. The table includes a footnote to size the risk, approximately US$0.04 to US$0.06 diluted earnings per share, of Nokia not paying royalties in the fourth quarter of fiscal 2007 for June quarter shipments. Nokia has publicly stated that they intend to continue to use our patents but not pay royalties after the expiration of their rights under those patents on April 9, 2007 should a new license agreement (or extension of the existing agreement) not be reached by that time. As a result, under generally accepted accounting principles, we will be unable to record royalty revenue attributable to Nokia's sales until a court awards damages or agreement is reached. If we cannot conclude an extension or a new license agreement beyond April 9, 2007, Nokia's rights to sell subscriber products under most of our patents will expire, as will our rights to sell integrated circuits under Nokia's patents. We intend to pursue and obtain injunctions against Nokia's sales as well as damages (which will include interest from the date of infringement) for Nokia's unlicensed sales after April 9, 2007. We will continue to work with Nokia to see if we can reach agreement by April 9, 2007 on terms which we find acceptable but little progress has been made to date. If we are unable to reach agreement, we will aggressively pursue all our legal and business options and assume that Nokia will do likewise.
The following estimates are approximations and are based on the current business outlook:
Business Outlook Summary
FIRST FISCAL QUARTER
(all figures in US$)
Current Guidance
Q1'06 Q1'07
Results Estimates
QUALCOMM Pro Forma
Revenues $1.74B $1.98B - $2.08B
Year-over-year change increase 14% - 19%
Diluted earnings per share (EPS) $0.39 $0.42 - $0.44
Year-over-year change increase 8% - 13%
Total QUALCOMM (GAAP)
Revenues $1.74B $1.98B - $2.08B
Year-over-year change increase 14% - 19%
Diluted earnings per share (EPS) $0.36 $0.35 - $0.37
Year-over-year change decrease 3% - increase 3%
Diluted EPS attributable to QSI ($0.01) ($0.02)
Diluted EPS attributable to
estimated share-based compensation ($0.05) ($0.05)
Diluted EPS attributable to tax
items related to prior years $0.03 n/a
Metrics
MSM Shipments approx. 47M approx. 55M - 58M
CDMA/WCDMA handset units shipped approx. 52M(i) approx. 74M - 76M(i)
CDMA/WCDMA handset unit
wholesale average selling price approx. $215(i) approx. $209(i)
(i) Shipments in Sept. quarter, reported in Dec. quarter
FISCAL YEAR
Current Guidance
FY 2006 FY 2007
Results Estimates (1)
QUALCOMM Pro Forma
Revenues $7.53B $8.1B - $8.6B
Year-over-year change increase 8% - 14%
Diluted earnings per share (EPS) $1.64 $1.76 - $1.81
Year-over-year change increase 7% - 10%
Total QUALCOMM (GAAP)
Revenues $7.53B $8.1B - $8.6B
Year-over-year change increase 8% - 14%
Diluted earnings per share (EPS) $1.44 $1.45 - $1.50
Year-over-year change increase 1% - 4%
Diluted EPS attributable to in-
process R&D ($0.01) n/a
Diluted EPS attributable to QSI ($0.02) ($0.11)
Diluted EPS attributable to
estimated share-based compensation ($0.19) ($0.20)
Diluted EPS attributable to tax
items related to prior years $0.02 n/a
Metrics
Fiscal year(i) CDMA/WCDMA handset unit
wholesale average selling price approx. $215 approx. $205
(i) Shipments in Sept. to June quarters, reported in Dec. to Sept.
quarters
CALENDAR YEAR Handset Estimates
CDMA/WCDMA handset unit shipments
Prior Guidance Current Guidance Current Guidance
Calendar 2006 Calendar 2006 Calendar 2007
Estimates Estimates Estimates
March quarter
actuals approx. 66M approx. 66M not provided
June quarter approx. 67M - 70M approx. 70M not provided
September quarter not provided approx. 74M - 76M not provided
December quarter not provided not provided not provided
Calendar year
range approx. 285M - approx. 290M - approx. 368M -
295M 298M 388M
Midpoint Midpoint Midpoint
CDMA/WCDMA units approx. 290M approx. 294M approx. 378M
CDMA units approx. 190M approx. 196M approx. 203M
WCDMA units approx. 100M approx. 98M approx. 175M
(1) Current FY 2007 estimates do not reflect the potential adverse
impact on our results, approximately US$0.04 to US$0.06 diluted earnings
per share, of Nokia not paying royalties in the fourth quarter of fiscal
2007 for June quarter shipments. Further details are included in the
introductory paragraph which precedes this Business Outlook table.
Sums may not equal totals due to rounding.
Results of Business Segments (in US$ millions, except per share data):
Fourth Quarter - Fiscal Year 2006
Reconciling QUALCOMM
Segments QCT QTL QWI Items (1) Pro Forma
Revenues $1,147 $705 $180 $(33) $1,999
Change from prior year 26% 42% 6% N/M 28%
Change from prior quarter 1% 3% 11% N/M 2%
EBT $279 $635 $27 $20 $961
Change from prior year 5% 41% 29% N/M 18%
Change from prior quarter (8%) 3% 42% N/M (2%)
Net income (loss) $705
Change from prior year 30%
Change from prior quarter (3%)
Diluted EPS $0.42
Change from prior year 31%
Change from prior quarter 0%
Diluted shares used 1,693
Fourth Quarter - Fiscal Year 2006
Estimated Total
Share-Based Tax In-Process QUALCOMM
Segments Compensation (2) Items (3) R&D (4) QSI (5) (GAAP)
Revenues $-- $-- $-- $-- $1,999
Change from
prior year -- -- -- -- 28%
Change from
prior quarter -- -- -- -- 2%
EBT $(127) $-- $(1) $(23) $810
Change from
prior year N/M N/M N/M N/M 3%
Change from
prior quarter N/M N/M N/M N/M (2%)
Net income
(loss) $(76) $(16) $(1) $2 $614
Change from
prior year N/M N/M N/M N/M 14%
Change from
prior quarter N/M N/M N/M N/M (5%)
Diluted EPS $(0.05) $(0.01) $-- $-- $0.36
Change from
prior year N/M N/M N/M N/M 13%
Change from
prior quarter N/M N/M N/M N/M (3%)
Diluted shares
used 1,693 1,693 1,693 1,693 1,693
Third Quarter - Fiscal Year 2006
Reconciling
Segments QCT QTL QWI Items (1)
Revenues $1,133 $683 $162 $(27)
EBT 303 619 19 35
Net income (loss)
Diluted EPS
Diluted shares used
Third Quarter - Fiscal Year 2006
Estimated Total
QUALCOMM Share-Based QUALCOMM
Segments Pro Forma Compensation (2) QSI (5) (GAAP)
Revenues $1,951 $-- $-- $1,951
EBT 976 (126) (26) 824
Net income (loss) 726 (83) -- 643
Diluted EPS $0.42 $(0.05) $-- $0.37
Diluted shares used 1,728 1,728 1,728 1,728
Fourth Quarter - Fiscal Year 2005
Reconciling
Segments QCT QTL QWI Items (1)
Revenues $912 $497 $170 $(19)
EBT 266 451 21 75
Net income (loss)
Diluted EPS
Diluted shares used
Fourth Quarter - Fiscal Year 2005
Total
QUALCOMM QUALCOMM
Segments Pro Forma QSI (5) (GAAP)
Revenues $1,560 $-- $1,560
EBT 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 2006
Reconciling QUALCOMM
Segments QCT QTL QWI Items (1) Pro Forma
Revenues $1,033 $564 $166 $(22) $1,741
EBT 300 517 17 72 906
Net income (loss) 667
Diluted EPS $0.39
Diluted shares used 1,702
First Quarter - Fiscal Year 2006
Estimated Total
Share-Based Tax QUALCOMM
Segments Compensation (2) Items (6) QSI (5) (GAAP)
Revenues $-- $-- $-- $1,741
EBT (122) -- (48) 736
Net income (loss) (82) 56 (21) 620
Diluted EPS $(0.05) $0.03 $(0.01) $0.36
Diluted shares used 1,702 1,702 1,702 1,702
Twelve Months - Fiscal Year 2006
Reconciling QUALCOMM
Segments QCT QTL QWI Items (1) Pro Forma
Revenues $4,332 $2,631 $670 $(107) $7,526
Change from prior year 32% 43% 4% N/M 33%
EBT $1,134 $2,397 $80 $195 $3,806
Change from prior year 33% 44% 40% N/M 36%
Net income (loss) $2,804
Change from prior year 42%
Diluted EPS $1.64
Change from prior year 41%
Diluted shares used 1,711
Twelve Months - Fiscal Year 2006
Estimated Total
Share-Based Tax In-Process QUALCOMM
Segments Compensation (2) Items (3)(6) R&D (4) QSI (GAAP)
Revenues $-- $-- $-- $-- $7,526
Change from
prior year -- -- -- -- 33%
EBT $(495) $-- $(22) $(133) $3,156
Change from
prior year N/M -- -- N/M 12%
Net income
(loss) $(320) $40 $(22) $(32) $2,470
Change from
prior year N/M N/M N/M N/M 15%
Diluted EPS $(0.19) $0.02 $(0.01) $(0.02) $1.44
Change from
prior year N/M N/M N/M N/M 14%
Diluted shares
used 1,711 1,711 1,711 1,711 1,711
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
Total
QUALCOMM Tax QUALCOMM
Segments Pro Forma Items (7)(8) 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 nonreportable 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, nonreportable 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 fourth quarter of fiscal 2006, the Company refined its estimate of R&D costs allocable to the Company's foreign operations to reflect our actual results and updated forecast of future benefits to the parties under an intercompany cost sharing agreement. Due to this adjustment, the effective tax rate in the fourth quarter of fiscal 2006 for total QUALCOMM (GAAP) includes US$33 million of tax expense, or US$0.02 per diluted share, related to fiscal 2004. In addition, the Company recorded a US$17 million tax benefit, or US$0.01 diluted earnings per share, related to the impact of prior year tax audits completed during the fourth quarter of fiscal 2006. For fiscal 2006 pro forma presentation, results have been adjusted to exclude these tax adjustments related to prior years.
(4) During fiscal 2006, the Company recorded US$22 million of expenses related to acquired in-process R&D associated with three acquisitions completed during the year. US$21 million of this expense was recorded in the second quarter of fiscal 2006 and US$1 million was recorded in the fourth quarter of fiscal 2006. For fiscal 2006 pro forma presentation, results have been adjusted to exclude these expenses as they are unrelated to the Company's ongoing core operating businesses and are also not allocated to our segments as these costs are not considered relevant by management in evaluating segment performance.
(5) At fiscal year-end, the sum of the quarterly tax provisions for each column, including QSI, equals the annual tax provisions for each column computed in accordance with GAAP. In interim quarters, the tax provision for the QSI operating segment is computed by subtracting the tax provision for QUALCOMM pro forma, the tax adjustment column and the tax provision related to estimated share-based compensation from the tax provision for total QUALCOMM (GAAP).
(6) During the first quarter of fiscal 2006, the Company recorded a US$56 million tax benefit, or US$0.03 diluted earnings 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 adjustment attributable to prior years.
(7) 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 this tax adjustment attributable to fiscal 2004.
(8) 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 adjustment attributable to fiscal 2004.
N/M - Not Meaningful
Sums may not equal totals due to rounding.
Conference Call
QUALCOMM's fourth quarter fiscal 2006 earnings conference call will be broadcast live on November 2, 2006 beginning at 1:45 p.m. Pacific Standard Time (PST) 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 November 2, 2006 beginning at approximately 5:30 p.m. (PST) through November 16, 2006 at 9:00 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 7440137. An audio replay of the conference call will be available on the Company's web site at www.qualcomm.com for two weeks following the live call.
Editor's Note: If you would like to view the web slides that accompany this earnings release and conference call, please view the QUALCOMM Investor Relations web site at http://investor.qualcomm.com/results.cfm .
QUALCOMM Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and services based on CDMA and other advanced technologies. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 2006 FORTUNE 500(R) company traded on The Nasdaq Stock Market(R) under the ticker symbol QCOM.
Note Regarding Use of Non-GAAP Financial Measures
The Company presents pro forma financial information that is used by management (i) to evaluate, assess and benchmark the Company's operating results on a consistent and comparable basis, (ii) to measure the performance and efficiency of the Company's ongoing core operating businesses, including the QUALCOMM CDMA Technologies, QUALCOMM Technology Licensing and QUALCOMM Wireless & Internet segments, and (iii) to compare the performance and efficiency of these segments against each other and against competitors outside the Company. Pro forma measurements of the following financial data are used by the Company's management: revenues, R&D expenses, SG&A expenses, total operating expenses, operating income, net investment income, income before income taxes, effective tax rate, net income, diluted earnings per share, operating cash flow and free cash flow.
Pro forma information used by management excludes the QUALCOMM Strategic Initiatives (QSI) segment, estimated share-based compensation, certain tax adjustments related to prior years and acquired in-process R&D expense. The QSI segment is excluded because the Company expects to exit its strategic investments at various times and the effects of fluctuations in the value of such investments are viewed by management as unrelated to the Company's operational performance. Estimated share-based compensation is excluded because management views the valuation of options and other share-based compensation as theoretical and unrelated to the Company's operational performance as it is affected by factors that are subject to change on each grant date including the Company's stock price, stock market volatility, expected option life, risk-free interest rates and expected dividend payouts in future years. Moreover, it is not an expense that requires or will require cash payment by the Company. Certain tax adjustments related to prior years are excluded in order to provide a clearer understanding of the Company's ongoing tax rate and after tax earnings. Acquired in-process R&D expense in fiscal 2006 is excluded because such expense is incurred infrequently and is viewed by management as unrelated to the operating activities of the Company's ongoing core businesses.
Management is able to assess what it believes is a more meaningful and comparable set of financial performance measures for the Company and its business segments by eliminating the episodic impact of strategic investments in QSI and items such as acquired in-process R&D, as well as the inherent, non-operational volatility of share-based compensation. As a result, management compensation decisions and the review of executive compensation by the Compensation Committee of the Board of Directors focus primarily on pro forma financial measures applicable to the Company and its business segments.
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 on short notice to fund operations, acquisitions, strategic initiatives, stock repurchases and dividends even though 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." The GAAP statements of cash flows present the purchases and sales of marketable securities as inflows and outflows. For 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. The Company believes that this non-GAAP presentation is a helpful and practical measure of the Company's liquidity.
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 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(TM) technology; as well as the other risks detailed from time-to-time in the Company's SEC reports.
(C) 2006 QUALCOMM Incorporated. All rights reserved. QUALCOMM is a registered trademark of QUALCOMM Incorporated. CDMA2000(R) is a registered trademark of the Telecommunications Industry Association. All other trademarks are the property of their respective owners.
QUALCOMM Contact:
Bill Davidson
Vice President, Investor Relations
+1-858-658-4813 (ph) +1-858-651-9303 (fax)
e-mail: ir@qualcomm.com QUALCOMM Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
THIS SCHEDULE IS TO ASSIST THE READER IN RECONCILING FROM
PRO FORMA RESULTS TO TOTAL QUALCOMM RESULTS
(In US$ millions, except per share data)
(Unaudited)
Three Months Ended September 24, 2006
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Pro Forma Compensation Items R&D QSI (GAAP)
Revenues:
Equipment and
services $1,264 $-- $-- $-- $-- $1,264
Licensing
and
royalty fees 735 -- -- -- -- 735
Total
revenues 1,999 -- -- -- -- 1,999
Operating
expenses:
Cost of
equipment
and services
revenues 577 9 -- -- -- 586
Research and
development 338 56 -- 1 16 411
Selling,
general and
administrative 237 62 -- -- 22 321
Total
operating
expenses 1,152 127 -- 1 38 1,318
Operating
income (loss) 847 (127) -- (1) (38) 681
Investment
income, net 114 (a) -- -- -- 15 (b) 129
Income (loss)
before income
taxes 961 (127) -- (1) (23) 810
Income tax
(expense)
benefit (256) (c) 51 (16) -- 25 (d) (196) (c)
Net income
(loss) $705 $(76) $(16) $(1) $2 $614
Earnings
(loss) per
common share:
Diluted $0.42 $(0.05) $(0.01) $(0.00) $0.00 $0.36
Shares used in
per share
calculations:
Diluted 1,693 1,693 1,693 1,693 1,693 1,693
Supplemental
Financial Data:
Operating Cash
Flow $1,007 $(27) (f) $-- $-- $(28) $952
Operating Cash
Flow as a %
of Revenue 50% 48%
Free Cash
Flow (e) $907 $(27) (f) $-- $-- $(57) $823
Free Cash Flow
as a % of
Revenue 45% 41%(a) Includes US$100 million in interest and dividend income related to cash, cash equivalents and marketable securities, which are not part of the Company's strategic investment portfolio, and US$30 million in net realized gains on investments, partially offset by US$11 million in losses on derivative instruments, primarily related to the increase in the fair value of the put option liabilities related to our share repurchase program, US$3 million in other-than-temporary losses on investments and US$2 million in interest expense.
(b) Includes US$12 million in net realized gains on investments, US$2 million in interest and dividend income and US$1 million in equity in income of investees.
(c) The fourth quarter of fiscal 2006 tax rates are approximately 24% for total QUALCOMM (GAAP) and approximately 27% for QUALCOMM pro forma.
(d) At fiscal year-end, the sum of the quarterly tax provisions for each column, including QSI, will equal the annual tax provisions for each column computed in accordance with GAAP. In interim quarters, the tax provision for the QSI operating segment is computed by subtracting the tax provision for QUALCOMM pro forma and the tax provision related to estimated share-based compensation from the tax provision for total QUALCOMM (GAAP).
(e) Free Cash Flow is calculated as net cash provided by operating activities less capital expenditures. Reconciliation of these amounts is included in the Condensed Consolidated Statements of Cash Flows and Marketable Securities for the three months ended September 24, 2006, included herein.
(f) Tax benefits from stock options exercised during the quarter.
QUALCOMM Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
THIS SCHEDULE IS TO ASSIST THE READER IN RECONCILING FROM
PRO FORMA RESULTS TO TOTAL QUALCOMM RESULTS
(In US$ millions, except per share data)
(Unaudited)
Twelve Months Ended September 24, 2006
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Pro Forma Compensation Items R&D QSI (GAAP)
Revenues:
Equipment
and services $4,776 $-- $-- $-- $-- $4,776
Licensing
and royalty
fees 2,750 -- -- -- -- 2,750
Total
revenues 7,526 -- -- -- -- 7,526
Operating
expenses:
Cost of
equipment
and services
revenues 2,141 41 -- -- -- 2,182
Research and
development 1,236 216 -- 22 64 1,538
Selling,
general and
administrative 808 238 -- -- 70 1,116
Total
operating
expenses 4,185 495 -- 22 134 4,836
Operating
income (loss) 3,341 (495) -- (22) (134) 2,690
Investment
income, net 465 (a) -- -- -- 1 (b) 466
Income (loss)
before income
taxes 3,806 (495) -- (22) (133) 3,156
Income tax
(expense)
benefit (1,002) (c) 175 40 -- 101 (d) (686) (c)
Net income
(loss) $2,804 $(320) $40 $(22) $(32) $2,470
Earnings (loss)
per common
share:
Diluted $1.64 $(0.19) $0.02 $(0.01) $(0.02) $1.44
Shares used in
per share
calculations:
Diluted 1,711 1,711 1,711 1,711 1,711 1,711
Supplemental
Financial Data:
Operating Cash
Flow $3,746 $(403) (f) $-- $-- $(90) $3,253
Operating Cash
Flow as a % of
Revenue 50% 43%
Free Cash
Flow (e) $3,180 $(403) (f) -- $-- $(209) $2,568
Free Cash Flow
as a % of
Revenue 42% 34%(a) Includes US$410 million in interest and dividend income related to cash, cash equivalents and marketable securities, which are not part of the Company's strategic investment portfolio, and US$106 million in net realized gains on investments, partially offset by US$29 million in losses on derivative instruments, primarily related to the increase in the fair values of the put option liabilities related to our share repurchase program, US$20 million in other-than-temporary losses on investments and US$2 million of interest expense.
(b) Includes US$30 million in net realized gains on investments and US$6 million in interest and dividend income, partially offset by US$29 million in equity in losses of investees, US$4 million in other-than-temporary losses on investments and US$2 million of interest expense.
(c) The annual effective tax rate for fiscal 2006 for total QUALCOMM (GAAP) is approximately 22% and QUALCOMM pro forma is approximately 26%.
(d) At fiscal year-end, the sum of the quarterly tax provisions for each column, including QSI, equals the annual tax provisions for each column computed in accordance with GAAP. The fiscal 2006 QSI tax provision includes tax benefits as a result of QSI's loss before taxes and realized gains on investments that increased our forecasted utilization of capital loss carryforwards.
(e) Free Cash Flow is calculated as net cash provided by operating activities less capital expenditures. Reconciliation of these amounts is included in the Condensed Consolidated Statements of Cash Flows and Marketable Securities for the twelve months ended September 24, 2006, included herein.
(f) Tax benefits from stock options exercised during the period.
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND MARKETABLE SECURITIES
THIS SCHEDULE IS TO ASSIST THE READER IN RECONCILING PRO FORMA CASH FLOWS
FROM CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES TO TOTAL QUALCOMM
CASH FLOWS
(In US$ millions)
(Unaudited)
Three Months Ended September 24, 2006
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Pro Forma Compensation Items R&D QSI (GAAP)
Earnings (loss)
before taxes,
depreciation,
amortization
and other
adjustments (1) $1,019 $(27) $-- $-- $(34) $958
Working
capital
changes and
taxes paid (2) (12) -- -- -- 6 (6)
Net cash
provided
(used) by
operating
activities 1,007 (27) -- -- (28) 952
Capital
expenditures (100) -- -- -- (29) (129)
Free cash flow
(Net cash
provided by
operating
activities
less capital
expenditures) 907 (27) -- -- (57) 823
Net additional
share capital 69 -- -- -- -- 69
Repurchase and
retirement of
common stock (335) -- -- -- -- (335)
Tax benefits
from stock
options
exercised
during the
period -- 27 -- -- -- 27
Dividends paid (198) -- -- -- -- (198)
Other
investments
and
acquisitions,
net of cash
acquired (13) -- -- -- (4) (17)
Other items,
net (8) -- -- -- 1 (7)
Changes in
fair value
and other
changes to
marketable
securities 164 -- -- -- 6 170
Marketable
securities
pending
settlement (61) -- -- -- -- (61)
Transfer from
QSI (3) 13 -- -- -- (13) --
Transfer to
QSI (4) (61) -- -- -- 61 --
Net increase
(decrease) in
cash, cash
equivalents
and
marketable
securities (5) $477 $-- $-- $-- $(6) $471
(1)
Reconciliation
to GAAP:
Net income
(loss) $705 $(76) $(16) $(1) $2 $614
Share-based
compensation,
net of tax
benefit -- 76 -- -- -- 76
Other
adjustments (a) 286 (27) (b) 16 1 (24) 252
Net realized
gains on
marketable
securities
and other
investments (30) -- -- -- (12) (42)
Net taxes paid 58 -- -- -- -- 58
Earnings (loss)
before taxes,
depreciation,
amortization
and other
adjustments $1,019 $(27) $-- $-- $(34) $958
(2)
Reconciliation
to GAAP:
Increase in
cash resulting
from changes
in working
capital $46 $-- $-- $-- $6 $52
Net taxes paid (58) -- -- -- -- (58)
Working capital
changes and
taxes paid $(12) $-- $-- $-- $6 $(6)
(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) $452 $-- $-- $-- $-- $452
Net sales and
maturities of
marketable
securities (78) -- -- -- (12) (90)
Net increase
in fair value
and other
changes to
marketable
securities 164 -- -- -- 6 170
Net decrease
in marketable
securities
pending
settlement (61) -- -- -- -- (61)
Net increase
(decrease)
in cash, cash
equivalents
and
marketable
securities $477 $-- $-- $-- $(6) $471
(a) See detail below.
(b) Tax benefits from stock options exercised during the period.
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND MARKETABLE SECURITIES
THIS SCHEDULE IS TO ASSIST THE READER IN RECONCILING PRO FORMA CASH FLOWS
FROM CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES TO TOTAL QUALCOMM
CASH FLOWS
(In US$ millions)
(Unaudited)
Twelve Months Ended September 24, 2006
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Pro Forma Compensation Items R&D QSI (GAAP)
Earnings (loss)
before taxes,
depreciation,
amortization
and other
adjustments (1) $3,961 $(403) $-- $-- $(120) $3,438
Working capital
changes and
taxes paid (2) (215) -- -- -- 30 (185)
Net cash
provided
(used) by
operating
activities 3,746 (403) -- -- (90) 3,253
Capital
expenditures (566) -- -- -- (119) (685)
Free cash flow
(Net cash
provided by
operating
activities
less capital
expenditures) 3,180 (403) -- -- (209) 2,568
Net additional
share capital 692 -- -- -- -- 692
Repurchase and
retirement of
common stock (1,500) -- -- -- -- (1,500)
Tax benefits
from stock
options
exercised
during the
period -- 403 -- -- -- 403
Proceeds from
put options 11 -- -- -- -- 11
Dividends paid (698) -- -- -- -- (698)
Other investments
and acquisitions,
net of cash
acquired (389) -- -- -- (18) (407)
Other items, net (8) -- -- -- 10 2
Changes in fair
value and other
changes to
marketable
securities 175 -- -- -- 54 229
Marketable
securities
pending
settlement (32) -- -- -- (32)
Transfer from
QSI (3) 54 -- -- -- (54) --
Transfer to
QSI (4) (231) -- -- -- 231 --
Net increase
in cash, cash
equivalents
and marketable
securities (5) $1,254 $-- $-- $-- $14 $1,268
(1)
Reconciliation
to GAAP:
Net income
(loss) $2,804 $(320) $40 $(22) $(32) $2,470
Share-based
compensation,
net of tax
benefit -- 320 -- -- -- 320
Other
adjustments (a) 1,091 (403) (b) (40) 22 (58) 612
Net realized
gains on
marketable
securities
and other
investments (106) -- -- -- (30) (136)
Net taxes paid 172 -- -- -- -- 172
Earnings
(loss) before
taxes,
depreciation,
amortization
and other
adjustments $3,961 $(403) $-- $-- $(120) $3,438
(2)
Reconciliation
to GAAP:
(Decrease)
increase in
cash resulting
from changes
in working
capital $(43) $-- $-- $-- $30 $(13)
Net taxes paid (172) -- -- -- -- (172)
Working capital
changes and
taxes paid $(215) $-- $-- $-- $30 $(185)
(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 decrease in
cash and cash
equivalents
(GAAP) $(463) $-- $-- $-- $-- $(463)
Net purchases
and maturities
of marketable
securities 1,574 -- -- -- (40) 1,534
Net increase in
fair value and
other changes to
marketable
securities 175 -- -- -- 54 229
Net decrease in
marketable
securities
pending
settlement (32) -- -- -- -- (32)
Net increase in
cash, cash
equivalents
and marketable
securities $1,254 $-- $-- $-- $14 $1,268
(a) See detail below.
(b) Tax benefits from stock options exercised during the period.
QUALCOMM Incorporated
SUPPLEMENTAL DETAIL TO THE CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS AND MARKETABLE SECURITIES
(In US$ millions)
(Unaudited)
Three Months Ended September 24, 2006
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Pro Forma Compensation Items R&D QSI (GAAP)
(a) Other
adjustments
are comprised
of:
Depreciation
and
amortization $79 $-- $-- $-- $3 $82
Losses on
derivative
instruments 11 -- -- -- -- 11
Other-than-
temporary
losses on
marketable
securities
and other
investments 3 -- -- -- -- 3
Equity in
earnings of
investees -- -- -- -- (1) (1)
Tax benefits
from stock
options
exercised
during the
period -- (27) -- -- -- (27)
Non-cash
income tax
expense
(benefit) 199 -- 16 -- (25) 190
Other items,
net (6) -- -- 1 (1) (6)
Total other
adjustments $286 $(27) $16 $1 $(24) $252
Twelve Months Ended September 24, 2006
Estimated Total
QUALCOMM Share-Based Tax In-Process QUALCOMM
Pro Forma Compensation Items R&D QSI (GAAP)
(a) Other
adjustments
are comprised
of:
Depreciation
and
amortization $263 $-- $-- $-- $9 $272
Losses on
derivative
instruments 29 -- -- -- -- 29
Other-than-
temporary
losses on
marketable
securities
and other
investments 20 -- -- -- 4 24
Equity in
losses of
investees -- -- -- -- 29 29
Tax benefits
from stock
options
exercised
during the
period -- (403) -- -- -- (403)
Non-cash
income tax
expense
(benefit) 830 -- (40) -- (101) 689
Other items,
net (51) -- -- 22 1 (28)
Total other
adjustments $1,091 $(403) $(40) $22 $(58) $612
RECONCILIATION OF PRIOR YEAR PRO FORMA FREE CASH FLOW TO NET CASH
PROVIDED
BY OPERATING ACTIVITIES
(In US$ millions)
(Unaudited)
Three Months Ended September 25, 2005
Total
QUALCOMM QUALCOMM
Pro Forma QSI (GAAP)
Net cash provided by operating
activities $964 $(19) $945
Capital expenditures (126) (12) (138)
Free cash flow (Net cash provided by
operating activities less capital
expenditures) $838 $(31) $807
Twelve Months Ended September 25, 2005
Total
QUALCOMM QUALCOMM
Pro Forma QSI (GAAP)
Net cash provided by operating
activities $2,722 $(36) $2,686
Capital expenditures (482) (94) (576)
Free cash flow (Net cash provided by
operating activities less capital
expenditures) $2,240 $(130) $2,110
QUALCOMM Incorporated
CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
ASSETS
September 24, September 25,
2006 2005
Current assets:
Cash and cash equivalents $1,607 $2,070
Marketable securities 4,114 4,478
Accounts receivable, net 700 544
Inventories 250 177
Deferred tax assets 235 343
Other current assets 143 179
Total current assets 7,049 7,791
Marketable securities 4,228 2,133
Property, plant and equipment, net 1,482 1,022
Goodwill 1,230 571
Deferred tax assets 512 444
Other assets 707 518
Total assets $15,208 $12,479
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $420 $376
Payroll and other benefits related
liabilities 273 196
Unearned revenue 197 163
Other current liabilities 532 335
Total current liabilities 1,422 1,070
Unearned revenue 141 146
Other liabilities 239 144
Total liabilities 1,802 1,360
Stockholders' equity:
Preferred stock, $0.0001 par value;
issuable in series; 8 shares authorized;
none outstanding at September 24, 2006
and September 25, 2005, respectively -- --
Common stock, $0.0001 par value;
6,000 shares authorized; 1,652 and
1,640 shares issued and outstanding at
September 24, 2006 and September 25, 2005,
respectively -- --
Paid-in capital 7,242 6,753
Retained earnings 6,100 4,328
Accumulated other comprehensive income 64 38
Total stockholders' equity 13,406 11,119
Total liabilities and stockholders'
equity $15,208 $12,479
QUALCOMM Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(In US$ millions, except per share data)
Three Months Ended Twelve Months Ended
September 24, September 25, September 24, September 25,
2006 2005 2006 2005
Revenues:
Equipment and
services $1,264 $1,035 $4,776 $3,744
Licensing and
royalty fees 735 525 2,750 1,929
Total revenues 1,999 1,560 7,526 5,673
Operating expenses:
Cost of
equipment and
services revenues 586 441 2,182 1,645
Research and
development 411 271 1,538 1,011
Selling, general
and administrative 321 178 1,116 631
Total operating
expenses 1,318 890 4,836 3,287
Operating income 681 670 2,690 2,386
Investment income,
net 129 116 466 423
Income before
income taxes 810 786 3,156 2,809
Income tax expense (196) (248) (686) (666)
Net income $614 $538 $2,470 $2,143
Basic earnings per
common share $0.37 $0.33 $1.49 $1.31
Diluted earnings per
common share $0.36 $0.32 $1.44 $1.27
Shares used in per
share calculations:
Basic 1,652 1,634 1,659 1,638
Diluted 1,693 1,686 1,711 1,694
Dividends per share
paid $0.12 $0.07 $0.42 $0.32
Dividends per share
announced $0.12 $0.07 $0.42 $0.32
Web site: http://www.qualcomm.com
http://investor.qualcomm.com/results.cfmContact:
Bill Davidson, Vice President of Global Marketing and Investor
Relations of QUALCOMM Incorporated, +1-858-658-4813, or fax,
+1-858-651-9303, ir@qualcomm.com