SAN DIEGO, July 21, 2010 /PRNewswire/ --
- Revenues US$2.7 Billion, EPS US$0.47 - Pro Forma EPS US $0.57 - Reports Record MSM Shipments; Raises Financial Guidance
Qualcomm Incorporated , a leading developer and innovator of advanced wireless technologies, products and services, today announced results for the third quarter of fiscal 2010 ended June 27, 2010.
Our financial performance this quarter exceeded our prior expectations, driven by record MSM chipset shipments, favorable product mix and continued strong demand for 3G devices around the world, said Dr. Paul E. Jacobs, chairman and CEO of Qualcomm. Looking forward, we continue to see healthy CDMA-based device growth of approximately 23 percent in calendar year 2010, and are raising both our revenue and earnings guidance for the fiscal year.
Third Quarter Results (GAAP) - Revenues: US$2.71 billion, down 2 percent year-over-year and up 2 percent sequentially. - Operating income: US$792 million, down 11 percent year-over-year and up 2 percent sequentially. - Net income: US$767 million, up 4 percent year-over-year and down 1 percent sequentially. - Diluted earnings per share: US$0.47, up 7 percent year-over-year and 2 percent sequentially. - Effective tax rate: 21 percent for the quarter. - Operating cash flow: US$951 million, down 13 percent year-over-year; 35 percent of revenues. - Return of capital to stockholders: US$1.49 billion, including US$309 million, or US$0.19 per share, of cash dividends paid, and US$1.18 billion to repurchase 32.4 million shares of our common stock.
Pro Forma Third Quarter Results
Pro forma 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 (RD) expense.
- Revenues: US$2.70 billion, down 2 percent year-over-year and up 1 percent sequentially. - Operating income: US$991 million, down 12 percent year-over-year and 7 percent sequentially. - Net income: US$936 million, up 4 percent year-over-year and down 5 percent sequentially. - Diluted earnings per share: US$0.57, up 6 percent year-over-year and down 3 percent sequentially. The current quarter excludes US$0.07 loss per share attributable to certain share-based compensation and US$0.03 loss per share attributable to certain tax items. - Effective tax rate: 19 percent for the quarter. - Free cash flow: US$954 million, down 8 percent year-over-year; 35 percent of revenues (defined as net cash from operating activities less capital expenditures).
Detailed reconciliations between results reported in accordance with generally accepted accounting principles (GAAP) and pro forma results are included at the end of this news release.
Third Quarter Key Business Metrics - CDMA-based Mobile Station Modem(TM) (MSM(TM)) shipments: approximately 103 million units, up 10 percent year-over-year and 11 percent sequentially. - March quarter total reported device sales: approximately US$25.2 billion, up 19 percent year-over-year and down 9 percent sequentially. -- March quarter estimated CDMA-based device shipments: approximately 134 to 138 million units at an estimated average selling price of approximately US$183 to US$189 per unit.
Cash and Marketable Securities
Our cash, cash equivalents and marketable securities totaled approximately US$17.6 billion at the end of the third quarter of fiscal 2010, compared to US$18.2 billion at the end of the second quarter of fiscal 2010 and US$15.7 billion a year ago. On July 8, 2010, we announced a cash dividend of US$0.19 per share payable on September 24, 2010 to stockholders of record as of August 27, 2010.
(All amounts in U.S. dollars unless otherwise noted.) Research and Development ($ in millions) Share-Based In-Process Pro Forma Compensation RD QSI GAAP --------- ------------ --- --- ---- Third quarter fiscal 2010 $546 $74 $- $29 $649 As a % of revenues 20% N/M 24% Third quarter fiscal 2009 $523 $72 $- $23 $618 As a % of revenues 19% N/M 22% Year-over-year change ($) 4% 3% N/M 26% 5% N/M -Not Meaningful
Pro forma RD expenses increased 4 percent year-over-year, 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 RD expenses were primarily related to our FLO TV(TM) subsidiary.
Selling, General and Administrative ($ in millions) Share-Based Pro Forma Compensation QSI GAAP --------- ------------ --- ---- Third quarter fiscal 2010 $321 $65 $(26) $360 As a % of revenues 12% N/M 13% Third quarter fiscal 2009 $285 $68 $24 $377 As a % of revenues 10% N/M 14% Year-over-year change ($) 13% (4%) (208%) (5%)
Pro forma selling, general and administrative (SGA) expenses increased 13 percent year-over-year primarily due to an increase in patent-related costs. Third quarter fiscal 2010 QSI SGA expenses included a $62 million gain on the sale of our Australia spectrum license. Other QSI SGA expenses increased by $12 million primarily due to selling and marketing expenses related to FLO TV.
Effective Income Tax Rate
Our fiscal 2010 effective income tax rates are estimated to be approximately 20 percent for GAAP and approximately 20 to 21 percent for pro forma. Our estimate of the fiscal 2010 GAAP effective tax rate includes tax expense of approximately $130 million that arises because deferred revenue related to the 2008 license and settlement agreements with Nokia is taxable in fiscal 2010, but the resulting deferred tax asset will reverse in future years when our state tax rate will be lower as a result of California tax legislation enacted in 2009. During the third quarter of fiscal 2010, we recorded $20 million of tax expense as a result of prior year tax audits completed during the third fiscal quarter. The tax expense related to these items was excluded from our pro forma results to provide a clearer understanding of our ongoing tax rate and after tax earnings.
Qualcomm Strategic Initiatives
The QSI segment is composed of our strategic investments, including FLO TV and the Broadband Wireless Access (BWA) spectrum recently won in the auction in India. GAAP results for the third quarter of fiscal 2010 included a net loss of $4 million for the QSI segment. The third quarter of fiscal 2010 QSI results included $118 million in operating expenses, primarily related to FLO TV, partially offset by a $62 million gain on the sale of our Australia spectrum license. 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 third quarter of fiscal 2010, the carrying value of the loan was $1.06 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 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. In addition, due to their nature, certain income and expense items, such as realized investment gains or losses, gains and losses on certain derivative instruments or asset impairments, cannot be accurately forecast. Accordingly, we exclude forecasts of such items from our business outlook, and actual results may vary materially from the business outlook if we incur any such income or expense items.
The following table summarizes GAAP and pro forma guidance based on the current business outlook. The pro forma business outlook presented below is consistent with the presentation of pro forma results elsewhere herein.
The following estimates are approximations and are based on the current business outlook:
Qualcomm's Business Outlook Summary FOURTH FISCAL QUARTER --------------------- Q4 FY09 Current Guidance Results Q4 FY10 Estimates ------- ----------------- Pro Forma Revenues $2.68B $2.67B - $2.93B Year-over-year change even - increase 9% Diluted earnings per share (EPS) $0.48 $0.55 - $0.59 Year-over-year change increase 15% - 23% GAAP Revenues $2.69B $2.67B - $2.93B decrease 1% - Year-over-year change increase 9% Diluted EPS $0.48 $0.39 - $0.43 Year-over-year change decrease 10% - 19% Diluted EPS attributable to QSI ($0.05) ($0.07) Diluted EPS attributable to share-based compensation ($0.05) ($0.07) Diluted EPS attributable to certain tax items (1) $0.09 ($0.02) Metrics MSM shipment approx. 91M approx. 106M - 111M Year-over-year change increase 16% - 22% Total reported device sales (2) $24.9B* $26.5B - $28.5B* Est. CDMA-based devices shipped (2) approx. 120M-124M* not provided Est. CDMA-based device average selling price (2) approx. $200-$206* not provided *Est. sales in June quarter, reported in September quarter FISCAL YEAR ----------- Prior Current Guidance Guidance FY 2009 FY 2010 FY 2010 Results Estimates Estimates ------- --------- --------- Pro Forma Revenues $10.39B $10.4B - $11.0B $10.7B - $11.0B Year-over-year change even -increase 6% increase 3% - 6% Diluted EPS $1.31 $2.21 - $2.32 $2.33 - $2.37 Year-over-year change increase 69% - 77% increase 78% - 81% GAAP Revenues $10.42B $10.4B - $11.0B $10.7B - $11.0B Year-over-year change even -increase 6% increase 3% - 6% Diluted EPS $0.95 $1.71 - $1.82 $1.82 - $1.86 Year-over-year change increase 80% - 92% increase 92% - 96% Diluted EPS attributable to QSI ($0.15) ($0.15) ($0.15) Diluted EPS attributable to share-based compensation ($0.27) ($0.27) ($0.27) Diluted EPS attributable to certain tax items(1) $0.07 ($0.08) ($0.09) Metrics Est. fiscal year* CDMA-based device average selling approx. approx. approx. price range (2) $202 - $208 $182 - $188 $184 - $188 *Shipments in Sept. to June quarters, reported in Dec. to Sept. quarters ------------------ CALENDAR YEAR Device Estimates (2) ---------------------------------- Prior Current Guidance Guidance Calendar 2009 Calendar 2010 Calendar 2010 Estimates Estimates Estimates --------- --------- --------- Est. CDMA-based device shipments March quarter approx. 106M-110M not provided approx. 134M-138M June quarter approx. 120M-124M not provided not provided September quarter approx. 126M-130M not provided not provided December quarter approx. 148M-152M not provided not provided ---------------- ----------------- ------------ ------------ Est. Calendar year range (approx.) 500M - 516M 600M - 650M 600M - 650M ------------------ ----------- ----------- ----------- Midpoint Midpoint Midpoint Est. total CDMA-based units approx. 508M approx. 625M approx. 625M Est. CDMA units approx. 213M approx. 236M approx. 236M Est. WCDMA units approx. 295M approx. 389M approx. 389M ---------------- ------------ ------------ ------------ (1) The estimate of our fiscal 2010 GAAP effective tax rate includes tax expense of approximately $130 million that arises because deferred revenue related to the 2008 license and settlement agreements with Nokia is taxable in fiscal 2010 but the resulting deferred tax asset will reverse in future years when our state tax rate will be lower as a result of California tax legislation enacted in 2009. (2) Total reported device sales is the sum of all reported sales in U.S. dollars (as reported to us by our licensees) of all licensed CDMA-based subscriber devices (including handsets, modules, modem cards and other subscriber devices) by our licensees during a particular period. The reported quarterly estimated ranges of ASPs and unit shipments are determined based on the information as reported to us by our licensees during the relevant period and our own estimates of the selling prices and unit shipments for licensees that do not provide such information. Not all licensees report sales, selling prices and/or unit shipments the same (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): Pro Forma Reconciling Items Pro Forma SEGMENTS QCT QTL QWI (1)(5) (5) -------- --- --- --- ----- ------ Q3 - FISCAL 2010 ---------------- Revenues $1,691 $847 $162 $- $2,700 Change from prior year (5%) 5% 9% N/M (2%) Change from prior quarter 10% (13%) 7% N/M 1% Operating income (loss) $991 Change from prior year (12%) Change from prior quarter (7%) EBT $404 $673 $6 $78 $1,161 Change from prior year (26%) 2% N/M N/M (3%) Change from prior quarter 17% (18%) N/M N/M (8%) EBT as a % of revenues 24% 79% 4% N/M 43% Net income (loss) $936 Change from prior year 4% Change from prior quarter (5%) Diluted EPS $0.57 Change from prior year 6% Change from prior quarter (3%) Diluted shares used 1,642 Share- In- Based Tax Process SEGMENTS Compensation(2) Items(3) RD QSI(4) GAAP(5) -------- --------------- ------- ---- ----- ------ Q3 - FISCAL 2010 ---------------- Revenues $- $- $- $6 $2,706 Change from prior year (33%) (2%) Change from prior quarter 200% 2% Operating income (loss) ($149) $- $- ($50) $792 Change from prior year 1% N/A 35% (11%) Change from prior quarter 3% N/M 62% 2% EBT ($149) $- $- ($41) $971 Change from prior year 1% N/A 38% (1%) Change from prior quarter 3% N/M 70% 1% EBT as a % of revenues N/M N/M N/M 36% Net income (loss) ($111) ($54) $- ($4) $767 Change from prior year 13% N/A N/A 90% 4% Change from prior quarter (13%) N/M N/M 95% (1%) Diluted EPS ($0.07) ($0.03) $- $- $0.47 Change from prior year 13% N/A N/A N/M 7% Change from prior quarter (17%) N/M N/M N/M 2% Diluted shares used 1,642 1,642 1,642 1,642 1,642
Pro Forma Reconciling Items Pro Forma SEGMENTS QCT QTL QWI (1)(5) (5) -------- --- --- --- ----- ------ Q2 - FISCAL 2010 ---------------- Revenues $1,537 $974 $152 ($2) $2,661 Operating income (loss) 1,065 EBT 344 821 (1) 94 1,258 Net income (loss) 989 Diluted EPS $0.59 Diluted shares used 1,678 Share- In- Based Tax Process SEGMENTS Compensation(2) Items(3) RD QSI(4) GAAP(5) -------- --------------- ------- ---- ----- ------ Q2 - FISCAL 2010 ---------------- Revenues $- $- $- $2 $2,663 Operating income (loss) (154) - (3) (132) 776 EBT (154) - (3) (136) 965 Net income (loss) (98) (33) (3) (81) 774 Diluted EPS ($0.06) ($0.02) $- ($0.05) $0.46 Diluted shares used 1,678 1,678 1,678 1,678 1,678 Pro Forma Reconciling Items Pro Forma SEGMENTS QCT QTL QWI (1)(5) (5) -------- --- --- --- ----- ------ Q3 - FISCAL 2009 ---------------- Revenues $1,786 $807 $148 $3 $2,744 Operating income (loss) 1,122 EBT 548 663 (3) (7) 1,201 Net income (loss) 903 Diluted EPS $0.54 Diluted shares used 1,675 Share- In- Based Tax Process SEGMENTS Compensation(2) Items(3) RD QSI(4) GAAP(5) -------- --------------- ------- ---- ----- ------ Q3 - FISCAL 2009 ---------------- Revenues $- $- $- $9 $2,753 Operating income (loss) (151) - - (77) 894 EBT (151) - - (66) 984 Net income (loss) (127) - - (39) 737 Diluted EPS ($0.08) $- $- ($0.02) $0.44 Diluted shares used 1,675 1,675 1,675 1,675 1,675 Pro Forma Reconciling Items Pro Forma SEGMENTS QCT QTL QWI (1)(5) (5) -------- --- --- --- ----- ------ Q4 - FISCAL 2009 ---------------- Revenues $1,699 $837 $146 $1 $2,683 Operating income (loss) 831 EBT 508 693 (5) (211) 985 Net income (loss) 811 Diluted EPS $0.48 Diluted shares used 1,688 Share- In- Based Tax Process SEGMENTS Compensation(2) Items(3) RD QSI(4) GAAP(5) -------- --------------- ------- ---- ----- ------ Q4 - FISCAL 2009 ---------------- Revenues $- $- $- $7 $2,690 Operating income (loss) (148) - - (86) 597 EBT (148) - - (95) 742 Net income (loss) (85) 155 - (78) 803 Diluted EPS ($0.05) $0.09 $- ($0.05) $0.48 Diluted shares used 1,688 1,688 1,688 1,688 1,688
Pro Forma Reconciling Items Pro Forma SEGMENTS QCT QTL QWI (1)(5) (5) -------- --- --- --- ----- ------ 9 MONTHS -FISCAL 2010 ---------------- Revenues $4,835 $2,738 $456 $1 $8,030 Change from prior year 9% (1%) (8%) N/M 4% Operating income (loss) $3,189 Change from prior year 37% EBT $1,173 $2,266 $14 $274 $3,727 Change from prior year 26% (5%) (44%) N/M 83% Net income (loss) $2,967 Change from prior year 116% Diluted EPS $1.78 Change from prior year 117% Diluted shares used 1,670 Share- In- Based Tax Process SEGMENTS Compensation(2) Items(3) RD QSI(4) GAAP(5) -------- --------------- ------- ---- ----- ------ 9 MONTHS -FISCAL 2010 ---------------- Revenues $- $- $- $9 $8,039 Change from prior year (59%) 4% Operating income (loss) ($453) $- ($3) ($286) $2,447 Change from prior year (4%) N/M (14%) 50% EBT ($453) $- ($3) ($283) $2,988 Change from prior year (4%) N/M (6%) 124% Net income (loss) ($322) ($119) ($3) ($141) $2,382 Change from prior year 13% N/M N/M 19% 202% Diluted EPS ($0.19) ($0.07) $- ($0.08) $1.43 Change from prior year 14% N/M N/M 20% 204% Diluted shares used 1,670 1,670 1,670 1,670 1,670 Pro Forma Reconciling Items Pro Forma SEGMENTS QCT QTL QWI (1)(5) (5) -------- --- --- --- ----- ------ 9 MONTHS -FISCAL 2009 ---------------- Revenues $4,436 $2,769 $494 $5 $7,704 Operating income (loss) 2,323 EBT 933 2,376 25 (1,292) 2,042 Net income (loss) 1,376 Diluted EPS $0.82 Diluted shares used 1,668 Share- In- Based Tax Process SEGMENTS Compensation(2) Items(3) RD QSI(4) GAAP(5) -------- --------------- ------- ---- ----- ------ 9 MONTHS -FISCAL 2009 ---------------- Revenues $- $- $- $22 $7,726 Operating income (loss) (436) - (6) (251) 1,630 EBT (436) - (6) (266) 1,334 Net income (loss) (370) (36) (6) (174) 790 Diluted EPS ($0.22) ($0.02) $- ($0.10) $0.47 Diluted shares used 1,668 1,668 1,668 1,668 1,668
Pro Forma Reconciling Items Pro Forma SEGMENTS QCT QTL QWI (1)(5) (5) -------- --- --- --- ----- ------ FISCAL YEAR 2009 ---------------- Revenues $6,135 $3,605 $641 $6 $10,387 Operating income (loss) 3,153 EBT 1,441 3,068 20 (1,502) 3,027 Net income (loss) 2,187 Diluted EPS $1.31 Diluted shares used 1,673 ------------------- ----- Share- In- Based Tax Process SEGMENTS Compensation(2) Items(3) RD QSI(4) GAAP(5) -------- --------------- ------- ---- ----- ------ FISCAL YEAR 2009 ---------------- Revenues $- $- $- $29 $10,416 Operating income (loss) (584) - (6) (337) 2,226 EBT (584) - (6) (361) 2,076 Net income (loss) (455) 118 (6) (252) 1,592 Diluted EPS ($0.27) $0.07 $- ($0.15) $0.95 Diluted shares used 1,673 1,673 1,673 1,673 1,673 ------------------- ----- ----- ----- ----- ----- (1) Pro forma reconciling items related to revenues consist primarily of other nonreportable segment revenues less intersegment eliminations. Pro forma reconciling items related to earnings before taxes consist primarily of certain investment income or losses, 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 and third quarters of fiscal 2010, the Company recorded $32 million, $33 million and $32 million in state tax expense, respectively, or $0.02 diluted loss per share for each quarter, that arises because deferred revenue related to the license and settlement agreements with Nokia is taxable in fiscal 2010 but the resulting deferred tax asset will reverse in future years when the Company's state tax rate 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 pro forma 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 a fine that had been announced by the Korea Fair Trade Commission. N/M - Not Meaningful Sums may not equal totals due to rounding.
Conference Call
Qualcomm's third quarter fiscal 2010 earnings conference call will be broadcast live on July 21, 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 July 21, 2010, beginning at approximately 5:30 p.m. PT through August 21, 2010 at 9:00 p.m. PT. 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 83946397. 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 is the 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 http://www.qualcomm.com
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, RD expenses, SGA 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 pro forma information. As a result, management compensation decisions and the review of executive compensation by the Compensation Committee of the Board of Directors focus primarily on pro forma financial measures applicable to the Company and its business segments.
Pro forma information used by management excludes the QSI segment, certain share-based compensation, certain tax items and acquired in-process RD. 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 pro forma tax rate and after tax earnings. Acquired in-process RD is excluded because such expense is viewed by management as unrelated to the operating activities of the Company's ongoing core businesses.
The Company presents free cash flow, defined as net cash provided by operating activities less capital expenditures, to facilitate an understanding of the amount of cash flow generated that is available to grow its business and to create long-term shareholder value. The Company believes that this presentation is useful in evaluating its operating performance and financial strength. In addition, management uses this measure to evaluate the Company's performance, to value the Company and to compare its operating performance with other companies in the industry.
The non-GAAP pro forma financial information presented herein should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. In addition, pro forma is not a term defined by GAAP, and, as a result, the Company's measure of pro forma results might be different than similarly titled measures used by other companies. Reconciliations between GAAP results and pro forma 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; attacks on our 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 major customers and licensees; our dependence on third-party manufacturers and suppliers; our ability to maintain and improve operational efficiencies and profitability; foreign currency fluctuations; strategic investments and transactions we have or may pursue; the development, deployment and commercial acceptance of the FLO TV network and MediaFLO(TM) technology; the development and commercial acceptance of the mirasol(R) 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 27, 2009 and most recent Form 10-Q. 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 Contact: Warren Kneeshaw Phone: +1-858-658-4813 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 GAAP results (In millions, except per share data) (Unaudited) Three Months Ended June 27, 2010 -------------------------------- Share- Pro Based Tax Forma Compensation Items QSI GAAP ------ ------------ ----- --- ---- Revenues: Equipment and services $1,766 $- $- $6 $1,772 Licensing and royalty fees 934 - - - 934 Total revenues 2,700 - - 6 2,706 ----- --- --- --- ----- Operating expenses: Cost of equipment and services revenues 842 10 - 53 905 Research and development 546 74 - 29 649 Selling, general and administrative 321 65 - (26) 360 Total operating expenses 1,709 149 - 56 1,914 ----- --- --- --- ----- Operating income (loss) 991 (149) - (50) 792 Investment income (loss), net 170(a) - - 9(b) 179 --- --- --- --- --- Income (loss) before income taxes 1,161 (149) - (41) 971 Income tax (expense) benefit (225)(c) 38(h) (54)(e) 37(d) (204)(c) ==== === === === ==== Net income (loss) $936 $(111) $(54) $(4) $767 ==== ===== ==== === ==== Earnings (loss) per common share: Diluted $0.57 $(0.07) $(0.03) $(0.00) $0.47 ===== ====== ====== ====== ===== Shares used in per share calculations: Diluted 1,642 1,642 1,642 1,642 1,642 ===== ===== ===== ===== ===== Supplemental Financial Data: ------------ Operating Cash Flow $1,051 $(3)(g) $- $(97) $951 Operating Cash Flow as a % of Revenues 39% N/M 35% Free Cash Flow (f) $954 $(3)(g) $- $(117) $834 Free Cash Flow as a % of Revenues 35% N/M 31% (a) Included $127 million in interest and dividend income related to cash, cash equivalents and marketable securities, which were not part of the Company's strategic investment portfolio, and $78 million in net realized gains on investments, partially offset by $28 million in other-than-temporary losses on investments, $5 million in interest expense and $2 million in losses on derivatives. (b) Included $14 million in net realized gains on investments, $4 million in interest and dividend income related to cash, cash equivalents and marketable securities and $1 million in equity in earnings of investees, partially offset by $9 million in interest expense and $1 million in other-than-temporary losses on investments. (c) The third quarter of fiscal 2010 effective tax rates were 21% for GAAP and 19% for pro forma. (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. In interim quarters, the tax provision for the QSI operating segment is computed by subtracting the pro forma tax provision, the tax items column and the tax provision related to share-based compensation from the GAAP tax provision. (e) During the third quarter of fiscal 2010, the Company recorded (i) a $32 million state tax expense, or $0.02 diluted loss per share, that arises because deferred revenue related to the license and settlement agreements with Nokia is taxable in fiscal 2010 but the resulting deferred tax asset will reverse in future years when the Company's state tax rate 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 the third quarter of fiscal 2010. (f) Free Cash Flow is calculated as net cash provided by operating activities less capital expenditures. Reconciliation of these amounts is included in the Reconciliation of Pro Forma Free Cash Flows to Net Cash Provided by Operating Activities (GAAP) and other supplemental disclosures for the three months ended June 27, 2010, included herein. (g) Incremental tax benefits from stock options exercised during the period. (h) The third quarter of fiscal 2010 tax benefit related to share- based compensation includes a $2 million tax benefit as a result of prior year tax audits completed during the third quarter of fiscal 2010.
Qualcomm Incorporated CONSOLIDATED STATEMENTS OF OPERATIONS This schedule is to assist the reader in reconciling from Pro Forma results to GAAP results (In millions, except per share data) (Unaudited) Nine Months Ended June 27, 2010 ------------------------------- Share-Based Pro Forma Compensation Tax Items --------- ------------ --------- Revenues: Equipment and services $5,021 $- $- Licensing and royalty fees 3,009 - - Total revenues 8,030 - - ----- --- --- Operating expenses: Cost of equipment and services revenues 2,345 30 - Research and development 1,594 221 - Selling, general and administrative 902 202 - Total operating expenses 4,841 453 - ----- --- --- Operating income (loss) 3,189 (453) - Investment income (loss), net 538(a) - - --- --- --- Income (loss) before income taxes 3,727 (453) - Income tax (expense) benefit (760)(c) 131(h) (119)(e) ---- --- ---- Net income (loss) $2,967 $(322) $(119) ====== ===== ===== Earnings (loss) per common share: Diluted $1.78 $(0.19) $(0.07) ===== ====== ====== Shares used in per share calculations: Diluted 1,670 1,670 1,670 ===== ===== ===== Supplemental Financial Data: --------------------------- Operating Cash Flow $3,297 $(34)(g) $- Operating Cash Flow as a % of Revenues 41% Free Cash Flow (f) $3,048 $(34)(g) $- Free Cash Flow as a % of Revenues 38% Nine Months Ended June 27, 2010 ------------------------------- In-Process RD QSI GAAP --- --- ---- Revenues: Equipment and services $- $9 $5,030 Licensing and royalty fees - - 3,009 Total revenues - 9 8,039 --- --- ----- Operating expenses: Cost of equipment and services revenues - 154 2,529 Research and development 3 74 1,892 Selling, general and administrative - 67 1,171 Total operating expenses 3 295 5,592 --- --- ----- Operating income (loss) (3) (286) 2,447 Investment income (loss), net - 3(b) 541 --- --- --- Income (loss) before income taxes (3) (283) 2,988 Income tax (expense) benefit - 142(d) (606)(c) --- --- ---- Net income (loss) $(3) $(141) $2,382 === ===== ====== Earnings (loss) per common share: Diluted $(0.00) $(0.08) $1.43 ====== ====== ===== Shares used in per share calculations: Diluted 1,670 1,670 1,670 ===== ===== ===== Supplemental Financial Data: ---------------------------- Operating Cash Flow $- $(280) $2,983 Operating Cash Flow as a % of Revenues N/M 37% Free Cash Flow (f) $- $(344) $2,670 Free Cash Flow as a % of Revenues N/M 33%
(a) Included $401 million in interest and dividend income related to cash, cash equivalents and marketable securities, which were not part of the Company's strategic investment portfolio, and $249 million in net realized gains on investments, partially offset by $94 million in other-than-temporary losses on investments, $15 million in interest expense and $3 million in losses on derivatives. (b) Included $25 million in net realized gains on investments and $4 million in interest and dividend income related to cash, cash equivalents and marketable securities, partially offset by $15 million in interest expense, $8 million in other-than-temporary losses on investments and $3 million in equity in losses of investees. (c) The effective tax rates for the first nine months of fiscal 2010 were 20% for both GAAP and pro forma. (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. In interim quarters, the tax provision for the QSI operating segment is computed by subtracting the pro forma tax provision, the tax items column and the tax provision related to share-based compensation from the GAAP tax provision. (e) During the first nine months of fiscal 2010, the Company recorded (i) a $97 million state tax expense, or $0.06 diluted loss per share, that arises because deferred revenue related to the license and settlement agreements with Nokia is taxable in fiscal 2010 but the resulting deferred tax asset will reverse in future years when the Company's state tax rate 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 the third quarter of fiscal 2010. (f) Free Cash Flow is calculated as net cash provided by operating activities less capital expenditures. Reconciliation of these amounts is included in the Reconciliation of Pro Forma Free Cash Flows to Net Cash Provided by Operating Activities (GAAP) and other supplemental disclosures for the nine months ended June 27, 2010, included herein. (g) Incremental tax benefits from stock options exercised during the period. (h) The first nine months of fiscal 2010 tax benefit related to share-based compensation includes a $2 million tax benefit as a result of prior year tax audits completed during the third quarter of fiscal 2010. Qualcomm Incorporated Reconciliation of Pro Forma Free Cash Flows to Net Cash Provided by Operating Activities (GAAP) and other supplemental disclosures (In millions) (Unaudited) Three Months Ended June 27, 2010 -------------------------------- Share-Based Tax Pro Forma Compensation Items --------- ------------ ----- Net cash provided (used) by operating activities $1,051 $(3)(a) $- Less: capital expenditures (97) - - --- --- --- Free cash flow $954 $(3) $- ==== === === Other supplemental cash disclosures: Cash transfers from QSI (1) $104 $- $- Cash transfers to QSI (2) (133) - - ---- --- --- Net cash transfers $(29) $- $- ==== === === Three Months Ended June 27, 2010 -------------------------------- In-Process RD QSI GAAP --- --- ---- Net cash provided (used) by operating activities $- $(97) $951 Less: capital expenditures - (20) (117) --- --- ---- Free cash flow $- $(117) $834 === ===== ==== Other supplemental cash disclosures: Cash transfers from QSI (1) $- $(104) $- Cash transfers to QSI (2) - 133 - --- --- --- Net cash transfers $- $29 $- === === === Nine Months Ended June 27, 2010 ------------------------------- Share-Based Tax Pro Forma Compensation Items --------- ------------ ----- Net cash provided (used) by operating activities $3,297 $(34)(a) $- Less: capital expenditures (249) - - ---- --- --- Free cash flow $3,048 $(34) $- ====== ==== === Other supplemental cash disclosures: Cash transfers from QSI (1) $117 $- $- Cash transfers to QSI (2) (376) - - ---- --- --- Net cash transfers $(259) $- $- ===== === === Nine Months Ended June 27, 2010 ------------------------------- In-Process RD QSI GAAP --- --- ---- Net cash provided (used) by operating activities $- $(280) $2,983 Less: capital expenditures - (64) (313) --- --- ---- Free cash flow $- $(344) $2,670 === ===== ====== Other supplemental cash disclosures: Cash transfers from QSI (1) $- $(117) $- Cash transfers to QSI (2) - 376 - --- --- --- Net cash transfers $- $259 $- === ==== === (1) Cash from sale of equity investments and Australia spectrum license. (2) Funding for strategic debt and equity investments, capital expenditures and other QSI operating expenses.
Three Months Ended June 28, 2009 ------------------------------- Share-Based Tax Pro Forma Compensation Items --------- ------------ ----- Net cash provided (used) by operating activities $1,157 $(22)(a) $- Less: capital expenditures (118) - - Free cash flow $1,039 $(22) $- Three Months Ended June 28, 2009 -------------------------------- In-Process RD QSI GAAP --- --- ---- Net cash provided (used) by operating activities $- $(48) $1,087 Less: capital expenditures - (31) (149) Free cash flow $- $(79) $938 Nine Months Ended June 28, 2009 ------------------------------- Share-Based Tax Pro Forma Compensation Items --------- ------------ ----- Net cash provided (used) by operating activities $6,145 $(54)(a) $- Less: capital expenditures (533) - - Free cash flow $5,612 $(54) $- Nine Months Ended June 28, 2009 ------------------------------- In-Process RD QSI GAAP --- --- ---- Net cash provided (used) by operating activities $- $(240) $5,851 Less: capital expenditures - (84) (617) Free cash flow $- $(324) $5,234 (a) Incremental tax benefits from stock options exercised during the period. Qualcomm Incorporated CONDENSED CONSOLIDATED BALANCE SHEETS (In millions, except per share data) (Unaudited) ASSETS June 27, September 27, 2010 2009 ---- ---- Current assets: Cash and cash equivalents $2,541 $2,717 Marketable securities 7,427 8,352 Accounts receivable, net 798 700 Inventories 446 453 Deferred tax assets 213 149 Other current assets 189 199 --- --- Total current assets 11,614 12,570 Marketable securities 7,618 6,673 Deferred tax assets 1,774 843 Property, plant and equipment, net 2,382 2,387 Goodwill 1,476 1,492 Other intangible assets, net 3,040 3,065 Other assets 1,497 415 ----- --- Total assets $29,401 $27,445 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $640 $636 Payroll and other benefits related liabilities 433 480 Unearned revenues 601 441 Loan payable to banks 1,061 - Income taxes payable 1,135 29 Other current liabilities 1,320 1,227 ----- ----- Total current liabilities 5,190 2,813 Unearned revenues 3,587 3,464 Other liabilities 738 852 --- --- Total liabilities 9,515 7,129 ----- ----- Stockholders' equity: Preferred stock, $0.0001 par value; issuable in series; 8 shares authorized; none outstanding at June 27, 2010 and September 27, 2009 - - Common stock, $0.0001 par value; 6,000 shares authorized; 1,609 and 1,669 shares issued and outstanding at June 27, 2010 and September 27, 2009, respectively - - Paid-in capital 6,611 8,493 Retained earnings 12,746 11,235 Accumulated other comprehensive income 529 588 --- --- Total stockholders' equity 19,886 20,316 ------ ------ Total liabilities and stockholders' equity $29,401 $27,445 ======= =======
Qualcomm Incorporated CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share data) (Unaudited) Three Months Ended Nine Months Ended ------------------ ----------------- June 27, June 28, June 27, June 28, 2010 2009 2010 2009 ---- ---- ---- ---- Revenues: Equipment and services $1,772 $1,862 $5,030 $4,698 Licensing and royalty fees 934 891 3,009 3,028 --- --- ----- ----- Total revenues 2,706 2,753 8,039 7,726 ----- ----- ----- ----- Operating expenses: Cost of equipment and services revenues 905 864 2,529 2,357 Research and development 649 618 1,892 1,826 Selling, general and administrative 360 377 1,171 1,165 Litigation settlement, patent license and other related items - - - 748 --- --- --- --- Total operating expenses 1,914 1,859 5,592 6,096 ----- ----- ----- ----- Operating income 792 894 2,447 1,630 Investment income (loss), net 179 90 541 (296) --- --- --- ---- Income before income taxes 971 984 2,988 1,334 Income tax expense (204) (247) (606) (544) ---- ---- ---- ---- Net income $767 $737 $2,382 $790 ==== ==== ====== ==== Basic earnings per common share $0.47 $0.45 $1.44 $0.48 ===== ===== ===== ===== Diluted earnings per common share $0.47 $0.44 $1.43 $0.47 ===== ===== ===== ===== Shares used in per share calculations: Basic 1,629 1,656 1,654 1,653 ===== ===== ===== ===== Diluted 1,642 1,675 1,670 1,668 ===== ===== ===== ===== Dividends per share paid $0.19 $0.17 $0.53 $0.49 ===== ===== ===== ===== Dividends per share announced $0.19 $0.17 $0.53 $0.49 ===== ===== ===== ===== CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Three Months Ended Nine Months Ended ------------------ ----------------- June 27, June 28, June 27, June 28, 2010 2009 2010 2009 ---- ---- ---- ---- Operating Activities: Net income $767 $737 $2,382 $790 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 166 154 495 460 Revenues related to non- monetary exchanges (31) (29) (99) (86) Income tax provision in excess of income tax payments 86 56 80 222 Non-cash portion of share-based compensation expense 149 151 453 436 Incremental tax benefit from stock options exercised (3) (22) (34) (54) Net realized gains on marketable securities and other investments (92) (90) (274) (57) Impairment losses on marketable securities and other investments 29 116 102 717 Other items, net (66) (1) (70) (22) Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net (126) (133) (91) 2,691 Inventories (45) 30 7 143 Other assets (1) 13 (71) (17) Trade accounts payable 104 95 23 (8) Payroll, benefits and other liabilities 78 27 (161) 737 Unearned revenues (64) (17) 241 (101) --- --- --- ---- Net cash provided by operating activities 951 1,087 2,983 5,851 --- ----- ----- ----- Investing Activities: Capital expenditures (117) (149) (313) (617) Advance payment on spectrum (1,064) - (1,064) - Purchases of available- for-sale securities (2,569) (2,201) (7,049) (6,497) Proceeds from sale of available-for-sale securities 3,113 1,145 7,354 3,606 Cash received for partial settlement of investment receivables - 32 33 349 Other investments and acquisitions, net of cash acquired (17) (7) (45) (47) Change in collateral held under securities lending - - - 173 Other items, net 85 - 88 6 --- --- --- --- Net cash used by investing activities (569) (1,180) (996) (3,027) ---- ------ ---- ------ Financing Activities: Borrowing under loan payable to banks 1,064 - 1,064 - Proceeds from issuance of common stock 35 175 519 276 Incremental tax benefit from stock options exercised 3 22 34 54 Repurchase and retirement of common stock (1,178) - (2,893) (285) Dividends paid (309) (282) (872) (810) Change in obligations under securities lending - - - (173) Other items, net (1) 3 (2) - --- --- --- --- Net cash used by financing activities (386) (82) (2,150) (938) ---- --- ------ ---- Effect of exchange rate changes on cash (8) 4 (13) (5) --- --- --- --- Net (decrease) increase in cash and cash equivalents (12) (171) (176) 1,881 Cash and cash equivalents at beginning of period 2,553 3,892 2,717 1,840 ----- ----- ----- ----- Cash and cash equivalents at end of period $2,541 $3,721 $2,541 $3,721 ====== ====== ====== ======
SOURCE: Qualcomm Incorporated
CONTACT: Warren Kneeshaw of Qualcomm Incorporated, +1-858-658-4813,ir@qualcomm.com
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