SAN DIEGO, April 23 /PRNewswire/ --
- Revenues US$2.6 Billion, EPS US$0.47
- Pro Forma EPS US$0.54, up 8 Percent Year-over-year
- Raises Fiscal 2008 Revenue and Earnings Guidance
Qualcomm Incorporated (Nasdaq: QCOM) today announced results for the second fiscal quarter of 2008 ended March 30, 2008.
Total Qualcomm (GAAP) Second Quarter Results
Total Qualcomm results are reported in accordance with generally accepted accounting principles (GAAP).
-- Revenues: US$2.61 billion, up 17 percent year-over-year and 7 percent sequentially. -- Net income: US$766 million, up 6 percent year-over-year and even sequentially. -- Diluted earnings per share: US$0.47, up 9 percent year-over-year and 2 percent sequentially. -- Effective tax rate: 15 percent for the quarter. Fiscal 2008 estimated tax rate of approximately 16 percent. -- Estimated share-based compensation: US$88 million, net of tax, up 5 percent year-over-year and 4 percent sequentially. -- Operating cash flow: US$947 million, down 4 percent year-over-year; 36 percent of revenues. -- Return of capital to stockholders: US$1.2 billion, including US$455 million, or US$0.28 per share of cash dividends paid (relating to dividends declared in the first and second quarters) and US$769 million to repurchase 20.2 million shares of our common stock.
Qualcomm Pro Forma Second Quarter Results
Pro forma results exclude the Qualcomm Strategic Initiatives (QSI) segment, certain estimated share-based compensation, certain tax items related to prior years and acquired in-process research and development (R&D) expense.
-- Revenues: US$2.60 billion, up 17 percent year-over-year and 7 percent sequentially. -- Net income: US$894 million, up 7 percent year-over-year and 3 percent sequentially. -- Diluted earnings per share: US$0.54, up 8 percent year-over-year and 4 percent sequentially; excludes US$0.02 loss per share attributable to the QSI segment and US$0.05 loss per share attributable to certain estimated share-based compensation. -- Effective tax rate: 19 percent for the quarter. Fiscal 2008 estimated tax rate of approximately 20 percent. -- Free cash flow: US$775 million, down 29 percent year-over-year; 30 percent of revenues (defined as net cash from operating activities less capital expenditures).
Detailed reconciliations between total Qualcomm (GAAP) results and cash flow and Qualcomm pro forma results and cash flow are included at the end of this news release. Prior period reconciliations are presented on Qualcomm's Investor Relations web page at www.qualcomm.com.
"We delivered another strong quarter as worldwide adoption of 3G CDMA-based products and services continues to accelerate," said Dr. Paul E. Jacobs, chief executive officer of Qualcomm. "Together with our partners, our ongoing focus on innovation, execution and quality provides compelling solutions for the global wireless market. Our financial results reflect another record quarter of both MSM chipset and CDMA-based device shipments."
"We continue to execute on our strategic objectives and are pleased to see positive momentum in the marketplace. Our Gobi mobile internet solution, which provides ubiquitous connection to mobile operator networks worldwide, has been accepted by leading notebook manufacturers, and our Snapdragon platform has multiple design wins with several customers. MediaFLO USA continues its network deployment and FLO-TV will soon be offered by the two largest U.S. operators. We announced a partnership with Citi Cards that brings the total to four of the top 10 banks in the U.S. now taking advantage of the Firethorn solution. The fundamental drivers of our business remain strong, and based on the current business outlook, we are raising fiscal 2008 revenue and earnings per share guidance."
Cash and Marketable Securities
Qualcomm's cash, cash equivalents and marketable securities totaled approximately US$10.6 billion at the end of the second quarter of fiscal 2008, compared to US$11.3 billion at both the end of the first quarter of fiscal 2008 and the year ago quarter. During the second quarter of fiscal 2008, we increased our quarterly dividend from US$0.14 to US$0.16 per share. On April 10, 2008, we announced a cash dividend of US$0.16 per share payable on June 27, 2008 to stockholders of record at the close of business on May 30, 2008.
Estimated Share-Based Compensation
Total Qualcomm (GAAP) net income for the second quarter of fiscal 2008 included estimated share-based compensation, net of tax, of US$88 million or US$0.05 per diluted share. This compares to US$84 million, or US$0.05 per diluted share, in the prior year quarter.
(All currency in US Dollars unless otherwise specified) Research and Development Estimated Qualcomm Pro Share-Based In-Process Total Qualcomm ($ in Forma Compensation R&D QSI (GAAP) millions) Second quarter fiscal 2008 $472 $60 $- $21 $553 As a % of revenue 18% N/M 21% Second quarter fiscal 2007 $370 $58 $10 $16 $454 As a % of revenue 17% 20% Year-over-year change ($) 28% 3% 31% 22% N/M - Not Meaningful
Pro forma R&D expenses increased 28 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, the expansion of our intellectual property portfolio and other initiatives to support the acceleration of advanced wireless products and services, including lower-cost devices, the integration of wireless with consumer electronics and computing, the convergence of multiband, multimode, multinetwork products and technologies, third-party operating systems and services platforms. QSI R&D expenses were related to MediaFLO USA.
Selling, General and Administrative Estimated Qualcomm Pro Share-Based Total Qualcomm ($ in millions) Forma Compensation QSI (GAAP) Second quarter fiscal 2008 $334 $61 $25 $420 As a % of revenue 13% N/M 16% Second quarter fiscal 2007 $301 $59 $25 $385 As a % of revenue 14% 17% Year-over-year change($) 11% 3% 0% 9%
Pro forma selling, general and administrative (SG&A) expenses increased 11 percent year-over-year, primarily attributable to an increase in professional fees and employee-related expenses, partially offset by a decrease in bad debt expense. QSI SG&A expenses were primarily related to MediaFLO USA.
Effective Income Tax Rate
Our fiscal 2008 effective income tax rate is estimated to be 16 percent for total Qualcomm (GAAP) compared to our prior estimate of 17 percent provided on January 23, 2008. Our fiscal 2008 Qualcomm pro forma effective income tax rate is estimated to be 20 percent compared with our prior estimate of 21 percent. The second quarter total Qualcomm (GAAP) and pro forma effective tax rates of 15 percent and 19 percent, respectively, are lower than the estimated annual effective tax rates primarily due to the change in our annual estimate of foreign earnings taxed at less than the United States federal tax rate.
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 second quarter of fiscal 2008 included a US$0.02 loss per share for the QSI segment. The second quarter of fiscal 2008 QSI results included US$76 million in operating expenses, primarily related to MediaFLO USA.
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. 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. In addition, our outlook does not include provisions for the consequences of injunctions or significant possible damages or costs related to litigation matters, unless damages have been awarded by a court.
During the second quarter of 2008, we entered into an agreement with Nokia Corp. to consolidate the arbitration we had filed against Nokia into the pre-existing litigation in Delaware originally filed by Nokia. That case now addresses, among other things, our dispute with Nokia regarding Nokia's obligation to pay royalties for the use of certain of our patents. As a result of the dispute, under generally accepted accounting principles, we are not recording royalty revenue attributable to Nokia's sales after April 9, 2007 until a court awards damages or the disputes are otherwise resolved by agreement with Nokia. We have excluded from our fiscal 2008 revenue and earnings guidance our estimate of royalties which we believe Nokia is required to report and pay to us under our existing license agreement in fiscal 2008.
In late 2004, we discovered that Ericsson and Sony Ericsson were underreporting and underpaying royalties to us for sales of subscriber units under the license agreement between Ericsson and us. In March 2008, the parties resolved the dispute as to both past and future sales. As part of the settlement, the parties have dismissed the arbitration addressing this dispute. The terms of the settlement are consistent with our prior financial guidance.
We continue to be engaged in litigation with Broadcom Corporation in various forums. On December 31, 2007, the Federal District Court in Santa Ana, Calif. issued an injunction as to certain of our products, while enjoining but mandating a limited license with respect to other products. We continue the effort to design products to avoid the claims of the patents found by the jury to infringe Broadcom's patents. We have introduced chipsets ready for commercial-production devices that do not include the accused function of the 6,847,686 patent. We are appealing the adverse findings in this case on an expedited schedule. We have included our estimate of the impact of this ruling in our outlook for fiscal 2008.
The following table summarizes total Qualcomm (GAAP) and Qualcomm pro forma guidance for the third fiscal quarter and fiscal year 2008 based on the current business outlook. The pro forma business outlook provided below is presented in a manner that is consistent with the presentation of pro forma results provided elsewhere herein.
The following estimates are approximations and are based on the current business outlook:
Business Outlook Summary THIRD FISCAL QUARTER Current Guidance Q3'07 Q3'08 Results Estimates Qualcomm Pro Forma Revenues $2.33B $2.5B - $2.7B Year-over-year change increase 8% - 16% Diluted earnings per share (EPS) $0.55 $0.50 - $0.52 Year-over-year change decrease 5% - 9% Total Qualcomm (GAAP) Revenues $2.33B $2.5B - $2.7B Year-over-year change increase 8% - 16% Diluted earnings per share (EPS) $0.47 $0.41 - $0.43 Year-over-year change decrease 9% - 13% Diluted EPS attributable to QSI ($0.04) ($0.03) Diluted EPS attributable to estimated share-based compensation ($0.04) ($0.06) Metrics MSM shipments approx. 65M approx. 85M - 88M CDMA/WCDMA devices shipped(1) approx. 86M*(2) approx. 105M - 109M* CDMA/WCDMA device wholesale average selling price (1) approx. $215*(2) approx. $223* *Shipments in Mar. quarter, reported in June quarter FISCAL YEAR Prior Guidance Current Guidance FY 2007 FY 2008 FY 2008 Results(3) Estimates(4) Estimates(4) Qualcomm Pro Forma Revenues $8.87B $9.6B - $10.0B $10.0B - $10.4B Year-over-year change increase 8% - 13% increase 13% - 17% Diluted earnings per share (EPS) $2.01 $2.01 - $2.07 $2.04 - $2.09 Year-over-year change even - increase 3% increase 1% - 4% Total Qualcomm (GAAP) Revenues $8.87B $9.6B - $10.0B $10.0B - $10.4B Year-over-year change increase 8% - 13% increase 13% - 17% Diluted earnings per share (EPS) $1.95 $1.67 - $1.73 $1.71 - $1.76 Year-over-year change decrease 11% - 14% decrease 10% - 12% Diluted EPS attributable to QSI ($0.08) ($0.12) ($0.11) Diluted EPS attributable to estimated share- based compensation ($0.19) ($0.22) ($0.22) Diluted EPS attributable to in-process R&D ($0.01) $0.00 $0.00 Diluted EPS attributable to tax items related to prior years $0.22 n/a n/a Metrics Fiscal year* CDMA/WCDMA device wholesale average selling price (1) approx. $214(2) approx. $203 approx. $217 *Shipments in Sept. to June quarters, reported in Dec. to Sept. quarters CALENDAR YEAR Device Estimates (1)(2) CDMA/WCDMA Prior Guidance Current Guidance device Calendar 2007 Calendar 2008 Calendar 2008 shipments Estimates Estimates Estimates March quarter approx. 86M not provided approx. 105M - 109M June quarter approx. 89M not provided not provided September quarter approx. 95M not provided not provided December quarter approx. 112M not provided not provided Calendar year range (approx.) 382M 492M - 522M 488M - 518M Midpoint Midpoint Midpoint CDMA/WCDMA units approx. 382M approx. 507M approx. 503M CDMA units approx. 209M approx. 223M approx. 223M WCDMA units approx. 173M approx. 284M approx. 280M (1) CDMA/WCDMA device shipments and average selling prices are estimated for the total market. (2) We perform periodic audits of the royalties payable by our licensees. As a result of our audit process, we determined during the fourth quarter of fiscal 2007 that total CDMA-based device shipments and average selling prices (ASPs) should be adjusted for certain periods in fiscal 2007. The adjustments related only to device shipments and ASPs and did not impact the amount or timing of our revenues. Historical units presented herein have been adjusted to reflect these adjustments. (3) Our fiscal 2007 results do not include royalty revenues attributable to Nokia's sales after April 9, 2007 which, as of November 14, 2007, we estimated to be approximately US$0.05 diluted earnings per share. (4) We have excluded from our fiscal 2008 revenue and earnings guidance our estimate of royalties which we believe Nokia is required to report and pay to us under our existing license agreement in fiscal 2008 which, as of December 20, 2007, we estimated to be approximately US$0.25-US$0.30 diluted earnings per share. Sums may not equal totals due to rounding.
Results of Business Segments (in millions, except per share data): Second Quarter - Fiscal Year 2008 Reconciling Segments QCT QTL QWI Items(1) Revenues $1,620 $795 $194 $(5) Change from prior year 29% 5% (2%) N/M Change from prior quarter 3% 22% (8%) N/M EBT $427 $684 $- $(12) Change from prior year 16% 8% N/M N/M Change from prior quarter (9%) 26% N/M N/M EBT as a % of revenues 26% 86% 0% N/M Net income (loss) Change from prior year Change from prior quarter Diluted EPS Change from prior year Change from prior quarter Diluted shares used Estimated Share- Total Qualcomm Pro Based Qualcomm Segments Forma Compensation(2) QSI(3) (GAAP) Revenues $2,604 $- $2 $2,606 Change from prior year 17% N/M 17% Change from prior quarter 7% 100% 7% EBT $1,099 $(130) $(63) $906 Change from prior year (1%) (3%) (50%) (2%) Change from prior quarter (1%) (5%) (15%) (3%) EBT as a % of revenues 42% N/A N/M 35% Net income (loss) $894 $(88) $(40) $766 Change from prior year 7% (6%) (100%) 6% Change from prior quarter 3% (5%) (100%) 0% Diluted EPS $0.54 $(0.05) $(0.02) $0.47 Change from prior year 8% 0% (100%) 9% Change from prior quarter 4% 0% (100%) 2% Diluted shares used 1,643 1,643 1,643 1,643 First Quarter - Fiscal Year 2008 Reconciling Segments QCT QTL QWI Items(1) Revenues $1,574 $650 $210 $5 EBT 470 541 24 76 Net income (loss) Diluted EPS Diluted shares used Estimated Qualcomm Share-Based Total Pro Compen- In-Process Qualcomm Segments Forma sation(2) R&D QSI(3) (GAAP) Revenues $2,439 $- $- $1 $2,440 EBT 1,111 (124) (2) (55) 930 Net income(loss) 872 (84) (1) (20) 767 Diluted EPS $0.52 $(0.05) $- $(0.01) $0.46 Diluted shares used 1,664 1,664 1,664 1,664 1,664 Second Quarter - Fiscal Year 2007 Reconciling Segments QCT QTL QWI Items (1) Revenues $1,259 $759 $198 $5 EBT 368 636 20 82 Net income (loss) Diluted EPS Diluted shares used Estimated Qualcomm Share-Based Total Pro Compen- In-Process Qualcomm Segments Forma sation(2) R&D QSI(3) (GAAP) Revenues $2,221 $- $- $- $2,221 EBT 1,106 (126) (10) (42) 928 Net income (loss) 838 (83) (9) (20) 726 Diluted EPS $0.50 $(0.05) $(0.01) $(0.01) $0.43 Diluted shares used 1,693 1,693 1,693 1,693 1,693
Third Quarter - Fiscal Year 2007 Reconciling Segments QCT QTL QWI Items (1) Revenues $1,367 $766 $196 $(4) EBT 439 668 18 52 Net income (loss) Diluted EPS Diluted shares used Estimated Share- Total Qualcomm Pro Based Qualcomm Segments Forma Compensation(2) QSI(3) (GAAP) Revenues $2,325 $- $- $2,325 EBT 1,177 (114) (91) 972 Net income (loss) 934 (75) (61) 798 Diluted EPS $0.55 $(0.04) $(0.04) $0.47 Diluted shares used 1,704 1,704 1,704 1,704 Twelve Months - Fiscal Year 2007 Reconciling Qualcomm Segments QCT QTL QWI Items (1) Pro Forma Revenues $5,275 $2,772 $828 $(5) $8,870 EBT 1,547 2,340 88 388 4,363 Net income (loss) 3,406 Diluted EPS $2.01 Diluted shares used 1,693 Estimated Share-Based Total Compen- Tax In-Process Qualcomm Segments sation(2) Items(4) R&D QSI (GAAP) Revenues $- $- $- $1 $8,871 EBT (487) - (10) (240) 3,626 Net income (loss) (321) 364 (9) (137) 3,303 Diluted EPS $(0.19) $0.22 $(0.01) $(0.08) $1.95 Diluted shares used 1,693 1,693 1,693 1,693 1,693 Six Months - Fiscal Year 2008 Reconciling Segments QCT QTL QWI Items (1) Revenues $3,194 $1,445 $405 $(1) Change from prior year 28% 6% 5% N/M EBT $897 $1,224 $24 $65 Change from prior year 31% 8% (40%) N/M Net income (loss) Change from prior year Diluted EPS Change from prior year Diluted shares used Estimated Qualcomm Share-Based Total Pro Compen- In-Process Qualcomm Segments Forma sation(2) R&D QSI(3) (GAAP) Revenues $5,043 $- $- $4 $5,047 Change from prior year 19% N/M 19% EBT $2,210 $(255) $(2) $(117) $1,836 Change from prior year 7% 1% N/M (38%) 8% Net income (loss) 1,767 (173) (1) (60) $1,533 Change from prior year 13% (2%) N/M (43%) 12% Diluted EPS $1.07 $(0.10) $- $(0.04) $0.93 Change from prior year 16% 0% N/M (100%) 15% Diluted shares used 1,653 1,653 1,653 1,653 1,653 Six Months - Fiscal Year 2007 Reconciling Qualcomm Segments QCT QTL QWI Items(1) Pro Forma Revenues $2,490 $1,359 $387 $4 $4,240 EBT 684 1,134 40 200 2,058 Net income 1,560 Diluted EPS $0.92 Diluted shares used 1,689 Estimated Share-Based Total Compen- Tax In-Process Qualcomm Segments sation(2) Items R&D QSI(3) (GAAP) Revenues $- $- $- $- $4,240 EBT (257) - (10) (85) 1,706 Net income (169) 33 (9) (42) 1,373 Diluted EPS $(0.10) $0.02 $(0.01) $(0.02) $0.81 Diluted shares used 1,689 1,689 1,689 1,689 1,689 (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 certain investment income, research and development expenses and marketing 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) 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 items column and the tax provisions related to estimated share-based compensation and in-process R&D from the tax provision for total Qualcomm (GAAP). (4) During the fourth quarter of fiscal 2007, the Company recorded a US$331 million tax benefit, or US$0.20 diluted earnings per share, related to tax expense recorded in prior years resulting from the completion of tax audits during the fourth fiscal quarter. The fiscal 2007 Qualcomm pro forma results excluded this tax benefit attributable to prior years. N/M - Not Meaningful N/A - Not Applicable Sums may not equal totals due to rounding.
Conference Call
Qualcomm's second quarter fiscal 2008 earnings conference call will be broadcast live on April 23, 2008 beginning at 1:45 p.m. Pacific Daylight Time (PDT) 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 April 23, 2008, beginning at approximately 5:30 p.m. PDT through May 23, 2008 at 9:00 p.m. PDT. 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 41658202. 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: 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 (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 2008 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. 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 estimated share-based compensation, certain tax items related to prior years and acquired in-process R&D. The QSI segment is excluded because the Company expects to exit its strategic investments at various times, and the effects of fluctuations in the value of such investments are viewed by management as unrelated to the Company's operational performance. Estimated 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 the valuation of options and other share-based compensation as theoretical and unrelated to the Company's operational performance. Further, share-based compensation 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. Moreover, it is generally not an expense that requires or will require cash payment by the Company. Certain tax items 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 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 total Qualcomm (GAAP) results and Qualcomm pro forma results and between total Qualcomm (GAAP) cash flow and Qualcomm pro forma cash flow 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 of our technologies in wireless networks and of 3G wireless communications, equipment and services, including CDMA2000 1X, 1xEV-DO, WCDMA, HSPA and OFDMA both domestically and internationally; 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; fluctuations in the demand for products, services or applications based on our technologies; our dependence on major customers and licensees; 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; 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) 2008 Qualcomm Incorporated. All rights reserved. Qualcomm is a registered trademark of Qualcomm Incorporated. MediaFLO, FLO, FLO-TV, MSM, Gobi and Snapdragon are trademarks of Qualcomm Incorporated. CDMA2000 is a registered trademark of the Telecommunications Industry Association. All other trademarks are the property of their respective owners.
Qualcomm Incorporated CONSOLIDATED STATEMENTS OF OPERATIONS This schedule is to assist the reader in reconciling from Qualcomm Pro Forma results to Total Qualcomm (GAAP) results (In millions, except per share data) (Unaudited) Three Months Ended March 30, 2008 Estimated Total Qualcomm Share-Based Qualcomm Pro Forma Compensation QSI (GAAP) Revenues: Equipment and services $1,723 $- $2 $1,725 Licensing and royalty fees 881 - - 881 Total revenues 2,604 - 2 2,606 Operating expenses: Cost of equipment and services revenues 781 9 30 820 Research and development 472 60 21 553 Selling, general and administrative 334 61 25 420 Total operating expenses 1,587 130 76 1,793 Operating income (loss) 1,017 (130) (74) 813 Investment income, net 82(a) - 11(b) 93 Income (loss) before income taxes 1,099 (130) (63) 906 Income tax (expense) benefit (205)(c) 42 23(d) (140)(c) Net income (loss) $894 $(88) $(40) $766 Earnings (loss) per common share: Diluted $0.54 $(0.05) $(0.02) $0.47 Shares used in per share calculations: Diluted 1,643 1,643 1,643 1,643 Supplemental Financial Data: Operating Cash Flow $1,056 $(53)(f) $(56) $947 Operating Cash Flow as a % of Revenues 41% N/M 36% Free Cash Flow (e) $775 $(53)(f) $(76) $646 Free Cash Flow as a % of Revenues 30% N/M 25% (a) Included US$117 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, US$13 million in net realized gains on investments and US$4 million in gains on derivative instruments from net decreases in the fair value of the put option liabilities related to our share repurchase program, partially offset by US$47 million in other-than-temporary losses on investments and US$5 million in interest expense. (b) Included US$24 million in net realized gains on investments and US$3 million in equity in earnings of investees, partially offset by US$15 million in other-than-temporary losses on investments and US$1 million in interest expense. (c) The second quarter of fiscal 2008 effective tax rates were approximately 15% for total Qualcomm (GAAP) and approximately 19% for Qualcomm 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 tax provision for Qualcomm pro forma, the tax items column and the tax provisions related to estimated share-based compensation and in-process R&D 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 Reconciliation of Pro Forma Free Cash Flows to Total Qualcomm (GAAP) net cash provided by operating activities and other supplemental disclosures for the three months ended March 30, 2008, included herein. (f) Incremental tax benefits from stock options exercised during the period.
Qualcomm Incorporated CONSOLIDATED STATEMENTS OF OPERATIONS This schedule is to assist the reader in reconciling from Qualcomm Pro Forma results to Total Qualcomm (GAAP) results (In millions, except per share data) (Unaudited) Six Months Ended March 30, 2008 Estimated Share-Based In- Total Qualcomm Compensa- Process Qualcomm Pro Forma tion(a) R&D QSI (GAAP) Revenues: Equipment and services $3,425 $- $- $4 $3,429 Licensing and royalty fees 1,618 - - - 1,618 Total revenues 5,043 - - 4 5,047 Operating expenses: Cost of equipment and services revenues 1,533 19 - 52 1,604 Research and development 902 117 2 43 1,064 Selling, general and administrative 642 119 - 47 808 Total operating expenses 3,077 255 2 142 3,476 Operating income (loss) 1,966 (255) (2) (138) 1,571 Investment income, net 244(b) - - 21(c) 265 Income (loss) before income taxes 2,210 (255) (2) (117) 1,836 Income tax (expense) benefit (443)(d) 82 1 57(e) (303)(d) Net income (loss) $1,767 $(173) $(1) $(60) $1,533 Earnings (loss) per common share: Diluted $1.07 $(0.10) $(0.00) $(0.04) $0.93 Shares used in per share calculations: Diluted 1,653 1,653 1,653 1,653 1,653 Supplemental Financial Data: Operating Cash Flow $2,070 $(101)(g) $(2) $(140) $1,827 Operating Cash Flow as a % of Revenue 41% N/M 36% Free Cash Flow (f) $1,683 $(101)(g) $(2) $(181) $1,399 Free Cash Flow as a % of Revenue 33% N/M 28% (a) Estimated share-based compensation presented above and excluded from pro forma results did not include US$1 million, net of tax, related to share-based awards granted under a bonus program. (b) Included US$269 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, US$83 million in net realized gains on investments and US$6 million in gains on derivative instruments from decreases in the fair value of the put option liabilities related to our share repurchase program, partially offset by US$104 million in other-than-temporary losses on investments and US$10 million in interest expense. (c) Included US$35 million in net realized gains on investments, US$3 million in equity in earnings of investees and US$1 million in interest and dividend income, partially offset by US$15 million in other-than-temporary losses on investments and US$3 million in interest expense. (d) The effective tax rate of 17% for total Qualcomm (GAAP) for the six months ended March 30, 2008 is higher than the estimated annual rate of 16% primarily due to the effect of discrete items recorded in the first six months of fiscal 2008. The effective tax rate of approximately 20% for pro forma for the six months ended March 30, 2008 is consistent with the estimated annual effective tax rate. (e) 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 items column and the tax provisions related to estimated share-based compensation and in-process R&D from the tax provision for total Qualcomm (GAAP). (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 Total Qualcomm (GAAP) net cash provided by operating activities and other supplemental disclosures for the six months ended March 30, 2008, included herein. (g) Incremental tax benefits from stock options exercised during the period.
Qualcomm Incorporated Reconciliation of Pro Forma Free Cash Flows to Total Qualcomm (GAAP) net cash provided by operating activities and other supplemental disclosures (In millions) (Unaudited) Three Months Ended March 30, 2008 Estimated Total Qualcomm Share-Based Qualcomm Pro Forma Compensation QSI (GAAP) Net cash provided (used) by operating activities $1,056 $(53)(a) $(56) $947 Less: capital expenditures (281) - (20) (301) Free cash flow $775 $(53) $(76) $646 Other supplemental cash disclosures: Cash transfers from QSI(1) $25 $- $(25) $- Cash transfers to QSI(2) (88) - 88 - Net cash transfers $(63) $- $63 $- Six Months Ended March 30, 2008 Estimated Total Qualcomm Share-Based In-Process Qualcomm Pro Forma Compensation R&D QSI (GAAP) Net cash provided (used) by operating activities $2,070 $(101)(a) $(2) $(140) $1,827 Less: capital expenditures (387) - - (41) (428) Free cash flow $1,683 $(101) $(2) $(181) $1,399 Other supplemental cash disclosures: Cash transfers from QSI(1) $29 $- $- $(29) $- Cash transfers to QSI(2) (201) - - 201 - Net cash transfers $(172) $- $- $172 $- (1) Cash from loan payments and sale of equity securities. (2) Funding for strategic debt and equity investments, capital expenditures and other QSI operating expenses. Three Months Ended April 1, 2007 Estimated Total Qualcomm Share-Based In-Process Qualcomm Pro Forma Compensation R&D QSI (GAAP) Net cash provided (used) by operating activities $1,159 $(87)(a) $(10) $(71) $991 Less: capital expenditures (72) - - (20) (92) Free cash flow $1,087 $(87) $(10) $(91) $899 Six Months Ended April 1, 2007 Estimated Total Qualcomm Share-Based In-Process Qualcomm Pro Forma Compensation R&D QSI (GAAP) Net cash provided (used) by operating activities $1,994 $(119)(a) $(10) $(85) $1,780 Less: capital expenditures (361) - - (53) (414) Free cash flow $1,633 $(119) $(10) $(138) $1,366 (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 March 30, September 30, 2008 2007 Current assets: Cash and cash equivalents $2,803 $2,411 Marketable securities 3,325 4,170 Accounts receivable, net 728 715 Inventories 612 469 Deferred tax assets 357 435 Collateral held under securities lending 334 421 Other current assets 192 200 Total current assets 8,351 8,821 Marketable securities 4,436 5,234 Property, plant and equipment, net 1,817 1,788 Goodwill 1,520 1,325 Deferred tax assets 770 318 Other assets 1,258 1,009 Total assets $18,152 $18,495 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $658 $635 Payroll and other benefits related liabilities 282 311 Unearned revenues 212 218 Income taxes payable 22 119 Obligations under securities lending 334 421 Other current liabilities 530 554 Total current liabilities 2,038 2,258 Unearned revenues 128 142 Income taxes payable 212 - Other liabilities 297 260 Total liabilities 2,675 2,660 Stockholders' equity: Preferred stock, $0.0001 par value; issuable in series; 8 shares authorized; none outstanding at March 30, 2008 and September 30, 2007 - - Common stock, $0.0001 par value; 6,000 shares authorized; 1,617 and 1,646 shares issued and outstanding at March 30, 2008 and September 30, 2007, respectively - - Paid-in capital 5,976 7,057 Retained earnings 9,616 8,541 Accumulated other comprehensive (loss) income (115) 237 Total stockholders' equity 15,477 15,835 Total liabilities and stockholders' equity $18,152 $18,495 Qualcomm Incorporated CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share data) (Unaudited) Three Months Ended Six Months Ended March 30, April 1, March 30, April 1, 2008 2007 2008 2007 Revenues: Equipment and services $1,725 $1,370 $3,429 $2,712 Licensing and royalty fees 881 851 1,618 1,528 Total revenues 2,606 2,221 5,047 4,240 Operating expenses: Cost of equipment and services revenues 820 634 1,604 1,268 Research and development 553 454 1,064 895 Selling, general and administrative 420 385 808 754 Total operating expenses 1,793 1,473 3,476 2,917 Operating income 813 748 1,571 1,323 Investment income, net 93 180 265 383 Income before income taxes 906 928 1,836 1,706 Income tax expense (140) (202) (303) (333) Net income $766 $726 $1,533 $1,373 Basic earnings per common share $0.47 $0.44 $0.94 $0.83 Diluted earnings per common share $0.47 $0.43 $0.93 $0.81 Shares used in per share calculations: Basic 1,617 1,659 1,626 1,656 Diluted 1,643 1,693 1,653 1,689 Dividends per share paid $0.28 $0.24 $0.28 $0.24 Dividends per share announced $0.14 $0.12 $0.28 $0.24 Qualcomm Incorporated CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Three Months Ended Six Months Ended March 30, April 1, March 30, April 1, 2008 2007 2008 2007 Operating Activities: Net income $766 $726 $1,533 $1,373 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 111 93 219 184 Non-cash income tax expense 10 131 82 229 Non-cash portion of share-based compensation expense 130 127 255 257 Incremental tax benefits from stock options exercised (53) (87) (101) (119) Net realized gains on marketable securities and other investments(37) (55) (118) (119) Other-than-temporary losses on marketable securities and other investments 62 1 119 2 Other items, net (14) 1 (11) 6 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net (35) (8) 8 (17) Inventories (88) (17) (135) (98) Other assets 31 (57) 42 (155) Trade accounts payable 97 87 20 134 Payroll, benefits and other liabilities (31) 7 (66) 1 Unearned revenues (2) 42 (20) 102 Net cash provided by operating activities 947 991 1,827 1,780 Investing Activities: Capital expenditures (301) (92) (428) (414) Purchases of available-for-sale securities (1,276) (1,908) (2,960) (3,581) Proceeds from sale of available- for-sale securities 1,497 1,909 3,989 4,345 Other investments and acquisitions, net of cash acquired (46) (7) (275) (227) Change in collateral held under securities lending (51) - 87 - Other items, net 26 3 26 1 Net cash (used) provided by investing activities (151) (95) 439 124 Financing Activities: Proceeds from issuance of common stock 159 158 236 255 Incremental tax benefits from stock options exercised 53 87 101 119 Dividends paid (455) (398) (455) (398) Repurchase and retirement of common stock (769) (40) (1,670) (136) Change in obligations under securities lending 51 - (87) - Net cash used by financing activities (961) (193) (1,875) (160) Effect of exchange rate changes on cash - 1 1 2 Net (decrease) increase in cash and cash equivalents (165) 704 392 1,746 Cash and cash equivalents at beginning of period 2,968 2,649 2,411 1,607 Cash and cash equivalents at end of period $2,803 $3,353 $2,803 $3,353 Qualcomm Contact: John Gilbert Vice President of Investor and Industry Analyst Relations +1-858-658-4813 (ph) +1-858-651-9303 (fax) e-mail: ir@qualcomm.com
Web site: http://www.qualcomm.com
John Gilbert, Vice President of Investor and Industry Analyst Relations, +1-858-658-4813, +1-858-651-9303 fax, ir@qualcomm.com
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