Qualcomm Announces Fourth Quarter and Fiscal 2007 Results Fiscal 2007 Revenues $8.87 Billion, Diluted EPS $1.95 Pro Forma Fiscal 2007 Revenues $8.87 Billion, Diluted EPS $2.01
Worldwide 3G Adoption Drives Record Fiscal Year Financial Results
SAN DIEGO, Nov. 8 -- Qualcomm Incorporated (NASDAQ:QCOM)
today announced results for the fourth fiscal quarter and year ended September 30, 2007.
Total Qualcomm (GAAP) Results
Total Qualcomm results are reported in accordance with generally accepted accounting principles (GAAP).
Fourth Quarter
-- Revenues: $2.31 billion, up 15 percent year-over-year and down
1 percent sequentially.
-- Net income: $1.13 billion, up 84 percent year-over-year and 42 percent
sequentially.
-- Diluted earnings per share: $0.67, up 86 percent year-over-year and
43 percent sequentially.
-- Effective tax rate: negative 19 percent, due to a $331 million benefit
as a result of completing audits of prior years' tax returns.
-- Estimated share-based compensation: $78 million, net of tax, up
3 percent year-over-year and 3 percent sequentially.
-- Operating cash flow: $1.04 billion, up 10 percent year-over-year;
45 percent of revenues.
-- Return of capital to stockholders: $1.45 billion in the fourth
quarter, including $230 million of cash dividends, or $0.14 per share,
and $1.22 billion to repurchase 31 million shares of our common stock.
Fiscal 2007
-- Revenues: $8.87 billion, up 18 percent year-over-year.
-- Net income: $3.30 billion, up 34 percent year-over-year.
-- Diluted earnings per share: $1.95, up 35 percent year-over-year.
-- Effective tax rate: 9 percent.
-- Estimated share-based compensation: $324 million, net of tax, up
1 percent year-over-year.
-- Operating cash flow: $3.81 billion, up 17 percent year-over-year;
43 percent of revenues.
-- Return of capital to stockholders: $2.34 billion, including
$862 million of cash dividends, or $0.52 per share, and $1.48 billion
to repurchase 37 million shares of our common stock.
Qualcomm Pro Forma 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.
Fourth Quarter
-- Revenues: $2.31 billion, up 15 percent year-over-year and down
1 percent sequentially.
-- Net income: $911 million, up 29 percent year-over-year and down
2 percent sequentially.
-- Diluted earnings per share: $0.54, up 29 percent year-over-year and
down 2 percent sequentially; excludes $0.02 loss per share attributable
to the QSI segment, $0.05 loss per share attributable to certain
estimated share-based compensation and $0.20 earnings per share
attributable to certain tax items related to prior years.
-- Effective tax rate: 19 percent.
-- Free cash flow: $916 million, up 1 percent year-over-year; 40 percent
of revenues. (Defined as net cash from operating activities less
capital expenditures).
Fiscal 2007
-- Revenues: $8.87 billion, up 18 percent year-over-year.
-- Net income: $3.41 billion, up 21 percent year-over-year.
-- Diluted earnings per share: $2.01, up 23 percent year-over-year;
excludes $0.08 loss per share attributable to the QSI segment, $0.19
loss per share attributable to certain share-based compensation, $0.22
earnings per share attributable to certain tax items related to prior
years and $0.01 loss per share attributable to acquired in-process R&D.
-- Effective tax rate: 22 percent.
-- Free cash flow: $3.53 billion, up 11 percent year-over-year; 40
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 our Investor Relations web page at http://www.qualcomm.com/.
"We delivered another record performance in fiscal 2007 because our employees and partners continue to provide industry leading innovative wireless products and services," said Dr. Paul E. Jacobs, chief executive officer of Qualcomm. "We achieved record revenues, net income and operating cash flow and returned a record $2.3 billion of capital to our stockholders through our cash dividend and stock repurchase programs."
"In addition to our strong business and financial performance, our focused execution resulted in many significant achievements in fiscal 2007. More than 530 million wireless subscribers are now benefiting from the widespread and accelerating availability of 3G CDMA mobile broadband networks with advanced wireless devices at competitive prices. We shipped a record 253 million Mobile Station Modem(TM) (MSM(TM)) chips, a 22% year-over-year increase, and for the second quarter in a row we were named the world's top supplier of semiconductors for wireless applications by iSuppli. We continued to expand our chipset portfolio with the addition of the 7000 series platform for high performance wireless devices and a low cost single chip for EV-DO Rev. A mobile broadband."
"In close partnership with the world's leading content providers, our MediaFLO(TM) mobile TV service is now commercially available in the United States and in trials around the world. With ground breaking innovations, such as MediaFLO, Snapdragon(TM) and Gobi(TM), and by partnering with new market entrants, such as Google and Skype, Qualcomm is expanding the impact of 3G CDMA beyond traditional products, services and partners."
Cash and Marketable Securities
Qualcomm's cash, cash equivalents and marketable securities totaled approximately $11.8 billion at the end of the fourth quarter of fiscal 2007, compared to $12.3 billion at the end of the third quarter of fiscal 2007 and $9.9 billion a year ago. As of September 30, 2007, $1.5 billion remained authorized for repurchases under our stock repurchase program. From October 1, 2007 through November 7, 2007, we repurchased and retired 13 million shares of our common stock for approximately $525 million. On October 11, 2007, we announced a cash dividend of $0.14 per share payable on January 4, 2008 to stockholders of record at the close of business on December 7, 2007.
Estimated Share-Based Compensation
Total Qualcomm (GAAP) net income for the fourth quarter of fiscal 2007 included estimated share-based compensation, net of tax, of $78 million, or $0.05 per diluted share. This compares to $76 million, or $0.05 per diluted share, in the prior year quarter.
Research and Development
Estimated Total
Qualcomm Pro Share-Based In-Process Qualcomm
($ in millions) Forma Compensation R&D QSI (GAAP)
Fourth quarter
fiscal 2007 $410 $55 $- $16 $481
As a % of revenue 18% N/M 21%
Fourth quarter
fiscal 2006 $338 $56 $1 $16 $411
As a % of revenue 17% 21%
Year-over-year
change ($) 21% (2%) 17%
Pro forma R&D expenses increased 21 percent year-over-year, primarily due to additional engineering resources for 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 phones, 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 Total
Qualcomm Share-Based Qualcomm
($ in millions) Pro Forma Compensation QSI (GAAP)
Fourth quarter fiscal 2007 $248 $53 $22 $323
As a % of revenue 11% N/M 14%
Fourth quarter fiscal 2006 $237 $62 $22 $321
As a % of revenue 12% 16%
Year-over-year change ($) 5% (15%) 1%
Pro forma selling, general and administrative (SG&A) expenses increased 5 percent year-over-year, largely attributable to increases in costs related to litigation and other legal matters, employee related expenses and other professional fees, partially offset by a gain on the sale of a building. QSI SG&A expenses were primarily related to MediaFLO USA.
Effective Income Tax Rate
Our fiscal 2007 effective income tax rate for total Qualcomm (GAAP) was 9 percent, and our fiscal 2007 pro forma effective tax rate was 22 percent. Our total Qualcomm (GAAP) diluted earnings per share in the fourth quarter and fiscal 2007 included a $0.20 benefit as a result of prior year tax audits completed during the fourth fiscal quarter. This benefit resulted in a negative tax rate for the fourth quarter of fiscal 2007 for total Qualcomm (GAAP). Fourth quarter fiscal 2007 Qualcomm pro forma results excluded this $0.20 diluted earnings per share benefit to provide a clearer understanding of our ongoing tax rate and after tax earnings.
Qualcomm Strategic Initiatives
The QSI segment includes our strategic investments, including our MediaFLO USA subsidiary, and related income and expenses. Total Qualcomm (GAAP) results for the fourth quarter of fiscal 2007 included $0.02 loss per share for the QSI segment. The fourth quarter of fiscal 2007 QSI results included $63 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.
We are engaged in multiple disputes with Nokia Corp., including arbitration over Nokia's obligation to pay royalties for the use of certain of our patents. As a result, under generally accepted accounting principles, we are not recording royalty revenue attributable to Nokia's sales after April 9, 2007 until an arbitrator (or 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 of approximately $0.25-$0.30 diluted earnings per share.
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 handset unit shipments and average selling prices (ASPs) should be adjusted for certain periods. The adjustments related only to handset shipments and ASPs and did not impact the amount or timing of our revenue. Based on this new information, we now estimate shipments of 89 million handsets reported in our fourth quarter fiscal 2007, compared to our previous estimate of 92 million handsets. The estimated ASP for such units remains unchanged from our prior guidance of $218. A summary of the adjustments on prior periods is included on our Investor Relations website http://investor.qualcomm.com/results.cfm .
The following table summarizes total Qualcomm (GAAP) and Qualcomm pro forma guidance for the first 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
FIRST FISCAL QUARTER
Current Guidance
Q1'07 Q1'08
Results Estimates
Qualcomm Pro Forma
Revenues $2.02B $2.3B - $2.4B
Year-over-year change increase 14% - 19%
Diluted earnings per share (EPS) $0.43 $0.50 - $0.52
Year-over-year change increase 16% - 21%
Total Qualcomm (GAAP)
Revenues $2.02B $2.3B - $2.4B
Year-over-year change increase 14% - 19%
Diluted earnings per share (EPS) $0.38 $0.42 - $0.44
Year-over-year change increase 11% - 16%
Diluted EPS attributable to QSI ($0.01) ($0.03)
Diluted EPS attributable to
estimated share-based compensation ($0.05) ($0.05)
Diluted EPS attributable to tax
items $0.02 n/a
Metrics
MSM shipments approx. 59M approx. 74M - 78M
CDMA/WCDMA handset units
shipped (1)(2) approx. 74M* approx. 95M - 98M*
CDMA/WCDMA handset unit wholesale
average selling price (1)(2) approx. $208* approx. $212*
* Shipments in Sept. quarter, reported in Dec. quarter
FISCAL YEAR
Current Guidance
FY 2007 FY 2008
Results (3) Estimates (4)
Qualcomm Pro Forma
Revenues $8.87B $9.5B - $9.9B
Year-over-year change increase 7% - 12%
Diluted earnings per share (EPS) $2.01 $2.03 - $2.09
Year-over-year change increase 1% - 4%
Total Qualcomm (GAAP)
Revenues $8.87B $9.5B - $9.9B
Year-over-year change increase 7% - 12%
Diluted earnings per share (EPS) $1.95 $1.68 - $1.74
Year-over-year change decrease 11% - 14%
Diluted EPS attributable to tax
items related to prior years $0.22 n/a
Diluted EPS attributable to
in-process R&D ($0.01) n/a
Diluted EPS attributable to QSI ($0.08) ($0.14)
Diluted EPS attributable to
estimated share-based compensation ($0.19) ($0.21)
Metrics
Fiscal year* CDMA/WCDMA handset unit
wholesale average selling
price (1)(2) approx. $214 approx. $199
* Shipments in Sept. to June quarters, reported in Dec. to Sept.
quarters
CALENDAR YEAR Handset Estimates (1)(2)
Prior Guidance Current Guidance Current Guidance
CDMA/WCDMA handset Calendar 2007 Calendar 2007 Calendar 2008
unit shipments Estimates (5) Estimates Estimates
March quarter approx. 86M approx. 86M not provided
June quarter approx. 89M approx. 89M not provided
September quarter not provided approx. 95M - 98M not provided
December quarter not provided not provided not provided
Calendar year range
(approx.) 367M - 387M 385M - 395M 492M - 522M
Midpoint Midpoint Midpoint
CDMA/WCDMA units approx. 377M approx. 390M approx. 507M
CDMA units approx. 208M approx. 208M approx. 223M
WCDMA units approx. 169M approx. 182M approx. 284M
(1) CDMA/WCDMA handset unit 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 handset unit shipments
and average selling prices (ASPs) should be adjusted for certain
periods. The adjustments related only to handset shipments and ASPs
and did not impact the amount or timing of our revenue. Historical
units presented herein have been adjusted to reflect these
adjustments.
(3) Our fiscal 2007 results do not include royalty revenue attributable to
Nokia's sales after April 9, 2007 which we estimated to be
approximately $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 of
approximately $0.25-$0.30 diluted earnings per share.
(5) Prior Calendar 2007 Handset Estimates have been adjusted to reflect
adjustments as a result of note (2) above in order to present "Prior"
and "Current" guidance on a consistent and comparable basis.
Sums may not equal totals due to rounding.
Results of Business Segments
The following tables, which present segment information, have been adjusted to reflect the fiscal 2007 segment presentation (Note 1) (in millions, except per share data):
Fourth Quarter - Fiscal Year 2007
Segments QCT QTL QWI Reconciling
Items (2)
Revenues $1,419 $647 $245 $(6)
Change from prior year 24% (2%) 25% N/M
Change from prior quarter 4% (16%) 25% N/M
EBT $424 $537 $31 $137
Change from prior year 31% (9%) 19% N/M
Change from prior quarter (3%) (20%) 72% N/M
EBT as a % of revenues 30% 83% 13% 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 Total
Qualcomm Pro Share-Based Tax Items Qualcomm
Segments Forma Compensation(3) (4) QSI(6) (GAAP)
Revenues $2,305 $- $- $1 $2,306
Change from
prior year 15% 15%
Change from
prior quarter (1%) (1%)
EBT $1,129 $(117) $- $(64) $948
Change from
prior year 17% (8%) 178% 17%
Change from
prior quarter (4%) 3% (30%) (2%)
EBT as a % of
revenues 49% N/M N/M N/M 41%
Net income
(loss) $911 $(77) $331 $(34) $1,131
Change from
prior year 29% 1% N/M N/M 84%
Change from
prior quarter (2%) 3% N/M (44%) 42%
Diluted EPS $0.54 $(0.05) $0.20 $(0.02) $0.67
Change from
prior year 29% 0% N/M N/M 86%
Change from
prior quarter (2%) 25% N/M (50%) 43%
Diluted shares
used 1,689 1,689 1,689 1,689 1,689
Third Quarter - Fiscal Year 2007
Reconciling
Segments QCT QTL QWI Items (2)
Revenues $1,367 $766 $196 $(4)
EBT 439 668 18 52
Net income (loss)
Diluted EPS
Diluted shares used
Estimated Total
Qualcomm Pro Share-Based Qualcomm
Segments Forma Compensation(3) QSI(6) (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
Fourth Quarter - Fiscal Year 2006
Reconciling
Segments QCT(1)* QTL(1)* QWI (1)* Items (1)(2)*
Revenues $1,147 $661 $196 $(5)
EBT 323 591 26 21
Net income (loss)
Diluted EPS
Diluted shares used
Estimated In- Total
Qualcomm Share-Based Process Qualcomm
Segments Pro Forma Compensation(3) Tax Items R&D QSI(6) (GAAP)
Revenues $1,999 $- $- $- $- $1,999
EBT 961 (127) - (1) (23) 810
Net income
(loss) 705 (76) (16) (1) 2 614
Diluted EPS $0.42 $(0.05) $(0.01) $- $- $0.36
Diluted
shares used 1,693 1,693 1,693 1,693 1,693 1,693
First Quarter - Fiscal Year 2007
Reconciling
Segments QCT(1)* QTL(1)* QWI (1)* Items(1)(2)*
Revenues $1,230 $600 $188 $1
EBT 316 498 20 118
Net income (loss)
Diluted EPS
Diluted shares used
Estimated Total
Qualcomm Share-Based Tax Items Qualcomm
Segments Pro Forma Compensation(3) (5) QSI(6) (GAAP)
Revenues $2,019 $- $- $- $2,019
EBT 952 (130) - (43) 779
Net income (loss) 722 (86) 33 (21) 648
Diluted EPS $0.43 $(0.05) $0.02 $(0.01) $0.38
Diluted shares
used 1,685 1,685 1,685 1,685 1,685
Twelve Months - Fiscal Year 2007
Reconciling
Segments QCT QTL QWI Items (2)
Revenues $5,275 $2,772 $828 $(5)
Change from prior year 22% 12% 13% N/M
EBT $1,547 $2,340 $88 $388
Change from prior year 19% 5% 13% N/M
EBT as a % of revenues 29% 84% 11% N/M
Net income (loss)
Change from prior year
Diluted EPS
Change from prior year
Diluted shares used
Estimated In- Total
Qualcomm Share-Based Tax Items Process Qualcomm
Segments Pro Forma Compensation(3) (4)(5) R&D QSI (GAAP)
Revenues $8,870 $- $- $- $1 $8,871
Change from
prior year 18% N/M 18%
EBT $4,363 $(487) $- $(10) $(240) $3,626
Change from
prior year 15% (2%) (55%) 80% 15%
EBT as a % of
revenues 49% N/M N/M N/M N/M 41%
Net income
(loss) 3,406 (321) 364 (9) (137) $3,303
Change from
prior year 21% 0% 810% (59%) 328% 34%
Diluted EPS $2.01 $(0.19) $0.22 $(0.01) $(0.08) $1.95
Change from
prior year 23% 0% 1000% 0% 300% 35%
Diluted shares
used 1,693 1,693 1,693 1,693 1,693 1,693
Twelve Months - Fiscal Year 2006
Reconciling
Segments QCT(1)* QTL(1)* QWI (1)* Items (1)(2)*
Revenues $4,332 $2,467 $731 $(4)
EBT 1,298 2,233 78 197
Net income (loss)
Diluted EPS
Diluted shares used
Estimated In- Total
Qualcomm Share-Based Process Qualcomm
Segments Pro Forma Compensation(3) Tax Items R&D QSI (GAAP)
Revenues $7,526 $- $- $- $- $7,526
EBT 3,806 (495) - (22) (133) 3,156
Net income
(loss) 2,804 (320) 40 (22) (32) 2,470
Diluted EPS $1.64 $(0.19) $0.02 $(0.01) $(0.02) $1.44
Diluted shares
used 1,711 1,711 1,711 1,711 1,711 1,711
(1) During fiscal 2007, the Company reassessed the intersegment royalty
charged to QCT by QTL and determined that the royalty should be
eliminated starting in fiscal 2007 for management reporting purposes.
As a result, QCT did not record a royalty to QTL in fiscal 2007. The
Company also reorganized the Qualcomm Wireless Systems (QWS) division
into the QES (formerly QWBS) division within the QWI segment.
Revenues and operating results relating to QWS were included in
reconciling items through the end of fiscal 2006. Prior period
segment information has been adjusted to conform to the new segment
presentation.
(2) 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.
(3) 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.
(4) During the fourth quarter of fiscal 2007, the Company recorded a
$331 million tax benefit, or $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.
(5) During the first quarter of fiscal 2007, the federal R&D tax credit
that expired on December 31, 2005 was extended by Congress for a
period of two years beyond the prior expiration date. The Company
recorded a tax benefit of $33 million, or $0.02 diluted earnings per
share, related to fiscal 2006 in the first quarter of fiscal 2007 due
to this retroactive extension. The fiscal 2007 Qualcomm pro forma
results excluded this tax benefit attributable to fiscal 2006.
(6) 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).
N/M - Not Meaningful
Sums may not equal totals due to rounding.
* As adjusted to conform to 2007 segment presentation.
Conference Call
Qualcomm's fourth quarter fiscal 2007 earnings conference call will be broadcast live on November 8, 2007 beginning at 1:45 p.m. Pacific Standard Time (PST) on the Company's web site at: http://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 http://www.qualcomm.com/ immediately prior to commencement of the call. A taped audio replay will be available via telephone on November 8, 2007 beginning at approximately 5:30 p.m. (PST) through December 8, 2007 at 9:00 p.m. (PST). To listen to the replay, U.S. callers may dial (800) 642-1687 and international callers may dial (706) 645-9291. U.S. and international callers should use reservation number 20553158. An audio replay of the conference call will be available on the Company's web site at http://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 (http://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 2007 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 Qualcomm Strategic Initiatives (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 the executive bonus program, 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; our dependence on major customers and licensees; 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; 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) 2007 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:
John Gilbert
Vice President of Investor and Industry Analyst Relations
1-(858) 658-4813 (ph) 1-(858) 651-9303 (fax)
e-mail: ir at qualcomm.com
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 September 30, 2007
Qualcomm Estimated Total
Pro Share-Based Tax Qualcomm
Forma Compensation(a) Items(b) QSI (GAAP)
Revenues:
Equipment and
services $1,568 $- $- $1 $1,569
Licensing and
royalty fees 737 - - - 737
Total revenues 2,305 - - 1 2,306
Operating expenses:
Cost of equipment
and services
revenues 691 9 - 25 725
Research and
development 410 55 - 16 481
Selling, general
and administrative 248 53 - 22 323
Total operating
expenses 1,349 117 - 63 1,529
Operating income
(loss) 956 (117) - (62) 777
Investment income
(expense), net 173 (c) - - (2)(d) 171
Income (loss) before
income taxes 1,129 (117) - (64) 948
Income tax (expense)
benefit (218)(e) 40 331 30 (f) 183(e)
Net income (loss) $911 $(77) $331 $(34) $1,131
Earnings (loss) per
common share:
Diluted $0.54 $(0.05) $0.20 $(0.02) $0.67
Shares used in per
share calculations:
Diluted 1,689 1,689 1,689 1,689 1,689
Supplemental Financial Data:
Operating Cash Flow $1,136 $(41)(h) $- $(52) $1,043
Operating Cash Flow
as a % of Revenues 49% N/M 45%
Free Cash Flow (g) $916 $(41)(h) $- $(79) $796
Free Cash Flow as a
% of Revenues 40% N/M 35%
(a) Estimated share-based compensation presented above and excluded from
pro forma results did not include $1 million, net of tax, related to
share-based awards granted under the executive bonus program.
(b) During the fourth quarter of fiscal 2007, the Company recorded a
$331 million tax benefit, or $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.
(c) Included $141 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, $48 million in net realized
gains on investments and $2 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 $13 million in
other-than-temporary losses on investments and $5 million in interest
expense.
(d) Included $3 million in other-than-temporary losses on investments,
$1 million in interest expense and $1 million of equity losses in
investees, partially offset by $2 million in net realized gains on
investments and $1 million in interest and dividend income.
(e) The fourth quarter of fiscal 2007 tax rates were approximately 19%
benefit for total Qualcomm (GAAP) and approximately 19% expense for
Qualcomm pro forma.
(f) 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).
(g) 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
September 30, 2007, included herein.
(h) 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)
Twelve Months Ended September 30, 2007
Estimated
Share-
Qualcomm Based Tax In- Total
Pro Compen- Items Process Qualcomm
Forma sation (a) (b) R&D QSI (GAAP)
Revenues:
Equipment and
services $5,764 $- $- $- $1 $5,765
Licensing and
royalty fees 3,106 - - - - 3,106
Total revenues 8,870 - - - 1 8,871
Operating expenses:
Cost of equipment
and services
revenues 2,572 39 - - 70 2,681
Research and
development 1,530 221 - 10 68 1,829
Selling,
general and
administrative 1,138 227 - - 113 1,478
Total operating
expenses 5,240 487 - 10 251 5,988
Operating income
(loss) 3,630 (487) - (10) (250) 2,883
Investment income,
net 733 (c) - - - 10 (d) 743
Income (loss) before
income taxes 4,363 (487) - (10) (240) 3,626
Income tax (expense)
benefit (957)(e) 166 364 1 103 (323)(e)
Net income (loss) $3,406 $(321) $364 $(9) $(137) $3,303
Earnings (loss) per
common share:
Diluted $2.01 $(0.19) $0.22 $(0.01) $(0.08) $1.95
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 $4,252 $(240)(g) $- $(10) $(191) $3,811
Operating Cash Flow
as a % of Revenue 48% N/M 43%
Free Cash Flow (f) $3,526 $(240)(g) $- $(10) $(283) $2,993
Free Cash Flow as a
% of Revenue 40% N/M 34%
(a) Estimated share-based compensation presented above and excluded from
pro forma results did not include $3 million, net of tax, related to
share-based awards granted under the executive bonus program.
(b) During the first quarter of fiscal 2007, the Company recorded a tax
benefit of $33 million, or $0.02 diluted earnings per share, related
to fiscal 2006 in the first quarter of fiscal 2007 due to a
retroactive extension the federal R&D tax credit that expired on
December 31, 2005. In addition, during the fourth quarter of fiscal
2007, the Company recorded a $331 million tax benefit, or $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
these tax benefits attributable to prior years.
(c) Included $551 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, $201 million in net realized
gains on investments and $3 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 $16 million in
other-than-temporary losses on investments and $6 million in interest
expense.
(d) Included $21 million in net realized gains on investments and
$7 million in interest and dividend income, partially offset by
$11 million in other-than-temporary losses on investments, $5 million
in interest expense, $1 million in losses on derivative instruments
and $1 million in equity losses of investees.
(e) The annual effective tax rate for fiscal 2007 for total Qualcomm
(GAAP) was approximately 9% and Qualcomm pro forma was approximately
22%.
(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 twelve months ended
September 30, 2007, 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 September 30, 2007
Estimated Total
Qualcomm Share-Based Qualcomm
Pro Forma Compensation QSI (GAAP)
Net cash provided (used) by
operating activities $1,136 $(41)(a) $(52) $1,043
Less: capital expenditures (220) - (27) (247)
Free cash flow $916 $(41) $(79) $796
Other supplemental cash
disclosures:
Cash transfers from QSI (1) $2 $- $(2) $-
Cash transfers to QSI (2) (94) - 94 -
Net cash transfers $(92) $- $92 $-
Twelve Months Ended September 30, 2007
Estimated Total
Qualcomm Share-Based In-Process Qualcomm
Pro Forma Compensation R&D QSI (GAAP)
Net cash
provided (used)
by operating
activities $4,252 $(240)(a) $(10) $(191) $3,811
Less: capital
expenditures (726) - - (92) (818)
Free cash flow $3,526 $(240) $(10) $(283) $2,993
Other supplemental
cash disclosures:
Cash transfers
from QSI(1) $55 $- $- $(55) $-
Cash transfers
to QSI(2) (358) - - 358 -
Net cash
transfers $(303) $- $- $303 $-
(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 September 24, 2006
Estimated Total
Qualcomm Share-Based Qualcomm
Pro Forma Compensation QSI (GAAP)
Net cash provided (used) by
operating activities $1,007 $(27)(a) $(28) $952
Less: capital expenditures (100) - (29) (129)
Free cash flow $907 $(27) $(57) $823
Twelve Months Ended September 24, 2006
Estimated Total
Qualcomm Share-Based Qualcomm
Pro Forma Compensation QSI (GAAP)
Net cash provided (used) by
operating activities $3,746 $(403)(a) $(90) $3,253
Less: capital expenditures (566) - (119) (685)
Free cash flow $3,180 $(403) $(209) $2,568
(a) Incremental tax benefits from stock options exercised during the
period.
Qualcomm Incorporated
CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
ASSETS
September 30, September 24,
2007 2006
Current assets:
Cash and cash equivalents $2,411 $1,607
Marketable securities 4,170 4,114
Accounts receivable, net 715 700
Inventories 469 250
Deferred tax assets 435 235
Collateral held under
securities lending 421 -
Other current assets 200 143
Total current assets 8,821 7,049
Marketable securities 5,234 4,228
Property, plant and equipment, net 1,788 1,482
Goodwill 1,325 1,230
Deferred tax assets 318 512
Other assets 1,009 707
Total assets $18,495 $15,208
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $635 $420
Payroll and other benefits
related liabilities 311 273
Unearned revenue 218 197
Income taxes payable 119 137
Obligation under securities
lending 421 -
Other current liabilities 554 395
Total current liabilities 2,258 1,422
Unearned revenue 142 141
Other liabilities 260 239
Total liabilities 2,660 1,802
Stockholders' equity:
Preferred stock, $0.0001 par value;
issuable in series; 8 shares
authorized; none outstanding at
September 30, 2007 and
September 24, 2006 - -
Common stock, $0.0001 par value;
6,000 shares authorized; 1,646 and
1,652 shares issued and outstanding
at September 30, 2007 and
September 24, 2006, respectively - -
Paid-in capital 7,057 7,242
Retained earnings 8,541 6,100
Accumulated other
comprehensive income 237 64
Total stockholders'
equity 15,835 13,406
Total liabilities and
stockholders' equity $18,495 $15,208
Qualcomm Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
September September September September
30, 24, 30, 24,
2007 2006 2007 2006
Revenues:
Equipment and services $1,569 $1,264 $5,765 $4,776
Licensing and royalty
fees 737 735 3,106 2,750
Total revenues 2,306 1,999 8,871 7,526
Operating expenses:
Cost of equipment and
services revenues 725 586 2,681 2,182
Research and development 481 411 1,829 1,538
Selling, general and
administrative 323 321 1,478 1,116
Total operating
expenses 1,529 1,318 5,988 4,836
Operating income 777 681 2,883 2,690
Investment income, net 171 129 743 466
Income before income taxes 948 810 3,626 3,156
Income tax expense 183 (196) (323) (686)
Net income $1,131 $614 $3,303 $2,470
Basic earnings per common
share $0.68 $0.37 $1.99 $1.49
Diluted earnings per common
share $0.67 $0.36 $1.95 $1.44
Shares used in per share
calculations:
Basic 1,660 1,652 1,660 1,659
Diluted 1,689 1,693 1,693 1,711
Dividends per share paid $0.14 $0.12 $0.52 $0.42
Dividends per share
announced $0.14 $0.12 $0.52 $0.42
Qualcomm Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended Twelve Months Ended
September September September September
30, 24, 30, 24,
2007 2006 2007 2006
Operating Activities:
Net income $1,131 $614 $3,303 $2,470
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 100 82 383 272
Non-cash portion of share-based
compensation expense 117 127 488 495
Incremental tax benefits from
stock options exercised (41) (27) (240) (403)
Net realized gains on
marketable securities and
other investments (49) (42) (222) (136)
(Gains) losses on derivative
instruments (2) 11 (2) 29
Other-than-temporary losses on
marketable securities and
other investments 16 3 27 24
Equity in losses (gains) of
investees 1 (1) 1 29
Non-cash income tax expense
(benefit) (274) 139 91 514
Other items, net (46) (6) (42) (28)
Changes in assets and
liabilities, net of effects
of acquisitions:
Accounts receivable, net 46 7 (16) (133)
Inventories (87) 10 (234) (71)
Other assets 41 (10) (96) 15
Trade accounts payable 82 (89) 209 51
Payroll, benefits and other
liabilities 70 116 139 96
Unearned revenue (62) 18 22 29
Net cash provided by operating
activities 1,043 952 3,811 3,253
Investing Activities:
Capital expenditures (247) (129) (818) (685)
Purchases of available-for-sale
securities (2,571) (2,907) (8,492) (12,517)
Proceeds from sale of
available-for-sale
securities 1,744 2,937 7,998 10,853
Maturities of held-to-maturity
securities - 60 - 130
Other investments and
acquisitions, net of cash
acquired (19) (17) (249) (407)
Change in collateral held under
securities lending (268) - (421) -
Other items, net 71 (6) 84 3
Net cash used by investing
activities (1,290) (62) (1,898) (2,623)
Financing Activities:
Proceeds from issuance of
common stock 82 69 556 692
Incremental tax benefits from
stock options exercised 41 27 240 403
Repurchase and retirement of
common stock (1,218) (335) (1,482) (1,500)
Proceeds from put options - - 17 11
Dividends paid (230) (198) (862) (698)
Change in obligation under
securities lending 268 - 421 -
Other items, net (1) - (1) -
Net cash used by financing
activities (1,058) (437) (1,111) (1,092)
Effect of exchange rate
changes on cash - (1) 2 (1)
Net (decrease) increase in cash
and cash equivalents (1,305) 452 804 (463)
Cash and cash equivalents at
beginning of period 3,716 1,155 1,607 2,070
Cash and cash equivalents at
end of period $2,411 $1,607 $2,411 $1,607
