Qualcomm Announces Third Quarter Fiscal 2010 Results
By Qualcomm Incorporated, PRNETuesday, July 20, 2010
SAN DIEGO, July 21, 2010 -
- Revenues US$2.7 Billion, EPS US$0.47
- Pro Forma EPS US $0.57
- Reports Record MSM Shipments; Raises Financial Guidance
Qualcomm Incorporated (Nasdaq: QCOM), 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
(R&D) 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 R&D 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 R&D 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
R&D 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 (SG&A) expenses increased
13 percent year-over-year primarily due to an increase in patent-related
costs. Third quarter fiscal 2010 QSI SG&A expenses included a $62 million
gain on the sale of our Australia spectrum license. Other QSI SG&A 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) R&D 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) R&D 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) R&D 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) R&D 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) R&D 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) R&D 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) R&D 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: investor.qualcomm.com/results.cfm
Qualcomm Incorporated (Nasdaq: QCOM) 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 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, R&D expenses, SG&A 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
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. 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 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 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
R&D 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
R&D 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
R&D 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
R&D 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
R&D 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
====== ====== ====== ======
Warren Kneeshaw of Qualcomm Incorporated, +1-858-658-4813, ir at qualcomm.com
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