QUALCOMM Incorporated (NASDAQ: QCOM - news) today reported pro forma revenues in the first quarter of fiscal 2001 of $684 million,
compared to $635 million in the fourth quarter of fiscal 2000 and $764 million in the year ago period. Pro forma earnings per share were $0.29 in the
first quarter of fiscal 2001 compared to $0.25 per share in the fourth quarter of fiscal 2000 and $0.27 per share in the year ago period (see note
below).
The Company updated its plans with respect to the proposed spin-off and Initial Public Offering (IPO) of its semiconductor business, referred to as
``QUALCOMM Spinco, Inc.'' Given current uncertainties in the financial markets, the Company is evaluating the need for and timing of an IPO.
Regardless of the IPO decision, the Company continues to plan for the spin-off with full distribution of QUALCOMM Spinco, Inc. shares expected to
occur by the fall of 2001, subject to approval by QUALCOMM's Board of Directors.
Note:
First Quarter Fiscal 2001 - Pro forma results (see Pro Forma Condensed Consolidated Statements of Income) exclude asset impairment and other
charges related to the Globalstar business, amortization of goodwill and other acquisition-related intangible assets, employer payroll taxes on employee
non-qualified stock option exercises, charges related to an arbitration decision against the Company, unrealized changes in market values of derivative
instruments, unrealized other than temporary impairment of marketable securities and the cumulative effect of an accounting change. Pro forma results
include gains from the sale of marketable securities.
Fourth Quarter Fiscal 2000 - Pro forma results exclude amortization of goodwill and other acquisition-related intangible assets, employer payroll taxes
on employee non-qualified stock option exercises, adjustments to charges related to the sale of the consumer phone business and employee
termination charges.
First Quarter Fiscal 2000 - Pro forma results exclude employer payroll taxes on employee non-qualified stock option exercises, operating losses
incurred by the exited consumer phone business and charges related to the sale of this business, one-time realized gains from the sale of marketable
securities and employee termination charges.
Pro forma earnings exclude the abovementioned items and, therefore, differ from reported earnings, which are presented in accordance with generally
accepted accounting principles.
``Our technology licensing and semiconductor businesses are benefiting from strong demand for CDMA technology and products. We anticipate
further growth domestically and internationally during fiscal 2001 with increasing focus on third-generation CDMA deployment,'' said Dr. Irwin M.
Jacobs, chairman and CEO of QUALCOMM. ``Our satellite businesses, however, have been impacted by economic and capital market conditions,
and by Globalstar's recent decision to suspend payments on its funded debt and to study its options including restructuring. Based on the demonstrated
quality, flexibility and unique capabilities of the Globalstar system, we remain optimistic that the system will continue to operate and gain revenue from
new vertical markets with the addition of the high-speed Globalstar data modules currently under development.''
On January 16, 2001, Globalstar announced that it has suspended indefinitely principal and interest payments on all of its debt, including its vendor
financing obligations. As a result, Globalstar did not make a principal and interest payment of approximately $22 million due to QUALCOMM on
January 15, 2001. Globalstar retained The Blackstone Group as its financial adviser to assist in developing initiatives, including debt restructuring,
identifying funding opportunities and pursuing other strategic alternatives.
Due to the revised status of Globalstar, the Company recorded total charges of $595 million relating to reserves against certain Globalstar-related
assets and for related obligations (excluded from pro forma earnings). After these charges, the Company has approximately $56 million in net assets
remaining related to the Globalstar business. In addition, the Company did not recognize revenues from its business with Globalstar other than cash
payments received, resulting in a $0.03 loss per share on the Globalstar-related business included in pro forma earnings in the first quarter of fiscal
2001.
Pro forma revenues increased to $684 million in the first quarter of fiscal 2001 from $635 million in the fourth quarter of fiscal 2000. This increase was
primarily attributable to growth in royalty revenues, significant license fees from third generation amendments to existing license agreements and new
license agreements, and higher unit shipments of MSM integrated circuits to wireless device manufacturers, offset by lower revenues related to the
Company's business with Globalstar. Pro forma revenues declined from the year ago period due to substantially lower revenues related to the
Company's business with Globalstar, a decrease in OmniTRACS unit shipments due to U.S. economic conditions and lower average selling prices of
integrated circuits. Revenues from the Company's business with Globalstar decreased significantly to $7 million for the first quarter of fiscal 2001
compared to $61 million for the fourth quarter of fiscal 2000 and $124 million for the year ago period. These revenues are included in the QWS
reporting segment.
Pro forma gross margin for the first quarter of fiscal 2001 was 64 percent compared to 63 percent in the fourth quarter of fiscal 2000 and 57 percent
in the year ago period. The increase was primarily due to a higher percentage of revenues from royalties and license fees.
Pro forma operating expenses (research and development and selling, general and administrative) for the first quarter of fiscal 2001 was $162 million
compared to $159 million in the fourth quarter of fiscal 2000 and $121 million in the year ago period. Pro forma R&D expenses were $84 million in
the first quarter of fiscal 2001 compared to $85 million in the fourth quarter of fiscal 2000 and $65 million in the year ago period. Investments in
research and development were primarily associated with new product development to support high-speed wireless Internet access and mobile data
applications. Pro forma selling, general and administrative expenses were $79 million in the first quarter of fiscal 2001 compared to $75 million in the
fourth quarter of fiscal 2000 and $56 million in the year ago period. The increase in SG&A expenses compared to the year ago period was primarily
associated with expanded international business in China and other regions, and higher expenses for the QUALCOMM CDMA Technologies
business, which has expanded its customer base and product portfolio.
Pro forma investment income increased to $82 million for the first quarter of fiscal 2001 compared to $60 million in the fourth quarter of fiscal 2000
and $36 million in the year ago period. This increase in pro forma results in the first quarter of fiscal 2001 was primarily attributable to higher cash and
short-term investments, higher interest rates and net gains from equity investments.
The Company's pro forma annual effective income tax rate for fiscal 2001 is estimated to be 35 percent compared to 37 percent for fiscal 2000 due
to lower taxes related to earnings from outside of the United States.
Reported revenues for the first quarter of fiscal 2001 were $684 million compared to $635 million in the fourth quarter of fiscal 2000 and $1.1 billion
in the year ago period. Total revenues for the year ago period included $356 million in revenues related to the terrestrial-based CDMA wireless
consumer phone business that was sold in February 2000. Reported loss before income taxes and accounting change was $688 million in the first
quarter of fiscal 2001 compared to an income before income taxes and accounting change of $234 million in the fourth quarter of fiscal 2000 and
$282 million in the year ago period. Reported net loss was $229 million in the first quarter of fiscal 2001 compared to net income of $139 million in
the fourth quarter of fiscal 2000 and $177 million in the year ago period.
Business Outlook
The following statements are forward-looking and actual results may differ materially. Please refer to the discussion of risks in this press release for a
description of certain risk factors and QUALCOMM's quarterly reports on file with the Securities and Exchange Commission (SEC) for a more
complete description of risks. In response to SEC Regulation FD (Fair Disclosure), the Company plans to disseminate its quarterly business outlook,
based on current expectations, in conjunction with its quarterly earnings release and conference call. The Company will not provide any further
material guidance on analysts' financial models beyond the information provided in its quarterly earnings release and conference call.
Second Quarter Fiscal 2001
Unit Shipments - The Company expects to ship approximately 16 million MSM integrated circuits during the second quarter of fiscal 2001
compared to 15 million units in the first quarter of fiscal 2001 and 11 million units in the year ago period. Customer orders for MSM integrated
circuits are substantially higher than 16 million units. However, the Company anticipates shipments in the second quarter to be constrained by a
capacity limitation at one of its suppliers. The Company expects the supply constraint to be substantially resolved by the third quarter of fiscal
2001.
Earnings Per Share - Based on the current business outlook, the Company is comfortable with the current analyst consensus estimate of $0.29
pro forma earnings per share in the second quarter of fiscal 2001. This estimate includes an expected net loss of $0.02 per share related to the
Company's business with Globalstar. License fees in the first quarter of fiscal 2001 were strong and the Company expects to receive additional
license fees during fiscal 2001; however, total license fees can fluctuate from quarter to quarter.
Fiscal 2001
Based on the current business outlook, the Company is comfortable with the current analyst consensus estimate of $1.27 pro forma earnings
per share for fiscal 2001. This estimate includes an expected net loss of $0.07 pro forma earnings per share related to the Company's business
with Globalstar. The Company expects its Globalstar-related revenues to be significantly lower for the balance of fiscal 2001 despite ongoing
sales of equipment and services to support both continued operations and the addition of high-speed data capability.
The demand for CDMA integrated circuits remains strong and the Company expects the introduction of third-generation cdma2000 1x
networks to accelerate growth in the second half of fiscal 2001. As stated in the prior quarter, the Company continues to assume a forecast of
90 million CDMA phones sold in calendar 2001 and a 20 percent decrease in the average selling prices of CDMA phones, upon which most
royalties are calculated.
Cash Flow
QUALCOMM's cash, cash equivalents and marketable securities totaled approximately $2.4 billion at the end of the first quarter of fiscal 2001. The
following table presents selected cash flow information for the first quarter of fiscal 2001 (in millions):
Selected Cash Flow Information Amount
------
Earnings before taxes, depreciation,
amortization and non-cash charges $ 290
Working capital changes 55
Additional share capital 50
-----
Net cash inflows 395
-----
Strategic investments and capital expenditures (287)
-----
Net cash generated $ 108
=====
Pro Forma Results of Business Segments
The following tables present pro forma segment information (in
thousands):
First Quarter - Fiscal Year 2001
Reconciling Total
Segments QCT QTL QWS (2) Items (1) QUALCOMM
Revenues 330,054 223,482 92,841 37,644 684,021
Change from prior
quarter 23% 20% (38%) N/M 8%
Change from prior
year (6%) 26% (57%) N/M (10%)
Earnings before
taxes 83,771 210,797 7,870 53,866 356,304
% of revenues 25% 94% 8% N/M 52%
Change from prior
quarter 30% 26% (86%) N/M 18%
Change from prior
year (34%) 30% (88%) N/M 5%
Fourth Quarter - Fiscal Year 2000
Reconciling Total
Segments QCT QTL QWS Items (1) QUALCOMM
Revenues 268,989 186,041 150,458 29,957 635,445
Earnings before
taxes 64,281 167,939 57,887 12,397 302,504
% of revenues 24% 90% 38% N/M 48%
First Quarter - Fiscal Year 2000
Reconciling Total
Segments QCT QTL QWS Items (1) QUALCOMM
Revenues 352,395 177,545 214,964 18,791 763,695
Earnings before
taxes 127,690 162,590 66,147 (18,272) 338,155
% of revenues 36% 92% 31% N/M 44%
(1) Reconciling Items related to revenues consist primarily of
other non-reportable segment revenues less intersegment
eliminations. Reconciling Items related to earnings before
taxes consist primarily of non-reportable segment results,
unallocated net investment income, interest expense and the
elimination of intercompany profit.
(2) The Company decided to not recognize revenues on business
with Globalstar before cash is received starting in the
first quarter of fiscal 2001.
N/M - Not Meaningful
Business Segments - First Quarter Fiscal 2001
QUALCOMM Technology Licensing (QTL)
Entered into license agreements with ten new companies in the first quarter of fiscal 2001. This brings the cumulative total to over 95 companies
now licensed to manufacture and sell CDMA products worldwide.
Signed 18 third generation (3G) CDMA agreements (covering cdma2000, WCDMA and other CDMA modes) in the first quarter of fiscal
2001, including four new modem card agreements, one new subscriber agreement and 13 amendments expanding the scope of existing
agreements to include 3G technologies. The current list of more than 40 companies licensed for all 3G CDMA ITU standard modes include
Advantest, Agilent, Alps, Anritsu, Ericsson, Fujitsu, Glenayre Electronics, Handspring, Hitachi, Hyundai, IFR Systems, Kyocera, LG
Electronics, Lucent, Matsushita Communication Industrial Co., Ltd., Maxon, Mitsubishi, Motorola, NEC, Nortel, OKI, Philips, Samsung,
Sanyo, Sewon, Sharp, Sony, Standard Telecom, Synertek, Tektronix, Inc., Telson Electronics, Toshiba, Wide Telecom and Willtech, among
others. In all cases, the royalty rate to be paid by a licensee for 3G CDMA products is no less than the rate that company will pay for
second-generation cdmaOne(TM)products.
Announced a new program to expand the CDMA market and enable new licensees by investing in or accepting equity from start-up companies
as partial payment of license fees. To date, QUALCOMM has taken equity in the following licensees: Axesstel, Com Dev and others not yet
announced.
QUALCOMM CDMA Technologies (QCT)
Shipped approximately 15 million Mobile Station Modem (MSM) integrated circuits to customers worldwide during the first quarter of fiscal
2001, compared to approximately 11 million units in the fourth quarter of fiscal 2000 and approximately 15 million units shipped in the year ago
period. Cumulative shipments of MSM integrated circuits exceeded 133 million and total cumulative integrated circuit shipments exceeded 395
million units.
Announced radioOne(TM), a new technology for CDMA transceivers using Zero Intermediate Frequency (ZIF), or direct conversion,
architecture for the wireless handset market.
Announced the CSM5500(TM) integrated circuit and system software for wireless infrastructure and the MSM5500(TM) integrated circuit and
system software for CDMA phones. This complete solution supports data rates of up to 2.4 Mbps for the cdma2000 1x and cdma2000 1xEV
standards and offers backward compatibility with cdmaOne systems.
Announced the world's first end-to-end solution for WCDMA with the CSM5200(TM) integrated circuit and system software for wireless
infrastructure and the MSM5200(TM) integrated circuit and system software for CDMA phones. The MSM5200 solution incorporates
wireless Internet and multi-media applications, including the integrated features of the Wireless Internet Launchpad(TM) suite.
Shipped samples of the RFR3300(TM), the first front-end receiver to integrate GPS capability with CDMA position location-enabled phones
and the PA3300(TM) series, QCT's second generation of power amplifier modules -- both part of a complete MSM3300(TM) family solution.
Performed the first demonstration of over-the-air technology that enables wireless handsets to meet the FCC E9-1-1 mandate, while supporting
a wide range of wireless location-based consumer information services.
Cooperated with Toshiba and Ericsson Microelectronics in the world's first over-the-air demonstration of a Bluetooth-equipped laptop
communicating via Bluetooth with a CDMA cellular phone operating over a dial-up network. Web surfing was accomplished without the need
for cables or wired connections of any type. -- Announced the commercial availability of SnapTrack's SnapCore(TM) multi-mode GPS
wireless location product.
QUALCOMM Wireless Systems (QWS)
Shipped approximately 10,000 OmniTRACS units and related products in the first quarter of fiscal 2001 for a cumulative total of over 370,000
units. This compares to approximately 14,000 units during the year ago quarter. The lower volume of OmniTRACS unit shipments in the first
quarter of fiscal 2001 resulted from higher fuel prices and general economic conditions affecting the domestic long-haul trucking industry.
Announced the commercial release of iTruckMAIL(TM) web-based service. iTruckMAIL enhances QUALCOMM's existing
TruckMAIL(TM) mobile communications system to allow access to mapping and messaging capabilities via the Internet. Features include
street-level mapping, free form messaging, vehicle position reporting and history, easier IT implementation, multiple user connectivity, multiple
platform access and laptop connectivity.
Signed an agreement with XATA Corporation, a supplier of on-board computer systems for transportation companies, that will provide key
applications for use on the new QUALCOMM MVPc(TM) in-vehicle computer, including those used for automated driver logs, monitoring of
state line crossings and accurate fuel tax calculation.
Announced the commercial release of its new MVPc(TM)in-vehicle computer and the signing of its first contracts with Alan Ritchey, Inc. and E.
Stewart Mitchell, Inc.
Other Business Developments
Signed a Memorandum of Understanding (MOU) with China's Ministry of Information Industry (MII), confirming MII's support of
QUALCOMM's Framework Agreement with China Unicom dated January 28, 2000. This MOU supports the deployment in China of a
nationwide network based on CDMA technology with continued migration to advanced CDMA technology supporting higher data rates.
Formed QUALCOMM Ventures, an organization that will make strategic investments in start-up companies globally to support the adoption of
CDMA and drive usage of the wireless Internet. QUALCOMM is making a $500 million commitment to this strategic initiative that will be
invested over a period of four years.
Announced the formation of a Korean partnership fund, QUALCOMM/Hansol iV CDMA Fund, with Hansol i Ventures Co., Ltd. to invest in
Korean start-up companies engaged in the development of CDMA products to support the adoption of CDMA and the usage of the wireless
Internet.
QUALCOMM Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and
services based on the Company's CDMA digital technology. The Company's business areas include integrated circuits and system software;
technology licensing; Eudora® email software for Windows® and Macintosh® computing platforms; satellite-based systems including portions of the
Globalstar(TM) system and wireless fleet management systems, OmniTRACS® and OmniExpress(TM). QUALCOMM owns patents that are
essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by standards-setting bodies
worldwide. QUALCOMM has licensed its essential CDMA patent portfolio to more than 95 telecommunications equipment manufacturers
worldwide. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 2000 FORTUNE 500® company traded
on The Nasdaq Stock Market® under the ticker symbol QCOM.
Except for 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
component shortages; risks associated with integrated circuit inventory and order levels; risks associated with the Company's ability to execute
additional 3G licenses; risks associated with the ability to sustain or improve operational efficiency and profitability; risks relating to the continued
operation of the Globalstar system; risks that the rate of growth in CDMA-based wireless data and Internet access or the CDMA subscriber
population will decrease; risks associated with strategic investments, including fluctuations in value, acquisitions or divestitures the Company may
pursue, including the pending distribution of QUALCOMM Spinco, Inc. shares to QUALCOMM shareholders; risks associated with the scale-up,
acceptance and operations of CDMA systems, including cdma2000 1xEV technology; risks associated with the development, deployment and
commercial acceptance of evolving CDMA technology standards; risks associated with developments in current or future litigation; risks associated
with customer receivables and performance guarantees; risks associated with timing and receipt of license fees and royalties; and risks associated with
international business activities, as well as the other risks detailed from time to time in the Company's SEC reports.
QUALCOMM, OmniTRACS and Eudora are registered trademarks of QUALCOMM Incorporated. MSM, CSM, iMSM and TruckMAIL are
trademarks of QUALCOMM Incorporated. Globalstar is a trademark of Loral QUALCOMM Satellite Services, Incorporated. All other trademarks
are the property of their respective manufacturers.
QUALCOMM Incorporated
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THIS SCHEDULE IS TO ASSIST THE READER IN RECONCILING FROM
THE REPORTED RESULTS TO THE PRO FORMA RESULTS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
------------------------------------------------------
Dec. 31, Dec. 31, Dec. 26, %
2000 2000 1999
Reported Adjustments Pro Forma Pro Forma Change
------------------------------------ ---------- ------
Revenues $ 684,021 $ -- $ 684,021 $ 763,695 (10%)
---------- -------- ---------- ----------
Operating
expenses:
Cost of
revenues 295,921 (49,178)(a)(b) 246,743 329,329 (25%)
Research
and
development 86,123 (2,377)(b) 83,746 64,508 30%
Selling,
general
and
administrative 79,964 (1,213)(b) 78,751 56,391 40%
Amortization
of goodwill
and other
acquisition-
related
intangible
assets 62,995 (62,995)(c) -- --
Asset
impairment
and related
charges 480,778 (480,778)(a) -- --
Other 69,188 (69,188)(d) -- --
---------- -------- ---------- ----------
Total operating
expenses 1,074,969 (665,729) 409,240 450,228 (9%)
---------- -------- ---------- ----------
Operating (loss)
income (390,948) 665,729 274,781 313,467 (12%)
Interest expense (8,568) 7,800(d) (768) (554) 39%
Investment
(expense)
income, net (231,529) 313,820(a)(e)(f) 82,291 36,287 127%
Distributions on
Trust Convertible
Preferred
Securities of
subsidiary
trust -- -- -- (11,045)(100%)
Other (56,566) 56,566(a) -- --
---------- -------- ---------- ----------
(Loss) income
before income
taxes and
accounting
change (687,611)1,043,915 356,304 338,155 5%
Income tax
benefit
(provision) 330,053 (454,759) (124,706) (128,499) (3%)
---------- -------- ---------- ----------
(Loss) income
before
accounting
change (357,558) 589,156 231,598 209,656 10%
Accounting
change, net of
tax 128,815 (128,815)(g) -- --
---------- -------- ---------- ----------
Net (loss)
income $ (228,743)$ 460,341 $ 231,598 $ 209,656 10%
========== ======== ========== ==========
Net (loss)
earnings per
common share:
Diluted $ (0.31) $ 0.29 $ 0.27 7%
========== ========== ==========
Shares used in
per share
calculations:
Diluted 749,482 56,567(h) 806,049 790,827
========== ========= ========== ==========
There are 8 major categories of adjustments made to arrive at the
pro forma results. Notes (a) through (h) below explain the adjustments
made. Please note that (a), (b) and (d) are reflected in more than one
line on the pro forma condensed consolidated statements of income.
(a) Asset impairment and other charges related to the Globalstar
business. The adjustments column includes $48 million in cost of
revenues, $481 million in other operating expenses, $10 million
in investment expense and $57 million in other non-operating
expenses.
(b) To exclude the employer payroll taxes payable for employee income
from non-qualified stock option exercises. The adjustments column
includes $2 million in cost of revenues, $2 million in R&D
expenses and $1 million in SG&A expenses.
(c) To exclude the amortization of goodwill and other
acquisition-related intangible assets associated with the
purchase of SnapTrack and other acquisitions.
(d) Charges related to an arbitration decision against the Company.
The adjustments column includes $69 million in other operating
expense and $8 million in interest expense.
(e) Q1 impact of the adoption of FAS 133, excludes $160 million in
unrealized losses on derivative instruments. The Company adopted
FAS 133, "Accounting for Derivative Instruments and Hedging
Activities," as of the beginning of fiscal 2001. FAS 133 requires
certain derivative instruments to be recorded at fair value.
Unrealized gains and losses on these derivative instruments after
adoption of FAS 133 are recorded in the income statement.
(f) To exclude a $144 million unrealized loss related to "other than
temporary impairment" of certain marketable securities.
(g) Cumulative effect of the adoption of FAS 133, excludes $129
million in unrealized gains, net of tax, related to this
accounting change.
(h) The diluted share base used for the reported results excludes the
effect of 57 million potential common share equivalents related
to outstanding stock options, calculated using the treasury stock
method, as these shares are anti-dilutive. For pro forma results
these shares are dilutive and are, therefore, included in the pro
forma per share calculation.
QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS |
