QUALCOMM Announces Fourth Quarter and Fiscal 2006 Results
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Thursday November 2, 4:00 pm ET
Fiscal 2006 Revenues $7.53 Billion, EPS $1.44
Pro Forma Fiscal 2006 Revenues $7.53 Billion, EPS $1.64
Record Fiscal Year Revenues, Net Income and Operating Cash Flows
SAN DIEGO, Nov. 2 /PRNewswire-FirstCall/ -- QUALCOMM Incorporated (Nasdaq: QCOM - News) today announced results for the fourth fiscal quarter and fiscal 2006 year ended September 24, 2006.
Total QUALCOMM (GAAP) Results:
Total QUALCOMM results are reported in accordance with Generally Accepted Accounting Principles (GAAP).
Fourth Quarter
* Revenues: $2.00 billion, up 28 percent year-over-year and 2 percent
sequentially.
* Net income: $614 million, up 14 percent year-over-year and down
5 percent sequentially.
* Diluted earnings per share: $0.36, up 13 percent year-over-year and
down 3 percent sequentially.
* Effective tax rate: 24 percent.
* Estimated share-based compensation: $76 million, net of tax.
* Operating cash flow: $952 million, up 1 percent year-over-year;
48 percent of revenue.
* Return of capital to stockholders: $528 million, including
$198 million, or $0.12 per share, of cash dividends and $330 million,
net of related premiums received, to repurchase 7.6 million shares of
our common stock.
Fiscal 2006
* Revenues: $7.53 billion, up 33 percent year-over-year.
* Net income: $2.47 billion, up 15 percent year-over-year.
* Diluted earnings per share: $1.44, up 14 percent year-over-year.
* Effective tax rate: 22 percent.
* Estimated share-based compensation: $320 million, net of tax.
* Operating cash flow: $3.25 billion, up 21 percent year-over-year;
43 percent of revenue.
* Return of capital to stockholders: $2.19 billion, including
$698 million, or $0.42 per share, of cash dividends and $1.49 billion,
net of related premiums received, to repurchase 34.0 million shares of
our common stock.
QUALCOMM Pro Forma Results:
Pro forma results exclude the QUALCOMM Strategic Initiatives (QSI) segment, estimated share-based compensation, certain tax adjustments related to prior years and acquired in-process research and development (R&D) expense.
Fourth Quarter
* Revenues: $2.00 billion, up 28 percent year-over-year and 2 percent
sequentially.
* Net income: $705 million, up 30 percent year-over-year and down
3 percent sequentially.
* Diluted earnings per share: $0.42, up 31 percent year-over-year and
even sequentially; excludes $0.05 loss per share attributable to
estimated share-based compensation and $0.01 loss per share
attributable to certain tax adjustments related to prior years.
* Effective tax rate: 27 percent.
* Free cash flow: $907 million, up 8 percent year-over-year; 45 percent
of revenue. (Defined as net cash from operating activities less
capital expenditures).
Fiscal 2006
* Revenues: $7.53 billion, up 33 percent year-over-year.
* Net income: $2.80 billion, up 42 percent year-over-year.
* Diluted earnings per share: $1.64, up 41 percent year-over-year;
excludes $0.02 loss per share related to the QSI segment, $0.19 loss
per share attributable to estimated share-based compensation, $0.02 net
earnings per share attributable to certain tax adjustments related to
prior years and $0.01 loss per share related to acquired in-process R&D
expense.
* Effective tax rate: 26 percent.
* Free cash flow: $3.18 billion, up 42 percent year-over-year;
42 percent of revenue.
Detailed reconciliations between total QUALCOMM (GAAP) results and QUALCOMM pro forma results, and cash flows are included at the end of this news release. Prior period reconciliations are presented on our Investor Relations web page at www.qualcomm.com.
"Our record performance in fiscal 2006 was a direct result of the focus and innovation delivered by the employees of QUALCOMM and the success of our partners," said Dr. Paul E. Jacobs, chief executive officer of QUALCOMM. "We achieved record revenues, net income and operating cash flow. We shipped a record 207 million MSM(TM) chips in fiscal 2006 -- up from 151 million in fiscal 2005. As of September 2006, there were approximately 402 million subscribers using third generation (3G) CDMA-based networks worldwide as compared to approximately 273 million at the same point in 2005."
"3G networks with mobile broadband capability are now widely deployed across the globe, enhancing opportunities to gain new 3G subscribers and for the migration of existing second generation subscribers to 3G. Looking forward to fiscal 2007, our key priorities will be working with our existing chipset customers to improve their market share, winning new customers for our chipset and software solutions, and continuing to expand the base of 3G wireless networks."
"The competition resulting from our business model has led to continual decreases in selling prices of handsets and significant technology advancements which enable further cost reduction and new revenue streams for our partners. Our Company has built the most valuable and widely licensed portfolio of intellectual property in the wireless industry, which we have consistently made available to all on fair and non-discriminatory terms. We will take the necessary actions to ensure that the technology advances embodied in our intellectual property portfolio are protected and that we are fairly compensated for their use. We will continue to fund an expensive but necessary battle to defend our business in the interest of our shareholders."
Cash and Marketable Securities
QUALCOMM's cash, cash equivalents and marketable securities totaled approximately $9.9 billion at the end of the fourth quarter of fiscal 2006, compared to $9.5 billion at the end of the prior quarter and $8.7 billion a year ago. On October 5, 2006, we announced a cash dividend of $0.12 per common share payable on January 4, 2007 to stockholders of record at the close of business on December 7, 2006.
Estimated Share-Based Compensation
In the first quarter of fiscal 2006, we adopted the revised Statement of Financial Accounting Standards No. 123, Share-Based Payment (FAS 123R), which requires that share-based compensation be recorded in our financial statements. We implemented FAS 123R using the modified prospective method. Under this method, prior periods are not revised for comparative purposes. Estimated share-based compensation is included in operating expenses, however, it is not allocated to business segments or included in pro forma results because we do not consider it relevant when evaluating the operating performance of our business. Total QUALCOMM (GAAP) net income for the fourth quarter of fiscal 2006 included estimated share-based compensation of $76 million, net of tax, or $0.05 per share.
Research and Development
Estimated In-Process Total
QUALCOMM Share-Based R&D QUALCOMM
($ in millions) Pro Forma Compensation Expense QSI (GAAP)
Fourth quarter
fiscal 2006 $338 $56 $1 $16 $411
As a % of revenue 17% 21%
Fourth quarter
fiscal 2005 $255 $-- $-- $16 $271
As a % of revenue 16% 17%
Year-over-year
change ($) 33% 52%
Pro forma R&D expenses increased 33 percent year-over-year, primarily due to additional engineering resources for the development of integrated circuit products and other initiatives to support low-cost phones, multimedia applications, high-speed wireless Internet access and multi-mode, multi-band, multi-network products and technologies, including CDMA2000® 1X, 1xEV-DO, EV-DO Revision A, EV-DO Revision B, WCDMA (including GSM/GPRS/EDGE), HSDPA, HSUPA and OFDMA, and the development of our iMoD(TM) display products using MEMS technology.
Selling, General and Administrative
Estimated Total
QUALCOMM Share-Based QUALCOMM
($ in millions) Pro Forma Compensation QSI (GAAP)
Fourth quarter fiscal 2006 $237 $62 $22 $321
As a % of revenue 12% 16%
Fourth quarter fiscal 2005 $168 $-- $10 $178
As a % of revenue 11% 11%
Year-over-year change ($) 41% 120% 80%
Pro forma selling, general and administrative (SG&A) expenses increased 41 percent year-over-year, largely attributable to increases in employee related expenses to support our growing worldwide customer base and professional fees related to legal activities. The year-over-year increase in QSI SG&A expenses is primarily related to MediaFLO(TM) USA.
Effective Income Tax Rate
Our fiscal 2006 effective income tax rates are 22 percent for total QUALCOMM (GAAP) and 26 percent for QUALCOMM pro forma, which are unchanged from our previous estimates.
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 2006 included break-even results for the QSI segment consistent with the fourth quarter of fiscal 2005. The fourth quarter of fiscal 2006 QSI results included $38 million in operating expenses, primarily related to MediaFLO USA, partially offset by $12 million in realized gains on investments. Results for the QSI segment in the fourth quarter of fiscal 2006 reflect tax benefits as a result of QSI's loss before taxes and realized gains on investments that increased our forecasted utilization of capital loss carryforwards.
Business Outlook
The following statements are forward-looking and actual results may differ materially. Please see "Note Regarding Forward-Looking Statements" at the end of this news release for a description of certain risk factors and QUALCOMM's annual and quarterly reports on file with the Securities and Exchange Commission (SEC) for a more complete description of risks. Due to their nature, certain income and expense items, such as realized investment gains or losses in QSI, gains and losses on certain derivative instruments or asset impairments, cannot be accurately forecast. Accordingly, the Company excludes forecasts of such items from its business outlook, and actual results may vary materially from the business outlook if the Company incurs any such income or expense items. Estimated share-based compensation in future periods may vary materially from the business outlook as the methodology used to calculate this estimate is dependent on a variety of assumptions which are subject to market fluctuations and other factors.
The following table summarizes total QUALCOMM (GAAP) and QUALCOMM pro forma guidance for the first fiscal quarter and fiscal year 2007 based on the current business outlook. The pro forma business outlook provided below is presented consistent with the presentation of pro forma results provided elsewhere herein. The table includes a footnote to size the risk, approximately $0.04 to $0.06 diluted earnings per share, of Nokia not paying royalties in the fourth quarter of fiscal 2007 for June quarter shipments. Nokia has publicly stated that they intend to continue to use our patents but not pay royalties after the expiration of their rights under those patents on April 9, 2007 should a new license agreement (or extension of the existing agreement) not be reached by that time. As a result, under generally accepted accounting principles, we will be unable to record royalty revenue attributable to Nokia's sales until a court awards damages or agreement is reached. If we cannot conclude an extension or a new license agreement beyond April 9, 2007, Nokia's rights to sell subscriber products under most of our patents will expire, as will our rights to sell integrated circuits under Nokia's patents. We intend to pursue and obtain injunctions against Nokia's sales as well as damages (which will include interest from the date of infringement) for Nokia's unlicensed sales after April 9, 2007. We will continue to work with Nokia to see if we can reach agreement by April 9, 2007 on terms which we find acceptable but little progress has been made to date. If we are unable to reach agreement, we will aggressively pursue all our legal and business options and assume that Nokia will do likewise. |
