QUALCOMM REPORTS SECOND FISCAL QUARTER EARNINGS;
PR Wire
April 20, 1999, 1:47 p.m. PT
news.com
$.82 Operating EPS, Excluding Non-Recurring Charges
SAN DIEGO, April 20 /PRNewswire/ -- QUALCOMM Incorporated (Nasdaq: QCOM)
today reported revenues of $932 million and a net loss of $43 million, or
$.59 per share (diluted), for the second quarter of fiscal 1999 (see Financial
Data comparisons). Excluding non-recurring charges of $166 million associated
primarily with the sale of the Company's terrestrial Code Division Multiple
Access (CDMA) wireless infrastructure business and the restructuring of its
workforce, the Company reported record net income in the second quarter of
$65 million, or $.82 earnings per share (diluted). This represents an
increase in net income excluding non-recurring items of 250 percent over
second quarter of fiscal 1998. Revenues in the second quarter of fiscal
1999 increased 23 percent over the second quarter of fiscal 1998. The growth
was primarily due to improved communications systems revenues consisting of
strong sales of CDMA phones, Application Specific Integrated Circuits (ASICs)
and OmniTRACS, as well as increased royalties.
"The events of this quarter proved to be pivotal in our Company's 14-year
history. We entered into a series of agreements with Ericsson which will
result in a global resolution of our mutual patent disputes and the sale of
our infrastructure business," said Dr. Irwin M. Jacobs, chairman and CEO of
QUALCOMM Incorporated. "We saw robust demand for CDMA phones and chip sets
and we announced innovative new products, including the Thin Phone(TM) and our
sixth generation MSM(TM) phone chip. Our royalty revenues grew significantly
as a result of increased CDMA product shipments by our licensees, which we
believe is a clear indicator of the growth of CDMA technology around the
globe. Our focus is to continue to support the growth of CDMA, to strengthen
and grow our core businesses and to improve operational efficiency and
profitability."
Pro Forma Financial Information
Pro forma financial information is provided for the purpose of evaluating
what the Company's operating results would have been excluding both
non-recurring charges and operating results of the terrestrial CDMA wireless
infrastructure business being sold to Ericsson. For the second quarter of
fiscal 1999, pro forma revenues were $908 million, pro forma gross profit was
36 percent, pro forma net income was $98 million, and pro forma earnings per
share were $1.20 (diluted). The financial results of the third quarter of
fiscal 1999 will include operations of the infrastructure business until the
closing date of the Ericsson transaction, which is expected on or after
May 24, 1999 following receipt of the necessary regulatory approvals and other
customary closing conditions. The Company also plans to report pro forma
information for the third quarter of fiscal 1999.
On March 25, 1999, QUALCOMM announced a series of definitive agreements
with Ericsson. These agreements included (a) the purchase by Ericsson of
certain assets and the assumption of certain liabilities related to the
Company's terrestrial CDMA wireless infrastructure business, (b) joint support
of a single world CDMA standard with three optional modes for the next
generation of wireless communications, (c) the signing of cross-licensing
agreements, and (d) the settlement of legal disputes between QUALCOMM and
Ericsson.
Non-recurring pre-tax charges of $166 million were reported primarily in
connection with the sale of the terrestrial CDMA wireless infrastructure
business, write-down of certain infrastructure business related assets not
being acquired by Ericsson, restructuring of the workforce and loss on
cancellation of a portion of Leap Wireless warrants. In the third quarter of
fiscal 1999, the Company expects additional non-recurring expenses of
approximately $100 million relating to the sale of the infrastructure
business. This includes compensation expenses related to employees being
transferred to Ericsson.
Highlights of Financial Performance
Communications Systems
Communications systems revenues increased 24 percent to $774 million in
the second quarter of fiscal 1999 from $626 million in the year ago quarter,
with strong sales of CDMA phones, ASICs and OmniTRACS units. Communications
systems gross margin for the second quarter of fiscal 1999 excluding
non-recurring charges was 28 percent compared to 22 percent in the second
quarter of fiscal 1998, reflecting improved margins in all product areas with
the exception of infrastructure products. Total product shipments for the
second fiscal quarter of 1999 were over 1.7 million CDMA phones (over 10
million cumulatively), nine million MSM phone chips (over 40 million
cumulatively), and approximately 11,000 OmniTRACS units (280,000
cumulatively). In addition to substantial growth in the shipment of MSM phone
chips, the book-to-bill ratio for the ASICs business was 1:7 for the second
quarter of fiscal 1999. The book-to-bill ratio means the Company has $1.70 in
ASICs orders for every $1.00 of product shipped.
License and Royalty Fees
License, royalty and development fees for the second quarter of fiscal
1999 were $77 million, comprised substantially of royalties, compared to
$70 million for the year ago quarter. However, the $70 million of license,
royalty and development fees for the year ago quarter included a significant
amount of one-time license fees, as well as an upward adjustment of
$18 million due to the Company's adoption in that quarter of accrual-based
royalty revenue recognition. The $77 million in license, royalty and
development fees for the second quarter of fiscal 1999 also represents a
73 percent increase over the $44 million in license, royalty and development
fees for the first quarter of fiscal 1999.
Contract Services
Contract services revenues were $81 million in the second quarter of
fiscal 1999 compared to $65 million for the year ago quarter. The increase in
revenues was attributable to activity on the development agreement with
Globalstar.
Operating Income/Expenses
Operating income excluding non-recurring charges more than doubled,
increasing 125 percent to $115 million in the second quarter of fiscal
1999 compared to $51 million during the year ago quarter. The increase was
attributable to higher revenues and improved gross margins in all product
areas with the exception of infrastructure products. Operating income as a
percent of revenues nearly doubled, increasing to 12 percent for the second
quarter of fiscal 1999 from 7 percent in the year ago period.
Operating expenses (research and development, selling and marketing and
general and administrative) excluding non-recurring charges for the second
quarter of fiscal 1999 increased to $203 million compared to $175 million
during the year ago period, but held constant at 22 percent of total revenues.
Taxes
The Company's effective tax rate for fiscal 1999 is currently estimated to
be 35 percent compared to an effective tax rate of 29 percent in fiscal 1998.
Stock Split
On April 14, 1999, QUALCOMM's Board of Directors declared a two-for-one
stock split of the Company's Common Stock. The non-taxable stock dividend
will be distributed on May 10, 1999 to stockholders of record on
April 21, 1999.
QUALCOMM Incorporated (Nasdaq: QCOM) 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 major business
areas include CDMA phones; Application Specific Integrated Circuits (ASICs);
technology licensing; and satellite-based systems including OmniTRACS(R) and
portions of the Globalstar(TM) system. Headquartered in San Diego, Calif.,
QUALCOMM is a FORTUNE 500(R) company with fiscal 1998 revenues in excess of
U.S. $3 billion. For more information, please visit the Company's web site at
qualcomm.com.
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 the risk that
the closing conditions to agreements signed with Ericsson will not be
satisfied, the risk that the rate of growth in the CDMA subscriber population
will decrease, risks associated with the scale-up and operations of CDMA
systems, risks associated with the ability to improve operational efficiency
and profitability, risks associated with developments in current or future
litigation, risks associated with timing and receipt of license fees and
royalties, risks associated with vendor financing and risks associated with
changes in economic conditions of the various markets the Company serves, 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. All other trademarks are the property of their respective
manufacturers. MSM and Thin Phone are trademarks of QUALCOMM Incorporated.
Globalstar is a trademark of Loral QUALCOMM Satellite Services, Incorporated.
Financial Data -- Second Quarter Fiscal 1999
1999 Non-Recurring 1999
Dollars in thousands except 2nd Qtr Charges 2nd Qtr
per share data As Reported As Adjusted
Revenue $932,395 -- $932,395
Gross Profit $308,620 $10,123 $318,743
Gross Profit % 33% -- 34%
R&D $102,713 $3,063 $99,650
Selling & Marketing $53,628 $459 $53,169
G&A $51,266 $665 $50,601
Other Operating Expenses $95,824 $95,824 $0
Total Operating Expenses $927,206 $100,011 $827,195
Operating Income $5,189 $110,134 $115,323
Operating Income % 1% -- 12%
Other Non-Operating Expense $70,757 $55,804 $14,953
Income (Loss) Before Taxes ($65,568) ($165,938) $100,370
Net Income (Loss) ($42,620) ($107,860) $65,240
EPS (Diluted) ($0.59) ($1.49) $0.82
Financial Data - Second Quarter Fiscal 1999 vs. Second Quarter Fiscal
1998 Excluding Non-Recurring Charges/Gains
1999 1998 Change 1999 1998 Change
Dollars in 2nd Qtr 2nd Qtr % 1st Half 1st Half %
thousands
except Per
share data
Revenue $932,395 $760,553 23% $1,873,618 $1,546,407 21%
Gross Profit $318,743 $226,221 41% $617,576 $458,460 35%
Gross Profit % 34% 30% -- 33% 30% --
Operating
Income $115,323 $51,301 125% $193,271 $116,172 66%
Operating
Income % 12% 7% -- 10% 8% --
Income Before
Taxes $100,370 $26,222 283% $166,291 $91,805 81%
Net Income $65,240 $18,618 250% $110,089 $69,181 59%
EPS (Diluted) $0.82 $0.25 228% $1.44 $0.94 60%
QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
ASSETS
March 28, September 27,
1999 1998
Current assets:
Cash and cash equivalents $121,253 $175,846
Investments 83,395 127,478
Accounts receivable, net 814,213 612,209
Finance receivables 59,457 56,201
Inventories 254,477 386,536
Other current assets 215,514 178,950
Total current assets 1,548,309 1,537,220
Property, plant and equipment, net 557,899 609,682
Finance receivables, net 352,525 287,751
Other assets 162,663 132,060
Total assets $2,621,396 $2,566,713
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $662,781 $660,428
Unearned revenue 62,858 67,123
Bank lines of credit 64,000 151,000
Current portion of long-term debt 3,062 3,058
Total current liabilities 792,701 881,609
Long-term debt 2,360 3,863
Other liabilities 44,411 25,115
Total liabilities 839,472 910,587
Minority interest in consolidated
subsidiaries 45,073 38,530
Company-obligated mandatorily redeemable
trust convertible preferred securities
of a subsidiary trust holding solely
debt securities of the Company 660,000 660,000
Stockholders' equity:
Preferred stock, $0.0001 par value -- --
Common stock, $0.0001 par value 7 7
Paid-in capital 1,102,313 959,267
Retained earnings 5,910 --
Accumulated other comprehensive loss (31,379) (1,678)
Total stockholders' equity 1,076,851 957,596
Total liabilities and
stockholders' equity $2,621,396 $2,566,713
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
March 28 March 29 March 28 March 29
1999 1998 1999 1998
Revenues:
Communications
systems $774,308 $625,572 $1,591,362 $1,302,457
Contract services 81,452 64,927 161,266 128,958
License, royalty
and development
fees 76,635 70,054 120,990 114,992
Total revenues 932,395 760,553 1,873,618 1,546,407
Operating expenses:
Communications
systems 568,441 485,279 1,153,365 992,618
Contract services 55,334 49,053 112,800 95,329
Research and
development 102,713 76,946 203,075 151,747
Selling and
marketing 53,628 59,728 123,364 115,826
General and
administrative 51,266 38,246 102,053 74,715
Other 95,824 -- 95,824 11,976
Total operating
expenses 927,206 709,252 1,790,481 1,442,211
Operating income 5,189 51,301 83,137 104,196
Interest income 8,229 9,573 14,035 21,763
Interest expense (5,459) (1,685) (8,774) (4,374)
Net gain on sale of
investments -- -- 5,663 2,950
Net loss on
cancellation of
warrants (3,273) -- (3,273) --
Other (52,531) -- (52,531)
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