Qualcomm Announces Second Quarter Fiscal 2010 Results

Revenues $2.7 Billion, EPS $0.46

Pro Forma EPS $0.59

Raises Fiscal 2010 Earnings Guidance

News provided by

Qualcomm Incorporated

Apr 21, 2010, 04:00 ET

SAN DIEGO, April 21 /PRNewswire-FirstCall/ -- Qualcomm Incorporated (Nasdaq: QCOM), a leading developer and innovator of advanced wireless technologies, products and services, today announced results for the second quarter of fiscal 2010 ended March 28, 2010.

"We delivered strong financial results this quarter, driven by healthy 3G device shipments and greater than expected demand for our chipsets.  3G subscribers have now surpassed 1 billion worldwide and with the 3G auction process underway in India, the 3G footprint continues to expand globally," said Dr. Paul E. Jacobs, chairman and CEO of Qualcomm.  "Calendar year 2010 3G device shipments are progressing in line with our expectations, and although we're continuing to operate in a competitive chipset pricing environment, we're positioned to continue to grow share through new partner engagements and our broad, industry-leading 3G chipset roadmap.  Our business is executing well and we are pleased to be raising our earnings guidance for the fiscal year."

Second Quarter Results (GAAP)  

  • Revenues:  $2.66 billion, compared to $2.46 billion in the prior year and $2.67 billion in the prior quarter.
  • Operating income:  $776 million, compared to an operating loss of $10 million in the prior year* and operating income of $879 million in the prior quarter.
  • Net income:  $774 million, compared to a net loss of $289 million in the prior year* and net income of $841 million in the prior quarter.
  • Diluted earnings per share:  $0.46, compared to a diluted loss per share of $0.18 in the prior year* and diluted earnings per share of $0.50 in the prior quarter.  
  • Effective tax rate:  20 percent for the quarter.
  • Operating cash flow:  $793 million, down 37 percent year-over-year; 30 percent of revenues.
  • Return of capital to stockholders:  $1.99 billion, including $279 million, or $0.17 per share, of cash dividends paid, and $1.71 billion to repurchase 43.9 million shares of our common stock.

* The second quarter of fiscal 2009 results reflected a $748 million litigation settlement charge related to a settlement and patent agreement with Broadcom Corporation.

Pro Forma Second 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:  $2.66 billion, compared to $2.45 billion in the prior year and $2.67 billion in the prior quarter.
  • Operating income:  $1.07 billion, compared to $214 million in the prior year* and $1.13 billion in the prior quarter.
  • Net income:  $989 million, compared to a net loss of $46 million in the prior year* and net income of $1.04 billion in the prior quarter.
  • Diluted earnings per share:  $0.59, compared to a diluted loss per share of $0.03 in the prior year* and diluted earnings per share of $0.62 in the prior quarter.  The current quarter excludes $0.05 loss per share attributable to the QSI segment, $0.06 loss per share attributable to certain share-based compensation and $0.02 loss per share attributable to certain tax items.
  • Effective tax rate:  21 percent for the quarter.  
  • Free cash flow:  $823 million, down 29 percent year-over-year; 31 percent of revenues (defined as net cash from operating activities less capital expenditures).

* The second quarter of fiscal 2009 results reflected a $748 million litigation settlement charge related to a settlement and patent agreement with Broadcom Corporation.

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.  Prior period reconciliations are presented on Qualcomm's Investor Relations web page at www.qualcomm.com.

Cash and Marketable Securities  

Our cash, cash equivalents and marketable securities totaled approximately $18.2 billion at the end of the second quarter of fiscal 2010, compared to $18.9 billion at the end of the first quarter of fiscal 2010 and $14.0 billion a year ago.  On April 8, 2010, we announced a cash dividend of $0.19 per share payable on June 25, 2010 to stockholders of record as of May 28, 2010.

Research and Development

($ in millions)

Pro Forma

Share-Based Compensation

In-Process R&D

QSI

GAAP










Second quarter fiscal 2010

$  547

$  75

$  3

$  23

$  648

As a % of revenues

21%




N/M


24%

Second quarter fiscal 2009

$  506

$  68

$  6

$  24

$  604

As a % of revenues

21%




N/M


25%

Year-over-year change ($)

8%

10%

N/M


(4%)

7%

N/M - Not Meaningful


















Pro forma R&D expenses increased 8 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, the expansion of our intellectual property portfolio and other initiatives to support the acceleration of advanced wireless products and services. QSI R&D expenses were primarily related to our FLO TV™ subsidiary.

Selling, General and Administrative

($ in millions)

Pro Forma

Share-Based Compensation

QSI

GAAP








Second quarter fiscal 2010

$  305

$  69

$  56

$  430

As a % of revenues

11%


N/M


16%

Second quarter fiscal 2009

$  289

$  62

$  24

$  375

As a % of revenues

12%


N/M


15%

Year-over-year change ($)

6%

11%

133%

15%








Pro forma selling, general and administrative (SG&A) expenses increased 6 percent year-over-year, primarily due to an increase in patent-related costs.  QSI SG&A expenses increased 133 percent year-over-year, primarily due to an increase in selling and marketing expenses related to FLO TV.

Effective Income Tax Rate

Our fiscal 2010 effective income tax rates are estimated to be approximately 21 percent for GAAP and approximately 21 to 22 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. This tax expense 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.  GAAP results for the second quarter of fiscal 2010 included a $0.05 diluted loss per share for the QSI segment.  The second quarter of fiscal 2010 QSI results included $134 million in operating expenses, primarily related to FLO TV.

Business Outlook and Description of Changes to QTL Metrics

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.  

As a result of our analysis of information recently received from licensee audits and public disclosures concerning licensee market share, unit shipments and average selling prices (ASPs) as well as our evaluation of the evolving CDMA-based device industry (particularly the growth of the modem card/module device segment), we have adjusted some of the underlying assumptions used to estimate licensee unit shipments and ASPs, which we believe will improve our estimates.  Also, beginning with this earnings release, we will provide investors with the total subscriber device sales reported to us by subscriber licensees during the relevant period, without adjustment for the differences in how licensees report sales information (e.g., some licensees report selling prices net of permitted deductions, such as transportation, insurance and packing costs, while other licensees do not).  We believe the changes referenced above will continue to help investors understand important trends in our licensing business.  We plan to discuss these changes in greater detail on our earnings call beginning at 1:45pm Pacific Time today.

For comparative purposes only, we are providing a table herein entitled "Changes to QTL Metrics" to show for fiscal 2009 and for the first quarter of fiscal 2010: 1) total reported subscriber device sales; 2) our prior ASP estimates and subscriber device shipment estimates; and 3) ASP estimates and subscriber device shipment estimates applying our adjusted estimation assumptions.  

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.  While we do not forecast impairments, we have temporary unrealized losses on marketable securities that could be recognized as other-than-temporary losses in future periods if financial conditions affecting those securities do not improve.  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

THIRD FISCAL QUARTER


Current Guidance


Q3 FY10 Estimates

Pro Forma

Revenues

$2.50B - $2.70B

 Year-over-year change

decrease 2% - 9%

Diluted earnings per share (EPS)

$0.51 - $0.55

 Year-over-year change

decrease 6% - increase 2%




GAAP

Revenues

$2.50B - $2.70B

 Year-over-year change

decrease 2% - 9%

Diluted EPS

$0.40 - $0.44

 Year-over-year change

decrease 9% - even

Diluted EPS attributable to QSI

($0.02)

Diluted EPS attributable to share-based compensation

($0.07)

Diluted EPS attributable to certain tax items (1)

($0.02)




Metrics

MSM shipments

approx. 97M - 102M

 Year-over-year change

increase 3% - 9%

Total reported device sales (2)

$24.0B - $26.0B*

 Year-over-year change

increase 13% - 23%

*Est. sales in March quarter, reported in June quarter






FISCAL YEAR 





Current Guidance


FY 2010 Estimates

Pro Forma

Revenues

$10.40B - $11.00B

 Year-over-year change

even - increase 6%

Diluted EPS

$2.21 - $2.32

 Year-over-year change

increase 69% - 77%




GAAP

Revenues

$10.40B - $11.00B

 Year-over-year change

even - increase 6%

Diluted EPS

$1.71 - $1.82

 Year-over-year change

increase 80% - 92%

Diluted EPS attributable to QSI

($0.15)

Diluted EPS attributable to share-based compensation

($0.27)

Diluted EPS attributable to certain tax items (1)

($0.08)




Metrics

Est. fiscal year* CDMA-based device average selling price range (2)

approx. $182 - $188

*Shipments in Sept. to June quarters, reported in Dec. to Sept. quarters

CALENDAR YEAR Device Estimates (2)


Current Guidance
Calendar 2010
Estimates

Est. CDMA-based device shipments

March quarter

not provided

June quarter

not provided

September quarter

not provided

December quarter

not provided

Est. Calendar year range (approx.)

600M - 650M


Midpoint

Est. total CDMA-based units

approx. 625M

Est. CDMA units

approx. 236M

Est. WCDMA units

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.  As with our prior estimates of CDMA-based device ASPs and unit shipments, 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.



Changes to QTL Metrics












Fiscal 2009

 Fiscal 2010

Q1

Q2

Q3

Q4

FY09

Q1








Total reported device sales (in billions)(1)

$26.6

$25.8

$21.2

$24.9

$98.5

$24.5
















Est. CDMA-based device ASP, previously reported(2)

$212

$201

$191

$196

$200

$184

Adjustment

2

5

5

7

5

8

Midpoint(3) of est. CDMA-based device ASP range(2) (applying adjusted assumptions)

$214

$206

$196

$203

$205

$192

Est. CDMA-based device ASP range (applying adjusted assumptions)(2)

$211-$217

$203-$209

$193-$199

$200-$206

$202-$208

$189-$195
















Est. CDMA-based device shipments, previously reported (2)

125

128

111

127

492

133

Adjustment

(1)

(3)

(3)

(5)

(12)

(5)

Midpoint(3) of est. CDMA-based device shipments range(2) (applying adjusted assumptions)

124

125

108

122

480

128

Est. CDMA-based device shipments range (applying adjusted assumptions)(2)

122-126

123-127

106-110

120-124

472-488

126-130

(1)  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.  Not all licensees report sales 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.  

(2)  As with our prior estimates of CDMA-based device ASPs and unit shipments, 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 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.

(3)  The midpoints of the estimated ASP and device shipment ranges for the relevant periods are identified for comparison purposes only and do not indicate a higher degree of confidence in the midpoints.

Note : Fiscal year device shipments by licensees occur in the September to June quarters and are reported to Qualcomm in the December to September fiscal quarters, one quarter in arrears.

Sums may not equal total due to rounding.

Results of Business Segments (in millions, except per share data):






SEGMENTS

QCT

QTL

QWI

Pro Forma Reconciling Items (1)(5)

Pro

Forma (5)

Q2 - FISCAL 2010

Revenues

$1,537

$974

$152

($2)

$2,661

 Change from prior year

17%

2%

(14%)

N/M

9%

 Change from prior quarter

(4%)

6%

7%

N/M

0%

Operating income (loss)



$1,065

 Change from prior year



398%

 Change from prior quarter





(6%)

EBT

$344

$821

($1)

$94

$1,258

 Change from prior year

59%

(2%)

N/M

N/M

N/M

 Change from prior quarter

(19%)

6%

N/M

N/M

(4%)

EBT as a % of revenues

22%

84%

(1%)

N/M

47%

Net income (loss)





$989

 Change from prior year



N/M

 Change from prior quarter





(5%)

Diluted EPS



$0.59

 Change from prior year



N/M

 Change from prior quarter





(5%)

Diluted shares used



1,678


















SEGMENTS

Share-

Based

Compen-

sation(2)

Tax

Items (3)

In-Process R&D

QSI (4)

GAAP (5)

Revenues




$2

$2,663

 Change from prior year


(75%)

8%

 Change from prior quarter




0%

0%

Operating income (loss)

($154)

($3)

($132)

$776

 Change from prior year

(10%)

N/M

(69%)

N/M

 Change from prior quarter

(2%)

N/A

(27%)

(12%)

EBT

($154)

($3)

($136)

$965

 Change from prior year

(10%)

N/M

(33%)

N/M

 Change from prior quarter

(2%)

N/A

(27%)

(8%)

EBT as a % of revenues

N/M

N/M

N/M

36%

Net income (loss)

($98)

($33)

($3)

($81)

$774

 Change from prior year

32%

N/M

N/M

(45%)

N/M

 Change from prior quarter

14%

N/M

N/A

(50%)

(8%)

Diluted EPS

($0.06)

($0.02)

($0.05)

$0.46

 Change from prior year

33%

N/M

N/M

(67%)

N/M

 Change from prior quarter

14%

N/M

N/A

(67%)

(8%)

Diluted shares used

1,678

1,678

1,678

1,678

1,678

SEGMENTS

QCT

QTL

QWI

Pro Forma Reconciling Items (1)(5)

Pro

Forma(5)

Q1 - FISCAL 2010




Revenues

$1,608

$917

$142

$1

$2,668

Operating income (loss)



1,134

EBT

425

772

9

104

1,310

Net income (loss)



1,041

Diluted EPS



$0.62

Diluted shares used



1,691


















SEGMENTS

Share-

Based
Compen-

sation(2)

Tax

Items (3)

In-

Process

R&D

QSI (4)

GAAP(5)

Revenues




$2

$2,670

Operating income (loss)

(151)

-

-

(104)

879

EBT

(151)

-

-

(107)

1,052

Net income (loss)

(114)

(32)

-

(54)

841

Diluted EPS

($0.07)

($0.02)

($0.03)

$0.50

Diluted shares used

1,691

1,691

1,691

1,691

1,691

SEGMENTS

QCT

QTL

QWI

Pro Forma Reconciling Items (1)(5)

Pro

Forma (5)

Q2 - FISCAL 2009




Revenues

$1,316

$954

$176

$1

$2,447

Operating income (loss)



214

EBT

217

839

25

(934)

147

Net loss



(46)

Diluted EPS



($0.03)

Diluted shares used



1,651


















SEGMENTS

Share-

Based

Compen-

sation(2)

Tax

Items(3)

In-

Process

R&D

QSI (4)

GAAP(5)

Revenues




$8

$2,455

Operating income (loss)

(140)

-

(6)

(78)

(10)

EBT

(140)

-

(6)

(102)

(101)

Net loss

(145)

(36)

(6)

(56)

(289)

Diluted EPS

($0.09)

($0.02)

($0.03)

($0.18)

Diluted shares used

1,651

1,651

1,651

1,651

1,651

SEGMENTS

QCT

QTL

QWI

Pro Forma Reconciling Items (1)(5)

Pro

Forma(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


















SEGMENTS

Share-

Based

Compen-

sation(2)

Tax

Items(3)

In-

Process

R&D

QSI (4)

GAAP(5)

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

SEGMENTS

QCT

QTL

QWI

Pro Forma Reconciling Items (1)(5)

Pro

Forma(5)

6 MONTHS - FISCAL 2010




Revenues

$3,144

$1,891

$294

$0

$5,329

 Change from prior year

19%

(4%)

(15%)

N/M

7%

Operating income (loss)



$2,198

 Change from prior year



83%

EBT

$769

$1,594

$8

$195

$2,566

 Change from prior year

100%

(7%)

(71%)

N/M

205%

Net income (loss)



$2,030

 Change from prior year



330%

Diluted EPS



$1.21

 Change from prior year



332%

Diluted shares used



1,685


















SEGMENTS

Share-

Based

Compen-

sation(2)

Tax

Items (3)

In-

Process

R&D

QSI (4)

GAAP(5)

Revenues




$4

$5,333

 Change from prior year


(69%)

7%

Operating income (loss)

($304)

($3)

($236)

$1,655

 Change from prior year

(7%)

(36%)

125%

EBT

($304)

($3)

($243)

$2,016

 Change from prior year

(7%)

N/M

(22%)

476%

Net income (loss)

($211)

($65)

($3)

($136)

$1,615

 Change from prior year

13%

N/M

N/M

(1%)

N/M

Diluted EPS

($0.13)

($0.04)

($0.08)

$0.96

 Change from prior year

13%

N/M

N/M

0%

N/M

Diluted shares used

1,685

1,685

1,685

1,685

1,685

SEGMENTS

QCT

QTL

QWI

Pro Forma Reconciling Items (1)(5)

Pro

Forma (5)

6 MONTHS - FISCAL 2009




Revenues

$2,650

$1,961

$346

$2

$4,959

Operating income (loss)



1,200

EBT

385

1,713

28

(1,285)

841

Net income (loss)



472

Diluted EPS



$0.28

Diluted shares used



1,665


















SEGMENTS

Share-

Based

Compen-

sation(2)

Tax

Items(3)

In-

Process

R&D

QSI (4)

GAAP (5)

Revenues




$13

$4,972

Operating income (loss)

(285)

-

(6)

(174)

735

EBT

(285)

-

(6)

(200)

350

Net income (loss)

(243)

(36)

(6)

(135)

52

Diluted EPS

($0.15)

($0.02)

($0.08)

$0.03

Diluted shares used

1,665

1,665

1,665

1,665

1,665

SEGMENTS

QCT

QTL

QWI

Pro Forma Reconciling Items (1)(5)

Pro

Forma (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


















SEGMENTS

Share-

Based

Compen-

sation(2)

Tax

Items(3)

In-

Process

R&D

QSI (4)

GAAP (5)

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 and second quarters of fiscal 2010, the Company recorded $32 million and $33 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.

(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 second quarter fiscal 2010 earnings conference call will be broadcast live on April 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 April 21, 2010, beginning at approximately 5:30 p.m. PT through May 21, 2010 at 9:00 p.m. PT.  To listen to the replay, U.S. callers may dial (800) 642-1687 and international callers may dial (706) 645-9291.  U.S. and international callers should use reservation number 5349272.  An audio replay of the conference call will be available on the Company's web site at www.qualcomm.com for two weeks following the live call.

Editor's Note:  To view the web slides that accompany this earnings release and conference call, please go to the Qualcomm Investor Relations website at: http://investor.qualcomm.com/results.cfm

Qualcomm Incorporated (Nasdaq: QCOM) is a leader in developing and delivering innovative digital wireless communications products and services based on CDMA and other advanced technologies.  Headquartered in San Diego, Calif., Qualcomm is included in the S&P 100 Index, the S&P 500 Index and is a 2010 FORTUNE 500® company.  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.  Moreover, it is generally not an expense that requires or will require cash payment by the Company.  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; the development, deployment and commercial acceptance of the FLO TV network and FLO™ technology; the development and commercial acceptance of the mirasol® display technology; foreign currency fluctuations; strategic investments and transactions we have or may pursue; 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 FLO 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: [email protected]

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 March 28, 2010

Pro Forma

Share-

Based

Compensation


Tax

Items

In-Process

R&D

QSI

GAAP

Revenues:  











 Equipment and services

$1,593

$-

$-

$-

$2

$1,595

 Licensing and royalty fees

1,068

-

-

-

-

1,068

     Total revenues

2,661

-

-

-

2

2,663

Operating expenses:











 Cost of equipment and services revenues

744

10

-

-

55

809

 Research and development

547

75

-

3

23

648

 Selling, general and administrative

305

69

-

-

56

430

     Total operating expenses

1,596

154

-

3

134

1,887













Operating income (loss)

1,065

(154)

-

(3)

(132)

776













Investment income (loss), net

193

(a)

-

-

-

(4)

(b)

189

  Income (loss) before income taxes

1,258

(154)

-

(3)

(136)

965

Income tax (expense) benefit

(269)

(c)

56

(33)

(e)

-

55

(d)

(191)

(c)

  Net income (loss)

$989

$(98)

$(33)

$(3)

$(81)

$774













Earnings (loss) per common share:











  Diluted

$0.59

$(0.06)

$(0.02)

$(0.00)

$(0.05)

$0.46













Shares used in per share calculations:











  Diluted

1,678

1,678

1,678

1,678

1,678

1,678







































Supplemental Financial Data:











Operating Cash Flow

$908

$(18)

(g)

$-

$-

$(97)

$793

Operating Cash Flow as a % of Revenues

34%






N/M

30%

Free Cash Flow (f)

$823

$(18)

(g)

$-

$-

$(120)

$685

Free Cash Flow as a % of Revenues

31%






N/M

26%













(a)  Included $129 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, $80 million in net realized gains on investments and $3 million in gains on derivatives, partially offset by $15 million in other-than-temporary losses on investments and $4 million in interest expense.

(b)  Included $3 million in interest expense and $1 million in other-than-temporary losses on investments.

(c)  The second quarter of fiscal 2010 effective tax rates were 20% for GAAP and 21% 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 second quarter of fiscal 2010, the Company recorded a $33 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.

(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 March 28, 2010, included herein.

(g)  Incremental tax benefits from stock options exercised during the period.

Qualcomm Incorporated

CONSOLIDATED STATEMENTS OF OPERATIONS

This schedule is to assist the reader in reconciling from

Pro Forma results to GAAP results


(In millions, except per share data)

(Unaudited)














Six Months Ended March 28, 2010

Pro Forma


Share-

Based

Compensation


Tax

Items

In-

Process

R&D

QSI

GAAP

Revenues:  











 Equipment and services

$3,253

$-

$-

$-

$4

$3,257

 Licensing and royalty fees

2,076

-

-

-

-

2,076

     Total revenues

5,329

-

-

-

4

5,333

Operating expenses:











 Cost of equipment and services revenues

1,502

21

-

-

101

1,624

 Research and development

1,049

147

-

3

45

1,244

 Selling, general and administrative

580

136

-

-

94

810

     Total operating expenses

3,131

304

-

3

240

3,678













Operating income (loss)

2,198

(304)

-

(3)

(236)

1,655













Investment income (loss), net

368

(a)

-

-

-

(7)

(b)

361

 Income (loss) before income taxes

2,566

(304)

-

(3)

(243)

2,016

Income tax (expense) benefit

(536)

(c)

93

(65)

(e)

-

107

(d)

(401)

(c)

Net income (loss)

$2,030

$ (211)

$ (65)

$ (3)

$(136)

$1,615













Earnings (loss) per common share:











  Diluted

$1.21

$(0.13)

$ (0.04)

$ (0.00)

$ (0.08)

$0.96













Shares used in per share calculations:











  Diluted

1,685

1,685

1,685

1,685

1,685

1,685







































Supplemental Financial Data:











Operating cash flow

$2,246

$ (31)

(g)

$-

$-

$ (183)

$2,032

Operating cash flow as a % of revenues

42%






N/M

38%

Free cash flow (f)

$2,094

$ (31)

(g)

$-

$-

$ (227)

$1,836

Free cash flow as a % of revenues

39%






N/M

34%













(a)  Included $274 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 $171 million in net realized gains on investments, partially offset by $66 million in other-than-temporary losses on investments, $10 million in interest expense and $1 million in losses on derivatives.

(b)  Included $7 million in other-than-temporary losses on investments, $6 million in interest expense and $5 million in equity in losses of investees, partially offset by $11 million in net realized gains on investments.

(c)  The first six months of fiscal 2010 effective tax rates were 20% for GAAP and 21% 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 first six months of fiscal 2010, the Company recorded a $65 million state tax expense, or $0.04 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.

(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 six months ended March 28, 2010, included herein.

(g)  Incremental tax benefits from stock options exercised during the period.

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 March 28, 2010













Pro Forma

Share-

Based

Compensation

Tax

Items

In-

Process

R&D

QSI

GAAP

Net cash provided (used) by operating activities

$908

$(18)

(a)

$-

$-

$ (97)

$793

Less:  capital expenditures

(85)

-

-

-

(23)

(108)

Free cash flow

$823

$ (18)

$-

$-

$ (120)

$685












Other supplemental cash disclosures:










  Cash transfers from QSI (1)

$1

$-

$-

$-

$ (1)

$-

  Cash transfers to QSI (2)

(130)

-

-

-

130

-

  Net cash transfers

$ (129)

$-

$-

$-

$129

$-













Six Months Ended March 28, 2010













Pro Forma

Share-

Based

Compensation

Tax

Items

In-

Process

R&D

QSI

GAAP

Net cash provided (used) by operating activities

$2,246

$ (31)

(a)

$-

$-

$ (183)

$2,032

Less:  capital expenditures

(152)

-

-

-

(44)

(196)

Free cash flow

$2,094

$ (31)

$-

$-

$ (227)

$1,836












Other supplemental cash disclosures:










  Cash transfers from QSI (1)

$13

$-

$-

$-

$ (13)

$-

  Cash transfers to QSI (2)

(243)

-

-

-

243

-

  Net cash transfers

$ (230)

$-

$-

$-

$230

$-












(1) Cash from sale of equity investments.

(2) Funding for strategic debt and equity investments, capital expenditures and other QSI operating expenses.


Three Months Ended March 29, 2009













Pro Forma

Share-

Based

Compensation

Tax

Items

In-

Process

R&D

QSI

GAAP

Net cash provided (used) by operating activities

$1,359

$ (16)

(a)

$-

$-

$ (80)

$1,263

Less:  capital expenditures

(206)

-

-

-

(28)

(234)

Free cash flow

$1,153

$ (16)

$-

$-

$ (108)

$1,029













Six Months Ended March 29, 2009

























Pro Forma

Share-Based

Compensation

Tax

Items

In-Process

R&D

QSI

GAAP

Net cash provided (used) by operating activities

$4,988

$(32)

(a)

$-

$-

$ (192)

$4,764

Less:  capital expenditures

(415)

-

-

-

(53)

(468)

Free cash flow

$4,573

$(32)

$-

$-

$ (245)

$4,296












(a) Incremental tax benefits from stock options exercised during the period.






Qualcomm Incorporated

Reconciliation of Diluted EPS Guidance

THIRD FISCAL QUARTER




Q3 FY09

Current Guidance



Results

Q3 FY10 Estimates

Pro Forma



Diluted earnings per share (EPS)

$0.54

$0.51 - $0.55

 Year-over-year change

decrease 6% - increase 2%






GAAP



Diluted EPS

$0.44

$0.40 - $0.44

 Year-over-year change

decrease 9% - even

Diluted EPS attributable to QSI

($0.02)

($0.02)

Diluted EPS attributable to share-based compensation

($0.08)

($0.07)

Diluted EPS attributable to certain tax items

$0.00

($0.02)

Diluted EPS attributable to in-process R&D

$0.00

N/A










FISCAL YEAR 





FY 2009

Current Guidance



Results

FY 2010 Estimates

Pro Forma



Diluted EPS

$1.31

$2.21 - $2.32

 Year-over-year change

increase 69% - 77%






GAAP



Diluted EPS

$0.95

$1.71 - $1.82

 Year-over-year change

increase 80% - 92%

Diluted EPS attributable to QSI

($0.15)

($0.15)

Diluted EPS attributable to share-based compensation

($0.27)

($0.27)

Diluted EPS attributable to certain tax items

$0.07

($0.08)

Diluted EPS attributable to in-process R&D

$0.00

N/A





N/A- Not applicable


Qualcomm Incorporated

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share data)

(Unaudited)

ASSETS

March 28,

September 27,

2010

2009

Current assets:


 Cash and cash equivalents

$          2,553

$          2,717

 Marketable securities

8,603

8,352

 Accounts receivable, net

680

700

 Inventories

402

453

 Deferred tax assets

204

149

 Other current assets

210

199

         Total current assets

12,652

12,570

Marketable securities

7,057

6,673

Deferred tax assets

1,376

843

Property, plant and equipment, net

2,374

2,387

Goodwill

1,483

1,492

Other intangible assets, net

3,093

3,065

Other assets

462

415

         Total assets

$        28,497

$        27,445




LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:


 Trade accounts payable

$             545

$             636

 Payroll and other benefits related liabilities

368

480

 Unearned revenues

592

441

 Income taxes payable

764

29

 Other current liabilities

1,061

1,227

        Total current liabilities

3,330

2,813

Unearned revenues

3,687

3,464

Other liabilities

760

852

        Total liabilities

7,777

7,129








Stockholders' equity:


 Preferred stock, $0.0001 par value; issuable in series;


   8 shares authorized; none outstanding at


   March 28, 2010 and September 27, 2009

-

-

 Common stock, $0.0001 par value; 6,000 shares authorized;


   1,640 and 1,669 shares issued and outstanding at




   March 28, 2010 and September 27, 2009, respectively

-

-

 Paid-in capital

7,613

8,493

 Retained earnings

12,287

11,235

 Accumulated other comprehensive income

820

588

        Total stockholders' equity

20,720

20,316

        Total liabilities and stockholders' equity

$        28,497

$        27,445

Qualcomm Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)









Three Months Ended

Six Months Ended

March 28,

March 29,

March 28,

March 29,

2010

2009

2010

2009








Revenues:






 Equipment and services

$      1,595

$     1,412

$     3,257

$     2,835

 Licensing and royalty fees

1,068

1,043

2,076

2,137

Total revenues

2,663

2,455

5,333

4,972








Operating expenses:






 Cost of equipment and services revenues

809

738

1,624

1,493

 Research and development

648

604

1,244

1,207

 Selling, general and administrative

430

375

810

789

 Litigation settlement, patent license






   and other related items

-

748

-

748

     Total operating expenses

1,887

2,465

3,678

4,237








Operating income (loss)

776

(10)

1,655

735








Investment income (loss), net

189

(91)

361

(385)

      Income (loss) before income taxes

965

(101)

2,016

350

Income tax expense

(191)

(188)

(401)

(298)

      Net income (loss)

$         774

$      (289)

$     1,615

$          52








Basic earnings (loss) per common share

$        0.47

$     (0.18)

$       0.97

$       0.03

Diluted earnings (loss) per common share

$        0.46

$     (0.18)

$       0.96

$       0.03








Shares used in per share calculations:






  Basic

1,662

1,651

1,667

1,652

  Diluted

1,678

1,651

1,685

1,665








Dividends per share paid

$        0.17

$       0.32

$       0.34

$       0.32

Dividends per share announced

$        0.17

$       0.16

$       0.34

$       0.32








Qualcomm Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


Three Months Ended

Six Months Ended

March 28,

2010

March 29,

2009

March 28,

2010

March 29,

2009

Operating Activities:






Net income (loss)

$774

$ (289)

$1,615

$52

Adjustments to reconcile net income (loss) to net cash provided by operating activities:






  Depreciation and amortization

167

154

329

306

  Revenues related to non-monetary exchanges

(31)

(29)

(68)

(57)

  Income tax provision (less than) in excess of income tax payments

(38)

121

(6)

166

  Non-cash portion of share-based compensation expense

153

140

304

285

  Incremental tax benefit from stock options exercised

(18)

(16)

(31)

(32)

  Net realized (gains) losses on marketable securities  and other investments

(80)

-

(182)

33

  Impairment losses on marketable securities and other investments

16

209

73

601

  Other items, net

(8)

(5)

(4)

(20)

Changes in assets and liabilities, net of effects of acquisitions:






   Accounts receivable, net

(52)

108

35

2,824

   Inventories

(49)

48

52

113

   Other assets

(38)

(11)

(70)

(30)

   Trade accounts payable

145

89

(81)

(103)

   Payroll, benefits and other liabilities

(115)

764

(239)

710

   Unearned revenues

(33)

(20)

305

(84)

    Net cash provided by operating activities

793

1,263

2,032

4,764

Investing Activities:






 Capital expenditures

(108)

(234)

(196)

(468)

 Purchases of available-for-sale securities

(2,382)

(1,710)

(4,480)

(4,296)

 Proceeds from sale of available-for-sale securities

2,228

1,088

4,241

2,461

 Cash received for partial settlement of investment receivables

25

115

33

317

 Other investments and acquisitions, net of cash acquired

(22)

(26)

(28)

(40)

 Change in collateral held under securities lending

-

11

-

173

 Other items, net

4

10

3

6

   Net cash used by investing activities

(255)

(746)

(427)

(1,847)

Financing Activities:






 Proceeds from issuance of common stock

332

75

484

101

 Incremental tax benefit from stock options exercised

18

16

31

32

 Repurchase and retirement of common stock

(1,715)

-

(1,715)

(285)

 Dividends paid

(279)

(528)

(563)

(528)

 Change in obligations under securities lending

-

(11)

-

(173)

 Other items, net

-

(2)

(1)

(3)

   Net cash used by financing activities

(1,644)

(450)

(1,764)

(856)

 Effect of exchange rate changes on cash

(1)

(1)

(5)

(9)

  Net (decrease) increase in cash and cash equivalents

(1,107)

66

(164)

2,052

Cash and cash equivalents at beginning of period

3,660

3,826

2,717

1,840

  Cash and cash equivalents at end of period

$2,553

$3,892

$2,553

$3,892








SOURCE Qualcomm Incorporated

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