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Qualcomm Announces Record First Quarter Fiscal 2011 Results

Revenues $3.3 Billion, EPS $0.71

Non-GAAP EPS $0.82

— Record First Quarter Results, Raising Fiscal 2011 Guidance —

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SAN DIEGO, Jan. 26, 2011 /PRNewswire-FirstCall/ -- Qualcomm Incorporated (Nasdaq: QCOM), a leading developer and innovator of advanced wireless technologies, products and services, today announced record results for the first quarter of fiscal 2011 ended December 26, 2010.

"We are very pleased to report record revenues, earnings per share and MSM chipset shipments this quarter driven by increased demand for smartphones and data-centric devices across an expanding number of regions and price points," said Dr. Paul E. Jacobs, chairman and CEO of Qualcomm.  "In addition, we have resolved one of our previously disclosed licensee disputes, which will be reflected beginning with the second fiscal quarter results. We continue to execute on our strategic objectives as our partners leverage our technologies and solutions to offer leading wireless products and services to consumers around the globe.  We believe we are uniquely positioned to benefit from these industry trends and are substantially raising our revenue and earnings guidance for the fiscal year."

First Quarter Results (GAAP)  

  • Revenues:  $3.35 billion, up 25 percent year-over-year (y-o-y) and 13 percent sequentially.
  • Operating income:  $1.11 billion, up 26 percent y-o-y and 33 percent sequentially.
  • Net income:  $1.17 billion, up 39 percent y-o-y and 35 percent sequentially.
  • Diluted earnings per share:  $0.71, up 42 percent y-o-y and 34 percent sequentially.  
  • Effective tax rate:  12 percent for the quarter.
  • Operating cash flow:  $48 million, down 96 percent y-o-y due to a $1.5 billion income tax payment.*
  • Return of capital to stockholders:  $309 million, or $0.19 per share, of cash dividends paid.

Non-GAAP First Quarter Results

Non-GAAP 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:  $3.35 billion, up 25 percent y-o-y and 13 percent sequentially.
  • Operating income:  $1.42 billion, up 25 percent both y-o-y and sequentially.
  • Net income:  $1.35 billion, up 29 percent y-o-y and 22 percent sequentially.
  • Diluted earnings per share:  $0.82, up 32 percent y-o-y and 21 percent sequentially.  The current quarter excludes $0.05 loss per share attributable to the QSI segment, $0.07 loss per share attributable to certain share-based compensation and $0.02 earnings per share attributable to certain tax items (the sum of Non-GAAP earnings per share and items excluded do not equal GAAP earnings per share due to rounding).
  • Effective tax rate:  19 percent for the quarter.  
  • Free cash flow:  $127 million, down 90 percent y-o-y due to a $1.5 billion income tax payment* (defined as net cash from operating activities less capital expenditures).

*The $1.5 billion income tax payment primarily related to the 2008 license and settlement agreements with Nokia.

Detailed reconciliations between results reported in accordance with generally accepted accounting principles (GAAP) and Non-GAAP results are included at the end of this news release.  

First Quarter Key Business Metrics

  • CDMA-based Mobile Station Modem™ (MSM™) shipments: approximately 118 million units, up 28 percent y-o-y and 6 percent sequentially.
  • September quarter total reported device sales:  approximately $34.0 billion, up 39 percent y-o-y and 20 percent sequentially.
    • September quarter estimated CDMA-based device shipments:  approximately 165 to 169 million units at an estimated average selling price of approximately $201 to $207 per unit.    

Cash and Marketable Securities  

Our cash, cash equivalents and marketable securities totaled approximately $19.1 billion at the end of the first quarter of fiscal 2011, compared to $18.4 billion at the end of the fourth quarter of fiscal 2010 and $18.9 billion a year ago.  On January 5, 2011, we announced an agreement to acquire Atheros Communications, Inc. for $45 per share in cash, representing an enterprise value of $3.1 billion on that date.  The transaction is expected to close in the first half of calendar 2011, subject to customary closing conditions including the receipt of domestic and foreign regulatory approvals and the approval of Atheros' stockholders.  On January 14, 2011, we announced a cash dividend of $0.19 per share payable on March 25, 2011 to stockholders of record as of February 25, 2011.

Research and Development


($ in millions)


Non-GAAP


Share-Based
Compensation



QSI



GAAP










First quarter fiscal 2011


$       560


$    86


$  25


$    671

As a % of revenues


17%




N/M


20%

First quarter fiscal 2010


$       503


$    72


$  21


$    596

As a % of revenues


19%




N/M


22%

Year-over-year change ($)


11%


19%


19%


13%

N/M - Not Meaningful




















Non-GAAP R&D expenses increased 11 percent y-o-y primarily due to an increase in costs related to the development of integrated circuit products, next-generation CDMA and OFDMA technologies and other initiatives to support the acceleration of advanced wireless products and services. QSI R&D expenses were primarily related to our FLO TV™ subsidiary.

Selling, General and Administrative


($ in millions)


Non-GAAP


Share-Based
Compensation



QSI



GAAP









First quarter fiscal 2011

$         343


$    72


$    22


$    437

As a % of revenues

10%




N/M


13%

First quarter fiscal 2010

$         272


$    68


$    39


$    379

As a % of revenues

10%




N/M


14%

Year-over-year change ($)

26%


6%


(44%)


15%











Non-GAAP selling, general and administrative (SG&A) expenses increased 26 percent y-o-y primarily due to an increase in employee-related costs and patent-related costs and other professional fees.  QSI SG&A expenses decreased 44 percent y-o-y primarily due to a decrease in selling and marketing costs related to FLO TV.

Effective Income Tax Rate

Our fiscal 2011 effective income tax rates are estimated to be approximately 17 percent for GAAP and approximately 21 percent for Non-GAAP. The first quarter GAAP effective tax rate of 12 percent was lower than the estimated annual effective tax rate primarily due to a $32 million tax benefit recorded in the first quarter of fiscal 2011 related to fiscal 2010 as a result of the retroactive reenactment of the federal R&D tax credit in the first quarter of fiscal 2011. This tax benefit was excluded from our Non-GAAP results.

Qualcomm Strategic Initiatives

The QSI segment manages our strategic investment activities, including FLO TV, and makes strategic investments in early-stage and other companies and in wireless spectrum, such as the Broadband Wireless Access (BWA) spectrum won in the auction in India.  GAAP results for the first quarter of fiscal 2011 included a $0.05 loss per share for the QSI segment.  The first quarter of fiscal 2011 QSI results included $134 million in operating expenses primarily related to FLO TV.

On December 20, 2010, we announced that we agreed to sell substantially all of our 700 MHz spectrum for $1.925 billion to AT&T, subject to the satisfaction of customary closing conditions, including approval by the U.S. Federal Communications Commission and clearance from the U.S. Department of Justice.  The agreement follows our previously announced plan to restructure and evaluate strategic options related to our FLO TV business and network.  

Under the restructuring plan, we now expect that the FLO TV business and network will be shut down in March 2011 and are in the process of shutting down the MediaFLO Technologies division.  Restructuring activities under this plan were initiated in the fourth quarter of fiscal 2010 and are expected to be substantially complete by the end of fiscal 2012.  In the first quarter of fiscal 2011, restructuring and restructuring-related charges related to this plan included in QSI results were $64 million.  We estimate that we will incur future restructuring and restructuring-related charges associated with this plan in the range of $300 million to $375 million, of which substantially all are expected to be recorded in fiscal 2011 in the QSI segment.  

In December 2010, the loan that was obtained in connection with the India BWA spectrum purchase was refinanced.  The new loans are payable in full in Indian rupees in December 2012.  At the end of the first quarter of fiscal 2011, the aggregate carrying value of the loans was $1.09 billion.

Business Outlook

The following statements are forward looking and actual results may differ materially.  The "Note Regarding Forward-Looking Statements" at the end of this news release provides a description of certain risks that we face, and our annual and quarterly reports on file with the Securities and Exchange Commission (SEC) provide a more complete description of risks.  

Our outlook does not include provisions for future asset impairments or 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.  Further, due to their nature, certain income and expense items, such as realized investment gains or losses, or gains and losses on certain derivative instruments, cannot be accurately forecast.  Accordingly, we only include such items in our business outlook to the extent they are reasonably certain; however, actual results may vary materially from the business outlook.

Our second quarter and fiscal 2011 outlook reflects the impact related to the resolution of one of our previously disclosed licensee disputes. Favorable resolution of the Panasonic dispute will be further upside if completed this fiscal year.

In addition to our ongoing operating costs, our business outlook for the second fiscal quarter and fiscal 2011 include restructuring and restructuring-related charges related to FLO TV and the MediaFLO technology division that are currently expected to be incurred.

We have not included any estimates related to the Atheros business in our fiscal 2011 outlook.  The transaction is expected to close in the first half of calendar 2011.  Excluding amortization of acquired intangibles, we expect the acquisition to be modestly accretive to earnings per share in fiscal year 2012, the first full year of combined operations.

The following table summarizes GAAP and Non-GAAP guidance based on the current business outlook.  The Non-GAAP business outlook presented below is consistent with the presentation of Non-GAAP results included elsewhere herein.

Qualcomm's Business Outlook Summary

SECOND FISCAL QUARTER  



Q2 FY10

Current Guidance



Results

Q2 FY11 Estimates


Non-GAAP  




Revenues  

$2.66B

$3.45B - $3.75B


 Year-over-year change  


increase 30% - 41%


Diluted earnings per share (EPS)  

$0.59

$0.77 - $0.81


 Year-over-year change  


increase 31% - 37%






GAAP  




Revenues  

$2.66B

$3.45B - $3.75B


 Year-over-year change  


increase 30% - 41%


Diluted EPS  

$0.46

$0.50 - $0.54


 Year-over-year change  


increase 9% - 17%


Diluted EPS attributable to QSI  

($0.05)

($0.18)


Diluted EPS attributable to share-based compensation

($0.06)

($0.09)


Diluted EPS attributable to certain tax items

($0.02)

$0.00


Diluted EPS attributable to in-process R&D

$0.00

$0.00






Metrics  




MSM shipments  

approx. 93M

approx. 113M - 117M


 Year-over-year change  


increase 22% - 26%


Total reported device sales (1)  

$27.7B*

$36.5B - $38.5B*


 Year-over-year change  


increase 32% - 39%


Est. CDMA-based devices shipped (1)

approx. 148M - 152M*

not provided


Est. CDMA-based device average selling price (1)

approx. $182 - $188*

not provided


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











FISCAL YEAR  








FY 2010

Prior Guidance

Current Guidance



Results

FY 2011 Estimates

FY 2011 Estimates


Non-GAAP  





Revenues

$10.98B

$12.4B - $13.0B

$13.6B - $14.2B


 Year-over-year change


increase 13% - 18%

increase 24% - 29%


Diluted EPS

$2.46

$2.63 - $2.77

$2.91 - $3.05


 Year-over-year change


increase 7% - 13%

increase 18% - 24%







GAAP  





Revenues  

$10.99B

$12.4B - $13.0B

$13.6B - $14.2B


 Year-over-year change  


increase 13% - 18%

increase 24%  - 29%


Diluted EPS

$1.96

$2.08 - $2.22

$2.32 - $2.46


 Year-over-year change  


increase 6% - 13%

increase 18%  - 26%


Diluted EPS attributable to QSI  

($0.13)

($0.22)

($0.27)


Diluted EPS attributable to share-based compensation

($0.27)

($0.32)

($0.33)


Diluted EPS attributable to certain tax items

($0.10)

($0.01)

$0.01


Diluted EPS attributable to in-process R&D

$0.00

$0.00

$0.00







Metrics  





Est. fiscal year* CDMA-based device average selling price range (1)

approx. $183 - $189

approx. $185 - $195

approx. $190 - $200


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









CALENDAR YEAR Device Estimates (1)



Prior Guidance
Calendar 2010
Estimates

Current Guidance
Calendar 2010
Estimates

Prior Guidance
Calendar 2011
Estimates

Current Guidance
Calendar 2011
Estimates


Est. CDMA-based device shipments






March quarter  

approx. 134M - 138M

approx. 134M - 138M

not provided

not provided


June quarter  

approx. 153M - 157M

approx. 153M - 157M

not provided

not provided


September quarter  

not provided

approx. 165M - 169M

not provided

not provided


December quarter  

not provided

not provided

not provided

not provided


Est. Calendar year range (approx.)

625M - 650M

640M - 660M

740M - 790M

750M - 800M



Midpoint

Midpoint

Midpoint

Midpoint


Est. total CDMA-based units

approx. 638M

approx. 650M

approx. 765M

approx. 775M


Est. CDMA units

approx. 241M

approx. 238M

approx. 250M

approx. 250M


Est. WCDMA units

approx. 397M

approx. 412M

approx. 515M

approx. 525M


(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.  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 way (e.g., some licensees report selling prices net of permitted deductions, such as transportation, insurance and packing costs, while other licensees report selling prices and then identify the amount of permitted deductions in their reports), and the way in which licensees report such information may change from time to time.  Total reported device sales, estimated unit shipments and estimated ASPs for a particular period may include prior period activity that is reported with the activity for the particular period.  



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




SEGMENTS



QCT



QTL



QWI

Non-GAAP
Reconciling
Items (1)



Non-GAAP


Share-Based
Compensation


Tax Items (2)

In-
Process
R&D



QSI (3)



GAAP












Q1 - FISCAL 2011











Revenues

$2,116

$1,057

$172

$ 3

$3,348

$  -

$  -

$  -

$  -

$3,348

 Change from prior year

32%

15%

21%

N/M

25%




(100%)

25%

 Change from prior quarter

14%

15%

1%

N/M

13%




0%

13%

Operating income (loss)





$1,416

($172)

$  -

$  -

($134)

$1,110

 Change from prior year





25%

(14%)


N/A

(29%)

26%

 Change from prior quarter





25%

(7%)


N/A

(2%)

33%

EBT

$640

$892

$  -

$128

$1,660

($172)

$  -

$  -

($159)

$1,329

 Change from prior year

51%

16%

N/M

N/M

27%

(14%)


N/A

(49%)

26%

 Change from prior quarter

23%

18%

N/M

N/M

22%

(7%)


N/A

(4%)

27%

EBT as a % of revenues

30%

84%

0%

N/M

50%

N/M


N/A

N/M

40%

Net income (loss)





$1,345

($116)

$28

$  -

($87)

$1,170

 Change from prior year





29%

(2%)

N/M

N/A

(61%)

39%

 Change from prior quarter





22%

3%

N/M

N/A

(9%)

35%

Diluted EPS





$0.82

($0.07)

$ 0.02

$  -

($0.05)

$0.71

 Change from prior year





32%

0%

N/M

N/A

(67%)

42%

 Change from prior quarter





21%

0%

N/M

N/A

0%

34%

Diluted shares used





1,648

1,648

1,648

1,648

1,648

1,648












Q4 - FISCAL 2010











Revenues

$1,860

$921

$171

$  -

$2,952

$  -

$  -

$  -

$  -

$2,952

Operating income (loss)





1,130

(161)

-

-

(132)

837

EBT

519

754

(2)

90

1,361

(161)

-

-

(153)

1,047

Net income (loss)





1,105

(120)

(40)

-

(80)

865

Diluted EPS





$0.68

($0.07)

($0.02)

$  -

($0.05)

$0.53

Diluted shares used





1,621

1,621

1,621

1,621

1,621

1,621












Q2 - FISCAL 2010











Revenues

$1,537

$974

$152

($2)

$2,661

$  -

$  -

$  -

$2

$2,663

Operating income (loss)





1,065

(154)

-

(3)

(132)

776

EBT

344

821

(1)

94

1,258

(154)

-

(3)

(136)

965

Net income (loss)





989

(98)

(33)

(3)

(81)

774

Diluted EPS





$0.59

($0.06)

($0.02)

$  -

($0.05)

$0.46

Diluted shares used





1,678

1,678

1,678

1,678

1,678

1,678












Q1 - FISCAL 2010











Revenues

$1,608

$917

$142

$1

$2,668

$  -

$  -

$  -

$2

$2,670

Operating income (loss)





1,134

(151)

-

-

(104)

879

EBT

425

772

9

104

1,310

(151)

-

-

(107)

1,052

Net income (loss)





1,041

(114)

(32)

-

(54)

841

Diluted EPS





$0.62

($0.07)

($0.02)

$  -

($0.03)

$0.50

Diluted shares used





1,691

1,691

1,691

1,691

1,691

1,691












12 MONTHS - FISCAL 2010











Revenues

$6,695

$3,659

$628

$  -

$10,982

$  -

$  -

$  -

$9

$10,991

Operating income (loss)





4,316

(614)

-

(3)

(416)

3,283

EBT

1,693

3,020

12

361

5,086

(614)

-

(3)

(435)

4,034

Net income (loss)





4,071

(442)

(159)

(3)

(220)

3,247

Diluted EPS





$2.46

($0.27)

($0.10)

$  -

($0.13)

$1.96

Diluted shares used





1,658

1,658

1,658

1,658

1,658

1,658












(1)   Non-GAAP reconciling items related to revenues consist primarily of other nonreportable segment revenues less intersegment eliminations.  Non-GAAP reconciling items related to earnings before taxes consist primarily of certain investment income or losses, interest expense, 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)   During the first quarter of fiscal 2011, the Company recorded a tax benefit of $32 million, or $0.02 diluted earnings per share, related to fiscal 2010 due to the retroactive reenactment of the federal R&D tax credit. Also during the first quarter of fiscal 2011, the Company recorded $3 million in state tax expense because deferred revenue related to the license agreement signed in the first quarter of fiscal 2010 with Samsung is taxable in fiscal 2011 but the resulting deferred tax asset will reverse in future years when the Company's state tax rate will be lower. The Company's first quarter fiscal 2011 Non-GAAP results excluded these items.

(3)   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 Non-GAAP tax provision, the tax items column and the tax provision related to share-based compensation from the GAAP tax provision.

N/M – Not Meaningful

N/A – Not Applicable

Sums may not equal totals due to rounding.



Conference Call

Qualcomm's first quarter fiscal 2011 earnings conference call will be broadcast live on January 26, 2011 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 January 26, 2011, beginning at approximately 5:30 p.m. PT through February 26, 2011 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 36932148.  An audio replay of the conference call will be available on the Company's web site at www.qualcomm.com following the live call.

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

Qualcomm Incorporated (Nasdaq: QCOM) is a world leader in 3G and next-generation mobile technologies.  For 25 years, Qualcomm ideas and inventions have driven the evolution of wireless communications, connecting people more closely to information, entertainment and each other.  Today, Qualcomm technologies are powering the convergence of mobile communications and consumer electronics, making wireless devices and services more personal, affordable and accessible to people everywhere.  For more information, please visit www.qualcomm.com

Note Regarding Use of Non-GAAP Financial Measures

The Company presents Non-GAAP 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.  Non-GAAP 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 Non-GAAP 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 Non-GAAP financial measures applicable to the Company and its business segments.  

Non-GAAP information used by management excludes the QSI segment, certain share-based compensation, certain tax items and acquired in-process R&D.  The QSI segment is excluded because the Company expects to exit its strategic investments at various times, and the effects of fluctuations in the value of such investments are viewed by management as unrelated to the Company's operational performance.  Share-based compensation, other than amounts related to share-based awards granted under a bonus program that may result in the issuance of unrestricted shares of the Company's common stock, is excluded because management views such share-based compensation as unrelated to the Company's operational performance.  Further, share-based compensation related to stock options is affected by factors that are subject to change, including the Company's stock price, stock market volatility, expected option life, risk-free interest rates and expected dividend payouts in future years.  Certain tax items that were recorded in reported earnings in each fiscal year presented, but were unrelated to the fiscal year in which they were recorded, are excluded in order to provide a clearer understanding of the Company's ongoing Non-GAAP tax rate and after tax earnings.  In fiscal 2009, the Company included the benefit of the retroactive extension of the federal R&D tax credit in Non-GAAP results because it had previously occurred with relative frequency and was included in the Company's business outlook for fiscal 2009 as the credit had been extended prior to the release of the fiscal 2009 business outlook.  In fiscal 2011, however, the Company did not include the benefit of the retroactive extension of the federal R&D tax credit in Non-GAAP results because the Company had not included the potential extension of the credit in its previously released fiscal 2011 business outlook due to uncertainty as to whether and when the federal R&D tax credit would be retroactively extended.  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 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, "Non-GAAP" is not a term defined by GAAP, and, as a result, the Company's measure of Non-GAAP results might be different than similarly titled measures used by other companies.  Reconciliations between GAAP results and Non-GAAP 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 wireless communications, equipment and services, including CDMA2000 1X, 1xEV-DO, WCDMA, HSPA, TD-SCDMA and OFDMA; 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; competition; our dependence on major customers and licensees; attacks on our licensing 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 third-party manufacturers and suppliers; foreign currency fluctuations; strategic investments and transactions we have or may pursue; defects or errors in our products and services; the development and commercial success of the mirasol® display technology; as well as the other risks detailed from time-to-time in our SEC reports, including the report on Form 10-K for the year ended September 26, 2010 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.

Additional Information

In connection with the proposed transaction, Atheros intends to file a definitive proxy statement and other relevant materials with the SEC.  Before making any voting decision with respect to the proposed transaction, stockholders of Atheros are urged to read the proxy statement and other relevant materials because these materials will contain important information about the proposed transaction. The proxy statement and other relevant materials, and any other documents filed by Atheros with the SEC, may be obtained free of charge at the SEC's website at www.sec.gov or from Atheros at www.Atheros.com or by contacting Atheros Investor Relations at: David.Allen@Atheros.com and 408.830.5762.

Atheros and Qualcomm and each of their executive officers and directors may be deemed to be participants in the solicitation of proxies from Atheros' stockholders in favor of the proposed transaction.  A list of the names of Atheros' executive officers and directors and a description of their respective interests in Atheros are set forth in the proxy statement for Atheros' 2010 Annual Meeting of Stockholders, which was filed with the SEC on April 7, 2010, and in any documents subsequently filed by its directors and executive officers under the Securities and Exchange Act of 1934, as amended.  Certain executive officers and directors of Atheros have interests in the proposed transaction that may differ from the interests of stockholders generally, including benefits conferred under retention, severance and change in control arrangements and continuation of director and officer insurance and indemnification. These interests and any additional benefits in connection with the proposed transaction will be described in the definitive proxy statement.

Qualcomm is a registered trademark of Qualcomm Incorporated.  Mobile Station Modem, MSM, FLO TV and MediaFLO are trademarks of Qualcomm Incorporated.  mirasol is a registered trademark of Qualcomm MEMS Technologies, Inc.  CDMA2000 is a registered trademark of the Telecommunications Industry Association (TIA USA).  All other trademarks are the property of their respective owners.

Qualcomm Contact:

Warren Kneeshaw

Phone:  1-858-658-4813

e-mail: ir@qualcomm.com



Qualcomm Incorporated
Supplemental Information for the Three Months Ended December 26, 2010
(Unaudited)








Non-GAAP

Share-Based

Tax


GAAP


Results

Compensation

Items

QSI

Results

($ in millions except per share data)












R&D

$560

$86

$  -  

$25

$671







SG&A

                    343

                          72

  -  

               22

                   437







Operating income (loss)

                 1,416

                       (172)

  -  

            (134)

                1,110







Investment income (loss), net

244(a)

  -  

  -  

(25)(b)

219







Tax rate

19%

N/M

N/M

N/M

12%







Net income (loss)

$1,345

($116)

$28(c)

($87)

$1,170







Diluted earnings (loss) per share (EPS)

$0.82

($0.07)

$0.02

($0.05)

$0.71







Operating cash flow

$227

($45)(d)

$  -  

($134)

$48

Operating cash flow as % of revenues

7%

N/A

N/A

N/M

1%







Free cash flow (d)

$127

($45)(d)

$  -  

($136)

($54)

Free cash flow as a % of revenues

4%

N/A

N/A

N/M

-2%


(a)   Included $130 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 $127 million in net realized gains on investments, partially offset by $8 million in other-than-temporary losses on investments and $5 million in interest expense.

(b)   Included $23 million in interest expense, $3 million in other-than-temporary losses on investments and $1 million in equity in losses of investees, partially offset by $1 million in gains on derivative instruments and $1 million in interest and dividend income related to cash, cash equivalents and marketable securities.

(c)   During the first quarter of fiscal 2011, the Company recorded a tax benefit of $32 million, or $0.02 diluted earnings per share, related to fiscal 2010 due to the retroactive reenactment of the federal R&D tax credit. Also during the first quarter of fiscal 2011, the Company recorded $3 million in state tax expense because deferred revenue related to the license agreement signed in the first quarter of fiscal 2010 with Samsung is taxable in fiscal 2011 but the resulting deferred tax asset will reverse in future years when the Company's state tax rate will be lower. The Company's first quarter fiscal 2011 Non-GAAP results excluded these items.

(d)   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 Non-GAAP Free Cash Flows to Net Cash Provided by Operating Activities (GAAP) and Other Supplemental Disclosures" for the three months ended December 26, 2010, included herein.


N/M – Not Meaningful

N/A – Not Applicable

Sums may not equal totals due to rounding.



Qualcomm Incorporated
Reconciliation of Non-GAAP Free Cash Flows to
Net Cash Provided by Operating Activities (GAAP)
and Other Supplemental Disclosures
(In millions)
(Unaudited)



Three Months Ended December 26, 2010



Non-GAAP


Share-Based
Compensation


Tax
Items


In-Process
R&D



QSI



GAAP

Net cash provided (used) by operating activities

$          227


$               (45)

(a)

$     -


$           -


$     (134)


$            48

Less:  capital expenditures

(100)


-


-


-


(2)


(102)

Free cash flow

$          127


$               (45)


$     -


$           -


$     (136)


$          (54)













Revenues

$        3,348


$                   -


$     -


$           -


$           -


$        3,348

Free cash flow as a % of revenues

4%


N/A


N/A


N/A


N/M


-2%













Other supplemental cash disclosures:












  Cash transfers from QSI (1)

$              8


$                 -


$     -


$           -


$         (8)


$            -

  Cash transfers to QSI (2)

(154)


-


-


-


154


-

  Net cash transfers

$         (146)


$                 -


$     -


$           -


$       146


$            -


























Three Months Ended December 27, 2009



Non-GAAP


Share-Based
Compensation


Tax
Items


In-Process R&D



QSI



GAAP

Net cash provided (used) by operating activities

$       1,338


$               (13)

(a)

$      -


$           -


$       (86)


$       1,239

Less:  capital expenditures

(67)


-


-


-


(21)


(88)

Free cash flow

$       1,271


$               (13)


$      -


$           -


$     (107)


$       1,151













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

(1)   Cash primarily from the settlement of derivative contracts and sale of equity investments.

(2)   Primarily funding for strategic debt and equity investments and QSI operating expenses.

N/M - Not Meaningful

N/A - Not Applicable



Qualcomm Incorporated
Reconciliation of Non-GAAP Tax Rate to GAAP Tax Rate
(in millions)
(Unaudited)



Three Months Ended December 26, 2010


Non-GAAP
Results


Share-Based
Compensation



Tax Items (a)



QSI (b)


GAAP
Results











Income (loss) before income taxes

$1,660


($172)


$ -


($159)


$1,329

Income tax (expense) benefit

(315)


56


28


72


(159)











Net income (loss)

$1,345


($116)


$28


($87)


$1,170











Tax rate

19%


33%


N/A


N/M


12%


(a)   During the first quarter of fiscal 2011, the Company recorded a tax benefit of $32 million, or $0.02 diluted earnings per share, related to fiscal 2010 due to the retroactive reenactment of the federal R&D tax credit. Also during the first quarter of fiscal 2011, the Company recorded $3 million in state tax expense because deferred revenue related to the license agreement signed in the first quarter of fiscal 2010 with Samsung is taxable in fiscal 2011 but the resulting deferred tax asset will reverse in future years when the Company's state tax rate will be lower. The Company's first quarter fiscal 2011 Non-GAAP results excluded these items.  

(b)   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 Non-GAAP tax provision, the tax items column and the tax provision related to share-based compensation from the GAAP tax provision.

N/M – Not Meaningful



Qualcomm Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)


ASSETS



December 26,


September 26,



2010


2010

Current assets:





 Cash and cash equivalents


$          4,711


$          3,547

 Marketable securities


5,798


6,732

 Accounts receivable, net


657


730

 Inventories


574


528

 Deferred tax assets


336


321

 Other current assets


255


275

         Total current assets


12,331


12,133

Marketable securities


8,598


8,123

Deferred tax assets


1,979


1,922

Property, plant and equipment, net


2,361


2,373

Goodwill


1,519


1,488

Other intangible assets, net


2,983


3,022

Other assets


1,520


1,511

         Total assets


$        31,291


$        30,572






LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:





 Trade accounts payable


$             522


$             764

 Payroll and other benefits related liabilities


480


467

 Unearned revenues


631


623

 Loans payable


1,089


1,086

 Income taxes payable


10


1,443

 Other current liabilities


1,211


1,085

        Total current liabilities


3,943


5,468

Unearned revenues


3,821


3,485

Other liabilities


791


761

        Total liabilities


8,555


9,714











Stockholders' equity:





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





   8 shares authorized; none outstanding at





   December 26, 2010 and September 26, 2010


-


-

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





   1,634 and 1,612 shares issued and outstanding at





   December 26, 2010 and September 26, 2010, respectively


-


-

 Paid-in capital


7,818


6,856

 Retained earnings


14,161


13,305

 Accumulated other comprehensive income


757


697

        Total stockholders' equity


22,736


20,858

        Total liabilities and stockholders' equity


$        31,291


$        30,572




Qualcomm Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)



Three Months Ended


December 26,


December 27,


2010


2009





Revenues:




 Equipment and services

$             2,213


$             1,663

 Licensing and royalty fees

1,135


1,007

Total revenues

3,348


2,670





Operating expenses:




 Cost of equipment and services revenues

1,130


816

 Research and development

671


596

 Selling, general and administrative

437


379

     Total operating expenses

2,238


1,791





Operating income

1,110


879





Investment income, net

219


173

      Income before income taxes

1,329


1,052

Income tax expense

(159)


(211)

      Net income

$             1,170


$                841





Basic earnings per common share

$               0.72


$               0.50

Diluted earnings per common share

$               0.71


$               0.50





Shares used in per share calculations:




  Basic

1,623


1,672

  Diluted

1,648


1,691





Dividends per share paid

$               0.19


$               0.17

Dividends per share announced

$               0.19


$               0.17




Qualcomm Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)






Three Months Ended



December 26, 2010


December 27, 2009

Operating Activities:





Net income


$               1,170


$                  841

Adjustments to reconcile net income to net cash provided by





      operating activities:





  Depreciation and amortization


201


162

  Revenues related to non-monetary exchanges


(31)


(37)

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


(1,474)


32

  Non-cash portion of share-based compensation expense


174


151

  Incremental tax benefit from stock options exercised


(45)


(13)

  Net realized gains on marketable securities and other investments


(127)


(102)

  Net impairment losses on marketable securities and other investments


11


57

  Other items, net


(2)


4

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





   Accounts receivable, net


76


87

   Inventories


(45)


101

   Other assets


(23)


(32)

   Trade accounts payable


(234)


(226)

   Payroll, benefits and other liabilities


21


(124)

   Unearned revenues


376


338

 Net cash provided by operating activities


48


1,239

Investing Activities:





 Capital expenditures


(102)


(88)

 Purchases of available-for-sale securities


(2,309)


(2,098)

 Proceeds from sale of available-for-sale securities


3,024


2,013

 Other investments and acquisitions, net of cash acquired


(66)


(6)

 Other items, net


7


7

 Net cash provided (used) by investing activities


554


(172)

Financing Activities:





 Borrowing under loans payable


1,083


-

 Repayment of loans payable


(1,083)


-

 Proceeds from issuance of common stock


791


152

 Incremental tax benefit from stock options exercised


45


13

 Dividends paid


(309)


(284)

 Change in obligation under securities lending


38


-

 Other items, net


(4)


(1)

 Net cash provided (used) by financing activities


561


(120)

 Effect of exchange rate changes on cash


1


(4)

Net increase in cash and cash equivalents


1,164


943

Cash and cash equivalents at beginning of period


3,547


2,717

Cash and cash equivalents at end of period


$               4,711


$               3,660








SOURCE Qualcomm Incorporated



RELATED LINKS
http://www.qualcomm.com/

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