Qualcomm 2006 Annual Report Download - page 93

qualcomm 2006 79
infrequently and is viewed by management as unrelated to the
operating activities of the Company’s ongoing core businesses.
For periods prior to 2003, pro forma nancial information used
by management excluded the amortization of goodwill and other
acquisition-related intangible assets prior to adoption of FAS 142,
payroll expenses on stock option exercises and other items that
were viewed as unrelated to the Company’s ongoing operating
performance.
In the fourth quarter of scal 2004, the Company began recording
royalty revenue based solely on royalty reports received from
licensees for royalty bearing sales of equipment in the prior quarter.
Therefore, results prior to this change have been adjusted as
though this new method of recording royalties had been in effect
for all periods to provide a comparable presentation. The Company
presents pro forma nancial results as though the new method of
recording royalties had been in effect for scal 2002, 2003 and
2004 to facilitate evaluation by management, investors and analysts
of the results for those years on a comparable basis to the
Company’s current results, current guidance and future periods.
The Company believes that this presentation is useful in evaluating
its performance on a consistent and comparable basis.
The Company presents free cash ow, dened as net cash provided
by operating activities less capital expenditures, to facilitate an
understanding of the amount of cash ow 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 nancial strength. In addition, man-
agement uses this measure to value the Company and to compare
its operating performance with other companies in the industry.
The non-GAAP pro forma nancial information presented herein
should be considered in addition to, not as a substitute for,
or superior to, nancial measures calculated in accordance with
GAAP. In addition, pro forma is not a term dened 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.
The Company presents nancial information excluding certain items
in addition to GAAP results in order to provide supplemental infor-
mation about the Company’s operating performance.
The Company presents pro forma nancial 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 efciency 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 efciency of these segments
against each other and against competitors outside the Company.
Management believes pro forma nancial information represents
a more meaningful and comparable set of nancial performance
measures for the Company and its business segments by elimi-
nating the episodic impact of strategic investments in QSI and
items such as acquired in-process R&D, as well as the inherent,
non-operational volatility of share-based compensation. 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 nancial
measures applicable to the Company and its business segments.
The QSI segment is excluded from pro forma results because the
Company expects to exit its strategic investments, and the effects
of uctuations in the value of such investments are viewed by
management as unrelated to the Company’s operational performance.
Certain tax adjustments related to prior years are excluded for
scal 2005 and 2006 in order to provide a clearer understanding of
the Company’s ongoing tax rate and after tax earnings. Estimated
share-based compensation recorded in accordance with FAS 123R
is excluded because management views the valuation of options
and other share-based compensation as theoretical and unrelated
to the Company’s operational performance as it is affected by
factors that are subject to change on each grant date including the
Company’s stock price, stock market volatility, expected option
life, risk-free interest rates and expected dividend payouts in
future years. Moreover, it is not an expense that requires or will
require cash payment by the Company. Acquired in-process R&D
expense in scal 2006 is excluded because such expense is incurred
Note Regarding Use of Non-GAAP Financial Measures